China Shesays Medical Cosmetology Inc.: Form 10-Q

10-Q 1 form10-q.htm FORM 10-Q China Shesays Medical Cosmetology Inc.: Form 10-Q - Filed by newsfilecorp.com

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

FORM 10-Q

(Mark One)

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

For the quarterly period ended: March 31, 2011

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

For the transition period from ________________to ________________

Commission File Number: 333-144888

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

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

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

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

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

Yes [X] No [ ]

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

Yes [ ] No [ ]

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

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

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

Yes [ ] No [ X ]

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

Table of Contents

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements.	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	14
Item 3.	Quantitative and Qualitative Disclosure About Market Risk.	18
Item 4.	Controls and Procedures.	18

PART II - OTHER INFORMATION
Item 1.	Legal Proceedings.	19
Item 1A.	Risk Factors.	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	19
Item 3.	Defaults Upon Senior Securities.	19
Item 4.	Reserved.	19
Item 5.	Other Information.	20
Item 6.	Exhibits.	20

SIGNATURES		21

INTRODUCTION

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

“We,” “us,” “our” and the “Company” refer to China SHESAYS Medical Cosmetology Inc. and its subsidiaries;
“Securities Act” refers to the Securities Act of 1933, as amended, and “Exchange Act” refer to Securities Exchange Act of 1934, as amended;
“China” and “PRC” refer to the People's Republic of China;
“RMB” refers to Renminbi, the legal currency of China; and
“U.S. dollar,” “$” and “US$” refers to the legal currency of the United States. For all U.S. dollar amounts reported, the dollar amount has been calculated on the basis that $1 = RMB 6.591 for its December 31, 2010 audited balance sheet, and $1 = RMB 6.5601 its March 31, 2011 unaudited balance sheet, which were determined based on the currency conversion rate at the end of each respective period. The conversion rates of $1 = RMB 6.5804 is used for the condensed consolidated statement of operations and comprehensive income and consolidated statement of cash flows for the first quarter of fiscal 2011, and $1= RMB 6.83603 is used for the condensed combined statement of operations and comprehensive income and combined statement of cash flows for the first quarter of fiscal 2010; both of which were based on the average currency conversion rate for each respective quarterly period.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

iii

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

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


		March 31,		December 31,
		2011		2010
ASSETS		Unaudited
CURRENT ASSETS
Cash and cash equivalents	$	1,694,751	$	1,029,280
Inventories, net		453,627		521,254
Due from stockholders		-		52,821
Other current assets and prepaid expenses		1,812,886		1,446,837
Total Current Assets		3,961,264		3,050,192
PROPERTY AND EQUIPMENT, NET		6,535,425		6,008,198

DEFERRED TAX ASSETS		137,586		184,857

TOTAL ASSETS	$	10,634,275	$	9,243,247
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	671,814	$	725,386
Notes payable		914,620		910,332
Deferred revenue		39,143		24,441
Other payables and accrued liabilities		1,825,048		1,554,162
Income tax payable		1,021,191		706,450
Sales tax payable and other taxes payable		14,471		13,487
Due to stockholders		76,218		-
Total Current Liabilities		4,562,505		3,934,258

COMMITMENTS AND CONTINGENCIES		-		-

STOCKHOLDERS' EQUITY
China Shesays Stockholders' equity
Preferred stock, $0.001 par value, 5,000,000 shares
authorized, none issued or outstanding
as of March 31, 2011 and December 31, 2010		-		-
Common stock, $0.001 par value, 65,849,200 shares
authorized, 18,600,012 shares issued as of
March 31, 2011 and December 31, 2010		18,600		18,600
Additional paid in capital		2,166,401		2,160,485
Retained earnings
Unappropriated		3,184,653		2,438,376
Appropriated		429,566		429,566
Accumulated other comprehensive income		150,304		130,349
Total China Shesays Stockholders' Equity		5,949,524		5,177,376
Noncontrolling interests		122,246		131,613
Total Equity		6,071,770		5,308,989

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	10,634,275	$	9,243,247

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

CHINA SHESAYS MEDICAL COSMETOLOGY INC.
("CHINA SHESAYS") AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (UNAUDITED)
		Three months ended
		March, 31
		2011			2010
		Consolidated			Combined
REVENUE
Customer service revenue
Cosmetic surgery services	$	1,693,758		$	1,623,430
Professional medical beauty services		1,623,916			1,363,437
Cosmetic dentistry services		27,509			140,853
Sales of goods		229,946			120,205
Total Revenue		3,575,129			3,247,925

COST OF REVENUE
Cost of service revenue
Cosmetic surgery services		(374,705	)		(427,300	)
Professional medical beauty services		(330,600	)		(139,767	)
Cosmetic dentistry services		(19,985	)		(44,259	)
Cost of goods sold		(80,285	)		(49,685	)
Depreciation		(123,898	)		(71,447	)
Total Cost of Revenue		(929,473	)		(732,458	)

GROSS PROFIT		2,645,656			2,515,467

OPERATING EXPENSES
Selling, general and administrative expenses		632,428			457,676
Advertising costs		688,034			396,284
Professional and consultant fees		107,121			28,056
Depreciation		91,292			37,092
Total Operating Expenses		1,518,875			919,108

INCOME FROM OPERATIONS		1,126,781			1,596,359

OTHER INCOME (EXPENSES)
Other income		7			301
Interest income		171			1,563
Interest expenses		(7,745	)		(6,564	)
Imputed interest		-			(247	)
Other expenses		(23,477	)		(52,628	)
Total Other Expenses, net		(31,044	)		(57,575	)

INCOME FROM OPERATIONS BEFORE TAXES		1,095,737			1,538,784
Add (less):
Income tax expenses		(358,799	)		(405,120	)
Net loss attributable to noncontrolling interests		9,339			-

NET INCOME ATTRIBUTABLE TO CHINA SHESAYS
COMMON STOCKHOLDERS		746,277			1,133,664

OTHER COMPREHENSIVE INCOME
Total foreign currency translation gains		19,927			399
Add: foreign currency translation loss attributable to
noncontrolling interests		28			-
Foreign currency translation gains
attributable to China Shesays common stockholders		19,955			399
COMPREHENSIVE INCOME ATTRIBUTABLE
TO CHINA SHESAYS COMMON STOCKHOLDERS	$	766,232		$	1,134,063

Net income per share-basic and diluted	$	0.04		$	0.08

Weighted average number of shares outstanding during the period
- basic and diluted		18,600,012			13,500,012

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

CHINA SHESAYS MEDICAL COSMETOLOGY INC.
("CHINA SHESAYS") AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
		Three months ended
		March, 31
		2011			2010
		Consolidated			Combined
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	746,277		$	1,133,664
Adjusted to reconcile net income to cash provided
by operating activities:
Depreciation - cost of service revenue		123,898			71,447
Depreciation - operating expenses		91,292			37,092
Deferred income taxes		47,994			-
Loss on disposal of property and equipment		482			-
Imputed interest		-			247
Minority interest		(9,339	)		-
Changes in operating assets and liabilities
(Increase) decrease in:
Inventories		69,867			35,508
Other current assets and prepaid expenses		(358,335	)		(346,830	)
Increase (decrease) in:
Accounts payable		(56,812	)		(25,032	)
Deferred revenue		14,541			416
Other payables and accrued liabilities		263,043			41,439
Income tax payable		310,453			350,683
Sales tax payable and other taxes payable		918			9,854
Net cash provided by operating activities		1,244,279			1,308,488

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(842,231	)		(1,038,655	)
Proceeds from disposal of property and equipment		129,171			-
Due from stockholders		52,821			(177,837	)
Net cash used in investing activities		(660,239	)		(1,216,492	)

CASH FLOWS FROM FINANCING ACTIVITIES
Bank loan borrowed		911,799			877,702
Bank loan repaid		(911,799	)		(18,285	)
Due to a related company		-			(768	)
Due to stockholders		75,983			-
Contribution by stockholders		5,916			-
Net cash provided by financing activities		81,899			858,649

EFFECT OF EXCHANGE RATES ON CASH		(468	)		210

NET INCREASE IN CASH AND CASH EQUIVALENTS		665,471			950,855

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		1,029,280			1,371,732

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,694,751		$	2,322,587

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest expenses	$	7,745		$	6,564
Cash paid for income tax	$	203		$	54,438

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

CHINA SHESAYS MEDICAL COSMETOLOGY INC.
AND SUBSIDIARIES
(fka SN Strategies Corp.)
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 March 31, 2011, the results of operations for the three months ended March 31, 2011 (consolidated) and 2010 (combined) and cash flows for the three months ended March 31, 2011 (consolidated) and 2010 (combined). The results for the three months ended March 31, 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 and 2009 appearing in the Company’s Form 10-K as filed with the SEC on March 31, 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 6) 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 6). 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 the consolidated financial statements were prepared as if the reorganization occurred at the beginning of the first period presented.

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

PRINCIPLES OF CONSOLIDATION / COMBINATION

The accompanying unaudited condensed consolidated financial statements for the three months ended March 31, 2011 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 interests represent the minority stockholders’ 20% proportionate share of the results of Yibin Shesays.

The accompanying unaudited condensed combined financial statements for the three months ended March 31, 2010 include the financial statements of China Shesays and its contractually controlled affiliate, Sichuan Shesays for the three months ended March 31, 2010.

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

NOTE 4

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 revenues and expenses during the reporting period.

The Company measures the cost of credit points by reference to services redeemed in prior years and the probability of redemption are estimated by the directors based on past history. Actual results may be different from the estimation.

NOTE 5

RECENT ACCOUNTING STANDARDS AND PRONOUNCEMENTS

In December 2010, FASB issued ASU 2010-29 Business Combinations (Topic 805)-Disclosure of Supplementary Pro Forma Information for Business Combinations. The objective of this Update is to address diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations. The amendments in this Update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this Update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The adoption of this standard is not expected to have material impact on the Company’s consolidated financial statements.

In February 2010, FASB issued ASU 2010-9 Subsequent Events (Topic 855) Amendments to Certain Recognition and Disclosure Requirements ("ASU 2010-9"). ASU 2010-9 amends disclosure requirements within Subtopic 855-10. An entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. This change alleviates potential conflicts between Subtopic 855-10 and the SEC's requirements. ASU 2010-9 is effective for interim and annual periods ending after June 15, 2010. The adoption of this standard is not expected to have material impact on the Company’s consolidated financial statements.

In October 2009, the FASB issued ASU 2009-13, “Multiple-Deliverable Revenue Arrangements”, now codified under FASB ASC Topic 605, “Revenue Recognition”, (“ASU 2009-13”). ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendments eliminate the residual method of revenue allocation and require revenue to be allocated using the relative selling price method. ASU 2009-13 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The adoption of this standard is not expected to have material impact on the Company’s consolidated financial statements.

NOTE 6

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

(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. As of March 31, 2011, Sichuan Shesays and its subsidiaries had total assets of $10,408,092 and total liabilities of $5,171,664. As of December 31, 2010, Sichuan Shesays and its subsidiaries had total assets of $8,236,563 and total liabilities of $3,855,772.


NOTE 7	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 December 31, 2010, 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 in 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.

NOTE 8

INVENTORIES, NET


		March 31,		December 31,
		2011		2010
		(Unaudited)
Medical materials	$	306,920	$	386,634
Finished goods - merchandise		146,707		134,620
Less: Provision for obsolescence		-		-
	$	453,627	$	521,254


NOTE 9	OTHER CURRENT ASSETS AND PREPAID EXPENSES


		March 31,		December 31,
		2011		2010
		(Unaudited)
Other receivables	$	1,320,658	$	1,050,972
Advances to staff		94,198		-
Advances to suppliers		64,239		98,574
Prepaid expenses		333,791		297,291
	$	1,812,886	$	1,446,837

As of March 31, 2011 and December 31, 2010, included in other receivables are advances to the subsidiary which is still in the process of incorporation for pre-operating expenses amounting to $1,224,713 and $971,681 respectively.

NOTE 10

PROPERTY AND EQUIPMENT, NET


		March 31,			December 31,
		2011			2010
		(Unaudited)
Buildings	$	112,330		$	111,804
Leasehold improvements		1,335,449			1,314,016
Medical equipment		3,349,850			3,319,221
Motor vehicle		162,549			290,751
Office equipment		581,021			582,302
Deposits paid for property and equipment		2,298,250			1,482,309
		7,839,449			7,100,403
Less: Accumulated depreciation		(1,304,024	)		(1,092,205	)
	$	6,535,425		$	6,008,198

Depreciation expenses for the three months ended March 31, 2011 and 2010 were $215,190 and $108,539 respectively.

As of March 31, 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 $2,298,250 and $1,482,309 respectively.


NOTE 11	NOTES PAYABLE

Notes payable consisted of the following:

		March 31,		December 31,
		2011		2010
		(Unaudited)
Note payable to a bank, interest rate of 5%	$	914,620	$	-
per annum, guaranteed by a third party, a
director and a director's spouse, due March 2012

Note payable to a bank, interest rate of 6%		-		910,332
per annum, guaranteed by a third party,
due February 2011
	$	914,620	$	910,332

Interest expense paid for the three months ended March 31, 2011 and 2010 were $7,745 and $6,564 respectively.

The guarantee provided by the third party is secured by the buildings of the Company with net book value totaling $99,226 as of March 31, 2011. Fees paid to the third party guarantor for the three months ended March 31, 2011 and 2010 was $20,971 and $17,554 respectively.

NOTE 12	OTHER PAYABLES AND ACCRUED LIABILITIES
			March 31,		December 31,
			2011		2010
			(Unaudited)
	Other payables	$	554,139	$	599,724
	Deposits from customers		252,209		231,390
	Deposits from membeship reward program		304,095		277,010
	Accrued liability for membership reward program		87,147		18,586
	Accrued liabilities		627,458		427,452
		$	1,825,048	$	1,554,162

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 $317,991 and $363,333 owed to suppliers as of March 31, 2011 and December 31, 2010 respectively.

NOTE 13

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 three months ended March 31, 2011 and 2010. As of March 31, 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 March 31, 2011, Yibin Shesys and Zigong Shesays have total tax losses of $126,184 which will be expired on December 31, 2015.

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

		(Unaudited)
		For the three months ended
		2011		2010
Current - PRC		310,656		405,120
Deferred - PRC		48,143		-
	$	358,799	$	405,120

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

		March 31,			December 31,
		2011			2010
		(Unaudited)
Deferred tax assets:
Property related, net		(50,757	)		67,034
Deferred revenue		68,299			42,981
Accrued liabilities		88,401			57,724
Tax losses		31,643			17,118
Total deferred tax assets	$	137,586		$	184,857

The reconciliation of income taxes computed at the statutory income tax rate to total income taxes for the three months ended March 31, 2011 and 2010 is as follows:

		(Unaudited)
		For the three months ended
		2011		2010
Net income before taxes		1,095,737		1,538,784
Computed at PRC tax rate of 25%	$	273,933	$	384,696
Expenses not deductible for tax purposes		45,021		-
Others		39,845		20,424
Total	$	358,799	$	405,120


NOTE 14	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 March 31, 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 15

COMMITMENTS AND CONTINGENCIES


		(a)	Capital commitments

			As of March 31, 2011 and December 31, 2010, the Company had commitments for capital expenditures on acquisition of property and equipment amounting to approximately $1,933,000 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 April 9, 2011 and January 1, 2020.

			As of March 31, 2011, the Company had outstanding commitments with respect to the above operating leases, which are due as follows:

For the fiscal years ending March 31
2011	$	1,714,692
2012		1,698,683
2013		1,668,915
2014		1,655,972
2015		1,417,512
Thereafter		356,330
Total	$	8,512,104


		(b)	Contingent liabilities

			On November 12, 2010, the Company entered into a Securities Purchase Agreement with certain private placement investors. The Company has made certain customary representations, warranties and covenants, which constitute the contingent liabilities of the Company. See note 7.


NOTE 16	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 months periods ended March 31, 2011 and 2010 were $62,747 and $35,937 respectively.

NOTE 17

RELATED PARTY TRANSACTIONS

As of March 31, 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.

As of March 31, 2011 and December 31, 2010, the Company owed $76,218 and $0 respectively to two stockholders for advances made on an unsecured basis, repayable on demand and interest free.

During the three months ended March 31, 2011 and 2010, total imputed interest expenses recorded as additional paid-in capital amounted to $0 and $247 respectively.

NOTE 18

CONCENTRATIONS AND RISKS

As of March 31, 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 March 31, 2011, financial instruments which potentially expose the Company to concentrations of credit risk are cash and cash equivalents. The Company performs ongoing evaluations of its cash position and credit evaluations to ensure collections and minimize losses.

Details of the suppliers accounting for 10% or more of the Company's purchases are as follows:

	Supplier A	Supplier B	Supplier C	Supplier D	Supplier E
For the three months ended
March 31, 2011	15%	13%	12%	0%	0%
March 31, 2010	0%	0%	0%	12%	11%

As of March 31, 2011, the total amount owed to those suppliers was $34,418.

No single customer accounted for more than 10% of the service revenue for the three months ended March 31, 2011 and 2010.

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 as cosmetic surgery, cosmetic dermatology, cosmetic dentistry, cosmetic Traditional Chinese Medicine (“TCM”). Services provided in cosmetic surgery include eye shaping, facial contour, rhinoplasty, face shaping, wrinkles elimination, breast surgery, chiloplasty, liposuction slimming, ear reshaping, gynecology / male plastic surgery. Cosmetic dermatology department provides services of laser depilation, acne/pock removal, facelift and wrinkle decrease of Cutera Titan, laser whitening, pore minimizing, skin rejuvenation etc. 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 orthodontics invisible. 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, lose 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" because 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 store, a comprehensive cosmetology hospital in Chengdu.

For three months ended March 31, 2011, we generated revenues of $3,575,129, which represents a growth of 10.1% compared to $3,247,925 for three months ended March 31, 2010. This increase in revenue is attributed to our increased sale to the existing and new customers in 2011. During the first quarter of 2011, 7,181 customers visited our hospital and clinics, compared to 7,296 in the first quarter of 2010, and we provided services to 4,620 and 4,285 customers in the first quarter of 2011 and 2010, respectively. Our net income decreased from $1,133,664 for the three months ended March 31, 2010 to $746,277 for the three months ended March 31, 2011, a 34.2% decline. The decrease in net income was mainly due to our increased marketing efforts and expense related to maintenance cost of listing on OTCBB.

Our business operates in China and financial statements are denominated in Chinese Renminbi (RMB), but we report our financial results in our SEC filings in U.S. dollars. The conversion of our financial statements from RMB to U.S. dollars 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,” because it is more reflective of changes in the relative values of U.S. and Chinese currencies than of the success of our business. For three months ended March 31, 2011 and 2010, we recorded foreign currency translation gains of $19,955 and $399 respectively.

Results of Operations

Three Months Ended March 31, 2011, Compared to the Three Months Ended March 31, 2010:

	Three months ended
		March 31,						$		%
		2011			2010			Change		Change
Customer Service Revenue	$	3,575,129		$	3,247,925		$	327,204		10.1%
Cost of revenue		929,473			732,458			197,015		26.9%
Gross profit		2,645,656			2,515,467			130,189		5.2%
Operation expenses		1,518,875			919,108			599,767		65.3%
Other Income (expense)		(31,044	)		(57,575	)		(26,531	)	-46.1%
Income from operations before tax		1,095,737			1,538,784			(443,047	)	-28.8%
Income tax expenses		358,799			405,120			(46,321	)	-11.4%
Net income attributable to SHESAYS stockholders		746,277			1,133,664			(387,387	)	-34.2%
Foreign exchange gain		19,955			399			19,556		4,901.3%
Comprehensive income attributable to SHESAYS stockholders		766,232			1,134,063			(367,831	)	-32.4%

Total Revenues

Total revenues for the three months ended March 31, 2011 increased by approximately $0.3 million or 10.1% to $3.6 million as compared to $3.2 million for the three months ended March 31, 2010. Our sales growth was driven by continued efforts to attract new customers at three clinics in Leshan, Yibin and Zigong. We did not increase our prices from period to period.

Compared to the same period of 2010, cosmetic surgery service revenue increased 4.3% to $1.7 million, professional medical beauty service revenue increased 19.1% to $1.6 million, cosmetic dentistry service revenue decreased 80.5% to $27,509 and sales of goods revenue increased 91.3% to $0.2 million. We have been enhancing marketing of professional medical beauty service as well as efforts on sales of goods which has higher year-over-year increase.

REVENUES		Three Months Ended March 31
		2011		2010		Increase/		%
						(Decrease)		Change
Cosmetic surgery service		1,693,758		1,623,430		70,328		4.3%
Professional medical beauty service		1,623,916		1,363,437		260,479		19.1%
Cosmetic dentistry services		27,509		140,853		(113,344	)	-80.5%
Sales of goods		229,946		120,205		109,741		91.3%
Total revenues	$	3,575,129	$	3,247,925	$	327,204		10.1%

For the first quarter of 2011, revenues of our current headquarter hospital increased by 0.7% to $3.3 million, from $3.2 million in the first quarter of 2010. Three new clinics launched in the second half of 2010 contributed approximately $0.3 million to revenues.

		Three Months Ended
		March 31,
	2011		2010
Location
Sichuan Shesays	3,269,864	91.5%	3,247,925	100.0%
Leshan Jiazhou Shesays	129,673	3.6%	-	-
Yibin Shesays	96,978	2.7%	-	-
Zigong Shesays	78,614	2.2%	-	-
Total sales	3,575,129	100.0%	3,247,925	100.0%

Cost of Revenue

Our cost of revenue for the three months ended March 31, 2011 was $0.9 million, an increase of $0.2 million, or 26.9% from $0.7 million for the three months ended March 31, 2010. The increase in cost of revenue in 2010 was due to the increase in customer service revenue. In addition, we had a promotion for a specific medical beauty service during the first quarter of 2011 which has higher costs of revenue compared to other services. Cost of sales as a percentage of revenue increased from 22.6% to 26.0% as compared to the prior comparative period due to cost of revenues for professional medical beauty service increased by $0.2 million or 136.5% from $0.1 million to $0.3 million.

Gross Profit

Our gross profit for the three months ended March 31, 2011 was $2.6 million, an increase of $0.1 million or 5.2% from $2.5 million for the three months ended March 31, 2010. The increase in gross profit in the first quarter of 2011 was due to the increase in total revenues. Our overall gross profit margin as a percentage of revenue was 74.0% for the three months ended March 31, 2011 compared to 77.4% of the same period of the previous year. The gross margin was slightly lower in the first quarter of 2011 due to the increase in costs of professional medical beauty service.

Operating Expenses

Our operating expenses increased by approximately $0.6 million to $1.5 million for the three months ended March 31, 2011 from $0.9 million for the same period of the previous year. This 65.3% increase was mainly attributable to the increase in the expense associated with advertising activities and professional and consultant fees related to the listing on OTCBB.

Other Income (Expense):

Other expense for the three months ended March 31, 2011 was $31,044 compared to other expenses of $57,575 for the same period of the previous year.

Net Income attributable to the Company

As a result of the factors described above, we had net income attributable to the Company in the amount of $0.7 million for the three months ended March 31, 2011, as compared with $1.1 million for the three months ended March 31, 2010. The decrease in net income was mainly attributed to increase of advertisement expenses and more expenditure on professional and consultant fees subsequent to the reverse merger transaction closed on June 7, 2010.

Foreign currency translation gains (losses)

Our business operates primarily in Chinese Renminbi (“RMB”), but we report our results in U.S. Dollars. The conversion of our accounts from RMB to U.S. Dollars results in translation adjustments. As a result of a currency translation adjustment gain, our other comprehensive income was $19,955 for the three months ended March 31, 2011, as compared with $399 for the three months ended March 31, 2010. The increase is due to currency exchange fluctuation of Chinese RMB to US Dollars for the period.

Comprehensive Income attributable to the common stockholders

As a result of the factors described above, we had comprehensive income attributable to the common stockholders in the amount of $0.8 million for the three months ended March 31, 2011, as compared with $1.1 million for the three months ended March 31, 2010.

Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements during the three months ended March 31, 2011, that have, or are reasonably likely to have, a current or future affect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our interests.

Liquidity and Capital Resources

As of March 31, 2011, we had cash and cash equivalents of $1.7 million. We had a working capital deficit of $0.6 million, that is, our current assets were $4.0 million and our current liabilities were $4.6 million as of March 31, 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 delay on capital expenditure will provide sufficient liquidity to finance our anticipated working capital and capital expenditure requirements for the next 12 months.

Total stockholders' equity as of March 31, 2011 was $6.0 million. The following table provides detailed information regarding our net cash flow for all financial statement periods presented in this report.

	March 31,
(in US dollar)	2011		2010
Net cash provided by operating activities	1,244,279		1,308,488
Net cash (used in) investing activities	(660,239	)	(1,216,492	)
Net cash provided by financing activities	81,899		858,649
Effect of Exchange Rates on Cash	(468	)	210
Net increase in cash and cash equivalents	665,471		950,855
Cash and cash equivalents – beginning of period	1,029,280		1,371,732
Cash and cash equivalents – end of period	1,694,751		2,322,587

Operating Activities

Cash provided by operating activities totaled $1.2 million for the three months ended March 31, 2011 as compared with $1.3 million provided by operating activities for the three months ended March 31, 2010. Compared with the same period in 2010, the slight decrease in net cash provided by operating activities was primarily due to the decrease in net income.

Investing Activities

Cash used in investing activities was $0.7 million for the three months ended March 31, 2011 as compared to $1.2 million used for the three months ended March 31, 2010. The decrease in cash used in investing activities is mainly because we have decreased our investment in property and equipment in the first quarter of 2011 by $0.2 million as compared to the first quarter of 2010, as well as a proceed from disposal of property and equipment of $129,171 in the first quarter of 2011.

Financing Activities

Cash provided in financing activities was $81,899 for the three months ended March 31, 2011 as compared to $0.9 million provided in financing activities for the three months ended March 31, 2010. The decrease was mainly due to a bank loan of $0.9 million was secured in the first quarter of 2010 while there was no new bank loan obtained in the first quarter 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 will 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 March 31, 2011. Based on our assessment, Mr. Zhang and Ms. Zhu determined that, as of March 31, 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 March 31, 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.

Notwithstanding management’s assessment that our internal controls over financial reporting was ineffective as of March 31, 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 first quarter ended March 31, 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.

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 affect 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.

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

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. RESERVED.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. 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

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

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: May 15, 2011	By: /s/ Yixiang Zhang
	Name: Yixiang Zhang
	Title: Chief Executive Officer and Chairman

Date: May 15, 2011	By: /s/ Wenbin Zhu
	Name: Wenbin Zhu
	Title: Chief Financial Officer