China SHESAYS Medical Cosmetology (CSAY) 10-Q 2011 Q1 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended:March 31, 2011

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________to ________________

Commission File Number:333-144888

CHINA SHESAYS MEDICAL COSMETOLOGY INC.(Exact Name of Registrant as Specified in Its Charter)

Nevada	01-0660195
(State or Other jurisdiction of Incorporation or	(I.R.S. Employer Identification No.)
Organization)
Sichuan SHESAYS Cosmetology Hospital Co., Ltd.
New No. 83, Xinnan Road, Wuhou District, Chengdu	610041
City, Sichuan Province, P.R. China
(Address of Principal Executive Offices)	(Zip Code)

(86) 028-8548-2277
(Registrant’s Telephone Number, Including Area Code)

N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]      No [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [   ]      No [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [   ]                 Accelerated filer [   ]               Non-accelerated filer [   ]               Smaller reporting company [ X ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [   ]     No [ X ]

As of May 13, 2011, there were a total of 18,600,012 shares of the registrant’s common stock outstanding, $0.001 par value.

Table of Contents
		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements.	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	14
Item 3.	Quantitative and Qualitative Disclosure About Market Risk.	18
Item 4.	Controls and Procedures.	18
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings.	19
Item 1A.	Risk Factors.	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	19
Item 3.	Defaults Upon Senior Securities.	19
Item 4.	Reserved.	19
Item 5.	Other Information.	20
Item 6.	Exhibits.	20
SIGNATURES		21

INTRODUCTION

In this Form 10-Q, unless indicated otherwise, references to:

• “We,” “us,” “our” and the “Company” refer to China SHESAYS Medical Cosmetology Inc. and its subsidiaries;

• “Securities Act” refers to the Securities Act of 1933, as amended, and “Exchange Act” refer to Securities Exchange Act of 1934, as amended;

• “China” and “PRC” refer to the People's Republic of China;

• “RMB” refers to Renminbi, the legal currency of China; and

• “U.S. dollar,” “$” and “US$” refers to the legal currency of the United States. For all U.S. dollar amounts reported, the dollar amount has been calculated on the basis that $1 = RMB 6.591 for its December 31, 2010 audited balance sheet, and $1 = RMB 6.5601 its March 31, 2011 unaudited balance sheet, which were determined based on the currency conversion rate at the end of each respective period. The conversion rates of $1 = RMB 6.5804 is used for the condensed consolidated statement of operations and comprehensive income and consolidated statement of cash flows for the first quarter of fiscal 2011, and $1= RMB 6.83603 is used for the condensed combined statement of operations and comprehensive income and combined statement of cash flows for the first quarter of fiscal 2010; both of which were based on the average currency conversion rate for each respective quarterly period.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Information contained in this report includes some statements that are not purely historical fact and that are “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are contained principally in the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology.

The forward-looking statements herein represent our expectations, beliefs, plans, intentions or strategies concerning future events, including, but not limited to those concerning our future financial performance, our corporate strategy and operational plans. Our forward-looking statements are based on our current expectations and beliefs concerning future developments, and there can be no assurance that any projections or other expectations included in any forward-looking statements will come to pass. Moreover, our forward-looking statements are subject to various known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements, including: (a) those risks and uncertainties related to general economic conditions in China, including regulatory factors that may affect such economic conditions; (b) whether we are able to manage our planned growth efficiently and operate profitable operations, including whether our management will be able to identify, hire, train, retain, motivate and manage required personnel or that management will be able to successfully manage and exploit existing and potential market opportunities; (c) whether we are able to generate sufficient revenues or obtain financing to sustain and grow our operations; and (d) whether we are able to successfully fulfill our primary requirements for cash, which are explained below under “Liquidity and Capital Resources.”

Except as required by applicable laws, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CHINA SHESAYS MEDICAL COSMETOLOGY INC.
("CHINA SHESAYS") AND SUBSIDIARIES 
CONDENSED CONSOLIDATED BALANCE SHEETS

		March 31,		December 31,
		2011		2010
ASSETS		Unaudited
CURRENT ASSETS
Cash and cash equivalents	$	1,694,751	$	1,029,280
Inventories, net		453,627		521,254
Due from stockholders		-		52,821
Other current assets and prepaid expenses		1,812,886		1,446,837
Total Current Assets		3,961,264		3,050,192
PROPERTY AND EQUIPMENT, NET		6,535,425		6,008,198
DEFERRED TAX ASSETS		137,586		184,857
TOTAL ASSETS	$	10,634,275	$	9,243,247
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	671,814	$	725,386
Notes payable		914,620		910,332
Deferred revenue		39,143		24,441
Other payables and accrued liabilities		1,825,048		1,554,162
Income tax payable		1,021,191		706,450
Sales tax payable and other taxes payable		14,471		13,487
Due to stockholders		76,218		-
Total Current Liabilities		4,562,505		3,934,258
COMMITMENTS AND CONTINGENCIES		-		-
STOCKHOLDERS' EQUITY
China Shesays Stockholders' equity
Preferred stock, $0.001 par value, 5,000,000 shares
authorized, none issued or outstanding
as of March 31, 2011 and December 31, 2010		-		-
Common stock, $0.001 par value, 65,849,200 shares
authorized, 18,600,012 shares issued as of
March 31, 2011 and December 31, 2010		18,600		18,600
Additional paid in capital		2,166,401		2,160,485
Retained earnings
Unappropriated		3,184,653		2,438,376
Appropriated		429,566		429,566
Accumulated other comprehensive income		150,304		130,349
Total China Shesays Stockholders' Equity		5,949,524		5,177,376
Noncontrolling interests		122,246		131,613
Total Equity		6,071,770		5,308,989
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	10,634,275	$	9,243,247

The accompanying notes are an integral part of these condensed consolidated financial statements

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CHINA SHESAYS MEDICAL COSMETOLOGY INC.
("CHINA SHESAYS") AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (UNAUDITED)
		Three months ended
		March, 31
		2011			2010
		Consolidated			Combined
REVENUE
Customer service revenue
Cosmetic surgery services	$	1,693,758		$	1,623,430
Professional medical beauty services		1,623,916			1,363,437
Cosmetic dentistry services		27,509			140,853
Sales of goods		229,946			120,205
Total Revenue		3,575,129			3,247,925
COST OF REVENUE
Cost of service revenue
Cosmetic surgery services		(374,705	)		(427,300	)
Professional medical beauty services		(330,600	)		(139,767	)
Cosmetic dentistry services		(19,985	)		(44,259	)
Cost of goods sold		(80,285	)		(49,685	)
Depreciation		(123,898	)		(71,447	)
Total Cost of Revenue		(929,473	)		(732,458	)
GROSS PROFIT		2,645,656			2,515,467
OPERATING EXPENSES
Selling, general and administrative expenses		632,428			457,676
Advertising costs		688,034			396,284
Professional and consultant fees		107,121			28,056
Depreciation		91,292			37,092
Total Operating Expenses		1,518,875			919,108
INCOME FROM OPERATIONS		1,126,781			1,596,359
OTHER INCOME (EXPENSES)
Other income		7			301
Interest income		171			1,563
Interest expenses		(7,745	)		(6,564	)
Imputed interest		-			(247	)
Other expenses		(23,477	)		(52,628	)
Total Other Expenses, net		(31,044	)		(57,575	)
INCOME FROM OPERATIONS BEFORE TAXES		1,095,737			1,538,784
Add (less):
Income tax expenses		(358,799	)		(405,120	)
Net loss attributable to noncontrolling interests		9,339			-
						��
NET INCOME ATTRIBUTABLE TO CHINA SHESAYS
COMMON STOCKHOLDERS		746,277			1,133,664
OTHER COMPREHENSIVE INCOME
Total foreign currency translation gains		19,927			399
Add: foreign currency translation loss attributable to
noncontrolling interests		28			-
Foreign currency translation gains
attributable to China Shesays common stockholders		19,955			399
COMPREHENSIVE INCOME ATTRIBUTABLE
TO CHINA SHESAYS COMMON STOCKHOLDERS	$	766,232		$	1,134,063
Net income per share-basic and diluted	$	0.04		$	0.08
Weighted average number of shares outstanding during the period
- basic and diluted		18,600,012			13,500,012

The accompanying notes are an integral part of these condensed consolidated financial statements

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CHINA SHESAYS MEDICAL COSMETOLOGY INC.
("CHINA SHESAYS") AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
		Three months ended
		March, 31
		2011			2010
		Consolidated			Combined
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	746,277		$	1,133,664
Adjusted to reconcile net income to cash provided
by operating activities:
Depreciation - cost of service revenue		123,898			71,447
Depreciation - operating expenses		91,292			37,092
Deferred income taxes		47,994			-
Loss on disposal of property and equipment		482			-
Imputed interest		-			247
Minority interest		(9,339	)		-
Changes in operating assets and liabilities
(Increase) decrease in:
Inventories		69,867			35,508
Other current assets and prepaid expenses		(358,335	)		(346,830	)
Increase (decrease) in:
Accounts payable		(56,812	)		(25,032	)
Deferred revenue		14,541			416
Other payables and accrued liabilities		263,043			41,439
Income tax payable		310,453			350,683
Sales tax payable and other taxes payable		918			9,854
Net cash provided by operating activities		1,244,279			1,308,488
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(842,231	)		(1,038,655	)
Proceeds from disposal of property and equipment		129,171			-
Due from stockholders		52,821			(177,837	)
Net cash used in investing activities		(660,239	)		(1,216,492	)
CASH FLOWS FROM FINANCING ACTIVITIES
Bank loan borrowed		911,799			877,702
Bank loan repaid		(911,799	)		(18,285	)
Due to a related company		-			(768	)
Due to stockholders		75,983			-
Contribution by stockholders		5,916			-
Net cash provided by financing activities		81,899			858,649
EFFECT OF EXCHANGE RATES ON CASH		(468	)		210
NET INCREASE IN CASH AND CASH EQUIVALENTS		665,471			950,855
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		1,029,280			1,371,732
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,694,751		$	2,322,587
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest expenses	$	7,745		$	6,564
Cash paid for income tax	$	203		$	54,438

The accompanying notes are an integral part of these condensed consolidated financial statements

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