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,~~December 31, 2010

¨	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: 000-53010

CHINA SLP FILTRATION TECHNOLOGY, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		~~90-0475058~~84-1465393
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

Shishan Industrial Park

Nanhai District, Foshan City, Guangdong Province, PRC

(Address of principal executive offices, Zip Code)

~~(86 22) 757-86683197~~86-757-86683197

(Registrant’s telephone number, including area code)

~~China Filtration Technology, Inc.~~__________________________________________________________________________________________

~~(Former~~ (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 Exchange Act during the past 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 o

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ¨	Accelerated Filer ¨
Non-Accelerated Filer ¨(Do not check if a smaller reporting company)	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

The number of shares outstanding of each of the issuer’s classes of common equity, as of ~~August 15, 2010~~February 2, 2011 is as follows:

Class of Securities		Shares Outstanding
Common Stock, $0.001 par value		~~15,235,714~~15,265,714

Quarterly Report on FORM 10-Q

Three Months ~~and Nine Month~~ Ended ~~June 30,~~December 31, 2010

Table of Contents

PART I FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS.	34
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	1719
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	2526
ITEM 4.	CONTROLS AND PROCEDURES.	2526

PART II OTHER INFORMATION

ITEM 1.	~~LEGAL PROCEEDINGS.~~	26
~~ITEM~~ 6.	EXHIBITS.	2627

PART I

FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS.

China SLP Filtration Technology, Inc.

Condensed Consolidated Financial Statements

Three ~~and Nine Months~~months ended ~~June 30,~~December 31, 2010 and 2009

Index to Condensed Consolidated Financial Statements

	Page

Unaudited Condensed Consolidated Balance Sheets	45

Unaudited Condensed Consolidated Statements of Operations and Comprehensive ~~Loss~~Income	56

Unaudited Condensed Consolidated Statements of Cash Flows	6

~~Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity~~	7

Notes to Unaudited Consolidated Financial Statements	8

CHINA SLP FILTRATION TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

	June 30,		September 30,		December 31,		September 30,
	2010		2009		2010		2010
	(Unaudited)				(Unaudited)

ASSETS
Current Assets
Cash and cash equivalents	$	6,333,417	$	3,297,648	$	5,273,088	$	5,295,301
Accounts receivable – Net		2,258,662		1,424,835
Restricted cash						454,387		-
Accounts receivable - Net						2,282,430		2,207,073
Advance to suppliers		453,174		685,551		1,262,826		-
Inventory		1,490,078		1,197,289		1,820,136		1,564,537
Taxes refund receivable						570,093		-
Prepaid expenses and other current assets		279,595		45,656		652,813		585,385
Total Current Assets		10,814,926		6,650,979		12,315,773		9,652,296

Deposits		2,193,202		-		1,534,549		4,906,370
Property and equipment – Net		11,032,609		10,711,865
Receivable from related party		1,111		773,672
Land use rights – Net		531,506		537,350
Property and equipment - Net						14,771,900		10,961,234
Land use rights - Net						539,470		535,480
Total Assets	$	24,573,354	$	18,673,866	$	29,161,692	$	26,055,380

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Short term loan	$	3,833,994	$	4,578,409
Short-term loan					$	3,938,022	$	3,796,053
Accounts payable and accrued liabilities		696,703		410,114		2,239,652		742,384
Client's deposits		-		75,176
Clients’ deposits						-		286,700
Other payable - related party						920,148		160,673
Taxes payable		9,378		726		88,943		31,406
Warrants liabilities		690,000		-		548,000		739,000
Convertible notes payable $4,140,000, net of discount		2,615,107		-		3,834,907		3,225,007

Total Current Liabilities		7,845,182		5,064,425		11,569,672		8,981,223

Total Liabilities		7,845,182		5,064,425		11,569,672		8,981,223
Shareholder's Equity

Preferred stock, $0.001 par value, 10,000,000 shares authorized, o shares issued and outstanding		-		-
Common stock, $0.001 par value, 40,000,000 shares authorized, 15,235,714 and 14,510,204 shares issued and outstanding at June 30, 2010 and September 30, 2009		15,236		14,510
Stockholders’ Equity
Preferred stock, $0.001 par value, 10,000,000 shares authorized, 0 shares issued and outstanding; Common stock, $0.001 par value, 40,000,000 shares authorized, 15,265,714 shares issued and outstanding at December 31, 2010 and September 30, 2010						15,266		15,266
Additional paid-in capital		8,205,582		7,548,752		8,527,190		8,375,860
Retained earnings		6,824,980		4,500,532		6,779,081		6,721,609
Accumulated other comprehensive income		1,682,374		1,545,647		2,270,483		1,961,422
Total Shareholders' Equity		16,728,172		13,609,441
Total Stockholders’ Equity						17,592,020		17,074,157

Total Liabilities and Shareholder's Equity	$	24,573,354	$	18,673,866
Total Liabilities and Stockholder’s Equity					$	29,161,692	$	26,055,380

See accompanying notes to financial statements

CHINA SLP FILTRATION TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended Nine Months Ended
June 30 June 30
2010 2009 2010 2009
Net Sales $ 5,072,791 $ 2,482,212 $ 14,919,816 $ 7,023,045
Cost of Sales 3,537,571 1,779,328 10,381,404 4,685,730
Gross Profit 1,535,220 702,884 4,538,412 2,337,315

Selling, General and Administrative Expenses 701,436 266,101 1,363,574 1,024,543
Income from Operations 833,784 436,783 3,174,838 1,312,772

Other Income (expense)
Interest Income 10,106 2,104 10,623 2,104
Interest Expense (764,794 ) (65,162 ) (1,216,685 ) (225,668 )
Loss on disposal of fixed assets - (16,263 ) - -
Changes in Fair Value of Warrants 362,000 - 362,000 -
Total Other Income (expenses) (392,688 ) (79,321 ) (844,062 ) (223,564 )
Income before IncomeTaxes 441,096 357,462 2,330,776 1,089,208
Income Tax Provision 6,328 - 6,328 -
Net Income $ 434,768 $ 357,462 $ 2,324,448 $ 1,089,208

Other Comprehensive Income
Foreign Currency Translation Adjustments 161,972 24,560 136,727 (66,276 )
Total Comprehensive Income $ 596,740 $ 382,022 $ 2,461,175 $ 1,022,932

Net Income Per Common Shares:
Basic and Diluted $ 0.03 $ 0.02 $ 0.16 $ 0.08
Weighted-Average Common Shares Outstanding:
Basic 15,235,714 14,510,204 14,879,603 14,510,204
Diluted 16,925,510 14,510,204 15,739,975 14,510,204

~~See accompanying notes to financial statements~~

~~CHINA SLP FILTRATION TECHNOLOGY, INC.~~

~~Consolidated Statements of Cash Flows~~

~~(Unaudited)~~

Nine Months Ended June 30
2010 2009

Cash Flow from Operating Activities:
Net income $ 2,324,448 $ 1,089,208
Adjustments to reconcile net income to net cash
flow provided by (used in) operating activities:
Depreciation 864,016 632,799
Amortization 9,339 9,342
Changes in fair value of warrants (362,000 ) -
Non-cash interest charges 914,850
Change in operating assets and liabilities:
Accounts receivable (832,721 ) (561,041 )
Allowance for doubtful accounts 13,743
Advance to suppliers 235,358 (34,311 )
Inventory (282,992 ) (525,210 )
Prepaid expenses and other current assets (232,102 ) (131,539 )
Accounts payable & accrued liabilities 282,009 (610,775 )
Clients' deposits (75,176 ) (93,457 )
Taxes payable 1,357 (8,949 )
Net cash provided by (used in) operating activities 2,860,129 (233,933 )

Cash Flow from Investing Activities:
Addition-property, equipment, and land use rights (1,105,084 ) (844,747 )
Deposits for purchase of equipment (2,178,792 ) -
Proceeds from related party receivable 772,573 735,878
Net cash (used in) provided by investing activities (2,511,303 ) (108,869 )

Cash Flow from Financing Activities:
Repayment of loans (769,631 ) (5,172,817 )
Proceeds from loans - 4,974,197
Proceeds from notes issued 3,404,798 -
Net cash provided by (used) in financing activities 2,635,167 (198,620 )

Effects of Exchange Rates on Cash 51,776 (14,504 )
Net increase (decrease) in cash and cash equivalents 3,035,769 (555,926 )

Cash and cash equivalents, beginning of year 3,297,648 2,367,570

Cash and cash equivalents, end of year $ 6,333,417 $ 1,811,644

Supplemental information of cash flows
Cash paid for interest $ 298,270 $ 216,705
Cash paid for income taxes $ - $ -

~~See accompanying notes to financial statements~~

~~CHINA SLP FILTRATION TECHNOLOGY, INC.~~

~~Condensed Consolidated Statements of Changes in Stockholders’ Equity~~

Accumulated
Additional Other Total
Common Stock Paid-in Retained Comprehensive Stockholders'
Shares Amount Capital Earnings (Deficit) Income Equity

BALANCE, September 30, 2008 14,510,204 $ 14,510 $ 7,548,752 $ 2,054,880 $ 1,602,725 $ 11,220,867

Net Income - - - 2,445,652 - 2,445,652

Currency translation adjustment - - - (57,078 ) (57,078 )

BALANCE, September 30, 2009 14,510,204 $ 14,510 $ 7,548,752 $ 4,500,532 $ 1,545,647 $ 13,609,441

Shares effectively issued to former shareholders - 2/12/2010 2,600,000 2,600 (2,600 ) -

Cancellation of stock in recapitalization (2,528,000 ) (2,528 ) 2,528 -

Shares issued to placement agents in conjunction with convertible note 653,510 654 656,902 - 657,556
Net Income - - - 2,324,448 2,324,448

Currency translation adjustment - - - - 136,727 136,727

BALANCE, June 30, 2010 - UNAUDITED 15,235,714 $ 15,236 $ 8,205,582 $ 6,824,980 $ 1,682,374 $ 16,728,172

	Three Months Ended
	December 31
	2010			2009
Net Sales	$	5,780,973		$	5,224,961
Cost of Sales		4,223,562			3,611,088
Gross Profit		1,557,411			1,613,873

Selling, General and Administration Expenses		812,636			274,023
Income from Operations		744,775			1,339,850

Other Income (expense)
Interest Income		5,330			225
Interest Expense		(777,697	)		(58,909	)
Loss on Disposal of Fixed Assets		(23,408	)		(107	)
Government subsidy		6,090			-
Changes in Fair Value of Warrants		191,000			-
Total Other Income (expenses)		(598,685	)		(58,791	)
Income before Income Taxes		146,090			1,281,059
Income Tax Provision		88,618			-
Net Income	$	57,472		$	1,281,059

Other Comprehensive Income
Foreign Currency Translation Adjustments		309,061			(1,306	)
Total Comprehensive Income	$	366,533		$	1,279,753

Net Income Per Common Shares:
Basic and diluted	$	0.00		$	0.09
Weighted-Average Common Shares Outstanding:
Basic		15,265,714			14,510,204
Diluted		17,189,523			14,510,204

See accompanying notes to financial statements

CHINA SLP FILTRATION TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

	Three Months Ended December 31,
	2010			2009

Cash Flow from Operating Activities:
Net income	$	57,472		$	1,281,059
Adjustments to reconcile net income to net cash
flow provided by (used in) operating activities:
Depreciation		301,818			282,521
Amortization		3,187			3,112
Bad debt allowance		(7,372	)		-
Non-cash interest charges		609,900			-
Non-cash equity-based expense		151,329			-
Changes in warrants valuation		(191,000	)		-
Loss(gain) from disposal of fixed assets		23,408			107
Change in operating assets and liabilities:
Accounts receivable		(37,838	)		(473,263	)
Advance to suppliers		(1,250,571	)		178,534
Inventory		(232,266	)		(69,973	)
Taxes refund receivable		(564,561	)		-
Prepaid expenses and other current assets		(58,972	)		(22,866	)
Accounts payable & accrued liabilities		1,479,878			277,822
Clients’ deposits		(287,739	)		(75,164	)
Taxes payable		57,098			15,297
Net cash provided by (used in) operating activities		53,771			1,397,186

Cash Flow from Investing Activities:
Addition-property, equipment, and land use rights		(442,051	)		(893	)
Deposits for purchase of equipment		(110,079	)		-
Proceeds from disposal of fixed assets		3,805			-
Proceeds from related party receivable		-			161,116
Net cash (used in) provided by investing activities		(548,325	)		160,223

Cash Flow from Financing Activities:
Repayment of loans		(3,809,810	)		(330,101	)
Proceeds from loans		3,899,805			-
Due to related parties		749,963			-
Restricted cash to secure bank loans		(454,387	)		-
Net cash provided by (used) in financing activities		385,571			(330,101	)

Effects of Exchange Rates on Cash		86,770			(269	)
Net increase (decrease) in cash and cash equivalents		(22,213	)		1,227,039

Cash and cash equivalents, beginning of year		5,295,301			3,297,648

Cash and cash equivalents, end of year	$	5,273,088		$	4,524,687

Supplemental information of cash flows
Cash paid for interest	$	478,111		$	58,909
Cash paid for income taxes	$	24,023		$	-

See accompanying notes to financial statements

China SLP Filtration Technology, Inc.

Notes to Consolidated Financial Statements for the ~~nine~~three months ended ~~June 30,~~December 31, 2010

(Unaudited - - Expressed in US ~~dollars)~~dollars except indicated otherwise)

1.	~~Nature of Business and Organization History:~~

1. Nature of Business and Organization History

China SLP Filtration Technology, Inc., formerly named Perpetual Technologies, Inc. (the “Company”, or ~~”We”~~“we”) was incorporated under the laws of the State of Delaware in March 2007. Prior to a reverse merger completed on February 12, 2010, we had no operations or substantial assets.

Hong Hui Holdings Limited (“Hong Hui”) was formed in January 2010 in the ~~territory of the~~ British Virgin Islands as a holding company by the shareholders of Technic International Inc. (“Technic”)~~. Upon the~~, a Hong Kong company. On formation, each shareholder transferred ~~their~~its ownership of Technic to Hong Hui. ~~As a result of this transaction, Technic became a wholly-foreign owned enterprise under PRC law.~~ This acquisition was accounted for as a transfer of entities under common control.

Technic International Ltd. (“Technic”) was incorporated in September 2005 under the laws of Hong Kong as a holding company that ~~owns~~owned a 100% equity interest ofin Nanhai Jinlong Nonwoven Co. Ltd. (“Jin Long”) located in Foshan City, Guangdong Province, the People’s Republic of China (“China”). Jin Long was established in ~~the year~~ 2000 under the laws of China. In September 2005, Jin Long became the wholly-owned foreign enterprise (“WOFE). In April 2009, Jin Long changed its name to Foshan S.L.P. Special Materials Co., Ltd. (“Foshan”).

On February 12, 2010, we entered into a share exchange agreement with the owners of all of the outstanding shares of Hong Hui. Under the terms of the share exchange agreement, we issued and delivered to the Hong Hui stockholders a total of 14,510,204 (72,551,020 pre-split) shares of our common stock in exchange for all of the outstanding shares of Hong Hui. As a result of the share exchange or reverse merger, Hong Hui became our wholly-owned subsidiary. The transaction is accounted for as a reverse acquisition, except that no goodwill or other intangible ~~should be~~was recorded. The recapitalization is considered to be a capital transaction in substance, rather than a business combination.

On March 24, 2010, the Company effected a 1 for 5 reverse stock split of its outstanding common stock. The effect of the reverse split is retrospectively showed in all periods presented.

Through ~~operation of~~ Foshan, we ~~engage in manufacturing, marketing~~manufacture, market and ~~sale, research and development of polyester spun-bonded~~sell nonwoven fabrics ~~polyester needle-punch nonwovens, spun-laced nonwovens, polylactic acid nonwovens,~~in China.

2. Basis of Presentation and ~~special functions nonwovens ( flame retardant, anti-static, oil & water repellent, etc).~~

Principles of Consolidation

2.	~~Basis of Presentation and Principles of Consolidation:~~

The accompanying condensed consolidated balance sheet as of ~~June 30,~~December 31, 2010, the condensed consolidated statements of operations for the ~~nine~~three months ended ~~June 30,~~December 31, 2010 and 2009, and the condensed consolidated statements of cash flow for the ~~nine~~three months ended ~~June 30,~~December 31, 2010 and 2009 are unaudited. These unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). They do not include all the disclosures as required for annual financial statements under generally accepted accounting principles. However, these interim consolidated financial statements follow the same accounting policies and methods of application as the Company’s most recent annual financial statements. These interim consolidated financial statements should be read in conjunction with the Company’s annual consolidated financial statements for the year ended September 30, ~~2009.~~2010.

Operating results for the ~~nine~~three month period ended ~~June 30,~~December 31, 2010 are not necessarily indicative of the results that may be expected for the full year ending September 30, ~~2010~~2011, or for any other period.

3.	~~Summary of Significant Accounting Policies:~~

3. Summary of Significant Accounting Policies

These interim consolidated financial statements follow the same accounting policies and methods of application as the ~~Company's~~Company’s most recent annual financial statements.

4. Restricted Cash

Restricted cash is a deposit of $454,387 (RMB 3,000,000) with the Standard Chartered Bank as a guarantee of the loan of RMB6,000,000 on a term of six months the Company obtained in December 2010 from the bank. We cannot withdraw the funds from the deposit account until we repay the loan.

5. Accounts ~~Receivable:~~Receivable

The Company maintains an allowance for potential credit losses on accounts receivable. Management periodically analyzes the composition of the accounts receivable, aging of the receivables and historical bad debt to evaluate the adequacy of the reserve for uncollectible accounts.

	June 30,			September 30,			December 31,			September 30,
	2010			2009			2010			2010
Accounts receivable	$	2,309,626		$	1,461,721		$	2,299,520		$	2,231,281
Less: Allowance for doubtful accounts		(50,964	)		(36,886	)		(17,090	)		(24,208	)
Accounts receivable – Net	$	2,258,662		$	1,424,835		$	2,282,430		$	2,207,073

As of ~~June 30,~~December 31, 2010 and September 30, ~~2009,~~2010, the customer accounts receivable ~~balances exceeding 10%~~balance with significant percentage of the gross accounts receivable balance ~~are~~were as follows:

	June 30,			September 30,			December 31,		September 30,
	2010			2009			2010		2010
Customers:	Percentage			Percentage			Percentage		Percentage
A		23	%		30	%	12	%	28	%
B		13	%		13	%	11	%	6	%
C		10	%		13	%	10	%	5	%
Total		46	%		56	%	33	%	39	%

Three customers individually accounted for 10% or more of the total gross accounts receivable and together accounted for ~~46% and 56%~~33% of the total gross accounts receivable at ~~June~~December 31, 2010. As of September 30, 2010, one customer’s account receivable exceeded 20%, and ~~2009.~~combined with two other customers whose accounts receivable was below 10%, represented 39% of the total gross accounts receivable as of September 30, 2010.

~~Advances to Suppliers:~~

6. Advances to Suppliers

As of ~~June 30,~~December 31, 2010, ~~and September 30, 2009,~~ advances to suppliers consisted of deposits on account with several key raw materials suppliers to secure preferential pricing of raw materials. The deposits also are used to ensure timely delivery of materials purchased.

~~Inventories:~~

7. Inventories

Inventory consisted of the following:

	December 31,		September 30,
	2010		2010
Raw materials	$	178,957	$	205,099
Work-in-process		86,710		39,828
Finished goods		1,554,469		1,319,610
	$	1,820,136	$	1,564,537

June 30,
September
30,

2010 2009
Raw materials $ 281,146 $ 40,126
Work in progress 63,226 50,443
Finished goods 1,145,706 1,106,720
$ 1,490,078 $ 1,197,289

910

7.8. Property, ~~plant~~Plant, and ~~equipment:~~Equipment

Property, plant and equipment is recorded at cost. Expenditures incurred for repairs and maintenance are charged to earnings. Betterment, additions and renewals to property, plant and equipment are capitalized. When property, plant and equipment are retired or disposed of, associated cost and accumulated depreciation are removed, and gain or loss, if any, incurred from disposal is included under other income or expense in the statement of operations.

Property, plant and equipment consist of the following:

	December 31,			September 30,
	2010			2010
Building and plant		2,805,146		$	2,767,897
Machinery		11,825,802			11,697,862
Office and other equipment		797,834			787,240
Vehicles		144,518			142,576
Construction in progress		5,183,496			1,173,702
		20,756,796			16,569,277
Less:
Accumulated depreciation		(5,984,896	)		(5,608,043	)
	$	14,771,900		$	10,961,234

June 30,
September
30,

2010 2010
Building and plant $ 2,716,302 $ 2,958,978
Machinery 11,542,131 11,174,517
Office equipment and other equipment 776,760 771,829
Vehicles 140,678 139,753
Construction in progress 1,087,395 -
16,263,266 15,045,077
Less:
Accumulated depreciation (5,230,657 ) (4,333,212 )
$ 11,032,609 $ 10,711,865

Depreciation expense is computed using straight-line method with estimated useful lives as follows:

Building and plant	20 years
Machinery	10 years
Office equipment and other equipment	5 years
Vehicles	10 years

For the three month period ended ~~June 30,~~December 31, 2010, depreciation expense of ~~$276,661~~$284,579 was included in cost of sales and ~~$16,222~~$17,239 was included in selling, marketing, and administrative expenses, for a total of ~~$292,883~~$301,818.

For the three month period ended ~~June 30,~~December 31, 2009, depreciation expense of ~~$263,724~~$265,570 was included in cost of sales and ~~$16,250~~$16,951 was included in selling, general and administrative expenses, for a total of ~~$279,974~~$282,521

For the nine month period ended June 30, 2010, depreciation expense of $815,191 was included in cost of sales and $48,825 was included in selling general and administrative expenses, for a total of $864,016

For the nine month period ended June 30, 2009, depreciation expense of $581,505 was included in cost of sales and $51,294 was included in selling, general and administrative expenses, for a total of $632,799.

~~Deposits:~~

9. Deposits

As of ~~June 30,~~December 31, 2010, we have deposits of ~~$2,193,202~~$1,534,549 with equipment providers to ensure timely fulfillment of our purchase contracts to build up new production facilities.

~~Land Use Rights:~~

10. Land Use Rights

Land use rights isare amortized over a lease term of 50 years.

	December 31,			September 30,
	2010			2010
Land use rights	$	643,703		$	635,154
Less:
Accumulated amortization		(104,233	)		(99,674	)
	$	539,470		$	535,480

June 30,
2010

September 30,
2009

　　
Land use rights $ 626,699 $ 622,578
Less:
Accumulated amortization (95,193 ) (85,228 )
$ 531,506 $ 537,350

~~For the three month periods ended June 30, 2010 and 2009, amortization expense was $3,132 and $3,139, respectively.~~

~~For the nine month periods ended June 30, 2010 and 2009, amortization expense was $9,339 and $9,342, respectively.~~

Change in cost of the land use rights from September 30, ~~2009~~2010 to ~~June 30,~~December 31, 2010 ~~was caused by~~reflects the effect of changes in foreign currency exchange rate.

~~10.~~11. Short-term Loans:

The Company has ~~several loans~~a short-term loan of $3,029,247 (RMB 20,000,000) with Agricultural Bank of China, Foshan Branch and ~~these loans are~~the loan is due ~~in September 2010.~~on June 21, 2011. The interest on the outstanding balance is payable every month at ~~rates ranging~~a floating rate, currently at 6.21% per annum.

The Company has another short-term loan from ~~5.93%~~Standard Chartered Bank in the amount of $908,775 (RMB 6,000,000) for a term of 90 days. The loan carries an interest rate of 6.6% and requires the Company to ~~7.75% per annum.~~deposit RMB 3,000,000 to the bank as guarantee. The loan is repayable on March 7, 2011.

~~11.~~12. Other payable to related party:

Other payable to related party accounts for the amount of $920,148 the Company borrowed from its CEO. This loan is non-interest bearing and is repayable on demand.

13. Convertible Note ~~Payable:~~Payable

On February 12, 2010, immediately following the closing of a ~~shar~~eshare exchange agreement, the Company entered i~~nto~~ into a note purchase agreement with certain accredited investors for the sale of convertible notes in the aggregate principal amount of $4,140,000 and warrants. In addition to the finance cost of ~~approximately $730,000~~$730,187 which is accounted for as debt discount, 653,510 common shares were issued to placement agents. The notes have the following material terms:

Maturity: The notes mature in one year. If principal is not paid on maturity then 150% of the principal amount shall be payable.

~~Interest~~Interest:: 10% per annum and payable ~~quarterly increasing~~on the last day of a quarter. The interest will increase to 15% if there is a default. ~~At close~~Interest expense of $104,351 was recorded and paid for the transaction, $204,464, out of the closing proceeds, was held in an escrow account to cover the first six months interest and it was included as prepaid expense. As of June 30, 2010, prepaid interest expense was $68,609.quarter ended December 31, 2010.

~~Conversion~~Conversion:: In the event of the closing of any equity or series of related financings resulting in aggregate gross proceeds to the Company of at least $20,000,000 (or such lesser amount as shall be approved in writing by the holder(s) of notes evidencing at least 50% of the principal amount of the notes then outstanding), a “qualified financing,” prior to the maturity date of the notes, the principal amount of the notes converts automatically into the securities sold in such financing at a 65% discount to the offering price of such securities.

Besides the stated interest ~~expense~~ at 10% per annum, interest expenses are recorded to accrete the note to its principal balance of $4,140,000 at its due date on February 12, 2011. Accretion on interest expenses amounted to $609,900 ~~and $914,850~~ for the three months ~~and nine months~~ ended ~~June 30,~~December 31, 2010.

Allocation of the proceeds:

After allocating $1,052,000 to the initial fair value of warrants derivative liabilities, and agent fee of $730,187, the remaining proceeds received from the convertible note of $3,409,813 were allocated to placement agent common stock and convertible note payable based on their relative fair value. This results in a debt discount of $2,439,743 from the face amount of the convertible note ~~payable, accordingly, the~~payable. The discount is being amortized over the life of the note to ~~acrete~~accrete the note to its redemption value. The proceeds allocation is as follows:

Gross proceeds	$	4,140,000
Less:
Commission paid to placement agent		404,000
Legal fee		326,187
Net proceeds	$	3,409,813

Net proceeds were presented as follows:
Recorded warrants as derivative liability	$	1,052,000
Allocated remaining proceeds to :
Common stock issued to placement agents		657,556
Convertible Note		1,700,257

February 12, 2010 convertible note finance
Gross proceeds $ 4,140,000
Less cash fee paid to placement agent 730,187
Net proceeds $ 3,409,813

Record warrant as derivative liability $ 1,052,000
Allocated remaning proceeds to :
Common stock issued to placement agents 657,556
Convertible Note 1,700,257
$ 3,409,813

~~12. Receivable From Related Party :~~

~~As of June 30, 2010, receivable from related party in~~The convertible notes were recorded at the ~~amount of $1,111 was an advance to shareholders for travel related expenses occurring in normal course of business.~~

~~13. Subsequent Events~~

~~On July 26, 2010, the Company repaid outstanding term loan in amount of $2,927,961~~ （~~20,000,000 in RMB~~） ~~to Agricultural Bank of China, Foshan Branch. On July 27, 2010, the Company entered into an agreement~~transaction date with ~~the same branch office to borrow $2,927,961 (20,000,000 in RMB~~）~~with a term of 5 months. Interest on the new loan is payable on monthly basis at rates ranging from 5.85% to 7.75% per annum.~~

On August 4, 2010, the Company appointed Eric Gan as Chief Financial Officer. The compensation package included an annual salary of $120,000 and grant of non-statutory stock options to acquire 400,000 sharesdiscount consisted of the ~~Company’s common stock. The options vest over a period of three years.~~

~~14. Earnings Per Share~~

Basic earnings per share is computed by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding during the year. Diluted earnings per share is calculated by dividing net income attributable to common shareholders as adjusted for the effect of dilutive common equivalent shares, if any, by the weighted average number of common and dilutive common equivalent shares outstanding during the year. Common equivalent shares consist of the common shares issuable upon the conversion of the convertible note (using the if-converted method) and common shares issuable upon the exercise of outstanding warrants (using the treasury stock method). Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive.

following items:

For the three months ended
June 30, 2010 June 30, 2010
Net Income
(numerator for basic income per share) $ 434,768 $ 357,462
Plus interest on convertible note 697,811 -
Net Income - assumed conversions
(numerator for diluted income per share) $ 1,132,579 $ 357,462

Weighted average common shares
(denominator for basic income per share) 15,235,714 14,510,204

Effect of Dilutive Securities:
Warrants - treasury stock method - -
Convertible note as if-converted method 1,689,796 -
Weighted average common shares
(denominator for diluted income per share) 16,925,510 14,510,204

Basic net income per share $ 0.03 $ 0.02
Diluted net income per share $ 0.07 Antidilutive $ 0.02

Warrants	$	1,052,000
Stock issued to placement agent		657,556
Cash paid for commission and legal fees		730,187
	$	2,439,743

For the nine months ended
June 30, 2010 June 30, 2010
Net Income
(numerator for basic income per share) $ 2,324,448 $ 1,089,208
Plus interest on convertible note 1,114,535 -
Net Income - assumed conversions
(numerator for diluted income per share) $ 3,438,983 $ 1,089,208

Weighted average common shares
(denominator for basic income per share) 14,879,603 14,510,204

Effect of Dilutive Securities:
Warrants - treasury stock method - -
Convertible note as if-converted method 860,372 -
Weighted average common shares
(denominator for diluted income per share) 15,739,975 14,510,204

Basic net income per share $ 0.16 $ 0.08
Diluted net income per share $ 0.22 Antidilutive $ 0.08

~~15.~~

~~Accounting for Warrants~~

~~The warrants issued in conjunction with the convertible notes have the following material terms:~~

Convertible notes payable, net of discount, at the transaction date was $1,700,257.

As of December 31, 2010, after a note discount amortization of $2,134,650, net convertible notes payable was accreted to $3,834,907.

14. Accounting for Warrants

In conjunction with issuing the convertible notes, the Company agreed to issue common stock warrants to the convertible note investors in the debt financing transaction described in note 13. The warrants issued have the following material terms:

The warrants are exercisable at any time during a five-year period commencing on the closing of a “financing,” which means the first sale (or series of related sales) by us of stock (or debt or equity securities convertible into stock), in a capital raising transaction, occurring after the maturity date (or the date the notes become due pursuant to a default, if earlier) with aggregate gross proceeds of at least ~~$2,000,000.~~$20,000,000. The warrants ~~can not~~cannot be exercised if no financing is consummated within a five-year period after the issue date and become void if the notes automatically convert into common stock.

Number of Shares: The warrants represent the right to purchase 8% of the total shares of common stock outstanding (on a fully-diluted basis) immediately after the closing of the financing.

Exercise Price: The warrants are exercisable at the price for which the shares of common stock (or common stock equivalent if derivative securities are sold) are sold in the financing. If the financing includes more than one type of security, the exercise price shall equal the lowest price per share of common stock or common stock equivalent included in the financing.

At the time of the notes issuance, the Company also issued non-conversion warrants to the placement agent to purchase 5% of the Company’s common stock underlying the warrants issued to the convertible notes investors, exercisable at the same price at which the investors’ warrants become exercisable.

The Company analyzed the warrants issued in connection of the issuance of the notes and the conversion features embedded in the notes to assess whether they meet the definition of a derivative under the guidance set forth by FASB ASC ~~Topic~~ 815 (SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”) and, thereof, the applicability of the accounting rules in accordance to FASB ASC ~~Topic~~ 815 to treat the conversion option and the warrants as derivative liabilities.

Under FASB ASC 815-10-15, a financial instrument is a derivative if it meets one of the following three criteria: i) it requires or permits net settlement; ii) there is a market mechanism for the net settlement; and iii) the net settlement can be fulfilled by delivery of assets that are readily convertible to cash. Management concluded that the conversion option embedded in the notes does not meet the above criteria and therefore is not a derivative.

Since the warrants permit the holder to perform a cashless exercise and receive a net number of shares of the Company’s common stock at the time of exercise, these warrants meet the definition of derivative instrument under ASC 815-10-15-83.

Management also evaluated whether the warrants meet the scope exception set forth by FASB ASC ~~Topic~~ 815-40 (“Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock”), which is that contracts issued or held by the reporting entity that are both (1) indexed to its own stock and (2) classified in stockholders’ equity shall not be considered to be derivative instruments for purposes of FASB ASC ~~Topic~~ 815. The provisions in FASB ASC ~~Topic~~ 815-40 apply to any freestanding financial instruments or embedded features that have the characteristics of a derivative, as defined by FASB ASC ~~Topic~~ 815 and to any freestanding financial instruments that are potentially settled in an entity’s own common stock.

~~Management concluded that~~Because the exercise price of the warrants ~~issued in conjunction with~~is not fixed and will be determined by the ~~private placement of convertible notes in February 2010~~price at which the Company completes a Financing prior to ~~certain accredited investors~~the time the warrants become exercisable, the warrants are not considered indexed to the Company’s common stock. The exceptions provided under FASB ASC 815-40-15 are not available; therefore, management determined the warrants should be ~~treated~~accounted for as a derivative liability. The terms of the placement agent non-conversion warrants have terms identical to the investors’ warrants and are therefore accounted as a derivative liability.

Derivative instruments are initially measured and recorded at their fair value and marked-to-market at each ~~period~~report date until they are exercised or expire, with any change in the fair value charged or credited to ~~income each period.~~income.

As a result of adopting accounting treatment ofaccording to ASC ~~Topic~~ 815-40, investor and placement agent warrants are recorded as derivative liabilities and valued at $1,052,000 ~~based on 1,218,857 shares~~ using ~~the Black-Scholes~~a binomial option pricing model on the date of ~~issuance and as of March 31, 2010.~~issuance. Because there was no trade market for the Company’s stock, management used substitute volatility in the initial and subsequent measuring of the fair market value of the warrants issued. Management re-measured the fair market value based on the adjusted volatility of publicly traded stock of ~~a company~~three companies with ~~similar~~ business and financial size comparable to the Company’s and the remaining term of the warrants.

As of ~~June 30,~~December 31, 2010, these warrants were ~~valued at$690,000.~~re-valued at $548,000 based on factors including the probability of the exercisability of the warrants, changes in the estimate of volatility, and remaining life of these warrants. The ~~valuation~~revaluation inputs are provided in the table as ~~follows.~~follows:

At date of issuance As of
Attribute February 12, 2010 June 30, 2010

Warrants outstanding 1,218,857 (*) 1,218,857 (*)
Exercise Price $ 2.45 $ 2.45
Risk Free Interst Rate 2.25 % 0.32 %
Volatility 90 % 70 %
Dividend Yield 0 % 0 %
Contractual Life (years) 1 0.7

Attribute	As of December 31, 2010
Warrants Outstanding		1,670,823	(*)
Stock Market Price	$	6.00
Exercise Price	$	6.00
Risk-free Interest Rate		2.01	%
Estimated Volatility		75	%
Expected Dividend Yield		0	%
Options Life (years)		4.17

(*) Warrants outstanding as of December 31, 2010 is based on 8% of the total outstanding common shares

on fully diluted basis and warrants issued to placement agent equal to 5% of investors’ warrants :

Shares of common stock outstanding as of December 31, 2010	~~16.~~	15,265,714
Shares of common stock to be issued in the public offerings		4,166,667
Anti-dilutive shares to be issued to placement agent		458,373
Total		19,890,754

8% of the fully-diluted shares outstanding immediately after IPO		8	%

Shares underlying the warrants		1,591,260

Placement agent’s non-conversion warrants (5% of investors’ warrants)		79,563

		1,670,823

15. Equity and stock option based compensation

2010 Stock Incentive Plan

In September 2010, the Board of Directors adopted the 2010 Stock Incentive Plan (“2010 Plan”) under which it may grant incentive and nonqualified stock options, restricted stock and stock appreciation rights to eligible employees, non-employee directors, or consultants. Stock options granted generally have a 5-year life and vest pursuant to terms set forth under employment agreement. Under the 2010 Plan, stock options of 400,000 were granted with exercise price equal to the Company’s intended initial public offering price and will be vested over a three year period. The vesting period starts at August 1, 2010 under the compensation terms of the employment contract.

The Company accounts for stock-based compensation under provisions of FASB ASC 718 – Accounting for Stock Compensation which establishes standards for the accounting for equity instruments exchanged for employee services. Under the provisions of FASB ASC 718, share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant), net of estimated forfeitures.

The fair value of the employee stock options granted is estimated using a binomial pricing model at the grant date with input as follows:

Attribute	As of September 10, 2010
Stock Market Price	$	6.00
Exercise Price	$	6.00
Risk-free Interest Rate		0.27	%
Estimated Volatility		75	%
Expected Dividend Yield		0
Warrants Life (years)		4.8

Total cost of the share-based compensation from the grant of the stock options was initially estimated at $1,351,000 at the grant date based on the valuation of the options. The cost is recognized on the number of shares vested over the vesting period.

The following table summarizes the activities for the 2010 Plan for the three month period ended December 31, 2010:

	Number of		Exercise		Remaining
	Shares		Price		Contractual Life
Options outstanding as of September 30, 2010		400,000	$	6.00		4.8
Granted		-
Forfeiture		0
As of December 31, 2010		400,000	$	6.00		4.6
Requisite Service Periods Lapsed (months)		5
Vested and exercisable as of December 31, 2010		67,068	$	6.00		4.6

In addition, one of our independent directors was granted 30,000 shares of restricted common stock under the Company’s 2010 Plan, of which 20,000 shares vest over a period of two years. At the grant date, the fair value of these restricted shares issued was measured at estimated $6 per share. As of December 31, 2010, shares of 15,854 were not subject to forfeiture, of which 2,520 shares were recognized as shared-based compensation expense at an estimated fair market value of $6 per share for the three months ended December 31, 2010.

Total stock-based expense was recorded for the three months ended December 31, 2010 as follows:

Vested options	$	136,206
Restricted stock		15,120
	$	151,326

16. Earnings Per Share

	Three Months Ended
	December 31,		December 31,
	2010		2009
Net Income
(numerator for basic income per share)	$	57,472	$	1,281,059
Plus interest on convertible note		523,251		-
Net Income - assumed conversions
(numerator for diluted income per share)	$	580,723	$	1,281,059


Weighted average common shares
(denominator for basic income per share)		15,265,714		14,510,204

Effect of dilutive securities:
Warrants - treasury stock method		-		-
Convertible notes as if-converted method		1,923,809		-
Weighted average common shares
(denominator for diluted income per share)		17,189,523		14,510,204

Basic net income per share	$	0.00	$	0.09
Diluted net income per share (anti-dilutive)	$	0.00	$	0.09

17. Income Taxes

USA

The Company and its subsidiary and branch divisions are subject to income taxes on an entity basis on income arising in, or derived, from the tax jurisdiction in which they operate. As the Company had no income generated in the United States, there was no tax expense or tax liability due to the Internal Revenue Service of the United States as of ~~June 30,~~December 31, 2010 and September 30, ~~2009.~~2010.

BVI

Hong Hui is incorporated under the International Business Companies Act of the British Virgin Islands and accordingly, is exempted from payment of British Virgin Island’s income taxes.

PRC

Pursuant to the PRC Income Tax Laws, the prevailing statutory rate of enterprise income tax is 25% for Foshan. For 2008 and 2009, Foshan ~~enjoys~~enjoyed a tax free holiday for two years. From January 2010 onwards, Foshan is taxed at 25% of net income except for the year 2010 and ~~2011years where~~2011 during which there is a 50% discount on income tax.

The ~~current year~~ tax provision was ~~$6,328~~$88,618 and ~~$6,328~~$0 for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2010 and December 31, 2009, respectively. The Company has recorded zero deferred tax assets or liabilities as of ~~June 30,~~December 31, 2010 and ~~September 30,~~December 31, 2009, net of tax allowance, because all other significant ~~difference~~differences in tax basis and financial statement amounts are permanent differences.

For the three months
ended

For the nine months
ended

June 30, June 30,
2010 2009 2010 2009

Income Tax Expense:

Current tax $ 6,328 $ 0 $ 6,328 $ 0
Change in deferred tax assets – Net operating loss 46,911 76,959 285,019 199,513

Change in valuation allowance (46,911 ) (76,959 ) (285,019 ) (199,513 )

Total $ 6,328 $ 0 $ 6,328 $ 0

We follow the guidance in FASB ASC 740 Accounting for Uncertainty in Income Taxes. We have not taken any uncertain tax positions on any of our open income tax returns filed through the period ended ~~June 30,~~December 31, 2010. Our methods of accounting are based on established income tax principles and are properly calculated and reflected within our income tax returns. In addition, we have timely filed extension of income tax returns in all applicable jurisdictions in which we believe we are required to make an income tax return filing.

We re-assess the validity of our conclusions regarding uncertain tax positions on a quarterly basis to determine if facts or circumstances have arisen that might cause us to change our judgment regarding the likelihood of a tax position’s sustainability under audit. We have determined that there were no uncertain tax positions for the ~~nine~~three months ended ~~June 30,~~December 31, 2010 and 2009.

All of the Company’s income before income taxes is from PRC sources. Actual income tax expense reported in the consolidated statements of operations and comprehensive income differ from the amounts computed by applying the PRC statutory income tax rate of 12.5% (50% discount of 25%) to income before income taxes for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2010 for the followings reasons:

	For the Three Months Ended
	December 31,
	2010			2009
Income before income taxes	$	146,090		$	357,462
Temporary difference:
Write-off for bad debt		(7,372	)		-
Permanent difference:
Undeductible interest expense		609,900			-
Non-taxable income from valuation adjustment for warrants		(191,000	)		-
Non-deductible stock-based compensation		151,329			-
Adjusted taxable income	$	708,947			-
Income tax rate at 12.5% and zero in 2010 and 2009		12.50	%		-
Income tax expense	$	88,618			-

For the three months
ended

For the nine months
ended

June 30, June 30,
2010 2009 2010 2009

Income before income taxes $ 441,096 $ 357,462 $ 2,330,776 $ 1,089,208

Computed “expected” income tax expense at 12.5% and zero in 2010 and 2009 $ 142,363 $ - $ 430,664 $ -
Tax effect of net taxable permanent differences (89,124 ) - (139,317 ) -

Effect of cumulative tax losses (46,911 ) - (285,019 ) -

$ 6,328 $ - $ 6,328 $ -

Our policy for recording interest and penalties associated with audits is to record such items as a component of income tax expense. There were no interest and penalties recorded for the ~~nine~~three months ended ~~June 30,~~December 31, 2010 and 2009.

~~17. Recent Accounting Pronouncements~~

~~Fair Value Measurements~~

In January 2010, the FASB issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires disclosure of transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy, including the reasons and the timing of the transfers and information on purchases, sales, issuance, and settlements on a gross basis in the reconciliation of the assets and liabilities measured under Level 3 of the fair value measurement hierarchy. The guidance is effective for annual and interim reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for annual and interim periods beginning after December 15, 2010. The Company adopted this guidance at January 1, 2010, except for the Level 3 reconciliation disclosures on the rollforward activities, which it will adopt at the beginning of January 1, 2011. Adoption did not have a material impact on our consolidated financial statements.

~~Receivables~~

~~In April 2010, the FASB issued ASU 2010-18,~~ ~~Receivables (Topic 310), Effect of a Loan Modification When the Loan is Part of A Pool That Is Accounted for as a Single Asset~~. ASU 2010-18 provides that modifications of loans that are accounted for within a pool under Subtopic 310-30 do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loans are included is impaired if expected cash flows for the pool change. This guidance is effective prospectively for the first interim and annual period ending on or after July 15, 2010. Early adoption is permitted. The Company adopted this guidance without a material impact on its consolidated financial statements.

~~Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.~~

1617

18. Subsequent Events

On January 31, 2011, we entered into note extension agreements with each of the purchasers (other than Lumen Capital LP) of our 10% secured convertible notes in the aggregate principal amount of $4,040,000, issued on February 12, 2010, to extend the maturity date from February 12, 2011 to June 30, 2011. The note in the principal amount of $100,000 held by Lumen Capital LP was repaid on February 11, 2011.

ITEM 2.

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

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, including the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements that are based on the beliefs of our management, and involve risks and uncertainties, as well as assumptions, that, if they ever materialize or prove incorrect, could cause actual results to differ materially from those expressed or implied by such forward-looking statements. The words “believe,” “expect,” “anticipate,” “project,” “targets,” “optimistic,” “intend,” “aim,” “will” or similar expressions are intended to identify forward-looking statements. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including statements regarding new and existing products, technologies and opportunities; statements regarding market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China; any statements of belief or intention; any of the factors and risks mentioned in the “Risk Factors” sections of our Current Report on Form 8-K filed with the Securities and Exchange Commission on February 12, 2010, and any statements of assumptions underlying any of the foregoing. All forward-looking statements included in this report are based on information available to us on the date of this report. We assume no obligation and do not intend to update these forward-looking statements, except as required by law.

Introduction

This section discusses and analyzes the results of operations and financial condition of China SLP Filtration Technology, Inc., formerly known as Perpetual Technologies, Inc., (“we,” “us,” or the “Company”) which is the ultimate parent company of Foshan S.L.P. Special Materials Co., Ltd. (“Foshan”), a China-based operating company located in Foshan, Guangdong Province in the People’s Republic of China.

On February 12, 2010, we acquired control of Foshan in a share exchange transaction which closed on that date.

In the share exchange or “reverse merger” we acquired control of Hong Hui Holdings Limited (“Hong Hui”), a British Virgin Islands company and the owner of all of the stock of Technic International Limited (“Technic”), a Hong Kong holding company which in turn is the owner of all of the equity of Foshan, by issuing to the Hong Hui stockholders an aggregate of 14,510,204 shares of our common stock in exchange for all of the outstanding capital stock of Hong Hui.

The transaction is accounted for as a reverse acquisition, except that no goodwill or other intangible has been recorded. The recapitalization is considered to be a capital transaction in substance, rather than a business combination. Beginning from February 12, 2010, the operating results of Foshan are consolidated in the Company’s financial results for that period.

Foshan is engaged in the manufacture and sale ~~and research and development~~ of ~~advanced spun-bond PET, or polyester,~~ non-wovens.

Non-woven fabrics are broadly defined as sheet or web structures bonded together by entangling fiber or filaments (and by perforating films) mechanically, thermally or chemically. They are flat, porous sheets that are made directly from separate fibers or from molten plastic or plastic film. They are not made by weaving or knitting and do not require converting the fibers to yarn.

Our major market is the Chinese market. We sell products to industrial customers in China. In recent years, our products have been successfully launched in the European, North American and South East Asian markets.

Currently, our major products are spun-bond, thermal calendaring and needle-punched industrial non-woven PET (polyester) and PP (polypropylene) fabrics. These products are used as filtration media and infrastructure engineering material, among other uses.

We currently operate three spun-bond production lines. Two lines are spun-bond, thermal calendaring production lines with a total annual capacity of 4,000 tons of spun-bond polyester filament thermal calendaring non-woven. In February 2009, we added the third line, spun-bond needle-punching production line with an annual capacity of 4,000 tons of spun-bond polyester filament, needle-punched non-woven fabric.

1719

We recently developed a continuous filament, spun-bond, needle-punched manufacturing process to manufacture polyphenylene sulfide fiber, or PPS, a specialized type of high temperature resistant non-woven fabric and intend to begin commercial production of PPS using our proprietary manufacturing process in ~~2010.~~2011. We have applied for a process patent in the PRC for this process (Patent No. PRC: 201010102660.2) and we intend to apply for a process patent in North America and Europe. In comparison to other ~~filtering~~filtration materials currently available, we believe that our non-woven fabric will be stronger, have lower production and operating costs, and will have higher filtration efficiency. ~~We have tested~~Although prototype bag filters made of our PPS ~~material non-woven fabric internally and, although a prototype using our material has~~product have been tested in laboratories, they have not ~~yet~~ been ~~deployed~~tested on site by any ~~industrial~~potential end user and we ~~believe~~do not expect to develop prototype products for testing by any potential end user prior to commence commercial production of PPS products. Our new PPS nonwoven fabric may never achieve broad market acceptance, due to any number of factors, including that the product may not be as effective as our initial testing indicates and competitive material has the potential to replace the filtration materials and products currently available and become the most popular filtration material in high temperature environments such as coal-fired power plants, garbage incinerators and cement factories. may be introduced which renders our PPS product too expensive or obsolete.

On March 24, 2010, the Company effected a 1 for 5 reverse stock split of its outstanding common stock. The effect of the reverse split is retrospectively ~~showed~~shown in all periods presented.

On February 12, 2010, immediately following the reverse merger, the Company entered into a note purchase agreement with certain accredited investors for the sale of convertible notes in the aggregate principal amount of $4,140,000 and warrants (which are exercisable only in certain circumstances), with net proceeds of $3.4 million after finance costs. The notes require quarterly interest payments at a rate of 10% per annum.

Recent Development

On January 31, 2011, we entered into note extension agreements with each holder of our outstanding convertible notes (except for Lumen Capital LP who holds a convertible note in the principal amount of $100,000) to extend the maturity date of the notes from February 12, 2011 to June 30, 2011. We repaid Lumen Capital the principal amount of $100,000 on February 11, 2011.

We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements. This discussion should be read in conjunction with our audited financial statements and accompanying notes as of September 30, ~~2009,~~2010, and for the year then ended, and the unaudited condensed consolidated interim financial statements for the ~~nine~~three months ended ~~June 30,~~December 31, 2010.

Results of Operations

Three Months Ended ~~June 30,~~December 31, 2010 Compared to Three Months Ended ~~June 30,~~December 31, 2009

The following table shows, for the periods indicated, information derived from our consolidated statements of income in US dollars and as a percentage of net sales (percentages may not add due to rounding). See the financial statements of the Company and the related notes thereto and other financial information included elsewhere in this report.

	Three Months Ended December 31
	2010					2009
Net Sales	$	5,780,973		100	%	$	5,224,961		100	%
Cost of Sales		4,223,562		73	%		3,611,088		69	%
Gross Profit		1,557,411		27	%		1,613,873		31	%
Selling, General and Administrative Expense		812,636		14	%		274,023		5	%
Operating Income		744,775		13	%		1,339,850		26	%
Interest Income		5,330		-	%		225		0	%
Interest Expense		(777,697	)	-13	%		(58,909	)	-1	%
Loss on disposition of fixed assets		(23,408	)	-	%		(107	)	-	%
Government subsidy		6,090		-	%		-		-	%
Changes in Fair Value of Warrants		191,000		3	%		-		-	%
Total Other Income (expenses)		(598,685	)	-10	%		(58,791	)	-1	%
Income before income taxes		146,090		3	%		1,281,059		25	%
Income tax provision		88,618					-
Net Income	$	57,472		1	%	$	1,281,059		25	%

Three Months Ended June 30
2010 2009
Amount % Amount %
Sales $ 5,072,791 100 % $ 2,482,212 100 %
Cost of Sales 3,537,571 70 % 1,779,328 72 %
Gross Profit 1,535,220 30 % 702,884 28 %
Selling, General and Administrative Expense 701,436 14 % 266,101 11 %
Operating Income 833,784 16 % 436,783 18 %
Interest Income 10,106 0.2 % 2,104 0 %
Interest Expense (764,794 ) 15 % (65,162 ) 3 %
Loss on disposition of fixed assets - (16,263 ) 1 %
Changes in Fair Value of Warrants 362,000 7 % - 0 %
Net Income before taxes 441,096 9 % 357,462 14 %
Income tax provision 6,328 -
Net Income $ 434,768 9 % $ 357,462 14 %

1820

Net Sales

Net sales consisted of revenue from sales of needle punched non-woven ~~fabric~~product and thermal calendared products. Our net sales for the three month period ended ~~June 30,~~December 31, 2010 were ~~$5,072,791,~~$5,780,973, an increase of ~~$2,590,579,~~$556,012, or ~~104%~~11%, from ~~$2,482,212~~$5,224,961 for the same period of the prior year. ~~In February 2010, we installed a new production line to manufacture needle punched~~Thermal calendared non-woven products contributed 10% of the increase in total revenue and needle-punched non-woven fabric contributed 1% to the increase in total revenue. The increase in revenue was primarily attributable to the price increase on both our thermal calendared products and ~~start sales~~needle-punched products sold to domestic customers which price increases ranged from 3% to 22% and were put in place in order to pass on the higher costs of raw materials in this period. However, as a result of the ~~new products. Sales of needle-punched~~price increase, domestic sales volume declined by 6%. Demand for our products ~~for~~from overseas continued to rise reflecting the global economic recovery. Our international sales during this period increased 41% in volume and 42% in sales, respectively.

For the three month period ended ~~June 30,~~December 31, 2010, ~~were $2,054,318 compared to $518,752 for~~sales of thermal calendared products increased by $526,938, or 18%, from the same period of the prior year. ~~In addition,~~Domestic sales volume of thermal calendared ~~materials~~products decreased by 4% and international sales increased by 15%.

Sales of needle-punched products increased by $29,085, or 0.6%. Domestic sales volume decreased by 8% which decrease was offset by increased international sales. Our price increase for ~~the three month period ended June 30, 2010~~our needle-punched products has had a negative impact on our sales to smaller sized domestic customers which were ~~$3,018,473, an increase of $1,062,855 compared~~less receptive to ~~$1,955,618 for the same period of the prior year.~~our price increase.

Cost of Sales

Cost of sales principally consists of the cost of raw materials, labor and manufacturing overhead expenses.

Cost of sales for the three month period ended ~~June 30,~~December 31, 2010 was ~~$3,537,571,~~$4,223,562, an increase of ~~$1,758,243,~~$612,474, or ~~99%~~17%, from ~~$1,779,328~~$3,611,088 for the same period in 2009.

Raw material cost increased to ~~56%~~55% of ~~the~~net sales for the three month period ended ~~June 30,~~December 31, 2010, compared to ~~51%~~47% of net sales for the same period of the prior year, reflecting a mix of more expensive raw materials associated with ~~2010~~ sales. ~~98.7%~~98% percent of our raw materials ~~consists~~consist of polyester, the price of which fluctuates with the price of ~~oil~~oil. During the three month period ended December 31, 2010, the cost of raw materials increased 17% from the same period of the prior year. The increase of our cost of sales was due principally from the increase in the cost of raw materials.

Labor cost accounted for 1% of net sales for the three month period ended ~~June 30,~~December 31, 2010, the same level ~~for~~as the same period ~~of year~~in 2009.

Overhead expenses were ~~13%~~19% of net sales for the three month period ended ~~June 30,~~December 31, 2010, compared to 18% of net sales for the same period in 2009. As a percentage of net sales, overhead expenses ~~decreased~~slightly increased due to ~~production~~lower capacity ~~expansion~~utilization and sales volume, ~~increase.~~compared to the same period in 2009.

Gross Profit

Gross profit represents net sales less cost of sales. Gross profit for the three month period ended ~~June 30,~~December 31, 2010 was ~~$1,535,220, an increase~~$1,557,411, a decrease of ~~$832,336,~~$56,462, or ~~118%~~4%, from ~~$702,884~~$1,613,873 for the same period in 2009. As a percentage of net sales, gross profit was ~~30%~~27% for the three month period ended ~~June 30,~~December 31, 2010, compared to ~~28%~~31% for the same period ~~last~~of the prior year. The ~~improved~~decrease in our gross profit was due primarily ~~attributed~~ to ~~lowered overhead~~the increase in cost of raw materials as a percentage of ~~the~~ net sales.

Selling, General and Administrative Expenses

Selling expenses include salaries, advertising expenses, rent, and all expenses directly related to selling product. General expenses include general operating expenses that are directly related to the general operation of the company. Administrative expenses include executive salaries and other expenses related to the overall administration of the company.

Selling, general and administrative expenses for the three month period ended ~~June 30,~~December 31, 2010 were ~~$701,436,~~$812,636, an increase of ~~$435,335~~$538,613 or 197%, compared to ~~$266,101~~$274,023 for the same period in 2009. The increase was primarily due to ~~increase of $47,219~~$246,149 in ~~delivery charges~~legal and documentation fees related to ~~overseas sales and $309,040 in~~ the Company’s ~~IPO related legal~~planned initial public offering, investor relation consulting fees of $70,500, and ~~other expenses.~~fees paid to our auditors of $57,984, $151,329 in stock-based employee compensation, and payroll increases.

Other Income and Expenses

Other expenses primarily consisted of interest expense while other income was primarily interest income and change in fair value of warrants.

Interest expense for the three month period ended ~~June 30,~~December 31, 2010 was ~~$764,791~~$777,697 compared to ~~$65,162~~$58,909 for the same period in 2009. Interest expense as a percentage of sales increased to ~~15%~~13% for the three month period ended ~~June 30,~~December 31, 2010, from 3%1% for the same period of ~~last~~the prior year. The increase in interest expense was mainly attributed to adoption of derivative accounting rules under FASB ASC 815-40 to record $4,140,000 of convertible loan notes. These accounting rules require us to accrete interest expense, in the amount of $609,900 for the period, based on the term of the notes and the note discount. Excluding the ~~derivative-accounting-driven~~derivative accounting driven interest expense, our interest expense was $167,797 for this three month period, ~~remained the same level as for~~an increase of $108,888, or 185%, from the same period of ~~last year. The accreted~~the prior year, primarily due to interest ~~expense was partially offset by~~paid to the bridge-loan creditors.

At December 31, 2010, under the requirements of FASB ASC 815, management re-measured the fair value ~~change~~ of the warrants ~~after~~issued in connection with the sale of convertible notes to bridge loan creditors on February 12, 2010. This re-measurement ~~at this reporting period.~~resulted in a decrease of the fair value of the warrants and accordingly a decrease of the value of the warrants liabilities and reported as other income in amount of $191,000.

1921

Income Tax

USA

BVI

Hong Hui is incorporated under the International Business Companies Act of the British Virgin Islands and accordingly is ~~exempted~~exempt from payment of British Virgin Island’s income taxes.

PRC

Pursuant to the PRC Income Tax Laws, the prevailing statutory rate of enterprise income tax is 25% for Foshan SLP. For 2008 and 2009, Foshan SLP ~~enjoys~~enjoyed a tax free holiday for two years. From January 2010 onwards, Foshan SLP is taxed at 25% of net income except for the 2010 and 2011 years where there ~~are~~is a 50% discount on income tax.

The current year tax provision was ~~$6,328 and $6,328~~$88,618 for the three ~~and nine~~ months ended ~~June 30, 2010, respectively.~~December 31, 2010. The Company has recorded zero deferred tax assets or liabilities as of ~~June 30,~~December 31, 2010 and September 30, ~~2009~~2010 net of tax allowance because all other significant difference in tax basis and financial statement amounts are permanent differences. Valuation allowance is applied to deferred tax assets derived from immaterial temporary difference in tax and financial basis financial statements.

Net Income

Net income for the three months ended ~~June 30,~~December 31, 2010 ~~increased by $77,306~~was $57,472, a decrease of $1,223,587, or 96%, from net income of $357,462 for the same period ended June 30, 2009 to net income of $434,768. Excluding accretion of interest expense discussed above and the gains on change in warrant value, net income rose to $682,668, an increase of $325,206 over the same period of last year.

~~Nine Month Period Ended June 30, 2010 compared to Nine Month Period Ended June 30, 2009~~

Nine Months Ended June 30
2010 2009
Amount % Amount %
Sales $ 14,919,816 100 % $ 7,023,045 100 %
Cost of Sales 10,381,404 70 % 4,685,730 67 %
Gross Profit 4,538,412 30 % 2,337,315 33 %
Selling, General and Administrative Expense 1,363,574 9 % 1,024,543 15 %
Operating Income 3,174,838 21 % 1,312,772 19 %

Interest Income 10,623 0 % 2,104 0 %

Interest Expense (1,216,685 ) 8 % (225,668 ) 3 %
Changes in Fair Value of Warrants 362,000 2 % - 0 %
Net Income before taxes 2,330,776 16 % 1,089,208 16 %
Income tax provision 6,328 -
Net Income $ 2,324,448 16 % $ 1,089,208 16 %

~~Sales~~

Net sales revenue consisted of revenue from sales of needle punched non-woven fabric and thermal calendared products. Net sales for the nine month period ended June 30, 2010 were $14,919,816, an increase of $7,896,771 or 112 %, from $7,023,045 for the same period of the prior year. The increase is mainly attributable to sales of the needle punched non-woven fabric products we launched during the second quarter of 2010. Sales of needle-punched products for the nine month period ended June 30, 2010 were $6,342,001 compared to $739,097 for the same period of the prior year. In addition, sales of thermal calendared materials for the nine month period ended June 30, 2010 were $8,577,815, an increase of $2,293,867 compared to $6,283,948 for the same period of the prior year.

~~Cost of Sales~~

~~Cost of sales principally consisted of the cost of raw materials, labor, and manufacturing overhead expenses.~~

Cost of sales for the nine month period ended June 30, 2010 was $10,381,404, an increase of $5,695,674, or 122%, from $4,685,730 for the same period of the prior year. As a percentage of net sales cost of sales was 70% for the nine month period ended June 30, 2010 compared to 67%$1,281,059 for the same period in ~~2009.~~

~~Raw material cost increased to 55% of~~ the sales for the nine month period ended June 30, 2010, compared to 44% of sales for the same period in 2009, reflecting a mix of more expensive raw materials associated with 2010 sales. Approximately 98% of our raw materials consists of polyester, the price of which fluctuates with the price of oil.

~~Labor cost was 1% of sales for the nine month period ended June 30, 2010 compared to 2% for the same period in 2009.~~

Overhead expenses were 13% of net sales for the nine month period ended June 30, 2010, compared to 20% of net sales for the same period last year reflecting operation efficiency achieved by increased production volume.

~~Gross Profit~~

Gross profit represents net sales less Cost of sales. Gross profit for the nine month period ended June 30, 2010 was $4,538,412, an increase of $2,201,097 or 94%, from $2,337,315 for the same period lastprior year. ~~As a percentage of net sales, gross profit was 30% for the nine month period ended June 30, 2010, compared to 33% for the same period last year. This~~The decrease was ~~primarily due~~mainly attributed to ~~the increase in the purchase price~~significant increases of ~~the raw materials associated with 2010 sales.~~

~~Selling, General and Administrative Expenses~~

~~Selling,~~ general and administrative expenses ~~for~~related to the ~~nine month period ended June 30, 2010 were $1,363,574,~~Company’s planned initial public offering, an increase in finance costs, and the adoption of ~~$339,031, compared~~FASB ASC 815 accounting rules to ~~$1,024,543 for~~treat the ~~same period last year. This is primarily due to increase~~warrants issued in ~~IPO related legal and other expenses and shipping expense associated~~connection with ~~overseas sales, offset by decrease in other general expenses.~~privately placed bridge loan notes.

~~Other Income and Expenses~~

~~Other expenses consisted solely of interest expenses and change in fair value of warrants.~~

Interest expense for the nine month period ended June 30, 2010 was $1,216,685 compared to $225,668 for the same period of last year. Interest expense as a percentage of net sales increased to 8% for the nine month period ended June 30, 2010 from 3% for the same period of last year. The cause for the increase in interest expense for the nine month period was the same as for the three month period. Excluding the accretion of interest expense, interest expense for this nine month period increased by $76,000 over the same period of last year, and, as a percentage of net sales, decreased to 2% from 3%.

~~Net Income~~

Net income for the nine months ended June 30, 2010 increased by $1,235,240 from net income of $1,089,208 for the same period in 2009 to net income of $2,324,448. The increase was mainly attributed to the increased net sales generated from our new needle-punched products and the lower selling, general and administrative expenses relative to net sales. Excluding IPO related expenses and accretion of interest expense from convertible notes sold, net income increased by $2.1 million for the nine month period.

2122

Liquidity and Capital Resources

The following table sets forth a summary of our net cash flow information for the periods indicated:

	Three Month Periods Ended December 31,
	2010			2009
	(Consolidated)			(Consolidated)
Net cash provided by operating activities	$	53,771		$	1,397,186

Net cash (used in) investing activities		(548,325	)		160,223

Net cash provided by (used in) financing activities		385,571			(330,101	)

Effect of currency exchange rate		86,770			(269	)

Net cash inflow		(22,213	)		1,227,039

We finance our business with cash generated from operations and use short-term bank loans to fund capital expenditures.

Working capital consists mainly of cash, accounts receivable, advances to suppliers and inventory. Cash, inventory and accounts receivable account for the majority of our working capital.

Our working capital requirements may be influenced by many factors, including cash flow, competition, relationships with suppliers, and the availability of credit facilities and financing alternatives, none of which can be predicted with certainty.

Our investment in new production facilities to manufacture PPS filtration products consumed a large amount of the proceeds obtained from bank loans and the issuance of convertible notes. This capital expenditure to a large extent affected our liquidity. We will need additional capital in order to expand our business.

At ~~June 30,~~December 31, 2010, we had ~~several~~outstanding bank loans ~~for~~in the total amount of ~~$3.8~~$3.94 million (RMB26 million), namely, a loan in the amount of $3,029,247 (RMB20 million) with Agriculture Bank of China Foshan Branch, and ~~these loans are~~a loan in the amount of $908,775 (RMB6 million) with Standard Chartered Bank. The loan with Agriculture Bank of China is payable in June 2011 and the loan with Standard Chartered Bank is repayable in ~~December 2010.~~February 2011.

On February 12, 2010, we completed a financing transaction in which we ~~raised gross~~received net proceeds of ~~$4.14 million~~$3,409,813 through a private placement of convertible notes and warrants to certain accredited investors.

The notes mature on February 11, 2011 and the principal amount of $4.14 million is repayable on its maturity date if the note holders do not extend the maturity date. On January 31, 2011, we entered into note extension agreements with each holder (except for Lumen Capital LP who holds a convertible note in the principal amount of $100,000) of our outstanding convertible notes to extend the maturity date of the notes from February 12, 2011 to June 30, 2011. On February 11, 2011, we repaid the note held by Lumen Capital.

Cash Flow from Operating Activities

~~Nine month period ended June 30, 2010 compared with nine month period ended June 30, 2009.~~

Net cash provided by operating activities for the ~~nine~~three months ended ~~June 30,~~December 31, 2010 was ~~approximately $2.86 million,~~$53,771, compared to ~~cash used of $0.25~~$1.4 million for the same period of the prior year. The ~~increased~~decreased operating cash inflow resulted primarily from ~~increase~~a decrease in net income and ~~favorable changes~~an increase in ~~advance~~advances to suppliers ~~accounts payable and accrued expenses~~in the amount of $1.3 million, which was offset by ~~unfavorable changes~~an increase in ~~accounts receivable, inventory and prepaid~~non-cash expenses.

Cash Flow from Investing Activities

~~Nine month period ended June 30, 2010 compared with nine month period ended June 30, 2009~~

Net cash used by investing activities for ~~nine~~three months ended ~~June 30,~~December 31, 2010 was ~~$2.51~~$0.55 million, compared to cash ~~used~~inflow from proceeds collected from related party receivable of ~~$0.09~~$0.16 million for the same period of the prior year. The increased cash used from investing activities during the ~~nine~~three month period of the current year was primarily attributed to capital expenditures on building up a new PPS ~~a new product, production line.~~manufacturing facility.

2223

Cash Flow from Financing Activities

~~Nine month period ended June 30, 2010 compared with nine month period ended June 30, 2009~~

Net cash provided by financing activities for the ~~nine~~three month period ended ~~June 30,~~December 31, 2010 was approximately ~~$2.64~~$0.39 million, compared to ~~$0.20~~$0.33 million of net cash used in financing activities for the same period of the prior year. The increase was from the cash received from ~~the sale of the convertible notes.~~a related party loan.

Future Cash Commitments

We have an ambitious business expansion plan for our PPS products. The PPS projects require significant capital expenditures. We ~~plan to finance~~financed the capital expenditures with ~~short term~~short-term loans from banks and planned public equity ~~offerings.~~offerings to raise additional capital to fund our capital projects. We expect our working capital needs can be met by cash generated from operations.

Critical Accounting Policies and Estimates

~~Management's~~Management’s discussion and analysis of its financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. Our financial statements reflect the selection and application of accounting policies which require management to make significant estimates and judgments. See Note 23 to our consolidated financial statements “Summary of Significant Accounting Policies.” We believe that the following paragraphs reflect the more critical accounting policies that currently affect our financial condition and results of operations:

Method of Accounting

We maintain our general ledger and journals with the accrual method of accounting for financial reporting purposes. Accounting policies adopted by us conform to generally accepted accounting principles in the United States and have been consistently applied in the presentation of financial statements, which are compiled on the accrual basis of accounting.

Use of estimates

The preparation of the financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates.

Economic and political risks

Our operations are conducted in the PRC. Accordingly, our business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.

Our operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. Our results may be adversely affected by changes in political and social conditions in the PRC and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.

Revenue recognition

Revenue represents the invoiced value of goods sold recognized upon the delivery of goods to customers. Revenue is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, and the seller’s price to the buyer is fixed or determinable and collectible.

Land use rights

Land use rights are stated at cost less accumulated amortization. Amortization is provided over a lease term of 50 years using the straight-line method.

2324

Property, plant and equipment

Plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of plant and equipment are as follows:

Buildings			20 years
Machinery and equipment			10 years
Office equipment			5 years
Motor vehicles			10 ~~years~~
~~Other assets~~			~~6-10~~ years

Accounting for the Impairment of Long-Lived Assets

The long-lived assets held and used by us are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonable likely to have a current or future effect on our financial condition.

2425

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

~~Not Applicable.~~Increases in the price of crude oil have a negative impact on the cost of our raw materials. Given the recent rise in the price of crude oil and the fact that the global economy is recovering, we expect that the price of our raw materials will stay at relatively high levels due to the relatively high price of crude oil which may adversely affect our gross margin for our PET products as our ability to pass on the increased material costs to customers is limited.

During 2010, all of our raw materials were purchased in the PRC. Because the raw materials for our new PPS products are expected to be sourced from the United States and Japan, we anticipate that, beginning in 2011, over 50% of our raw materials will be purchased from suppliers in the United States and Japan through their distributors in China. Accordingly, changes in the value of the RMB relative to the dollar and yen will affect our production costs and gross profit in 2011. However, we believe the RMB will continue to appreciate against the dollar based on the increasing pressure from the US government and so the impact of foreign currency conversion will be favorable to us.

ITEM 4.

CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures.

We maintain “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that ~~would be~~is 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 our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 under the Exchange Act, our management, including Mr. Jie Li, our Chief Executive Officer and Mr. Eric Gan our Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of ~~June 30,~~December 31, 2010. Based on that evaluation, Mr. Li and Mr., Gan concluded that as of ~~June 30,~~December 31, 2010, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, our disclosure controls and procedures were not effective in that certain “significant deficiencies” existed related to (i) the U.S. GAAP expertise of our internal accounting staff, and (ii) our internal audit function.

Changes in Internal Control over Financial Reporting.

Under the supervision and with the participation of our management, including our chief executive officer and ~~controller,~~our chief executive officer, identified a number of “significant deficiencies” in the process of preparing our financial statements for the quarter ended ~~March~~December 31, 2010 as described above.

During the quarter ended June 30, 2010, we began to take certain remedial measures as described below that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Because our current accounting department is relatively new to U.S. GAAP and the related internal control procedures required of U.S. public companies, our management has determined that they require additional training and assistance in U.S. GAAP ~~matters.~~matters and the SEC regulations. Management has determined that our internal audit function is also significantly deficient due to insufficient qualified resources to perform internal audit functions.

In order to correct the foregoing significant deficiencies, we are taking the following remediation measures:

We recently hired Eric Gan as our new Chief Financial Officer;

We are arranging necessary training for our accounting department staff;

We plan to engage external professional accounting or consultancy firms to assist us in the preparation of the US GAAP accounts; and

We remain committed to the establishment of effective internal audit ~~functions and have recently hired a new Chief Financial Officer;~~

In addition, we have allocated significant financial and human resources to strengthen the internal control structure and we have been actively working with external consultants to assess our data collection, financial reporting, and control procedures and to strengthen our internal controls over financial reporting.functions.

We believe that the foregoing steps will remediate the significant deficiencies identified above, and we will continue to monitor the effectiveness of these steps and make any changes that our management deems appropriate.

2526

PART II

OTHER INFORMATION

~~ITEM 1.~~

~~LEGAL PROCEEDINGS.~~

~~We are not aware of any legal proceedings or claims that we expect will have a material adverse affect on our business, financial condition or operating results.~~

ITEM 6.

EXHIBITS.

The following exhibits are filed as part of this report or incorporated by reference:

Exhibit No.		Description

31.1		Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certification of Principal Executive Officer and Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

2627

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

~~Dated: August 15, 2010~~

	CHINA SLP FILTRATION TECHNOLOGY, INC.

Dated: February 14, 2011	By:	/s/ Jie Li
		Jie Li
		Chief Executive Officer
		(Principal Executive Officer)


	By:	/s/ ~~Jie Li~~
Eric Gan		~~Jie Li~~
		~~Chief Executive Officer~~
		~~(Principal Executive Officer)~~

	~~By:~~	~~/s/ Eric Gan~~
		Eric Gan
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

2728

EXHIBIT INDEX

Exhibit No.		Description

31.1		Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certifications of Principal Executive Officer and Principal Accounting Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

2829

	Three Months Ended						Nine Months Ended
	June 30						June 30
	2010			2009			2010			2009
Net Sales	$	5,072,791		$	2,482,212		$	14,919,816		$	7,023,045
Cost of Sales		3,537,571			1,779,328			10,381,404			4,685,730
Gross Profit		1,535,220			702,884			4,538,412			2,337,315

Selling, General and Administrative Expenses		701,436			266,101			1,363,574			1,024,543
Income from Operations		833,784			436,783			3,174,838			1,312,772

Other Income (expense)
Interest Income		10,106			2,104			10,623			2,104
Interest Expense		(764,794	)		(65,162	)		(1,216,685	)		(225,668	)
Loss on disposal of fixed assets		-			(16,263	)		-			-
Changes in Fair Value of Warrants		362,000			-			362,000			-
Total Other Income (expenses)		(392,688	)		(79,321	)		(844,062	)		(223,564	)
Income before IncomeTaxes		441,096			357,462			2,330,776			1,089,208
Income Tax Provision		6,328			-			6,328			-
Net Income	$	434,768		$	357,462		$	2,324,448		$	1,089,208

Other Comprehensive Income
Foreign Currency Translation Adjustments		161,972			24,560			136,727			(66,276	)
Total Comprehensive Income	$	596,740		$	382,022		$	2,461,175		$	1,022,932

Net Income Per Common Shares:
Basic and Diluted	$	0.03		$	0.02		$	0.16		$	0.08
Weighted-Average Common Shares Outstanding:
Basic		15,235,714			14,510,204			14,879,603			14,510,204
Diluted		16,925,510			14,510,204			15,739,975			14,510,204

	Nine Months Ended June 30
	2010			2009

Cash Flow from Operating Activities:
Net income	$	2,324,448		$	1,089,208
Adjustments to reconcile net income to net cash
flow provided by (used in) operating activities:
Depreciation		864,016			632,799
Amortization		9,339			9,342
Changes in fair value of warrants		(362,000	)		-
Non-cash interest charges		914,850
Change in operating assets and liabilities:
Accounts receivable		(832,721	)		(561,041	)
Allowance for doubtful accounts		13,743
Advance to suppliers		235,358			(34,311	)
Inventory		(282,992	)		(525,210	)
Prepaid expenses and other current assets		(232,102	)		(131,539	)
Accounts payable & accrued liabilities		282,009			(610,775	)
Clients' deposits		(75,176	)		(93,457	)
Taxes payable		1,357			(8,949	)
Net cash provided by (used in) operating activities		2,860,129			(233,933	)

Cash Flow from Investing Activities:
Addition-property, equipment, and land use rights		(1,105,084	)		(844,747	)
Deposits for purchase of equipment		(2,178,792	)		-
Proceeds from related party receivable		772,573			735,878
Net cash (used in) provided by investing activities		(2,511,303	)		(108,869	)

Cash Flow from Financing Activities:
Repayment of loans		(769,631	)		(5,172,817	)
Proceeds from loans		-			4,974,197
Proceeds from notes issued		3,404,798			-
Net cash provided by (used) in financing activities		2,635,167			(198,620	)

Effects of Exchange Rates on Cash		51,776			(14,504	)
Net increase (decrease) in cash and cash equivalents		3,035,769			(555,926	)

Cash and cash equivalents, beginning of year		3,297,648			2,367,570

Cash and cash equivalents, end of year	$	6,333,417		$	1,811,644

Supplemental information of cash flows
Cash paid for interest	$	298,270		$	216,705
Cash paid for income taxes	$	-		$	-

												Accumulated
							Additional					Other			Total
	Common Stock						Paid-in			Retained		Comprehensive			Stockholders'
	Shares			Amount			Capital			Earnings (Deficit)		Income			Equity

BALANCE, September 30, 2008		14,510,204		$	14,510		$	7,548,752		$	2,054,880	$	1,602,725		$	11,220,867

Net Income		-			-			-			2,445,652		-			2,445,652

Currency translation adjustment		-			-						-		(57,078	)		(57,078	)

BALANCE, September 30, 2009		14,510,204		$	14,510		$	7,548,752		$	4,500,532	$	1,545,647		$	13,609,441

Shares effectively issued to former shareholders - 2/12/2010		2,600,000			2,600			(2,600	)							-

Cancellation of stock in recapitalization		(2,528,000	)		(2,528	)		2,528								-

Shares issued to placement agents in conjunction with convertible note		653,510			654			656,902					-			657,556
Net Income		-			-			-			2,324,448					2,324,448

Currency translation adjustment		-			-			-			-		136,727			136,727

BALANCE, June 30, 2010 - UNAUDITED		15,235,714		$	15,236		$	8,205,582		$	6,824,980	$	1,682,374		$	16,728,172

	June 30, 2010			September 30, 2009

Land use rights	$	626,699		$	622,578
Less:
Accumulated amortization		(95,193	)		(85,228	)
	$	531,506		$	537,350

	For the three months ended
	June 30, 2010			June 30, 2010
Net Income
(numerator for basic income per share)	$	434,768		$	357,462
Plus interest on convertible note		697,811			-
Net Income - assumed conversions
(numerator for diluted income per share)	$	1,132,579		$	357,462


Weighted average common shares
(denominator for basic income per share)		15,235,714			14,510,204

Effect of Dilutive Securities:
Warrants - treasury stock method		-			-
Convertible note as if-converted method		1,689,796			-
Weighted average common shares
(denominator for diluted income per share)		16,925,510			14,510,204

Basic net income per share	$	0.03		$	0.02
Diluted net income per share	$	0.07	Antidilutive	$	0.02

	For the nine months ended
	June 30, 2010			June 30, 2010
Net Income
(numerator for basic income per share)	$	2,324,448		$	1,089,208
Plus interest on convertible note		1,114,535			-
Net Income - assumed conversions
(numerator for diluted income per share)	$	3,438,983		$	1,089,208


Weighted average common shares
(denominator for basic income per share)		14,879,603			14,510,204

Effect of Dilutive Securities:
Warrants - treasury stock method		-			-
Convertible note as if-converted method		860,372			-
Weighted average common shares
(denominator for diluted income per share)		15,739,975			14,510,204

Basic net income per share	$	0.16		$	0.08
Diluted net income per share	$	0.22	Antidilutive	$	0.08

	At date of issuance			As of
Attribute	February 12, 2010			June 30, 2010

Warrants outstanding		1,218,857	(*)		1,218,857	(*)
Exercise Price	$	2.45		$	2.45
Risk Free Interst Rate		2.25	%		0.32	%
Volatility		90	%		70	%
Dividend Yield		0	%		0	%
Contractual Life (years)		1			0.7

	For the three months ended						For the nine months ended
	June 30,						June 30,
	2010			2009			2010			2009

Income Tax Expense:

Current tax	$	6,328		$	0		$	6,328		$	0
Change in deferred tax assets – Net operating loss		46,911			76,959			285,019			199,513

Change in valuation allowance		(46,911	)		(76,959	)		(285,019	)		(199,513	)

Total	$	6,328		$	0		$	6,328		$	0

	Three Months Ended June 30
	2010						2009
	Amount			%			Amount			%
Sales	$	5,072,791			100	%	$	2,482,212			100	%
Cost of Sales		3,537,571			70	%		1,779,328			72	%
Gross Profit		1,535,220			30	%		702,884			28	%
Selling, General and Administrative Expense		701,436			14	%		266,101			11	%
Operating Income		833,784			16	%		436,783			18	%
Interest Income		10,106			0.2	%		2,104			0	%
Interest Expense		(764,794	)		15	%		(65,162	)		3	%
Loss on disposition of fixed assets		-						(16,263	)		1	%
Changes in Fair Value of Warrants		362,000			7	%		-			0	%
Net Income before taxes		441,096			9	%		357,462			14	%
Income tax provision		6,328						-
Net Income	$	434,768			9	%	$	357,462			14	%