China SHESAYS Medical Cosmetology (CSAY) 10-Q 2011 Q2 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:June 30, 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
City, Sichuan Province, P.R. China	610041
(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 August 19, 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.	15
Item 3. Quantitative and Qualitative Disclosure About Market Risk.	19
Item 4. Controls and Procedures.	19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.	21
Item 1A. Risks Factors.	21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	34
Item 3. Defaults Upon Senior Securities.	34
Item 4. (Removed and Reserved).	34
Item 5. Other Information.	34
Item 6. Exhibits.	34
SIGNATURES	35

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 6.4635 for its June 30, 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 6.5378 is used for the condensed consolidated statement of operations and comprehensive income and consolidated statement of cash flows for the six months ended June 30, 2011, and $1= RMB 6.83474 is used for the condensed consolidated statement of operations and comprehensive income and consolidated statement of cash flows for the six months ended June 30, 2010; both of which were based on the average currency conversion rate for each respective period.

ii

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 revenue 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.

iii

CHINA SHESAYS MEDICAL COSMETOLOGY INC.

(“CHINA SHESAYS”) AND SUBSIDIARIES

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2011

(UNAUDITED)

CHINA SHESAYS MEDICAL COSMETOLOGY INC.

(“CHINA SHESAYS”) AND SUBSIDIARIES

CONTENTS

	Pages
Condensed Consolidated Balance Sheets as of June 30, 2011 (Unaudited) and December 31, 2010 (Audited) (Restated)	F-1
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2011 and 2010	F-2
Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010	F-3
Notes to the Condensed Consolidated Financial Statements (Unaudited)	F4 – F14

CHINA SHESAYS MEDICAL COSMETOLOGY INC.

("CHINA SHESAYS") AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

		June 30,		December 31,
		2011		2010
				(Restated)
		Unaudited		Audited
CURRENT ASSETS
Cash and cash equivalents	$	780,882	$	1,029,280
Restricted cash		386,787		-
Inventories, net		499,495		521,254
Due from stockholders		-		52,821
Other current assets and prepaid expenses		884,233		626,877
Total Current Assets		2,551,397		2,230,232
PROPERTY AND EQUIPMENT, NET		7,583,383		6,008,198
DEFERRED TAX ASSETS		554,716		389,847
TOTAL ASSETS	$	10,689,496	$	8,628,277
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	514,933	$	725,386
Notes payable		1,759,109		910,332
Deferred revenue		44,948		24,441
Other payables and accrued liabilities		1,677,411		1,757,975
Income tax payable		815,877		706,450
Sales tax payable and other taxes payable		14,291		13,487
Total Current Liabilities		4,826,569		4,138,071
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 June 30, 2011 and December 31, 2010		-		-
Common stock, $0.001 par value, 65,849,200 shares                      authorized, 18,600,012 shares issued as of                      June 30, 2011 and December 31, 2010		18,600		18,600
Additional paid-in capital		2,166,401		2,160,485
Retained earnings
Unappropriated		2,944,060		1,640,050
Appropriated		429,566		429,566
Accumulated other comprehensive income		200,712		109,892
Total China Shesays Stockholders' Equity		5,759,339		4,358,593
Noncontrolling interest		103,588		131,613
Total Equity		5,862,927		4,490,206
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	10,689,496	$	8,628,277

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

F-1

CHINA SHESAYS MEDICAL COSMETOLOGY INC.

("CHINA SHESAYS") AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (UNAUDITED)

		Three months ended June 30,						Six months ended June 30,
		2011			2010			2011			2010
REVENUE
Customer service revenue
Cosmetic surgery services	$	1,530,619		$	1,428,536		$	3,224,377		$	3,051,966
Professional medical beauty services		2,441,374			1,125,457			4,065,290			2,488,894
Cosmetic dentistry services		28,879			91,105			56,388			231,958
Sales of goods		211,402			119,652			441,348			239,857
Total Revenue		4,212,274			2,764,750			7,787,403			6,012,675
COST OF REVENUE
Cost of service revenue
Cosmetic surgery services		(215,550	)		(479,840	)		(590,255	)		(907,140	)
Professional medical beauty services		(409,718	)		(216,160	)		(740,318	)		(355,927	)
Cosmetic dentistry services		(20,116	)		(34,051	)		(40,101	)		(78,310	)
Cost of goods sold		(76,343	)		(2,277	)		(156,628	)		(51,962	)
Depreciation		(125,651	)		(74,820	)		(249,549	)		(146,267	)
Total Cost of Revenue		(847,378	)		(807,148	)		(1,776,851	)		(1,539,606	)
GROSS PROFIT		3,364,896			1,957,602			6,010,552			4,473,069
OPERATING EXPENSES
Selling, general and administrative expenses		1,485,863			804,233			2,292,655			1,261,909
Advertising costs		961,155			288,435			1,649,189			684,719
Professional and consultant fees		88,642			350,850			195,763			378,906
Depreciation		95,148			40,981			186,440			78,073
Total Operating Expenses		2,630,808			1,484,499			4,324,047			2,403,607
INCOME FROM OPERATIONS		734,088			473,103			1,686,505			2,069,462
OTHER INCOME (EXPENSES)
Other income		21			316			28			617
Interest income		375			1,027			546			2,590
Interest expenses		(18,127	)		(15,042	)		(25,872	)		(21,606	)
Imputed interest		-			-			-			(247	)
Other expenses		(1,692	)		(22,341	)		(25,169	)		(74,969	)
Total Other Expenses, net		(19,423	)		(36,040	)		(50,467	)		(93,615	)
INCOME FROM OPERATIONS BEFORE TAXES		714,665			437,063			1,636,038			1,975,847
Less:
Income tax expenses		(62,192	)		(106,953	)		(359,734	)		(512,073	)
NET INCOME		652,473			330,110			1,276,304			1,463,774
Net loss attributable to noncontrolling interest		18,367			-			27,706			-
NET INCOME ATTRIBUTABLE TO CHINA SHESAYS      COMMON STOCKHOLDERS		670,840			330,110			1,304,010			1,463,774
OTHER COMPREHENSIVE INCOME
Total foreign currency translation gain		75,101			15,577			90,821			15,976
Less: foreign currency translation gain attributable to          noncontrolling interest		(347	)		-			(319	)		-
Foreign currency translation gain           attributable to China Shesays common stockholders		74,754			15,577			90,502			15,976
COMPREHENSIVE INCOME ATTRIBUTABLE       TO CHINA SHESAYS COMMON STOCKHOLDERS	$	745,594		$	345,687		$	1,394,512		$	1,479,750
Net income per share-basic and diluted	$	0.04		$	0.02		$	0.07		$	0.10
Weighted average number of shares       outstanding during the period       - basic and diluted		18,600,012			14,736,279			18,600,012			14,121,561

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

F-2

CHINA SHESAYS MEDICAL COSMETOLOGY INC.

("CHINA SHESAYS") AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

		Six months ended June 30,
		2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,276,304		$	1,463,774
Adjusted to reconcile net income to cash provided
by operating activities:
Depreciation - cost of revenue		249,549			146,267
Depreciation - operating expenses		186,440			78,073
Deferred income taxes		(157,178	)		-
Loss on disposal of property and equipment		1,053			8,235
Imputed interest		-			247
Changes in operating assets and liabilities
(Increase) decrease in:
Inventories, net		31,679			29,969
Other current assets and prepaid expenses		(242,572	)		(771,729	)
Increase (decrease) in:
Accounts payable		(222,207	)		(49,427	)
Deferred revenue		19,797			(2,315	)
Other payables and accrued liabilities		116,108			143,291
Income tax payable		94,407			456,730
Sales tax payable and other taxes payable		532			3,629
Net cash provided by operating activities		1,353,912			1,506,744
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in restricted cash		(386,787	)		-
Purchase of property and equipment		(2,237,047	)		(412,775	)
Deposits paid for acquiring property and equipment		-			(1,443,577	)
Proceeds from disposal of property and equipment		130,013			-
Long term prepaid expenses		-			(1,068,878	)
Due from stockholders		52,821			(52,821	)
Net cash used in investing activities		(2,441,000	)		(2,978,051	)
CASH FLOWS FROM FINANCING ACTIVITIES
Bank loan borrowed		1,739,117			877,868
Bank loan repaid		(917,740	)		(36,578	)
Due to a related company		-			(20,563	)
Contribution by stockholders		5,916			50,000
Net cash provided by financing activities		827,293			870,727
EFFECT OF EXCHANGE RATES ON CASH		11,397			3,107
NET DECREASE IN CASH AND CASH EQUIVALENTS		(248,398	)		(597,473	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		1,029,280			1,371,732
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	780,882		$	774,259
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest expenses	$	25,872		$	21,606
Cash paid for income tax	$	423,456		$	55,343

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES

$137,417 of purchases of property and equipment represent payables to vendors. These transactions are considered as
major non-cash transactions for the six months period ended June 30, 2011.

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

F-3

CHINA SHESAYS MEDICAL COSMETOLOGY INC.

(“CHINA SHESAYS”) AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America for interim financial information and rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments consisting only of normal recurring accruals considered necessary to present fairly the Company's financial position as of June 30, 2011, the consolidated results of operations for the three and six months ended June 30, 2011 and 2010 and consolidated cash flows for the six months ended June 30, 2011 and 2010. The consolidated results for the three and six months ended June 30, 2011 are not necessarily indicative of the results to be expected for a full year. These financial statements should be read in conjunction with the audited financial statements and footnotes of the Company for the years ended December 31, 2010 (restated) and 2009 appearing in the Company’s Form 10-K/A as filed with the SEC on August 2, 2011.

NOTE 2 ORGANIZATION

SN Strategies Corp. was incorporated under the laws of the State of Nevada on January 18, 2002.

Perfect Support Limited (“Perfect Support”) was incorporated in the British Virgin Islands (“BVI”) on January 15, 2010 as an investment holding company. Through its wholly owned subsidiary, Chengdu Boan Investment Management Co., Limited (“Chengdu Boan”), the Company is principally engaged in providing consultancy services on medical beauty services, cosmetic surgery services and cosmetic dentistry services in the People’s Republic of China (“PRC”). Chengdu Boan was incorporated in the PRC as a wholly-owned foreign enterprise on April 27, 2010. In accordance with the business permit, Chengdu Boan’s right of operation expires on April 27, 2040 and is renewable on expiry.

Sichuan Shesays Cosmetology Hospital Company Limited (“Sichuan Shesays”) was incorporated in the PRC on May 30, 2005 as a limited liability company. Sichuan Shesays is a clinic for providing professional medical beauty services, cosmetic surgery services and cosmetic dentistry services to customers in PRC. In accordance with its business permit, the Company’s right of operation expires on May 30, 2025.

On April 27, 2010, Chengdu Boan entered into a series of contractual agreements (collectively known as the Restructuring Agreements and see note 7) with Sichuan Shesays and the stockholders of Sichuan Shesays in which Chengdu Boan assumed the management of the business activities of Sichuan Shesays and its subsidiaries, if any, from time to time, Sichuan Shesays and its subsidiaries agreed to pay 100% of its residual return to Chengdu Boan. Through this arrangement, Sichuan Shesays and its subsidiaries, if any, became contractually controlled subsidiaries of Chengdu Boan. Based on these contractual arrangements, the Company considers Sichuan Shesays and its subsidiaries to be Variable Interest Entities (“VIEs”) under ASC 810 "Consolidation of Variable Interest Entities, an Interpretation of ARB No.51”and Perfect Support through Chengdu Boan is the primary beneficiary of Sichuan Shesays and its subsidiaries (See note 7). Accordingly, Sichuan Shesays and its subsidiaries should be consolidated under ASC 810. Immediately prior to the transaction completed on April 27, 2010, both the five directors who owned 90% of Perfect Support and the 100% stockholder of Chengdu Boan owned 100% of the registered capital of Sichuan Shesays. As Perfect Support, Chengdu Boan, Sichuan Shesays and its subsidiaries were under common control, the contractual arrangements have been accounted for as a reorganization of entities under common control and Chengdu Boan consolidates Sichuan Shesays and its subsidiaries in accordance with FASB ASC 805-40-45 and Regulation S-X 3A-02 were accounted for as if the reorganization occurred at the beginning of the first period presented.

F-4

On June 6, 2010, SN Strategies Corp., the Parent, China Shesays Medical Cosmetology Inc., the Merger Sub, a Nevada corporation, wholly owned by the Parent and incorporated on May 20, 2010, Perfect Support, known as the Acquired Sub, and the stockholders of the Acquired Sub, entered into an Agreement and Plan of Merger pursuant to which the Merger Sub agreed to acquire 100% of the common stock of the Acquired Sub. In connection with the merger, the Merger Sub issued to the stockholders of the Acquired Sub 10 shares of its common stock of $0.001 each amounting to $0.01 for 50,000 shares of the Acquired Sub’s common stock of $1 each amounting to $50,000 which represents 100% of the outstanding shares of the Acquired Sub’s common stock. The 10 shares of common stock of the Merger Sub were subsequently converted to 13,500,012 shares of common stock of the Parent Company.

Concurrent with the merger, the Merger Sub merged with and into the Parent at the effective time of the merger. The Merger Sub no longer exists, and the Parent’s name was subsequently changed to the Merger Sub’s name.

For financial reporting purposes, the merger has been accounted for as a recapitalization of the Parent whereby the historical financial statements and operations of the Acquired Sub become the historical financial statements of the Company, with no adjustments to the carrying values of the assets and liabilities. Share and per share amounts reflect the effects of the recapitalization for all periods presented. In addition, the presentation for all periods includes equity transactions of the Acquired Sub as adjusted for the effects of the recapitalization.

On July 8, 2010, Sichuan Shesays established a PRC limited liability company, Leshan Jiazhou Shesays Junge Cosmetology Company Limited (“Leshan Jiazhou Shesays”) with a registered capital of $736,594 to which Sichuan Shesays contributed $265,984 in cash and a set of machinery totaling $470,610 in lieu of cash. Leshan Jiazhou Shesays is a clinic for providing professional medical beauty services and cosmetic surgery services to customers in PRC. In accordance with its business permit, the Company’s right of operation expires on June 17, 2014.

On August 18, 2010, Sichuan Shesays together with a third party established a PRC limited liability company, Yibin Shesays Junge Cosmetology Clinic Company Limited (“Yibin Shesays”) with a registered capital of $734,981. Sichuan Shesays contributed $587,985 in cash to the registered capital of Yibin Shesays, representing 80% of the equity of Yibin Shesays. Yibin Shesays is a clinic for providing professional medical beauty services and cosmetic surgery services to customers in PRC. In accordance with its business permit, the Company’s right of operation expires on December 31, 2014.

On October 20, 2010, Sichuan Shesays established a PRC limited liability company, Zigong Shesays Junge Cosmetology Clinic Company Limited (“Zigong Shesays”) with a registered capital of $751,213. Sichuan Shesays contributed $244,219 in cash and a set of machinery totaling $506,994 in lieu of cash. Zigong Shesays is a clinic for providing professional medical beauty services and cosmetic surgery services to customers in PRC. In accordance with its business permit, the Company’s right of operation expires on October 19, 2014.

China Shesays, Perfect Support, Chengdu Boan, Sichuan Shesays, Leshan Jiazhou Shesays, Yibin Shesays and Zigong Shesays are hereinafter referred to as (“the Company”).

NOTE 3 RESTATEMENT OF PREVIOUSLY REPORTED FINANCIAL STATEMENTS

On July 15, 2011, the Company determined that the Company’s financial statements as of December 31, 2010 and for the year then ended should no longer be relied upon and should be restated as a result of certain errors contained therein regarding the accounting for: (i) pre-operating expenses wrongly recorded as other current assets; (ii) under-provision of rental expenses for clinics not yet commenced business; (iii) income tax expense for the above items; and (iv) foreign currency translation gain/loss for the above items.

As a result, the accompanying consolidated financial statements as of December 31, 2010 have been restated from the amounts previously reported. The information in the data table below represents only those balance sheet line items affected by the restatements.

The following tables present the consolidated balance sheet and financial statement line items as reported herein that were impacted by the restatements:

F-5

		As of December 31, 2010
		As
		previously					As
		stated		Adjustments			restated
Consolidated balance sheet accounts impacted by restatements:
Other current assets and prepaid expenses	$	1,446,837	$	(819,960	)	$	626,877
Total current assets		3,050,192		(819,960	)		2,230,232
Deferred tax assets		184,857		204,990			389,847
Total assets		9,243,247		(614,970	)		8,628,277
Other payables and accrued liabilities		1,554,162		203,813			1,757,975
Total current liabilities		3,934,258		203,813			4,138,071
Retained earnings - unappropriated		2,438,376		(798,326	)		1,640,050
Accumulated other comprehensive income		130,349		(20,457	)		109,892
Total China Shesays stockholders' equity		5,177,376		(818,783	)		4,358,593
Total equity		5,308,989		(818,783	)		4,490,206
Total liabilities and stockholders' equity		9,243,247		(614,970	)		8,628,277

NOTE 4 PRINCIPLES OF CONSOLIDATION

The accompanying unaudited condensed consolidated financial statements for the three and six months ended June 30, 2011 and 2010 include the financial statements of China Shesays, its wholly owned subsidiaries, Perfect Support and Chengdu Boan and the contractually controlled affiliate, Sichuan Shesays and its wholly owned subsidiaries, Leshan Jiazhou Shesays , Zigong Shesays and 80% owned subsidiary, Yibin Shesays, The noncontrolling interest represents the noncontrolling stockholders’ 20% proportionate share of the results of Yibin Shesays.

All significant inter-company balances and transactions have been eliminated in consolidation.

NOTE 5 USE OF ESTIMATES

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidation financial statements and the reported amounts of revenue and expenses during the reporting period.

Variable interest entities

Current PRC laws and regulations require any foreign entities that invest directly in the medical services industry to have direct operations in the medical industry outside of China. In addition, foreign entity is not allowed in China to setup wholly-owned medical institute although the foreign entity is permitted to set a joint venture medical institute at maximum of 70%.

The Company does not currently directly operate medical services outside of China and cannot qualify under PRC regulations before the Company commences any such operations outside of China. While the Company’s indirect PRC operating subsidiaries are eligible for the required licenses for providing medical services in China and some of the indirect PRC operating subsidiaries have obtained such licenses, the Company has been using and is expected to continue to use the PRC operating affiliates and their subsidiaries.

Management estimated that the risk of loss in respect of the Company’s current ownership structure or the contractual arrangements is remote.

F-6

NOTE 6 RECENT ACCOUNTING STANDARDS AND PRONOUNCEMENTS

In July 2011, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2011-07, “Health Care Entities (Topic 954): Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities”, which requires that certain health care entities change the presentation of their statement of operations by reclassifying the provision for bad debts associated with patient service revenue from an operating expense to a deduction from patient service revenue (net of contractual allowances and discounts). In addition, the amendments also require enhanced disclosure about policies for recognizing revenue and assessing bad debts and disclosures of qualitative and quantitative information about changes in the allowance for doubtful accounts. This ASU is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2011, with early adoption permitted. Management currently expects that this ASU will not have a material impact on the Company’s consolidated financial statements.

Other than ASU 2011-07, there have been no significant changes in accounting pronouncements as compared to the recent accounting pronouncements described in our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

NOTE 7 VARIABLE INTEREST ENTITIES

The Company accounts for Variable Interest Entities (“VIE”) in accordance with ASC 810. As a result of the adoption of ASU 2009-17, consolidations (Topic 810) – Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, effective January 1, 2010, ASC 810 requires the consolidation of VIEs in which a company has both the power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance and the obligation to absorb losses or the right to receive the benefits from the VIEs that could potentially be significant to the VIEs. The Company has applied the requirements of ASC 810 on a prospective basis from the date of adoption.

The Company assesses all newly created entities and those with which the Company becomes involved to determine whether such entities are VIEs and, if so, whether or not the Company is their primary beneficiary.

On April 27, 2010, the Company through its PRC subsidiary, Chengdu Boan entered into a series of contractual arrangements consisting of four agreements with Sichuan Shesays and the stockholders of Sichuan Shesays. Those four agreements and their consequences are described below.

(i)	an exclusive service agreement, pursuant to which Sichuan Shesays and its subsidiaries irrevocably entrust to Chengdu Boan the right of management and operation of Sichuan Shesays and its subsidiaries and the responsibilities and authorities of their stockholders and directors of Sichuan Shesays and its subsidiaries. In return, Sichuan Shesays and its subsidiaries agreed to pay 100% of its residual return, if any, from time to time, as management fee to Chengdu Boan.
(ii)	a voting rights proxy agreement, pursuant to which the stockholders of Sichuan Shesays and its subsidiaries have granted the personnel designated by Chengdu Boan the right to appoint directors and senior management of Sichuan Shesays and its subsidiaries and to exercise all of their other voting rights as stockholders of Sichuan Shesays and its subsidiaries, as the case may be, as provided under the articles of association of each such entity;
(iii)	a call option agreement, pursuant to which:
	(a)	neither Sichuan Shesays nor any of its subsidiaries may enter into any transaction that could materially affect its assets, liabilities, equity or operations without the prior written consent of Chengdu Boan;
	(b)	neither Sichuan Shesays nor any of its subsidiaries will distribute any dividends without the prior written consent of Chengdu Boan; and
	(c)	Chengdu Boan or its designee has an exclusive option to purchase all or part of the equity interests in Sichuan Shesays, all or part of the equity interests in subsidiaries owned by Sichuan Shesays or its nominee holders, or all or part of the assets of Sichuan Shesays, in each case when and to the extent permitted by PRC law. In case of Chengdu Boan exercising the call option in its sole discretion upon the occurrence of the situation in which such call option exercise become feasible under the relevant laws in PRC, any additional consideration paid other than $1 which may be required under the laws of PRC to effect such purchase to comply with such legal formalities shall be either cancelled or returned to Sichuan Shesays immediately with no additional compensation to the owners; and

F-7

(iv) an equity pledge agreement pursuant to which each of stockholders of Sichuan Shesays has pledged his or her equity interest in Sichuan Shesays and its subsidiaries, as the case may be, to Chengdu Boan to secure their obligations under the relevant contractual control agreements, including but not limited to, the obligations of Sichuan Shesays and its subsidiaries under the exclusive services agreement, the call option agreement, the voting rights proxy agreement described above, and each of them has agreed not to transfer, sell, pledge, dispose of or create any encumbrance on their equity interest in Sichuan Shesays or its subsidiaries without the prior written consent of Chengdu Boan.

In the PRC restructuring transaction described above, the Company gained indirect control of Sichuan Shesays and its subsidiaries and Sichuan Shesays and its subsidiaries are considered VIEs of the Company.

As required by ASC 810-10, the Company performs a qualitative assessment to determine whether the Company is the primary beneficiary of Sichuan Shesays and its subsidiaries which are identified as VIEs of the Company. A quality assessment begins with an understanding of the nature of the risks in the entity as well as the nature of the entity’s activities including terms of the contracts entered into by the entity, ownership interests issued by the entity and the parties involved in the design of the entity. The Company’s assessment on the involvement with Sichuan Shesays and its subsidiaries reveals that the Company has the absolute power to direct the most significant activities that impact the economic performance of Sichuan Shesays and its subsidiaries. Under the accounting guidance, the Company is deemed to be the primary beneficiary of Sichuan Shesays and its subsidiaries and the results of Sichuan Shesays and its subsidiaries are consolidated in the Company’s consolidated financial statements for financial reporting purposes.

NOTE 8 PRIVATE PLACEMENT

Securities purchase agreement

On November 5, 2010, the Company completed on a private placement financing pursuant to a Securities Purchase Agreement (“the Purchase Agreement”) with a group of accredited investors (“investors”). The Company received $1,200,000 from the investors (as defined under Rule 501 (a) of Regulation D promulgated under the Securities Act) for an issue of 600,000 shares of restricted common stock of the Company at $2 each.

Under the Purchase Agreement, if the Company’s after-tax net income for the fiscal year ending December 31, 2011 is less than the Company’s after-tax net income for the fiscal year ended December 31, 2010, or if any Chinese governmental agency challenges or otherwise takes any action that adversely affects the Company’s listing of securities and the Company is unable to address such adverse effect to the reasonable satisfaction of the investors, then the Company must pay to each investor, as liquidated damages, an amount equal to that investor’s purchase price plus compound interest at a rate of 8%. In addition, for a period of three years after the Closing, if the Company issues any shares of common stock for less than $2 per share or for no consideration (the “Additional Shares”), then the per share price under the Purchase Agreement shall be reduced to the lowest price per share at which such Additional Shares are issued, granted or sold. As of June 30, 2011, the Company believes that it is not probable that the Company will issue any shares of common stock at a price less than $2 per share; the Company’s after-tax net income for the fiscal year ending December 31, 2011 will be less than the Company’s after-tax net income for the fiscal year ended December 31, 2010; and there will be Chinese governmental agency challenges or otherwise takes any action that adversely affects the Company’s listing of securities. Accordingly, the Company has not accrued for any liquidated damages.

Make good escrow

In connection with the private placement, a majority stockholder of the Company together with the Company entered into a make good escrow agreement with the investors, pursuant to which a total of 600,000 shares of common stock of the Company owned by the majority stockholder were placed with an escrow agent to secure the Company’s obligation under the Purchase Agreement. If the Company fails to achieve $6,400,000 net after tax income for the fiscal year ending December 31, 2011, the majority stockholder of the Company is obligated to transfer 600,000 shares of common stock of the Company to the investors as additional consideration under the private placement.

Warrants

In November 2010, the Company issued a warrant to a financial advisor to purchase 48,000 shares of common stock of the Company at an exercise price of $2 per share. The warrant is exercisable any time from the date of issue to June 2012.

F-8

NOTE 9 EARNINGS PER SHARE

Basic earnings per share are computed by dividing income available to stockholders by the weighted average number of shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional shares that would have been outstanding if the potential shares had been issued and if the additional shares were diluted. For the three and six months period ended June 30, 2011, all 48,000 outstanding warrants have been excluded from the calculation of diluted earnings per share since their effect was anti-dilutive. For the three and six months ended June 30, 2011, there were no potentially dilutive securities.

NOTE 10 CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, cash and cash equivalents include cash on hand and demand deposits with a bank with a maturity of less than three months. Bank deposits held as collateral for the Company’s bank loans are reported as restricted cash and are not included with cash or cash equivalents on the balance sheet until the lien against such bank deposits has been released.

NOTE 11 INVENTORIES, NET

		June 30,		December 31,
		2011		2010
		(Unaudited)		(Audited)
Medical materials	$	361,314	$	386,634
Finished goods – merchandise		138,181		134,620
Less: Provision for obsolescence		-		-
	$	499,495	$	521,254

NOTE 12 OTHER CURRENT ASSETS AND PREPAID EXPENSES

		June 30,		December 31,
		2011		2010
		(Unaudited)		(Audited)
				(Restated)
Other receivables	$	459,193	$	79,290
Advances to suppliers		109,687		98,574
Prepaid expenses		315,353		449,013
	$	884,233	$	626,877

NOTE 13 PROPERTY AND EQUIPMENT, NET

		June 30,			December 31,
		2011			2010
		(Unaudited)			(Audited)
Buildings	$	114,009		$	111,804
Leasehold improvements		1,339,937			1,314,016
Medical equipment		3,447,220			3,319,221
Motor vehicles		164,979			290,751
Office equipment		587,799			582,302
Deposits paid for property and equipment		3,468,363			1,482,309
		9,122,307			7,100,403
Less: Accumulated depreciation		(1,538,924	)		(1,092,205	)
	$	7,583,383		$	6,008,198

Depreciation expenses for the three and six months ended June 30, 2011 and 2010 were $220,799, $115,801, $435,989 and $224,340 respectively.

As of June 30, 2011 and December 31, 2010, included in deposits paid for property and equipment are advance payments of renovation costs paid on behalf of the subsidiary which is still in the process of incorporation amounting to $3,468,363 and $1,482,309 respectively.

F-9

NOTE 14  NOTES PAYABLE

Notes payable consisted of the following:
		June 30,		December 31,
		2011		2010
		(Unaudited)		(Audited)
Note payable to a bank, interest rate of 6% per annum,    guaranteed by a third party, a director and his spouse,    due in March 2012	$	928,290	$	-
Note payable to a bank, interest rate of 6% per annum,    guaranteed by a third party, a director, his spouse and    charges on the Company’s restricted cash, due in April    2012		366,674		-
Note payable to a bank, interest rate of 7.572% per    annum, guaranteed by a third party, a director and his    spouse, due in June 2012		464,145		-
Note payable to a bank, interest rate of 6% per annum,     guaranteed by a third party, a director and his spouse,    due in February 2011		-		910,332
	$	1,759,109	$	910,332

Interest expense paid for the three and six months ended June 30, 2011 and 2010 were $18,127, $15,042, $25,872 and $21,606 respectively.

The guarantee provided by the third party is secured by buildings of the Company with net book value totaling $99,226 as of June 30, 2011. Fees paid to the third party guarantor for the three and six months ended June 30, 2011 and 2010 was $0, $0, $21,108 and $17,554 respectively.

NOTE 15 OTHER PAYABLES AND ACCRUED LIABILITIES

		June 30,		December 31,
		2011		2010
		(Unaudited)		(Audited)
				(Restated)
Other payables	$	152,744	$	599,724
Deposits from customers		302,927		231,390
Deposits from membership reward program		346,024		277,010
Accrued liability for membership reward program		161,542		18,586
Accrued liabilities		714,174		631,265
	$	1,677,411	$	1,757,975

Deposits from customers represent money received in advance for cosmetic surgery, beauty and other related services.

Included in other payables are equipment and renovation costs totaling $138,997 and $363,333 owed to suppliers as of June 30, 2011 and December 31, 2010 respectively.

F-10

NOTE 16 INCOME TAX

The Company is subject to income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which each entity is domiciled.

China Shesays was incorporated in the United States and has incurred operating loss as for income tax purposes for the six months ended June 30, 2011 and 2010. As of June 30, 2011, China Shesays had federal and state net operating loss carry forwards of approximately $177,000 which can be used to offset future federal income tax. The federal and state net operating loss carry forwards expire at various dates through 2030. Deferred tax assets resulting from the net operating losses are reduced by a valuation allowance, when, in the opinion of management, utilization is not reasonably assured.

Perfect Support was incorporated in the BVI and under current laws of the BVI, income earned is not subject to income tax.

Chengdu Boan, Sichuan Shesays, Leshan Jiazhou Shesays, Yibin Shesays and Zigong Shesays were incorporated in the PRC and are subject to PRC income tax which is computed according to the relevant laws and regulations in the PRC. The applicable tax rate is 25%. Tax losses, if any, are allowed to carry forward to offset future net income for five years. As of June 30, 2011, the Company’s PRC subsidiaries have total tax losses of $270,596 which will be expired on December 31, 2015.

The income tax expenses for the six months ended 2011 and 2010 are summarized as follows:

		For the six months ended June 30,
		2011			2010
		(Unaudited)			(Unaudited)
Current – PRC	$	516,912		$	512,073
Deferred - PRC		(157,178	)		-
	$	359,734		$	512,073

The tax effects of significant items comprising deferred tax assets as of June 30, 2011 and December 31, 2010 are as follows:

		June 30,			December 31,
		2011			2010
		(Unaudited)			(Audited)
					(Restated)
Deferred tax assets:
Property related, net	$	(40,957	)	$	67,034
Deferred revenue		94,960			42,981
Pre-operating expenses		224,546			204,990
Accrued liabilities		208,520			57,724
Tax losses		67,647			17,118
	$	554,716		$	389,847

The reconciliation of income taxes computed at the statutory income tax rate to total income taxes for the six months ended June 30, 2011 and 2010 is as follows:

		For the six months ended June 30,
		2011			2010
		(Unaudited)			(Unaudited)
Income before taxes	$	1,636,038		$	1,975,847
Computed at PRC tax rate of 25%	$	409,010		$	493,962
Over-provision in prior year		(300,933	)		-
Non-deductible expenses		251,657			18,111
	$	359,734		$	512,073

F-11

NOTE 17 WARRANTS

On November 12, 2010, the Company issued 48,000 warrants with an exercise price of $2 per share in conjunction with the issuance of 600,000 shares of common stock in a private placement to a professional service provider pursuant to a Financial Advisory Service Agreement entered into on June 12, 2010. The warrants are exercisable at any time from June 12, 2010 to June 12, 2012. As of June 30, 2011, no warrants have been exercised or cancelled.

The Company evaluates these warrants provided in connection with the private placement in accordance with ASC 815 and has concluded that equity classification is appropriate for these warrants, due to the fact that these warrants are required to be physically settled in shares of the common stock of the Company and there are no provisions that could require net-cash settlement. Accordingly, the fair value of the warrants of $7,911 was recognized as additional paid-in capital and as a reduction of additional paid-in capital at the date of grant. The fair value of the warrants was estimated using Black-Scholes Option Pricing Model.

The following assumptions are used to calculate the fair value of the warrants:

Market price and estimated fair value of common stock	$2.00
Exercise price	$2.00
Remaining contractual life (years)	1.6
Dividend yield	-
Expected volatility	16.25%
Risk-free interest rate	0.45%

Expected volatility is based primarily on historical volatility. Historical volatility was computed using daily pricing observations for recent periods that correspond to the term of the warrants. The Company’s management believes this method produces an estimate that is representative of the expectations of future volatility over the expected term of these warrants. The Company has no reason to believe future volatility over the expected remaining life of these warrants will likely differ materially from historical volatility. The expected life is based on the remaining term of the warrants. The risk-free interest rate is based on U.S. Treasury securities according to the remaining term of the financial instruments.

NOTE 18 COMMITMENTS AND CONTINGENCIES

(a)	Capital commitments
	As of June 30, 2011 and December 31, 2010, the Company had commitments for capital expenditures on acquisition of property and equipment amounting to approximately $2,012,000 and $1,610,000 respectively.
(b)	Rental leases commitment
	The Company leases clinic spaces and staff quarters from third parties under fifty-five separate operating leases which expire between August 30, 2011 and January 1, 2020.

As of June 30, 2011, the Company had outstanding commitments with respect to the above operating leases, which are due as follows:

For the fiscal years ending June 30,
2011	$	1,605,912
2012		1,568,904
2013		1,541,755
2014		1,497,404
2015		998,689
Thereafter		310,728
	$	7,523,392

F-12

(c) Loss contingencies

The Company has not recorded an accrued loss contingency under ASC 450 in connection with the contingent liability related to the warranties made to investors in the private placement. Accounting for loss contingencies pursuant to ASC 450 involves the existence of a condition, situation or set of circumstances involving uncertainty as to possible loss that will ultimately be resolved when one or more future event(s) occur or fail to occur. Additionally, accounting for a loss contingency requires management to assess each event as probable, reasonably possible or remote. Probable is defined as the future event or events are likely to occur. Reasonably possible is defined as the chance of the future event or events occurring is more than remote but less than probable, while remote is defined as the chance of the future event or events occurring is slight. An estimated loss in connection with a loss contingency shall be recorded by a charge to current operations if both of the following conditions are met: first, the amount can be reasonably estimated; and second, the information available prior to issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements.

The Company has assessed the contingent liability related to the warranties made to investors in our private placement in accordance with ASC 450 – (1) for a period of three years, if the Company issues any shares of Common Stock for less than $2.00 per share or for no consideration (the “Additional Shares”), then the per share price under the Securities Purchase Agreement shall be reduced to the lowest price per share at which such Additional Shares are issued, granted or sold (“Guarantee A”); and (2) if the after-tax net income for the fiscal year ending December 31, 2011 is less than the after-tax net income for the fiscal year ending December 31, 2010, or if any Chinese government agency challenges or otherwise takes any action that adversely affects the listing of securities and the Company is unable to address such adverse effect to the reasonable satisfaction of the investors, then the Company must pay to each investor, as liquidated damages, an amount equal to that investor’s purchase price plus compound interest at a rate of 8% (“Guarantee B”).

The Company has determined that the occurrence of the contingency of Guarantee A is remote. The Company expects the operating cash flows are adequate to finance the daily operations and the Company is not required to issue new shares at a price below $2.00. However, the Company may issue new shares at a price below $2.00, when the Company is facing financial distress. Since the Company is unable to estimate the chance of violating Guarantee A, the Company did not disclose the estimated loss. The Company did not violate Guarantee A as of the date of this report. The maximum potential amount of future estimated loss pertinent to Guarantee A is $1,200,000.

The Company has determined that the occurrence of the contingency of Guarantee B is reasonably possible, since the Company’s performance is subjected to impact of economic factors and many other risk factors. In accordance with ASC 450, the Company is required to record a charge to current operations. However, since the Company is unable to estimate the chance of having the after-tax net income for the fiscal year ending December 31, 2011 is less than the after-tax net income for the fiscal year ending December 31, 2010 or those challenges stated above, the Company did not disclose the estimated loss. The Company did not violate Guarantee B as of the date of this report. Guarantee B did not provide the limitation to the maximum potential future payments and it stated that the Company is required to pay investors for violation of Guarantee B, liquidated damages, an amount equal to that investor’s purchase price ($1,200,000) plus compound interest at a rate of 8%.

The Company also considered if the guarantees were accounted for according to ASC 460. Pursuant to ASC 460-10-15-7-i, the guarantees discussed above were excluded from the ASC 460.

NOTE 19 DEFINED CONTRIBUTION RETIREMENT PLANS

As stipulated by the regulations of the PRC government, companies operating in the PRC have defined contribution retirement plans for their employees. The PRC government is responsible for the pension liability to these retired employees. The Company was required to make specified contributions to the state-sponsored retirement plan based on the basic salary cost of their staff. Each of the employees of the PRC subsidiaries is also required to contribute certain percentage of his/her basic salary.

Contributions to defined contribution retirement plan for the three and six months periods ended June 30, 2011 and 2010 were $78,060, $38,282, $140,807 and $74,219 respectively.

F-13

NOTE 20 RELATED PARTY TRANSACTIONS

As of June 30, 2011 and December 31, 2010, certain stockholders owed the Company $0 and $52,821 respectively which are unsecured, interest free and repayable on demand. These amounts were advanced prior to the reverse merger and were fully repaid in January 2011.

During the three and six months ended June 30, 2011 and 2010, total imputed interest expenses recorded as additional paid-in capital amounted to $0, $0, $0 and $247 respectively.

NOTE 21  CONCENTRATIONS AND RISKS

As of June 30, 2011 and December 31, 2010, 100% of the Company’s assets were located in the PRC and Hong Kong and 100% of the Company’s revenues were derived from customers located in the PRC.

As of June 30, 2011 and December 31, 2010, financial instruments which potentially expose the Company to concentrations of credit risk are cash and cash equivalents of $796,435 and $925,639 respectively. The Company performs ongoing evaluations of its cash position and credit evaluations to ensure collections and minimize losses.

F-14

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Business Overview

Overview

We are a Nevada holding company operating in the cosmetology industry. Substantially all of our operations are conducted in China through BOAN, our wholly-owned subsidiary in China, and through our contractual arrangements with several of our consolidated affiliated entities in China, including SHESAYS and its subsidiaries.

SHESAYS was established in May 2005 and specializes in cosmetology treatments, integrating medical treatment and education. At present, we have such core clinical departments such as cosmetic surgery, cosmetic dermatology, cosmetic dentistry and cosmetic Traditional Chinese Medicine (“TCM”). Services provided by the cosmetic surgery department include eye shaping, facial contour, rhinoplasty, face shaping, wrinkles elimination, breast surgery,chiloplasty, liposuction slimming, ear reshaping, gynecology/male plastic surgery. The cosmetic dermatology department provides services such as laser depilation, acne/pock removal, facelift and wrinkle decrease, laser whitening, pore minimizing, skin rejuvenation. Cosmetic dentistry includes the services of optical fluoride whitening, repair of uneven denture, porcelain teeth/cercon, orthodontic treatment, comfortable painless teeth cleaning, complex tooth extraction face-lift surgery, orthodontic caries-prevention and correction for children, adult invisible orthodontics. Traditional Chinese Medicine, also known as TCM, is the medical theory and practices of Chinese culture, especially herbal medicine, acupuncture and osteopathy, for preventing or treating illness, or promoting health and well-being. Cosmetic TCM is to use traditional Chinese medicine, such as acupuncture and moxibustion, to provide cosmetic service, such as to dispel freckle, reduce weight, as well as to enhance the endocrine system. The major difference of Chinese medicine from Western medicine is that it focuses on "health" rather than on "healing" as Chinese medicine promotes overall wellness of an individual, as opposed to the approach of Western medicine in treating the symptoms of an illness.

Headquartered in Chengdu, Sichuan province, P.R. China, SHESAYS aims to expand its business outside of Chengdu. In 2010, SHESAYS established three new outpatient clinics in the cities of Yibin, Leshan and Zigong, Sichuan province, and is constructing a new flagship hospital, a comprehensive cosmetology hospital in Chengdu.

For three months ended June 30, 2011, we generated revenues of $4.2 million, which represents a growth of 52.4% compared to $2.8 million for three months ended June 30, 2010. This increase in revenue is attributed to service fee income and sales generated from three new clinics in Leshan, Yibin and Zigong launched in the second half of 2010, and continued efforts to attract more customers to our current headquarter hospital in Chengdu. During the second quarter of 2011, a total of 7,240 customers visited our hospital and clinics, compared to 5,852 in the second quarter of 2010, and we provided services to 4,838 and 3,701 customers in the second quarter of 2011 and 2010, respectively. Our net income increased 97.7% from $0.3 million for the three months ended June 30, 2010 to $0.7 million for the three months ended June 30, 2011. The increase in net income was mainly due to increase of revenue in the three months ended June 30, 2011.

Our business operates in China and financial statements are denominated in RMB, but we report our financial results in our SEC filings in US$. The conversion of our financial statements from RMB to US$ results in translation adjustments, which are reported as a line item after net income and before comprehensive income. The net income is added to the retained earnings on our balance sheet, while the translation adjustment is added to a line item on our balance sheet labeled “accumulated other comprehensive income”. For three months ended June 30, 2011 and 2010, we recorded foreign currency translation gain of $75,101 and $15,577 respectively.

15

Results of Operations

Three Months Ended June 30, 2011, Compared to the Three Months Ended June 30, 2010:

		Three Months Ended June 30,						$		%
		2011			2010			Change		Change
Total revenue	$	4,212,274		$	2,764,750		$	1,447,524		52.4%
Cost of revenue		847,378			807,148			40,230		5.0%
Gross profit		3,364,896			1,957,602			1,407,294		71.9%
Operating expenses		2,630,808			1,484,499			1,146,309		77.2%
Total other income (expenses)		(19,423	)		(36,040	)		16,617		-46.1%
Income from operations before taxes		714,665			437,063			277,602		63.5%
Income tax expenses		62,192			106,953			(44,761	)	-41.9%
Net income attributable to CHINA SHESAYS
common stockholders		670,840			330,110			340,730		103.2%
Foreign currency translation gain		75,101			15,577			59,524		382.1%
Comprehensive income attributable to
CHINA SHESAYS common stockholders		745,594			345,687			399,907		115.7%

Total Revenue

Total revenue for the three months ended June 30, 2011 increased by approximately $1.4 million or 52.4% to $4.2 million as compared to $2.8 million for the three months ended June 30, 2010. Our revenue growth during the period was driven by the sales and service fee income generated from three new clinics in Leshan, Yibin and Zigong launched in the second half of 2010, and continued efforts to attract more customers to our headquarter hospital in Chengdu. We did not increase our service prices from period to period.

REVENUE		Three Months Ended June 30,
		2011		2010		$		%
						Change		Change
Cosmetic surgery services	$	1,530,619	$	1,428,536	$	102,083		7.1%
Professional medical beauty services		2,441,374		1,125,457		1,315,917		116.9%
Cosmetic dentistry services		28,879		91,105		(62,226	)	-68.3%
Sales of goods		211,402		119,652		91,750		76.7%
Total revenue	$	4,212,274	$	2,764,750	$	1,447,524		52.4%

Compared to the same period in 2010, cosmetic surgery service revenue increased 7.1% to $1.5 million, professional medical beauty service revenue increased 116.9% to $2.4 million, cosmetic dentistry service revenue decreased 68.3% to $28,879 and sales of goods increased 76.7% to $0.2 million. We have been focusing on professional medical beauty service by increasing marketing efforts and advertising expenses. In the three months ended June 30, 2011, we introduced several new professional medical beauty services which generated incremental revenue growth during the period.

16

		Three Months Ended June 30,
		2011			2010
Location
Sichuan Shesays	$	3,853,738	91.5%	$	2,764,750	100.0%
Leshan Jiazhou Shesays		149,019	3.5%		-	-
Yibin Shesays		149,108	3.5%		-	-
Zigong Shesays		60,409	1.5%		-	-
Total revenue	$	4,212,274	100.0%	$	2,764,750	100.0%

For the second quarter of 2011, revenue of our current headquarter hospital increased by 39.4% to $3.9 million, from $2.8 million in the second quarter of 2010. Three new clinics launched in the second half of 2010 contributed approximately $0.4 million to revenue.

Cost of Revenue

Our cost of revenue for the three months ended June 30, 2011 was $0.8 million, a slight increase of 5.0% compared to the three months ended June 30, 2010. The increase in cost of revenue in 2011 was due to the increase in revenue. Cost of revenue as a percentage of revenue decreased from 29.2% to 20.1% as compared to the prior comparative period. Cost of revenue for cosmetic surgery services decreased by $0.3 million or 55.1% from $0.5 million to $0.2 million. In the three months ended June 30, 2010, we focused on marketing of several cosmetic surgery services which utilize less products compared with other cosmetic surgery services and, thus, have a lower overall cost of sales as a percentage to revenue compared to the same period of the previous year. Cost of revenue for professional medical beauty services increased by $0.2 million or 89.5% from $0.2 million to $0.4 million and cost of revenue for cosmetic dentistry services decreased from $34,051 to $20,116. Cost of goods sold increased from $2,277 to $76,343 as a result of increased sales of goods in the three months ended June 30, 2011.

Gross Profit

As a result of the above, we achieved gross profit of approximately $3.4 million for the three months ended June 30, 2011, compared to approximately $2.0 million for the same period of the previous year, representing an approximately 71.9% period to period increase. The increase in gross profit was mainly due to our expansion of facilities, the increasing number of customers and the new services we provided. Our overall gross profit margin as a percentage of revenue was 79.9% for the three months ended June 30, 2011 compared to 70.8% of the same period of the previous year. The gross margin increased by 9.1% due to increased marketing efforts on more profitable services such as cosmetic injection services and faster growth from new services which carry higher gross margin in the three months ended June 30, 2011. During the second quarter of 2011, we launched a promotion of our newly introduced services mainly professional medical beauty services. During the second quarter of 2011, we decreased our marketing efforts on our dentistry service. In addition, our dentistry service faced strong competition in Sichuan from other clinics, which provided comprehensive dentistry services with very competitive prices. As a result, our gross profit for cosmetic surgery services increased by $0.4 million or 38.6% from $0.9 million to $1.3 million, gross profit for professional medical beauty services increased by $1.1 million or 123.4% from $0.9 million to $2.0 million, gross profit for cosmetic dentistry services decreased by $48,291 or 84.6% from $57,054 to $8,763, and gross profit for sales of goods increased by $17,684 or 15.1% from $117,375 to $135,059.

Operating Expenses

Our operating expenses increased by approximately $1.1 million to $2.6 million for the three months ended June 30, 2011 from $1.5 million for the same period of the previous year. This 77.2% increase was mainly attributable to the increase in advertising and promotional efforts including billboards, newsprints and in-store advertising to drive sales and service revenue in existing and new customers, and increase of salary and compensation expenses, as well as pre-operating expenses of our new flagship hospital.

Total Other Income (Expenses)

Other expenses for the three months ended June 30, 2011 was $19,423 compared to other expenses of $36,040 for the same period of the previous year. The decrease was mainly due to the bank charges of $21,901 for the loan we secured in the second quarter of 2010.

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Net Income Attributable to CHINA SHESAYS Common Stockholders

As a result of the factors described above, we had net income attributable to CHINA SHESAYS common stockholders in the amount of $0.7 million for the three months ended June 30, 2011, an increase of 103.2% as compared with $0.3 million for the three months June 30, 2010. The increase in net income attributable to CHINA SHESAYS common stockholders was mainly attributed to the increase of revenue in the three months ended June 30, 2011.

Foreign Currency Translation Gain

Our business operates primarily in RMB, but we report our results in US$. The conversion of our accounts from RMB to US$ results in translation adjustments. As a result of a currency translation adjustment gain, our other comprehensive income was $75,101 for the three months ended June 30, 2011, as compared with $15,577 for the three months ended June 30, 2010. The increase is due to currency exchange fluctuation of Chinese RMB to US$ for the period.

Comprehensive Income Attributable to CHINA SHESAYS Common Stockholders

As a result of the factors described above, we had comprehensive income attributable to CHINA SHESAYS common stockholders in the amount of $0.7 million for the three months ended June 30, 2011, as compared with $0.3 million for the three months ended June 30, 2010.

Six Months Ended June 30, 2011, Compared to the Six Months Ended June 30, 2010:

		Six Months Ended June 30,						$		%
		2011			2010			Change		Change
Total revenue	$	7,787,403		$	6,012,675		$	1,774,728		29.5%
Cost of revenue		1,776,851			1,539,606			237,245		15.4%
Gross profit		6,010,552			4,473,069			1,537,483		34.4%
Operating expenses		4,324,047			2,403,607			1,920,440		79.9%
Total other income (expenses)		(50,467	)		(93,615	)		43,148		-46.1%
Income from operations before taxes		1,636,038			1,975,847			(339,809	)	-17.2%
Income tax expenses		359,734			512,073			(152,339	)	-29.7%
Net income attributable to CHINA SHESAYS
common stockholders		1,304,010			1,463,774			(159,764	)	-10.9%
Foreign currency translation gain		90,821			15,976			74,845		468.5%
Comprehensive income attributable to CHINA
SHESAYS common stockholders		1,394,512			1,479,750			(85,238	)	-5.8%

Total Revenue

Total revenue for the six months ended June 30, 2011 increased by approximately $1.8 million or 29.5% to $7.8 million as compared to $6.0 million for the six months ended June 30, 2010. We did not increase our prices from period to period. Our revenue growth was driven by increasing revenue from our headquarter hospital and three new clinics and our continued efforts to increase customers.

REVENUE		Six Months Ended June 30,
		2011		2010		$		%
						Change		Change
Cosmetic surgery services	$	3,224,377	$	3,051,966	$	172,411		5.6%
Professional medical beauty services		4,065,290		2,488,894		1,576,396		63.3%
Cosmetic dentistry services		56,388		231,958		(175,570	)	-75.7%
Sales of goods		441,348		239,857		201,491		84.0%
Total revenue	$	7,787,403	$	6,012,675	$	1,774,728		29.5%

Compared to the same period of 2010, cosmetic surgery service revenue increased 5.6% to $3.2 million, professional medical beauty service revenue increased 63.3% to $4.1 million, cosmetic dentistry service revenue decreased 75.7% to $56,388 and sales of goods increased 84.0% to $0.4 million. Our strategy to focus on professional medical beauty services and enhanced marketing activities contributed to the year-over-year increases.

		Six Months Ended June 30,
		2011			2010
Location
Sichuan Shesays	$	7,123,602	91.5%	$	6,012,675	100.0%
Leshan Jiazhou Shesays		278,692	3.6%		-	-
Yibin Shesays		246,086	3.1%		-	-
Zigong Shesays		139,023	1.8%		-	-
Total revenue	$	7,787,403	100.0%	$	6,012,675	100.0%

For the six months ended June 30, 2011, revenue of our headquarter hospital increased by 18.5% to $7.1 million, from $6.0 million in the first six months of 2010. Three new clinics launched in the second half of 2010 contributed approximately $0.7 million to revenue.

Cost of Revenue

Our cost of revenue, which consists of costs of the products sold and used for services provided and costs of direct labor and overhead, was $1.8 million for the six months ended June 30, 2011, an increase of 15.4% from $1.5 million for the six months ended June 30, 2010. Cost of revenue as a percentage of revenue decreased from 25.6% to 22.8% as compared to the comparative period. The increase in cost of revenue in the first six months of 2011 was due to the increase in customer service revenue.

Gross Profit

Our gross profit for the six months ended June 30, 2011 was $6.0 million, an increase of $1.5 million or 34.4% from $4.5 million for the six months ended June 30, 2010. The increase in gross profit in the six months ended June 30, 2011 was mainly due to the increasing number of customers and revenue from our facilities, as well as new services we provided. Our overall gross profit margin as a percentage of revenue was 77.2% for the six months ended June 30, 2011 compared to 74.4% of the same period of the previous year. The gross margin increased by 2.8% due to our strategy to focus on higher margin services since our headquarter hospital is already in full capacity. In addition, during the first six months of 2011, we introduced several new cosmetic services with higher margins.

Operating Expenses

Our operating expenses increased by approximately $1.9 million to $4.3 million for the six months ended June 30, 2011 from $2.4 million for the same period of the previous year. This 79.9% increase was mainly attributable to increase in the expenses associated with marketing and advertising activities, increase of salary and compensation expenses and pre-operating expenses related to our new flagship hospital under construction. We spent $1.6 million in advertising in the six months ended June 30, 2011, a 140.9% increase compared to $0.7 million in the same period of 2010. We hired and trained additional professional personnel for preparing launch of new flagship hospital in the second half of 2011, which also contributed to the increase of operating expenses in the period.

Total Other Income (Expenses):

Other expenses for the six months ended June 30, 2011 was $50,467 compared to other expenses of $93,615 for the same period of the previous year. The decrease was mainly due to the bank charges of $45,361 for the loan we carried in 2010.

Net Income Attributable to CHINA SHESAYS Common Stockholders

Net income attributable to CHINA SHESAYS common stockholders for the six months ended June 30, 2011 was $1.3 million, a decrease of 10.9% as compared with $1.5 million for the six months June 30, 2010. The decrease in net income was mainly attributed to the significant increase of operating expenses in the six months ended June 30, 2011.

Foreign Currency Translation Gain

Our business operates primarily in RMB, but we report our results in US$. The conversion of our accounts from RMB to US$ results in translation adjustments. As a result of a currency translation adjustment gain, our other comprehensive income was $90,821 for the six months ended June 30, 2011, as compared with $15,976 for the six months ended June 30, 2010. The increase is due to currency exchange fluctuation of RMB to US$ for the period.

Comprehensive Income Attributable to CHINA SHESAYS Common Stockholders

Comprehensive income attributable to CHINA SHESAYS common stockholders was $1.4 million for the six months ended June 30, 2011, as compared with $1.5 million for the six months ended June 30, 2010.

Off-Balance Sheet Arrangements

Other than those disclosed in the notes to the unaudited condensed consolidated financial statements, there were no other off-balance sheet arrangements during the six months ended June 30, 2011, that have, or are reasonably likely to have, a current or future effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our interests.

Liquidity and Capital Resources

As of June 30, 2011, we had cash and cash equivalents of $0.8 million. We had a working capital deficit of $2.2 million, that is, our current assets were $2.6 million and our current liabilities were $4.8 million as of June 30, 2011. Our net working capital deficit may initially raise substantial doubt as to our ability to continue as a going concern. However, we believe that our strong net cash flow from operating activities, cost reduction and postponement of business expansion will provide sufficient liquidity to finance our anticipated working capital and capital expenditure requirements of $4 million for the next 12 months

Total stockholders' equity as of June 30, 2011 was $5.9 million. The following table provides detailed information regarding our net cash flow for all financial statement periods presented in this report.

		Six Months Ended June 30,
		2011			2010
Net cash provided by operating activities	$	1,353,912		$	1,506,744
Net cash used in investing activities		(2,441,000	)		(2,978,051	)
Net cash provided by financing activities		827,293			870,727
Effect of exchange rates on cash		11,397			3,107
Net decrease in cash and cash equivalents		(248,398	)		(597,473	)
Cash and cash equivalents – beginning of period		1,029,280			1,371,732
Cash and cash equivalents – end of period		780,882			774,259

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Operating Activities

Cash provided by operating activities totaled $1.4 million for the six months ended June 30, 2011 as compared with $1.5 million provided by operating activities for the three months ended June 30, 2010. Compared with the same period in 2010, the decrease in net cash provided by operating activities was primarily due to the decrease in net income and decrease of accounts payable and increase in other current assets and prepaid expenses, offset by the increase in depreciation.

Investing Activities

Cash used in investing activities was $2.4 million for the six months ended June 30, 2011 as compared to $3 million used for the six months ended June 30, 2010. The decrease in cash used in investing activities is mainly due to $1.1 million decrease in long term prepaid expenses.

Financing Activities

Cash provided by financing activities was $0.8 million for the six months ended June 30, 2011 as compared to $0.9 million provided in financing activities for the six months ended June 30, 2010. The slight decrease was mainly due to a bank loan of $0.9 million was repaid, offset by a new bank loan of $1.7 million borrowed in the first half of 2011.

Based on our current operating plan, we believe that our existing resources, including cash generated from operations, as well as bank loans, will be sufficient to meet our working capital requirement for our current operations. However, in order to fully implement our business plan and continue our growth, we may require additional capital either from our stockholders or from outside sources.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including to the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 under the Exchange Act, our management, including our Chairman, Chief Executive Officer and President, Yixiang Zhang, and Chief Financial Officer, Wenbin Zhu, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2011. Based on our assessment, Mr. Zhang and Ms. Zhu determined that, as of June 30, 2011, the evaluation of the effectiveness of our disclosure controls and procedures was completed, and because of the material weaknesses in our internal controls over financial reporting described below, our disclosure controls and procedures were not effective.

During its evaluation of the effectiveness of internal controls over financial reporting as of June 30, 2011, management identified the following material weaknesses: (i) lack of sufficient accounting personnel with appropriate understanding of U.S. GAAP and SEC reporting requirements; (ii) lack of standard chart of accounts and written accounting manual and closing procedures to facilitate preparation of financial statements under U.S. GAAP for financial reporting processes; (iii) lack of an audit committee or other independent oversight over our management and internal controls; and (iv) lack of independent directors.

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Notwithstanding management’s assessment that our internal controls over financial reporting was ineffective as of June 30, 2011 due to the material weakness described above, we believe that, the financial statements included in this Quarterly Report on Form 10-Q present fairly our financial condition, results of operations and cash flows for the period covered thereby in all material respects.

Our disclosure controls and procedures provide our Chief Executive Officer and Chief Financial Officer with reasonable assurances that our disclosure controls and procedures will achieve their objectives. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting can or will prevent all human error. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there are internal resource constraints, and the benefit of controls must be weighed relative to their corresponding costs. Because of the limitations in all control systems, no evaluation of controls can provide complete assurance that all control issues and instances of error, if any, within our company are detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur due to human error or mistake. Additionally, controls, no matter how well designed, could be circumvented by the individual acts of specific persons within the organization. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions.

Changes in Internal Control Over Financial Reporting

During the six months ended June 30, 2011, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We are currently not a party to any legal proceeding and are not aware of any legal claims that we believe will have a material adverse effect on our business, financial condition or operating results. However, from time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

ITEM 1A. RISK FACTORS.

Risks Relating to Our Business and Industry

Product liability claims or treatment malpractice claims could harm our business, financial condition and results of operations.

We face an inherent business risk of exposure to product liability claims in the event that the use of our products is alleged to have resulted in adverse effects or our treatments or procedures are claimed to be malpractice. While we take what we believe are appropriate precautions, we may not be able to avoid significant product liability exposure. We currently do not have product liability insurance or malpractice insurance. Although we have yet to face a product liability claim or a treatment malpractice claim, the assertion of this type of claim could have a material adverse affect on our business, financial condition and results of operations.

We have a limited operating history, which may make it difficult for you to evaluate our business and prospects.

We began our current business operations in May 2005. Accordingly, we have a limited operating history for our current operations upon which you can evaluate the viability and sustainability of our business and its acceptance by consumers. It is also difficult to evaluate the viability of our business model because we do not have sufficient experience to address the risks frequently encountered by every level of branches newly established and when entering new regional markets. These circumstances may make it difficult for you to evaluate our business and prospects.

Our senior management and employees have worked together for a short period of time, which may make it difficult for you to evaluate their effectiveness and ability to address challenges.

Due to our limited operating history and recent additions to our management team, certain of our senior management and employees have worked together at our company for only a relatively short period of time. As a result, it may be difficult for you to evaluate the effectiveness of our senior management and other key employees and their ability to address future challenges to our business. Mr. Zhang, the Chairman and CEO of the Company, founded SHESAYS in 2005. Mr. Wenhui Shao, the President of the Company, the President and Board of Director of SHESAYS, joined SHESAYS in 2005. Mr. Xingwang Pu, Chief Technology Officer of the Company, the Board of Director and President in the Technology Department of SHESAYS, joined SHESAYS in 2005. Ms. Wenbin Zhu, Chief Financial Officer of the Company, joined SHESAYS in 2007. Since 2010, we added two new members to our management team of SHESAYS. Meng Hu joined us on November 11, 2010 and serves as administration director in Cosmetic Surgery Department. Yan Deng joined the Company on September 1, 2010 and serves as manager in Customer Service Department.

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Our medical care personnel may have errors in plastic surgery operation, which would cause clinic incidents and adversely affect our ability to generate revenue from our cosmetology services, and our financial condition and results of operations.

Medical care personnel may have errors in plastic surgery operation, and clinical test products may be risky. If a serious medical negligence/malpractice happened, our brand image would be severely impaired, which would affect our ability to generate revenue from our cosmetology services, and our financial condition and results of operations.

There may be more advanced appliances and equipment or diagnosis and treatment methods which may constitute challenge against SHESAYS.

We need to upgrade our techniques and equipment continuously to keep our technique advantage. In respect of external environment, there may be more advanced appliances and equipment or diagnosis and treatment methods which may constitute challenge against SHESAYS. In response to such challenge, we will continue to strengthen employee training to enhance professional abilities and also continue to raise our research level, operative skills and update equipment to maintain our leading status in cosmetology techniques in the region.

Our revenue is particularly sensitive to changes in economic conditions and cosmetology trends.

Demand for our cosmetology services, and the resulting cosmetology spending by our clients, is particularly sensitive to changes in general economic conditions and their disposable income. During periods of economic downturn, people may reduce the money they spend on cosmetology, which would materially and adversely affect our ability to generate revenue from our cosmetology services, and our financial condition and results of operations.

A substantial majority of our revenue are currently concentrated in Chengdu. If the city experiences an event negatively affecting its cosmetology industry, our ability to generate adequate cash flow would be materially and adversely affected.

Though we will expand our business across Sichuan Province, substantial majority of our revenue are currently concentrated in Chengdu, from where 96% of the total revenue in 2010 were generated. We expect Chengdu to continue to be the important sources of our revenue. If the city experiences an event negatively affecting its cosmetology industry, such as a serious clinical incident, negative changes in government policy, a natural disaster, our ability to generate adequate cash flow would be materially and adversely affected.

We may not be able to successfully expand our business network into new regions which could harm or reverse our growth potential and our ability to increase our revenue, or even result in a decrease in revenues.

We are pursuing a strategy to expand our service network into new regions. Based on the Chengdu headquarters, we aim to expand our business into other cities of Sichuan province and nation wide. As of date, we have established a comprehensive cosmetology hospital, three new outpatient clinics in Yibin city, Leshan city and Zigong city, and are planning to set up the second flagship hospital in Chengdu.

In the new cities, we may compete with local competitors and encounter new difficulties, which could harm or reverse our growth potential and our ability to increase our revenue, or even result in a decrease in revenue.

We face intensive competition, and if we do not compete successfully against new and existing competitors, we may lose our market share, and our profitability may be adversely affected.

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We compete with some of the largest cosmetology hospitals such as Huamei Zixin Medical Cosmetology Hospital, Chengdu Dahua Medical Plastic Hospital in southwest China. We compete for plastic surgery clients primarily on the basis of network size and coverage, location, price, technique level, the range and the quality of services that we offer and our brand name. We also compete for such business as esthetic dentistry, gynecology / male plastic surgery with private dental clinics and cosmetology departments in regular public hospitals. Increased competition could reduce our operating margins and profitability and result in a loss of market share. Some of our existing and potential competitors may have competitive advantages, such as significantly greater financial, marketing or other resources and may be able to mimic and adopt our business model. We cannot assure you that we will be able to successfully compete against new or existing competitors.

We depend on the leadership and services of Mr. Yixiang Zhang, who is our founder, chairman, and our largest shareholder, and our business and growth prospects may be severely disrupted if we lose his services.

Our future success is dependent upon the continued service of Mr. Yixiang Zhang, our founder and chairman and largest shareholder (pursuant to an agreement Mr. Zhang signed with a major shareholder of the Company on April 27, 2010, Mr. Zhang is able to purchase 8,970,012 shares of the common stock of our company for a nominal price within 5 years from the execution date of such agreement and become the largest shareholder of the Company). We rely on his industry expertise and experience in our business operations, and in particular, his business vision, management skills, and working relationships with our employees, our other major shareholders and many of our customers. If he was unable or unwilling to continue in his present position, or if he joins a competitor or forms a competing company in violation of his employment agreement and non-compete agreement, we may not be able to replace him easily or at all. As a result, our business and growth prospects may be severely disrupted if we lose his services.

Our expansion plan would be restricted by the need of updating our management systems and shortage of human resources.

With the expansion of our business, our management systems and shortage of human resources may become factors restricting our company’s development. We expand our business with a rapid speed, and our current management systems may not be timely updated and there might not be enough talents to be recruited. We will continue to establish and improve our management systems such as counter-crisis plans and organization & position design systems. We will also continue to enhance our medical care personnel’s training and continue our efforts in recruiting high-quality employees. We expect a budget of $150,000 to enhance our management systems in 2011. We will also continue to enhance our medical care personnel’s training system and continue our efforts in recruiting high-quality employees with $150,000 estimate expenditure in 2011. The total estimate amount spent on enhancing the management systems as well as on training and recruitment over next fiscal year is $300,000. We will pay for the budget from our net earnings and working capital during 2011.

If we do not continue to expand and maintain an effective sales and marketing team, it will cause short-term disruptions of our operations, restrict our sales efforts and negatively affect our cosmetology services revenue.

Many of our sales and marketing personnel have only worked for us for a short period of time. We depend on our marketing staff to explain and introduce our service offerings to our existing and potential customers. We will need to further increase the size of our sales and marketing staff as our business continues to grow. We may not be able to hire, retain, integrate or continue to motivate our current or new marketing personnel which would cause short-term disruptions of our operations, restrict our sales efforts and negatively affect our cosmetology services revenue. In 2009 and 2010, we have recruited 6 and 11 sales and marketing staff respectively. For the members of sales team recruited in 2010, the average time of employment is 7 months. For those recruited in 2009, the average time of employment is 18 months. We expect to hire additional 10-15 sales employees in 2011.

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We may need additional capital and we may not be able to obtain it, which could adversely affect our liquidity and financial position.

To further expand our business into other cities, we have recently opened three new outpatient clinics in Leshan, Yibin and Zigong cities in Sichuan province. The 9,263 square feet clinic in Leshan, the 8,851 square feet clinic in Yibin and the 13,912 square feet clinic in Zigong primarily provide a range of customized services including medical cosmetology, cosmetic surgery, cosmetic dentistry, and cosmetic dermatology. In the future, we plan to set up more new hospitals and outpatient clinics nation wide. As a result, we may require additional cash resources. We expect to need approximately $30.5 million to realize our plans for expansion in the next 3 years. If these sources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of convertible debt securities or additional equity securities could result in additional dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity.

Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including:

• investors’ perception of, and demand for, securities of alternative cosmetology hospital;

• conditions of the U.S. and other capital markets in which we may seek to raise funds;

• our future results of operations, financial condition and cash flows;

• PRC governmental regulation of foreign investment in cosmetology hospitals in China;

• economic, political and other conditions in China; and

• PRC governmental policies relating to foreign currency borrowings.

We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us could have a material adverse effect on our liquidity and financial condition.

Our liquidity may be negatively affected by the waiver of payment of management and service fee for the term of three years.

Pursuant to the contractual arrangements between our subsidiary, BOAN with SHESAYS and its stockholders, BOAN provides management and consulting services to SHESAYS and its subsidiaries in exchange for service fees. The service fees shall be equal to 100% of the residual return of SHESAYS and its subsidiaries which can be waived by BOAN from time to time at its sole discretion. Pursuant to the Supplementary Agreement to the Exclusive Service Agreement on March 22, 2011, BOAN and SHESAYS reached an agreement that, in order to support the strategic expansion plan of SHESAYS in China, BOAN agreed to waive the service fees to be paid by SHESAYS for three years commencing from April 27, 2010 so that SHESAYS can execute its business expansion plan, launch the flagship hospital in Chengdu and establish the cosmetology hospitals in various locations in China. As we do not have any other assets and any revenue from other sources other than our interest in the agreements, our liquidity could be negatively affected by the waiver of payment of management and service fee. BOAN and our company have never received any service fee from SHESAYS, the operating company and we expect to receive service fees commencing on April 28, 2013. Boan and we do not expect to declare any dividend before April 27, 2013, nor is any other amount expected to be due prior to April 27, 2013. However, if there is any amount occurred and need to be paid during the period, we can borrow from SHESAYS to settle such amount.

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Currently we do not maintain an effective system of internal controls and may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of our stock may be adversely impacted.

Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future. If we fail to maintain an effective system of internal controls in the future, we may be unable to accurately report our financial results or prevent fraud and investor confidence and the market price of our stock may be adversely impacted. Prior to the consummation of the business combination on June 7, 2010, we were a shell company with nominal operations and nominal assets. We declared in 2009 10-K that the internal controls was ineffective due to lack of proper segregation of functions, duties and responsibilities with respect to our cash and controls over the disbursements related thereto due to our very limited staff, including our accounting personnel. After the restructuring of the company, our internal controls have been improved with new business and operation. We maintain a system of internal controls and procedures and prepare our financial reports according to US GAAP. However, the Company currently does not have an US GAAP expert in its staff and does not have an audit committee, independent directors, and has not established independent oversight over our management and internal controls. Thus we believe our internal controls over financial reporting were not effective as of December 31, 2010. Since December 2010, we have been working to take corrective steps. Our CFO and accounting staff regularly supplement their knowledge related to U.S. GAAP and receive updates regarding changes to or developments in U.S. GAAP via the Internet. Also, we plan to hire experienced professionals, independent directors and set up audit committee when appropriate candidates are identified and sufficient funds are available to us. As we currently do not maintain an effective system of internal controls, we may be unable to accurately report our financial results or prevent fraud, and investors’ confidence and the market price of our stock may be adversely impacted.

Risks Relating to Regulation of Our Business and to Our Structure

If the PRC government finds that the agreements that establish the structure for operating our China business do not comply with PRC governmental restrictions on foreign investment in the medical industry, we could be subject to severe penalties.

Substantially all of our operations are or will be conducted through our indirectly wholly-owned operating subsidiaries in China, which we collectively refer to as our PRC operating subsidiaries, and through our contractual arrangements with our consolidated affiliated entities in China. PRC regulations require any foreign entities that invest directly in the medical services industry to have direct operations in the medical industry outside of China. In addition, foreign entity is not allowed in China to set up wholly-owned medical institute although the foreign entity is permitted to set up a joint venture medical institute with Chinese entities. Foreign investors are permitted to hold shares of the joint venture medical institute at maximum of 70%.

We do not currently directly operate medical services outside of China and cannot qualify under PRC regulations before we commence any such operations outside of China or until we acquire a company that has directly operated a medical services business outside of China. Accordingly, since we have not been involved in the direct operation of medical services business outside of China, our domestic PRC subsidiary, BOAN, which is considered foreign-invested, is currently ineligible to apply for the required medical services licenses in China. While our indirect PRC operating subsidiaries are eligible for the required licenses for providing medical services in China and some of our indirect PRC operating subsidiaries have obtained such licenses, we have been using and are expected to continue to use PRC operating affiliates and their subsidiaries to operate a significant portion of our medical business for the foreseeable future. We have entered into contractual arrangements with PRC operating affiliates and their respective subsidiaries, pursuant to which we, through our PRC operating subsidiaries or non-PRC subsidiaries, provide technical support and consulting services to our PRC operating affiliates and their subsidiaries. In addition, we have entered into agreements with our PRC operating affiliates and each of their stockholders which provide us with the substantial ability to control these affiliates and their existing and future subsidiaries.

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If we, our existing or future PRC operating subsidiaries and affiliates are found to be in violation of any existing or future PRC laws or regulations or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities, including the State Administration for Industry and Commerce, or SAIC, which regulates cosmetology hospitals, would have broad discretion in dealing with such violations, including:

• revoking the business and operating licenses of our PRC subsidiaries and affiliates;

• discontinuing or restricting our PRC subsidiaries’ and affiliates’ operations;

• imposing conditions or requirements with which we or our PRC subsidiaries and affiliates may not be able to comply;

• requiring us or our PRC subsidiaries and affiliates to restructure the relevant ownership structure or operations; or

• restricting or prohibiting our use of the proceeds of this offering to finance our business and operations in China.

The imposition of any of these penalties would result in a material and adverse effect on our ability to conduct our business.

We rely on contractual arrangements with SHESAYS and its subsidiaries and shareholders for a substantial portion of our China operations, which may not be as effective in providing operational control as direct ownership.

We rely on contractual arrangements with SHESAYS and its subsidiaries and shareholders to operate our medical business. For a description of these contractual arrangements, see “PRC Structure.” These contractual arrangements may not be as effective in providing us with control over SHESAYS as direct ownership. If we had direct ownership of SHESAYS, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of SHESAYS which in turn could effect changes, subject to any applicable fiduciary obligations, at the management level. However, under the current contractual arrangements, as a legal matter, if SHESAYS or any of its subsidiaries and shareholders fails to perform its or his respective obligations under these contractual arrangements, we may have to incur substantial costs and resources to enforce such arrangements, and rely on legal remedies under PRC law, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you to be effective.

Many of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through either arbitration or litigation in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. In the event we are unable to enforce these contractual arrangements, we may not be able to exert effective control over our operating entities, and our ability to conduct our business may be negatively affected.

Unaffiliated stockholders may have limited recourse against our affiliates if they do not abide by or terminate the contractual arrangements that govern our operations, and these relationships may present potential conflicts of interest.

There are affiliates on both sides of the contractual agreements. For example, Mr. Zhang is our Chairman and Chief Executive Officer and may become our largest stockholder (pursuant to an agreement Mr. Zhang signed with a major stockholder of the Company on April 27, 2010, Mr. Zhang is able to purchase 8,970,012 shares of the common stock of our company for a nominal price within 5 years from the execution date of such agreement and then becomes the largest stockholder of the Company). At the same time, Mr. Zhang is the CEO and chairman of the board of our Chinese operating company SHESAYS and hold 45% of equity of SHESAYS.

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Since affiliates stand on both sides of the agreements which are critical to our business operations, it would be easy to terminate or modify these agreements. As a result, since these agreements and our affiliates are governed by PRC law, our unaffiliated investors would have little or no recourse since all of the assets of our operating entities are located in China and we do not have any other assets an any revenue from other sources other than our interest in the agreements. Under PRC law, disputes under contractual arrangements are often resolved through arbitration or litigation. Affected stockholders may be limited to seeking damages as PRC courts may be reluctant to order specific performance.

In addition, these relationships may pose potential conflicts of interest. When the interests of these affiliates diverge from our interests, they may be required to exercise their influence in the best interests of both us (or our stockholders) and another related entity and their owners. Some decisions concerning our operations or finances may present conflicts of interest between us and the other entity or person or its affiliates. There is no mechanism in place to resolve these conflicts of interest, and applicable law may also prohibit a stockholder from successfully challenging a transaction with an affiliate if the transaction received the requisite vote of our disinterested directors who received full disclosure of the existence and nature of the conflict.

Contractual arrangements we have entered into among our subsidiaries and affiliated entities may be subject to scrutiny by the PRC tax authorities and a finding that we owe additional taxes or are ineligible for our tax exemption, or both, could substantially increase our taxes owed, and reduce our net income and the value of your investment.

Under PRC law, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. If any of the transactions we have entered into among our subsidiaries and affiliated entities are found not to be on an arm’s-length basis, or to result in an unreasonable reduction in tax under PRC law, the PRC tax authorities have the authority to disallow our tax savings, adjust the profits and losses of our respective PRC entities and assess late payment interest and penalties. We did not obtain any tax savings from the contractual arrangements we entered into amongst our subsidiaries and affiliated entities. We do not expect there will be any tax saving in the future.

Our business operations may be affected by legislative or regulatory changes.

The regulatory department of the government may issue new rules and regulations which may raise higher requirements for operation, qualifications of employees and hardware levels. Changes in laws and regulations or the enactment of new laws and regulations governing plastic surgery, our business licenses or otherwise affecting our business in China may materially and adversely affect our business prospects and results of operations. Substantially all of our assets are located in China and substantially all of our revenue are derived from our operations in China. Accordingly, our business, financial condition, results of operations and prospects are subject, to a significant extent, to economic, political and legal developments in China.

The PRC’s economic, political and social conditions, as well as governmental policies, could affect the financial markets in China and our liquidity and access to capital and our ability to operate our business.

The PRC economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the PRC economy has experienced significant growth over the past, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may also have a negative effect on us. For example, under current PRC regulations, PRC regulations require any foreign entities that invest directly in the medical services industry to have direct operations in the medical industry outside of China. In addition, foreign entity is not allowed in China to set up wholly-owned medical institute although the foreign entity is permitted to set up a joint venture medical institute with Chinese entities. Foreign investors are permitted to hold shares of the joint venture medical institute at maximum of 70%. Moreover, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us.

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The PRC economy has been transitioning from a planned economy to a more market-oriented economy. Although the PRC government has implemented measures since the late 1970s emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the PRC government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over China’s economic growth through the allocation of resources, controlling payment of foreign currency- denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Since late 2003, the PRC government implemented a number of measures, such as raising bank reserves against deposit rates to place additional limitations on the ability of commercial banks to make loans and raise interest rates, in order to slow down specific segments of China’s economy which it believed to be overheating. These actions, as well as future actions and policies of the PRC government, could materially affect our liquidity and access to capital and our ability to operate our business.

The PRC legal system embodies uncertainties which could limit the legal protections available to you and us.

The PRC legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have little precedential value. In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past 30 years has significantly enhanced the protections afforded to various forms of foreign investment in China. Our PRC operating subsidiary, BOAN, is a wholly foreign-owned enterprise which is an enterprise incorporated in China and wholly-owned by foreign investors. BOAN is subject to laws and regulations applicable to foreign investment in China in general and laws and regulations applicable to wholly foreign-owned enterprises in particular. However, these laws, regulations and legal requirements change frequently, and their interpretation and enforcement involve uncertainties. For example, we may have to resort to administrative and court proceedings to enforce the legal protection that we enjoy either by law or contract. However, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. For example, these uncertainties may impede our ability to enforce the contracts we have entered into with SHESAYS and its subsidiaries. In addition, such uncertainties, including the inability to enforce our contracts, could materially and adversely affect our business and operation. In addition, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other countries. Accordingly, we cannot predict the effect of future developments in the PRC legal system, particularly with regard to the medical industry, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. These uncertainties could limit the legal protections available to us, including our ability to enforce our agreements with SHESAYS and its subsidiaries, and other foreign investors.

Recent regulations relating to offshore investment activities by PRC residents may increase the administrative burden we face and create regulatory uncertainties that could restrict our overseas and cross-border investment activity, and a failure by our shareholders who are PRC residents to make any required applications and filings pursuant to such regulations may prevent us from being able to distribute profits and could expose us and our PRC resident shareholders to liability under PRC law.

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The PRC National Development and Reform Commission, or NDRC, and SAFE recently promulgated regulations that require PRC residents and PRC corporate entities to register with and obtain approvals from relevant PRC government authorities in connection with their direct or indirect offshore investment activities. These regulations apply to our shareholders who are PRC residents and may apply to any offshore acquisitions that we make in the future.

Under the SAFE regulations, PRC residents who make, or have previously made, direct or indirect investments in offshore companies will be required to register those investments. In addition, any PRC resident who is a direct or indirect stockholder of an offshore company is required to file with the local branch of SAFE, with respect to that offshore company, any material change involving capital variation, such as an increase or decrease in capital, transfer or swap of shares, merger, division, long term equity or debt investment or creation of any security interest over the assets located in China. If any PRC stockholder fails to make the required SAFE registration, the PRC subsidiaries of that offshore parent company may be prohibited from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation, to their offshore parent company, and the offshore parent company may also be prohibited from injecting additional capital into their PRC subsidiaries. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions.

We cannot assure you that all of our stockholders who are PRC residents will comply with our request to make or obtain any registrations or approvals required under these regulations or other related legislation. Furthermore, as the regulations are relatively new, the PRC government has yet to publish implementing rules, and much uncertainty remains concerning the reconciliation of the new regulations with other approval requirements. It is unclear how these regulations, and any future legislation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. The failure or inability of our PRC resident shareholders to comply with these regulations may subject us to fines and legal sanctions, restrict our overseas or cross-border investment activities, limit our ability to inject additional capital into our PRC subsidiaries and the ability of our PRC subsidiaries to make distributions or pay dividends, or materially and adversely affect our ownership structure. If any of the foregoing events occur, our acquisition strategy and business operations and our ability to distribute profits to you could be materially and adversely affected.

The PRC tax authorities may require us to pay additional taxes in connection with our acquisitions of offshore entities that conducted their PRC operations through their affiliates in China.

Our operations and transactions are subject to review by the PRC tax authorities pursuant to relevant PRC laws and regulations. However, these laws, regulations and legal requirements change frequently, and their interpretation and enforcement involve uncertainties. For example, in the case of some of our acquisitions of offshore entities that conducted their PRC operations through their affiliates in China, we cannot assure you that the PRC tax authorities will not require us to pay additional taxes in relation to such acquisitions. In the event that the sellers failed to pay any taxes required under PRC law in connection with these transactions, the PRC tax authorities might require us to pay taxes, together with late-payment interest and penalties.

If any of our PRC affiliates becomes the subject of a bankruptcy or liquidation proceeding, we may lose the ability to use and enjoy those assets, which could reduce the size of our cosmetology services network and materially and adversely affect our business, ability to generate revenue and the market price of our stock.

To comply with PRC laws and regulations relating to foreign ownership restrictions in the medical business, we currently conduct our operations in China through contractual arrangements with SHESAYS, its shareholders and subsidiaries. As part of these arrangements, SHESAYS and its subsidiaries hold certain of the assets that are important to the operation of our business. If any of these entities goes bankrupt and all or part of their assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations. If any of SHESAYS and its subsidiaries undergoes a voluntary or involuntary liquidation proceeding, its shareholders or unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, our ability to generate revenue and the market price of our stock.

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Restrictions on currency exchange may limit our ability to utilize our revenue effectively.

Substantially all of our revenue and operating expenses are denominated in Renminbi. The Renminbi is currently convertible under the “current account”, which includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account”, which includes foreign direct investment and loans. Currently, BOAN may purchase foreign exchange for settlement of “current account transactions”, including payment of dividends to us, without the approval of the State Administration of Foreign Exchange. However, we cannot assure you that the relevant PRC governmental authorities will not limit or eliminate our ability to purchase foreign currencies in the future. Since a significant amount of our future revenue will be denominated in Renminbi, any existing and future restrictions on currency exchange may limit our ability to utilize revenue generated in Renminbi to fund our business activities outside China, if any, or expenditures denominated in foreign currencies. Foreign exchange transactions under the capital account are still subject to limitations and require approvals from, or registration with, the State Administration of Foreign Exchange and other relevant PRC governmental authorities. This could affect BOAN’s ability to obtain foreign exchange through debt or equity financing, including by means of loans or capital contributions from us.

Fluctuations in exchange rates could result in foreign currency exchange losses.

Because our earnings and cash and cash equivalent assets are denominated in Renminbi fluctuations in exchange rates between the U.S. dollars and Renminbi will affect the relative purchasing power of our revenue and our balance sheet and earnings per share in U.S. dollars. In addition, appreciation or depreciation in the value of the Renminbi relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. Since July 2005 the Renminbi is no longer pegged solely to the U.S. dollar. Instead, it is reported to be pegged against a basket of currencies, determined by the People’s Bank of China, against which it can rise or fall by as much as 0.3% each day. This change in policy has resulted in the gradual increase in the value of the Renminbi against the U.S. dollar over time. Between July 2005, when China began its Renminbi exchange rate reform, and the end of 2009, the value of the Renminbi has appreciated by 21.21 percent against the U.S. dollar and up by 2.21 percent against the Euro. The Renminbi may appreciate or depreciate significantly in value against the U.S. dollar in the long term, depending on the fluctuation of the basket of currencies against which it is currently valued or it may be permitted to enter into a full float, which may also result in a significant appreciation or depreciation of the Renminbi against the U.S. dollar. Fluctuations in the exchange rate will also affect the relative value of any dividend we might issue in the future which will be exchanged into U.S. dollars and earnings from and the value of any U.S. dollar-denominated investments we make in the future.

Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. We do not intend to enter into any hedging transactions. Even if we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to successfully hedge our exposure at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency.

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Because our funds are held in banks in uninsured PRC bank accounts, the failure of any bank in which we deposit our funds could affect our ability to continue our business.

Funds on deposit at banks and other financial institutions in the PRC are often uninsured. A portion of our assets are in the form of cash deposited with banks in the PRC, and in the event of a bank failure, we may not have access to our funds on deposit. Depending upon the amount of money we maintain in a bank that fails, our inability to have access to our cash could impair our operations, and, if we are not able to access funds to pay our suppliers, employees and other creditors, we may be unable to continue in business. At the end of 2010, our deposit of fund in three banks, including Bank of Chengdu, Citic Bank, Shenzhen Development Bank, Bank of China and Agriculture Bank of China, is 0.45% of our total assets. There is low possibility that these banks fails, and we believe the failure of any single bank could not affect our ability to continue our business as our business has little accounts payable and has great capability to generate cash revenue on a day-to-day basis.

Failure to comply with the U.S. foreign corrupt practices act and Chinese anti-corruption laws could subject us to penalties and other adverse consequences.

Our executive officers, employees and other agents may violate applicable law in connection with the marketing or sale of our products, including China’s anti-corruption laws and the U.S. Foreign Corrupt Practices Act, or the FCPA, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. In addition, we are required to maintain records that accurately and fairly represent our transactions and have an adequate system of internal accounting controls. Foreign companies, including some that may compete with us, are not subject to these prohibitions, and therefore may have a competitive advantage over us. The PRC also strictly prohibits bribery of government officials. However, corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in the PRC.

While we intend to implement measures to ensure compliance with the FCPA and China’s anti-corruption laws by all individuals involved with our company, our employees or other agents may engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations. In addition, our brand and reputation, our sales activities or our stock price could be adversely affected if we become the target of any negative publicity as a result of actions taken by our employees or other agents.

Risks Relating to Regulation of Our Common Stock

Insiders have substantial control over us, and they could delay or prevent a change in our corporate control even if our other stockholders wanted it to occur.

Mr. Yixiang Zhang is our chief executive officer and currently, the sole member on the Board of Directors. Pursuant to an agreement Mr. Zhang signed with a major shareholder of the Company on April 27, 2010, Mr. Zhang is able to purchase 8,970,012 shares of the common stock of our company for a nominal price within 5 years from the execution date of such agreement and become the largest shareholder of the Company. See “Certain Relationships and Related Transactions.” Accordingly, Mr. Zhang and other executive officers who hold the Company’s common stock are able to control all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This could delay or prevent an outside party from acquiring or merging with us even if our other stockholders wanted it to occur.

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There is currently a very limited trading market for our common stock.

The market for our common stock is limited and we cannot assure you that a larger market will ever be developed or maintained. Currently, our common stock is traded on the Over-The-Counter Bulletin Board. Securities traded on the OTC Bulletin Board typically have low trading volumes. Market fluctuations and volatility, as well as general economic, market and political conditions, could reduce our market price. As a result, this may make it difficult or impossible for our shareholders to sell our common stock. Prior to the fourth quarter ended December 31, 2010, there was no trading activity of our common stock on the Over-The-Counter Bulletin Board.

We do not intend to pay cash dividends in the foreseeable future.

We currently intend to retain all future earnings for use in the operation and expansion of our business. We do not intend to pay any cash dividends in the foreseeable future but will review this policy as circumstances dictate. Should we decide in the future to do so, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries based in the PRC. Our operating subsidiaries, from time to time, may be subject to restrictions on its ability to make distributions to us, including restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions. See “Risks relating to Regulation of Our Business and to Our Structure” above.

Our common stock is subject to the Penny Stock Regulations.

Our common stock is, and will continue to be subject to the SEC’s “penny stock” rules to the extent that the price remains less than $5.00. Those rules, which require delivery of a schedule explaining the penny stock market and the associated risks before any sale, may further limit your ability to sell your shares.

The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share. Our common stock, when and if a trading market develops, may fall within the definition of penny stock and subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000, or annual incomes exceeding $200,000 or $300,000, together with their spouse).

For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser’s prior written consent to the transaction. Additionally, for any transaction, other than exempt transactions, involving a penny stock, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the Commission relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the “penny stock” rules may restrict the ability of broker-dealers to sell our common stock and may affect the ability of investors to sell their common stock in the secondary market.

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Our common stock is illiquid and subject to price volatility unrelated to our operations.

The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of other companies in the same industry, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.

A large number of shares of common stock will be issuable for future sale which will dilute the ownership percentage of our current holders of common stock. The availability for public resale of those shares may depress our stock price.

Also as a result, there will be a significant number of new shares of common stock on the market in addition to the current public float. Sales of substantial amounts of common stock, or the perception that such sales could occur, and the existence of warrants to purchase shares of common stock at prices that may be below the then current market price of the common stock, could adversely affect the market price of our common stock and could impair our ability to raise capital through the sale of our equity securities.

Enforcement against us or our directors and officers may be difficult.

Because our principal assets are located outside of the U.S. and a majority of our directors and officers, both present and future, reside outside of the U.S., it may be difficult for you to enforce your rights based on U.S. federal securities laws against us and our officers and directors or to enforce a U.S. court judgment against us or them in the PRC.

In addition, our operating company is located in the PRC and substantially all of its assets are located outside of the U.S. It may therefore be difficult for investors in the U.S. to enforce their legal rights based on the civil liability provisions of the U.S. Federal securities laws against us in the courts of either the U.S. or the PRC and, even if civil judgments are obtained in U.S. courts, to enforce such judgments in PRC courts. Further, it is unclear if extradition treaties now in effect between the U.S. and the PRC would permit effective enforcement against us or our officers and directors of criminal penalties under the U.S. Federal securities laws or otherwise.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

We have not sold any equity securities during the fiscal quarter ended June 30, 2011.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

There were no defaults upon senior securities during the fiscal quarter ended June 30, 2011.

ITEM 4. (REMOVED AND RESERVED)

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

           (a) Exhibits

31.1	Certification of the CEO
31.2	Certification of the CFO
32.1	Certification of the CEO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as filed herewith.
32.2	Certification of the CFO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as filed herewith.
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101. CAL *	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

*to be filed by Amendment

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CHINA SHESAYS MEDICAL COSMETOLOGY INC.
Date: August 19, 2011	By:/s/ Yixiang Zhang
	Name: Yixiang Zhang
	Title: Chief Executive Officer and Chairman
Date: August 19, 2011	By:/s/ Wenbin Zhu
	Name: Wenbin Zhu
	Title: Chief Financial Officer

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