- Quarterly Report (10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the quarter period from January 1, 2009 to March 31, 2009

|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

Commission file number 333-137134

JADE ART GROUP INC.
(Exact name of registrant as specified in its charter)

 Nevada 71-1021813
 ------ ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)

#35, Baita Zhong Road,
Yujiang County, Jiangxi Province, P.R. of China 335200
(Address of principal executive offices)

(Zip Code)

(646)-200-6328
(Issuer's telephone number, including area code)

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_|

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes |_| No |_|

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Check one:

Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |X| Smaller reporting company |_|

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|

Indicate the number of shares outstanding of each of the issuer's classes of common stock: 79,980,000 as of May 20, 2009.

Table of Contents

Part I - Financial Information

 Item 1. Financial Statements 4

Part II - Other Information

 Item 2. Management's Discussion and Analysis of Financial Condition 26
 and Results of Operations
 Item 3. Quantitative and Qualitative Disclosures about Market Risk 32
 Item 4. Controls and Procedures 33

Part II - Other Information

 Item 1. Legal Proceedings. 33
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 34
 Item 3. Defaults Upon Senior Securities. 34
 Item 4. Submission of Matters to a Vote of Security Holders. 34
 Item 5. Other Information. 34
 Item 6. Exhibits. 35

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

JADE ART GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 MARCH 31, DECEMBER 31,
 2009 2008
 ----------- -----------
 (Unaudited)
ASSETS

Current Assets:

Cash $ 850,713 $ 68,956
Accounts receivable 3,601,987 1,477,770
Other receivable -- 19,014
 ----------- -----------
Total current assets 4,452,700 1,565,740

Property and equipment, net 5,632 5,942
 ----------- -----------

Distribution right, net 65,261,233 65,978,151
 ----------- -----------

Total Assets $69,719,565 $67,549,833
 =========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 981,672 $ 622,208
Advance from customers 146,314 146,314
Taxes payable 1,937,858 1,268,617
Dividend payable 903,074 2,264,851
 ----------- -----------
Total current liabilities 3,968,918 4,301,990
 ----------- -----------

Total Liabilities 3,968,918 4,301,990
 ----------- -----------

STOCKHOLDERS' EQUITY:
Common stock par value $0.001; 500,000,000 shares authorized;
 79,980,000 shares issued and outstanding, retroactively restated 79,980 79,980
Additional paid in capital 3,282,581 3,229,016
Statutory earnings reserve 2,008,152 2,008,152
Retained earnings 59,317,341 56,868,296
Accumulated other comprehensive income 1,062,593 1,062,399
 ----------- -----------
Total stockholders' equity 65,750,647 63,247,843
 ----------- -----------

Total Liabilities and Stockholders' Equity $69,719,565 $67,549,833
 =========== ===========

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

JADE ART GROUP INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME

 THREE MONTHS ENDED MARCH 31,
 2009 2008
 ------------ ------------
Sales $ 4,967,029 $ 10,663,024
Cost of sales (1,090,642) (1,574,831)
 ------------ ------------
Gross profit 3,876,387 9,088,193

Operating expenses:
 Selling, general and administrative
 Expenses (334,631) (718,715)
 ------------ ------------
Operating income 3,541,756 8,369,478
Other income (expenses):
 Interest expense -- (20,274)
 Interest income 281 --
 ------------ ------------
Income before taxes from continuing operations 3,542,037 8,349,204

Income tax expense (1,092,992) (2,330,560)
 ------------ ------------
Net income from continuing operations 2,449,045 6,018,644

Discontinued operations, net of tax
 Income from woodcarving operations, net of tax -- 96,751
 Income from transfer of woodcarving -- 55,322,615
 operations, net of tax
 ------------ ------------
Net income from discontinued operations -- 55,419,366
 ------------ ------------
Net Income 2,449,045 70,809,483
 ============ ============

Earnings Per Share:
 Basic
 Income from continuing operations 0.03 0.08
 Income from discontinued operations, net of tax -- 0.69
 ------------ ------------
 Net income $ 0.03 $ 0.77
 ============ ============
 Diluted
 Income from continuing operations 0.03 0.07
 Income from discontinued operations, net of tax -- 0.69
 ------------ ------------
 Net income $ 0.03 $ 0.76
 ============ ============
Weighted Average Number of Shares Outstanding
 Basic 79,980,000 79,980,000
 ============ ============
 Diluted 80,528,117 80,740,000
 ============ ============

OTHER COMPREHENSIVE INCOME:
Net Income $ 2,449,045 $ 61,438,010
 Foreign Currency
 Translation Adjustment 194 371,514
 ------------ ------------
Total Other Comprehensive Income $ 2,449,239 $ 61,809,524
 ============ ============

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

JADE ART GROUP INC. & SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

 THREE MONTHS ENDED MARCH 31,
 2009 2008
 ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations $ 2,449,045 $ 6,018,644
Adjustments to reconcile net income to net
 Cash provided by operating activities:

Net income from discontinued operations -- 55,419,366
 Gain from transfer of woodcarving operations -- (55,322,615)
 Depreciation and amortization 717,228 715,308
 Valuation of warrants and options granted 53,565 183,598
Changes in operating assets and liabilities, net of sale of subsidiary:
 Accounts receivables (2,124,217) (3,482,875)
 Prepaid expenses and deposit -- 32,256
 Other receivable 19,014 (401,040)
 Inventories -- (95,631)
 Accounts payable and accrued expenses 359,464 734,889
 Advances from customers -- (59,191)
 Taxes payable 669,241 2,488,670
 ------------ ------------
Net cash provided by operating activities 2,143,340 6,231,316
 ------------ ------------

CASH FROM INVESTING ACTIVITIES:
 Cash paid for notes receivable -- (6,194,333)
 Purchase of distribution right -- (6,792,244)
 Purchases of property and equipment -- (33,353)
 ------------ ------------
Net cash (used by) investing activities -- (13,019,930)
 ------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Cash paid for dividends (1,361,777) --
 Proceeds from loans from related party -- 3,000,000
 Proceeds from notes payable -- 3,800,000
 ------------ ------------
Net cash provided(used) by financing activities (1,361,777) 6,800,000
 ------------ ------------

EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH 194 371,514
 ------------ ------------

NET DECREASE(INCREASE) IN CASH AND EQUIVALENTS 781,757 382,900

CASH AND EQUIVALENTS, BEGINNING OF PERIOD 68,956 301,203
 ------------ ------------

CASH AND EQUIVALENTS, END OF PERIOD $ 850,713 $ 684,103
 ------------ ------------

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

JADE ART GROUP INC. & SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

 THREE MONTHS ENDED MARCH 31,
 2009 2008
 ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid during the period for
 Taxes $ 1,268,488 $ 587,778
 Interest -- --

Non Cash Transactions:
 Options and warrants granted for services $ 53,565 $ 183,598

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

JADE ART GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009

NOTE 1 - NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Organization

Jade Art Group, Inc. (the "Company"), was incorporated in the State of Nevada on September 30, 2005, , under the name of Vella Productions, Inc. ("Vella") and entered into an agreement and plan of merger (the "Merger Agreement"). On October 1, 2007, with its wholly-owned subsidiary, VELLA Merger Sub, Inc., and each of Guoxi Holding Limited ("GHL"), Hua-Cai Song, Fu-Lan Chen, Mei-Ling Chen, Chen-Qing Luo, Mei-Qing Zhang, Song-Mao Cai, Shenzhen Hua Yin Guaranty & Investment Company Limited, Top Good International Limited, Total Giant Group Limited, Total Shine Group Limited, Sure Believe Enterprises Limited, Think Big Trading Limited, Huge Step Enterprises Limited and Billion Hero Investments Limited.

Pursuant to the Merger Agreement, GHL merged with VELLA Merger Sub, Inc, with GHL as the surviving entity. GHL has an operating subsidiary, Jiangxi XiDa (formerly known as Jiangxi Xi Cheong Lacquer, Inc.) (the "Merger Transaction"). Jiangxi XiDa was incorporated under the laws of the People's Republic of China on December 4, 2006. JiangXi XiDa is located in Yujiang, Jiangxi Province. Jiangxi XiDa then was engaged in the production of traditional art products, including religious woodcut lacquer, woodcut decorated furniture and woodcut decorations used in buildings and for display. As a result of the Merger Transaction, GHL became a wholly-owned subsidiary of the Company, which, in turn, made the Company the indirect owner of Jiangxi XiDa. Under the Merger Agreement, in exchange of surrendering their shares in GHL, the GHL shareholders received an aggregate of (i) 206,700,000 (68,900,000 before forward split) newly-issued shares of the Company's common stock, par value $.001 per share (the "Common Stock") and (ii) $14,334,500, in the form of promissory notes (representing payment for dividends). Under accounting principles generally accepted in the United States, the share exchange is considered to be a capital transaction in substance, rather than a business combination. Thus, the share exchange is equivalent to the issuance of stock by GHL for the net monetary assets of Vella Productions, Inc. Based on the consent of the Jade Art Group's Board and all the GHL shareholders, the promissory notes are due to be paid on or before March 31, 2009. Druing the three months ended March 31, 2009, the Company paid an additional $1,361,777 in dividend payments. The remaining $903,074 is due and payable on or before March 31, 2010, and has been amended to include a 4% interest rate.

Consideration, including participation in the promissory notes, was distributed pro ratably among the GHL shareholders in accordance with their respective ownership interests in GHL immediately before the completion of the Merger Transaction.

The acquisition has been accounted for as a recapitalization and, accordingly, these consolidated financial statements represent historical operations of Jiangxi XiDa and the capital structure of the former Vella Productions, Inc.

JADE ART GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009

NOTE 1 - NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)

On November 8, 2007, the Company amended and restated its Articles of Incorporation to reflect Jade Art Group, Inc. as its new corporate name. On January 11, 2008, the Company formed a new wholly-owned Chinese subsidiary, JiangXi SheTai Jade Industrial Company Limited ("STJ"), to engage in the processing and sale of jadeite and jade.

On January 17, 2008, the Company entered into an Exclusive Distribution Rights Agreement (the "Agreement") with Wulateqianqi XiKai Mining Co., Ltd. ("XiKai Mining"). Under the Agreement, XiKai Mining commited to sell to the Company 90% of the raw jade material produced from its SheTai Jade mine, located in Wulateqianqi, China, for a period of 50 years (the "Exclusive Rights"). In exchange for these Exclusive Rights, the Company agreed to pay RMB 60 million (approximately $8.8 million) by March 31, 2009 to XiKai Mining and, to transfer to XiKai Mining 100% of our ownership interest in all of the Company's woodcarving operations, which were contained in Jiangxi XiDa. This transfer of Jiangxi XiDa was made on February 20, 2008.

The Agreement further provides that, if the Company requests, production from XiKai Mining will be no less than 40,000 metric tons per year (the "Minimum Commitment"), with an initial average cost per ton to be paid by the Company not to exceed RMB 2,000 (approximately $285). The cost per ton paid by the Company shall be subject to renegotiation every five years during the term of the Agreement, with adjustments not to exceed 10% of the cost for the immediately preceding five year period. Failure by XiKai Mining to supply raw jade material ordered by the Company within the Minimum Commitment level during any of the initial five years of the Agreement entitles the Company to payment from XiKai Mining of RMB 18,000 (approximately $2,500) for each such ton ordered by but not supplied to the Company during any such fiscal year.

Production of raw jade by XiKai Mining is limited to 40,000 metric tons per year under applicable Chinese regulations.

The Company's approved scope of business operations includes the production and sale of jade and related products. For the period ended March 31, 2009, the principal activity of the Company was the distribution of raw jade.

Accounting Method

The consolidated financial statements are prepared using the accrual method of accounting. The Company changed its fiscal year-end from July 31 to December 31 in fiscal year 2007.

Principles of consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company transactions and balances have been eliminated on consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

JADE ART GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009

NOTE 1 - NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)

Foreign Currency Translation

The Company's functional currency is the Chinese Yuan Renminbi ("RMB"), and reporting currency is the United States Dollar. The financial statements of the Company are translated to United States Dollars in accordance with SFAS No.52 "Foreign Currency Translation". Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Transactions affecting the Company's revenue and expense accounts are translated using an average exchange rate during the period presented. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income. Foreign currency transactions are primarily undertaken in RMB. Foreign Currency Translation Adjustments are included in Other Comprehensive Income and disclosed as a separate category of Stockholders' Equity.

Accounts Receivable and Notes Receivable

The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and recorded based on management's assessment of the credit history with the customer and current relationships with them.

The Company makes provision for bad debts based on an assessment of the recoverability of accounts receivable. Specific provisions are applied to related-party receivables and third-party receivables where events or changes in circumstances indicate that the balances may not be collectible. However, due to the Company's experience in the sale and distribution of raw jade in 2009, and the nature of the Company's business, management did not expect any uncollectible receivables. As of March 31, 2009, and December 31, 2008, there was no allowance recorded for the doubtful accounts.

Property and Equipment

Property and equipment is stated at cost. Betterments and improvements are depreciated over their estimated useful lives and leaseholds are depreciated over the lesser of lease life or useful life. Repairs and maintenance expenditures are charged to expense as incurred. When assets are disposed of, the cost and accumulated depreciation (the net book value of the assets) is eliminated and any resulting gain or loss is reflected in the statements of operations. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows:

Furniture and equipment 5 years

Cash and Cash Equivalents

For purposes of financial statement presentation, the Company considers all highly liquid investments with a maturity of three months or less, from the date of purchase, to be cash equivalents.

JADE ART GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009

NOTE 1 - NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)

Revenue Recognition

The Company applies the provisions of SEC Staff Accounting Bulletin ("SAB") No. 104, Revenue Recognition in Financial Statements ("SAB 104"), which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB 104 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. Sales revenue is recognized when (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed and determinable; and (4) collectibility is reasonably assured. The Company determines whether criteria (3) and (4) are met based on judgments regarding the nature of the price charged for products and the collectibility of those fees. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as advances from customers. Advances from customers at March 31, 2009 and December 31, 2008 are $146,314 and $146,314, respectively. Returns are not permitted after the customer accepts the product.

Fair Value of Financial Instruments

On January 1, 2008, the Company adopted SFAS No. 157, "Fair Value Measurements. SFAS No. 157 defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:

Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement.

The carrying amounts reported in the balance sheets for the cash and cash equivalents, receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The carrying value of notes payable approximates fair value because negotiated terms and conditions are consistent with current market rates as of March 31, 2009 and December 31, 2008 respectively.

Earnings per share

The computation of net earnings per share of common stock is based on the weighted average number of shares outstanding during each period presented. The Company utilizes the treasury stock method to calculate diluted earnings per share, which considers potentially issuable shares on common stock equivalents. In accordance with SFAS No. 128, "Earnings per Share," common stock warrants and options have a dilutive effect when the average market price of the common stock during the period exceeds the exercise price of the warrants and options. The average market price of the Company's common stock during the year ended December 31, 2008 was $3.43. As such, potentially issuable common shares related to options were not considered in the earnings per share calculation for the year ended December 31, 2008 because the average fair market value of the Company's common stock was below the exercise price of all outstanding options. Potentially issuable common shares totaling 1,000,000 related to warrants were considered in the calculation of diluted earnings per share for the periods ended March 31, 2009 and 2008 and the incremental shares of 548,117 and 760,000 related to the warrants have been included in the calculation, respectively.

JADE ART GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009

NOTE 1 - NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)

Earnings per share (continued)

The following table summarizes the calculation for the basic and diluted earnings per share computation for period indicated:

 Three Months Ended March 31,
Statement of Operations Summary Information: 2009 2008
 -------------- --------------
 Numerator:
 Income from continuing operations $ 2,449,045 $ 6,018,644
 Income from discontinued operations, net of tax -- 55,419,366
 -------------- --------------
 Net income $ 2,449,045 $ 61,438,010
 ============== ==============

 Denominator:
 Weighted-average common shares outstanding
 Basic 79,980,000 79,980,000
 Warrants - Incremental Shares 548,117 760,000
 -------------- --------------
 Diluted 80,528,117 80,740,000
 ============== ==============

 EARNINGS PER SHARE:
 Basic
 Income from continuing operations $ 0.03 $ 0.08
 Income from discontinued operations, net of tax -- 0.69
 -------------- --------------
 Net income $ 0.03 $ 0.77
 ============== ==============

 Diluted
 Income from continuing operations $ 0.03 $ 0.07
 Income from discontinued operations, net of tax -- 0.69
 -------------- --------------
 Net income $ 0.03 $ 0.76
 ============== ==============

JADE ART GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009

NOTE 1 - NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)

Accounting for Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with the fair value recognition provisions of Statement of Financial Accounting Standards ("SFAS") No. 123R. Share Based Payments ("SFAS 123R."). The Company uses the Black-Scholes option-pricing model, which involves certain subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them ("expected term"), the number of options for which vesting requirements will not be completed ("forfeitures"). Changes in the subjective assumptions can materially affect estimates of fair value stock-based compensation, and the related amount recognized on the consolidated statement of operations.

Impairment of Long-Lived Assets

In accordance with Financial Accounting Standards Board Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," we record impairment of long-lived assets to be held and used or to be disposed of when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount.

Recent Accounting Pronouncements

In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, ("FSP EITF 03-6-1"). FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore need to be included in the computation of earnings per share under the two-class method as described in FASB Statement of Financial Accounting Standards No. 128, "Earnings per Share." FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 and earlier adoption is prohibited. We are not required to adopt FSP EITF 03-6-1; neither do we believe that FSP EITF 03-6-1 would have material effect on our consolidated financial position and results of operations if adopted.

In May 2008, the Financial Accounting Standards Board ("FASB") issued SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts-and interpretation of FASB Statement No. 60". SFAS No. 163 clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement of premium revenue and claims liabilities. This statement also requires expanded disclosures about financial guarantee insurance contracts. SFAS No. 163 is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those years. SFAS No. 163 has no effect on the Company's financial position, statements of operations, or cash flows at this time.

In May 2008, the Financial Accounting Standards Board ("FASB") issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles". SFAS No. 162 sets forth the level of authority to a given accounting pronouncement or document by category. Where there might be conflicting guidance between two categories, the more authoritative category will prevail. SFAS No. 162 will become effective 60 days after the SEC approves the PCAOB's amendments to AU Section 411 of the AICPA Professional Standards. SFAS No. 162 has no effect on the Company's financial position, statements of operations, or cash flows at this time.

JADE ART GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009

NOTE 1 - NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)

Recent Accounting Pronouncements (continued)

In March 2008, the Financial Accounting Standards Board, or FASB, issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities--an amendment of FASB Statement No. 133. This standard requires companies to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company has not yet adopted the provisions of SFAS No. 161, but does not expect it to have an impact on its financial position, results of operations or cash flows.

JADE ART GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009

NOTE 2 - DISCONTINUED OPERATIONS

As discussed in Note 1, on January 18, 2008, the Company announced that it would transfer 100% of its ownership interest in Jiangxi XiDa and pay approximately $8.8 million to XiKai Mining and in return it would receive the Exclusive Rights to purchase 90% of the raw jade produced by XiKai Mining's SheTai jade mine at a predetermined price. The Company commenced its purchasing and subsequent resale of raw jade in late January 2008. Jiangxi XiDa held all of the Company's woodcarving operations, which constituted all of the Company's previous business operations. The results of operations for the woodcarving business and the gain resulting from the transfer are presented in the Company's Consolidated Statements of Operations as Discontinued Operations.

Accounting Principles Board Opinion No. 29, "Accounting for Non-monetary Transactions" ("APB 29"), requires that the cost of a non-monetary asset acquired in exchange for another non-monetary asset be the fair value of the asset surrendered to acquire it and that a gain or loss be recognized as a result of the exchange. The Company's woodcarving business was appraised at RMB 430,035,000 (then equivalent to approximately $60,400,000). The value of the exclusive jade distribution rights is determined as follows:

Fair value of Jiangxi XiDa wood carving (RMB 430,035,000) $ 60,390,543
Cash consideration (RMB 60,000,000) 8,778,861
Foreign currency translation (352,962)
 ------------
 $ 68,816,442
 ============

The Exchange Agreement between the two companies was entered into in January 2008, however, the cash portion of the agreement was not paid until March 2008. As such, the exchange rate had fluctuated during that time period. Therefore, the Company adjusted the amount by $352,962. The value allocated to the Exclusive Distribution Rights acquired in the exchange is $68,816,442 which will be amortized on a straight-line basis over 25 years.

The net gain on the transfer of the Company's woodcarving business was $55,322,615 after the deduction of the carrying value of the net assets of that business. The exchange of the assets and liabilities of Jiangxi XiDa, and the resulting gain on discontinued operations is as follows:

Fair value of Jiangxi XiDa wood carving (RMB 430,035,000) $ 60,390,543
 Total assets of Jiangxi XiDa (5,151,444)
 Total liabilities of Jiangxi XiDa 83,516
 ------------------
 (5,067,928)
 ------------------
Realized gain from the exchange of $ 55,322,615
 discontinued operations ==================

The following table summarizes the operating results of the discontinued operations for Jiangxi XiDa for the three months ended March 31, 2009 and the period January 1, 2008 through February 20, 2008, respectively.

 March 31, February 20,
Revenue 2009 2008
 ---------- ----------
Operating expenses $ -- $ 615,930
Income from discontinued operations, net of tax -- (519,179)
 ---------- ----------
 $ -- $ 96,751
 ========== ==========

JADE ART GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009

NOTE 3 - RELATED PARTY TRANSACTIONS

During the first quarter 2008 the Company received an unsecured loan of $3,000,000 from a shareholder of the Company. The loan is unsecured, carries an interest rate of 5% and is due and payable on December 31, 2008. This amount was used to serve as registered capital for the wholly-owned subsidiary, STJ, of the Company to provide working capital for the subsidiary's operations. The principal amount of the loan of $3,000,000 with interest, in the amount of $139,726, was paid in full on November 24, 2008.

NOTE 4 - NOTE RECEIVABLE

The Company has extended financial support to XiKai Mining, who supplies 100% of the Company's jade product, in the form of advances. During 2008, the Company advanced a total of $14,652,653 to XiKa Mining. Per the terms of this receivable agreement, the note carries an interest rate of 4%, commencing on July 1, 2008 and is payable by December 31, 2008. Interest is recognized on a monthly basis. During the year ended December 31, 2008, XiKai Mining repaid the entire principal balance of $14,652,653. Interest was accrued in the total amount of $132,087. The Company forgave the total accrued interest and recorded the loss on forgiveness of debt as of December 31, 2008 in the Company's statements of operations.

NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at March 31, 2009 and December 31, 2008:

 March 31, 2009 December 31, 2008
 ----------------- -----------------
 (Unaudited)

Furniture and office equipment - cost $ 6,526 $ 6,526
Less: Accumulated depreciation (894) (584)
 ----------------- -----------------

Net property and equipment $ 5,632 $ 5,942
 ================= =================

Depreciation expense on property and equipment was $310 and $584 for the three months ended March 31, 2009, and year ended December 31, 2008, respectively.

NOTE 6 - NOTES PAYABLE

During the year ended December 31, 2008, the Company received funding from four parties, one of whom is a shareholder of the Company and treated as a related party. This funding totaled $10,000,000, and is represented by four separate notes. Each note carries an annual interest rate of 5%, with all principal and interest being due on various dates from December 6, 2008, through June 1, 2009. The funds were used to serve as registered capital for a wholly-owned subsidiary of the Company to provide working capital for the subsidiary's operations. The amount received from the related party was $3,000,000. As at December 31, 2008, the Company has paid, in full, all of the notes and related interest of $ 421,507.

JADE ART GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009

NOTE 6 - NOTES PAYABLE (continued)

As discussed in Note 1, in exchange for the Exclusive Rights to distribute jade, the Company agreed to pay RMB 60 million (approximately $8.8 million) to XiKai Mining by March 1, 2009. The entire amount of RMB 60 million (approximately $8.8 million) was paid on March 1, 2008.

On October 1, 2007, the Board of Directors of the Company declared dividends of $14,334,500 in the form of non-interest bearing promissory notes, initially to be payable on or before the first year anniversary of the Merger Transaction. The dividends (i.e.promissory notes) were distributed pro rata among the GHL shareholders in accordance with their respective ownership interests in GHL immediately before the completion of the Merger Transaction. Subsequently, the Company and the GHL shareholders agreed to defer payment of these notes until March 31, 2009. As of March 31, 2009, the Company had paid dividends in the amount of $13,431,426 and with remaining $903,074, which is due and payable on or before March 31, 2010, and has been amended to include a 4% interest rate.

NOTE 7 - INTANGIBLE ASSETS

Jade Distribution Rights

The Company accounts for intangible assets in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," which requires that intangible assets that have indefinite lives not be amortized but instead be tested at least annually for impairment, or more frequently when events or a change in circumstances indicate that the asset might be impaired. For indefinite lived intangible assets, impairment is tested by comparing the carrying value of the asset to its fair value and assessing the ongoing appropriateness of the indefinite life classification. For intangible assets with a definite life classification, the Company amortizes the asset over its useful or economic life, whichever is shorter. At least quarterly, the Company performs an analysis of impairment of the definite life intangible assets. In performing this assessment, management considers current market analysis and appraisal of the asset, along with estimates of future cash flows. The Company recognizes impairment losses when undiscounted cash flows estimated to be generated from long-lived assets are less than the amount of unamortized assets. If the Company determines that the asset has been impaired, a charge to the Company's statements of operations is recorded. At March 31, 2009 and December 31, 2008, the Company determined that there was no impairment to the intangible assets.

As discussed in Note 2, the Company transferred its woodcarving operations and agreed to pay RMB 60 million (approximately $8.8 million) to XiKai Mining. In return, the Company received the Exclusive Distribution Rights to purchase 90% of the raw jade produced by XiKai's SheTai mine at a fixed price for 5 years, subject to adjustment every 5 years thereafter. The woodcarving operations were assessed as having a fair value of $60,400,000 at the time of the exchange agreement. The assessed value plus the cash payment (approximately $8.8 million) is the basis of the exclusive distribution rights.

JADE ART GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009

NOTE 7 - INTANGIBLE ASSETS (Continued)

Jade Distribution Rights (Continued)

Intangible assets consisted of the following at March 31, 2009 and December 31, 2008:

 March 31, December 31,
 2009 2008
 ------------ ------------
 (Unaudited)

Exclusive Jade Distribution rights $ 68,816,442 $ 68,816,442

Less: Accumulated amortization (3,555,209) (2,838,291)
 ------------ ------------

Net Exclusive Jade Distribution Rights $ 65,261,233 $ 65,978,151
 ============ ============

The Company has elected to amortize the exclusive jade distribution rights using a straight-line basis over an economic useful life of 25 years.

Amortization expense on the intangible asset has been included in Cost of Sales as it represents a component of the cost of the jade product acquired by the Company. The amortization expense was $716,918, and $688,164 for the three months ended March 31, 2009 and 2008, respectively.

Further amortization of these costs is as follows:

Five Year Disclosure

 2009 2,032,172
 2010 2,749,090
 2011 2,749,090
 2012 2,749,090
 2013 2,749,090
Thereafter 52,232,701
 ----------
 65,261,233
 ==========

JADE ART GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009

NOTE 8 - COMMITMENTS AND CONTINGENCIES

Employee Benefits

As required under certain relevant Chinese laws, the Company participates in the following employee benefits plans: (i) medical insurance plan; (ii) unemployment insurance plan, and (iii) state pension plan, all of which are organized by Chinese municipal and provincial governments (collectively, the "General Employee Benefits"). The Company is required to contribute a fixed percentage of payroll costs to the General Employee Benefits scheme to fund the benefits. The only obligation of the Company with respect to the plan is to make the specified contributions. The Company's contributions to the plan for the three months ended March 31, 2009 and 2008 were $3,455 and $0, respectively.

Lease Agreement

On December 10, 2007, the Company entered into a lease agreement with GuoXi Group located at Yujiang City of Jiangxi Province in PRC for administrative operations. The lease has a term of two years and requires monthly payments of RMB 20,000 (approximately $2,900). Future minimum lease payments are as follows:

 Year Amount
------------------ --------
2009 (nine months) $ 26,334
 ========

Rent expense for the three months ended March 31, 2009 and 2008 was $8,778 and $8,547 respectively. The rent expenses was for the office space relating to manage the operations of the jade distribution business.

NOTE 9 - STATUTORY EARNINGS RESERVE

As stipulated by the Company Law of the People's Republic of China ("PRC"), net income after taxes can only be distributed as dividends after appropriation has been made for the following: (i) making up cumulative prior years' losses, if any; (ii) allocations to the "reserve fund" of at least 10% of income after taxes, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company's registered capital; and (iii) allocations to the "enterprise expansion fund" and " Staff and worker's bonus and welfare fund" of at least 10% and 5%,respectively, if approved in the stockholders' general meeting. This regulation was included in the articles of incorporation when the Company was formed and applied by the Company. At March 31, 2009 and December 31, 2008, the total reserves of $2,008,152 and $2,008,152 were distributed, respectively.

JADE ART GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009

NOTE 10 - STOCKHOLDERS' EQUITY

The Company has one class of stock. The Company has voting common stock of 500,000,000 shares authorized, with 79,980,000 shares issued and outstanding. Dividends relating to the Merger Transaction of $1,361,777 and $12,069,649 were paid during the periods ended March 31, 2009 and December 31, 2008. No dividends were declared during the period ended March 31, 2009.

On November 28, 2007, the Company issued 15,000,000 shares (previously 5,000,000 shares before forward split) of its common stock to consultants for services rendered on behalf of the company. The shares were valued at $1,500,000, which the Board determined was the fair value of the shares on the date they were issued.

On December 7, 2007, the Company's Board of Directors approved a 3:1 forward stock split, in the nature of a share dividend, with respect to the shares of the Company's common stock issued and outstanding at the close of business on December 28, 2007. The effect of the forward stock split has been retroactively applied to all prior stock transactions of the Company.

On April 28, 2008, the Company announced that it's Board of Directors authorized a one-for-three reverse stock split of its outstanding common stock. The reverse stock split was approved by a majority of the Company's shareholders. The Company's Board of Directors established May 15, 2008 as the effective date for the reverse stock split. The effect of the reverse split has been retroactively applied to all prior stock transactions of the Company.

NOTE 11 - COMMMON STOCK WARRANTS AND OPTIONS

Warrants

On January 17, 2008, the Company granted warrants to purchase 1,000,000 shares of the Company's common stock at a price of $1.08 to its investor relations firm pursuant to a consulting agreement which the Company entered into with this firm. Neither the exercise price per share of the warrants, nor the number of shares for which the warrants are exercisable, were affected by the Company's one-for-three reverse stock split in May 2008. These warrants can be exercised over a three year period. The consulting expense for these services is recognized on a straight-line basis over the one year period of the related consulting contract. The Company estimated the fair value of warrants using the Black-Scholes pricing model and recorded the compensation expenses ratably over the warrants' vesting period. The related expense for the period ended March 31, 2009 amounted to $1,003,348.

JADE ART GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009

NOTE 11 - COMMMON STOCK WARRANTS AND OPTIONS (Continued)

Warrants (Continued)

The fair value of each warrant granted has been estimated on the date of grant using the Black-Scholes pricing model, using the following assumptions:

 2009 2008
 -------- --------
Five Year Risk Free Interest Rate 2.46% 2.46%
Dividend Yield 0.00% 0.00%
Volatility 314% 314%
Average Expected Term (Years to Exercise) 3 3

A summary of the status of warrants granted at March 31, 2009 is as follows:

 For The Period Ended
 March 31,2009
 Weighted
 Average Exercise
 Shares Price
 ---------------- ----------------
Outstanding at January 1, 2008 -- --
Granted 1,000,000 $ 1.08
Exercised -- --
Forfeited -- --
Expired -- --
 ---------------- ----------------
Outstanding at December 31, 2008 1,000,000 $ 1.08
 ================ ================
Granted -- --
Exercised -- --
Forfeited -- --
Expired -- --
 ---------------- ----------------
Outstanding at March 31, 2009 1,000,000 $ 1.08
 ================ ================

Exercisable at December 31, 2008 1,000,000 $ 1.08
 ================ ================
Exercisable at March 31, 2009 1,000,000 $ 1.08
 ================ ================

JADE ART GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009

NOTE 11 - COMMMON STOCK WARRANTS AND OPTIONS (Continued)

Warrants (Continued)

A summary of the status of warrants outstanding at March 31, 2009 was presented below:

 Warrants Outstanding Warrants Exercisable
 -------------------------------------------------- --------------------------------
 Weighted Weighted Weighted
 Range of Average Average Average
 Exercise Number Remaining Exercise Number Exercise
 prices Outstanding Life(years) Price exercisable Price
--------------- --------------- ------------- -------------- -------------- --------------
 $ 1.08 1,000,000 1.79 $ 1.08 1,000,000 $ 1.08

The aggregate intrinsic value of stock warrants outstanding and exercisable at March 31, 2009 and December 31, 2008 totaled $720,000 and $2,340,000, respectively. The weighted average grant date fair value of warrants granted during the periods ended March 31, 2009 and 2008 was $2.58 post reverse split. The fair value of warrants vested during the periods ended March 31, 2009 and 2008 totaled $43,982 and $203,419, respectively.

Options

On April 15, 2008, the Company granted to Mr. Khaleel, a member of the Company's Board of Directors, nonqualified stock options to purchase up to 100,000 shares (33,333 post reverse split) of the Company's common stock (the "Option Shares"), exercisable at a price of $1.15 per share ($3.45 per share post reverse split) (a price equal to the closing price per share of the Company's common stock on April 15, 2008, as reported by the Over-the-Counter Bulletin Board). Options to purchase one third of the Option Shares were exercisable immediately; options to purchase an additional one third of the Option Shares may be exercised commencing April 15, 2009, and options to purchase the remaining one third of the Option Shares may be exercised commencing April 15, 2010. All outstanding and unexercised options shall expire on the date that Mr. Khaleel is no longer serving as a member of the Board of Directors of the Company or otherwise engaged by the Company to provide services to the Company. Subject to the foregoing, the options may be exercised until April 15, 2018, at which time any such options that have not been exercised shall automatically expire.

The fair value of each option granted has been estimated on the date of grant using the Black-Scholes pricing model, using the following assumptions:

 March 31, March 31,
 2009 2008
 -------- --------
Five Year Risk Free Interest Rate 3% --
Dividend Yield 0.00% --
Volatility 248% --
Average Expected Term (Years to Exercise) 10 --

JADE ART GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009

NOTE 11 - COMMMON STOCK WARRANTS AND OPTIONS (Continued)

Options (Continued)

A summary of the status of options granted at March 31, 2009 is as follows:

 For The Period Ended
 March 31, 2009
 Weighted
 Average Exercise
 Shares Price
 ---------------- ----------------
Outstanding at January 1, 2008 -- --
Granted 33,333 $ 3.45
Exercised -- --
Forfeited -- --
Expired -- --
 ---------------- ----------------
Outstanding at December 31, 2008 33,333 $ 3.45
Granted -- --
Exercised -- --
Forfeited -- --
Expired -- --
 ---------------- ----------------
Outstanding at March 31, 2009 33,333 $ 3.45
 ================ ================

Exercisable at December 31, 2008 11,111 $ 3.45
 ================ ================
Exercisable at March 31, 2009 11,111 $ 3.45
 ================ ================

A summary of the status of options outstanding at March 31, 2009 is presented below:

 Options Outstanding Options Exercisable
 ------------------------------------------------ ------------------------------
 Range of Weighted Weighted Weighted
 Average Average Average
 Exercise Number Remaining Exercise Number Exercise
 prices Outstanding Life(Years) Price exercisable Price
------------- --------------- ------------- ------------ -------------- ------------
 $ 3.45 33,333 9.125 $ 3.45 11,111 $ 3.45

The aggregate intrinsic value of stock options outstanding and exercisable at March 31, 2009 and December 31, 2008 totaled $0. The weighted average grant date fair value of options granted during the period ended March 31, 2009 was $3.42 post reverse split. The fair value of options vested during the period ended March 31, 2009 totaled $75,061. No options were granted during the three months ended March 31, 2008.

JADE ART GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009

NOTE 12 - CONCENTRATIONS OF RISK

Concentrations of credit risk

Foreign Operations: All of the Company's operations and operational assets are located in China. The Company may be adversely affected by possible political or economic instability in China. The effect of these factors cannot be accurately predicted.

Cash: The Company's cash accounts are held in foreign bank accounts which are not insured by the FDIC. At March 31, 2009 and December 31, 2008, the Company's cash balances, net of outstanding checks, in its foreign bank accounts was $850,713 and $68,956, respectively.

Major Customers

For the three months ended March 31, 2009, the Company had four major customers that generated sales totaling $4,321,315 or 87% of its total revenues. At March 31, 2009, the receivable balance from these customers was $3,034,602 or 85% of the Company's accounts receivable. All of the Company's revenue is derived from sources within the People's Republic of China. The sales from major customers were as follows:

 For the three months ended March 31,

Customers 2009 2008
--------- ------------------------------------
A 22% 40%
B 22% 26%
C 22% 20%
D 21% 4%

Major Suppliers

For the three months ended March 31, 2009, the Company had one major supplier of raw jade, XiKai Mining, from which the Company purchased 100% of its raw jade. The total purchase price of raw jade purchased during the three months period ended March 31, 2009 and 2008 from this supplier was $373,724 and $1,248,931, respectively. At March 31, 2009, the accounts payable due to this vendor was $483,278. If there were any interruption of this source of supply, the Company would have to cease operations until an alternative source of supply could be found.

JADE ART GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009

NOTE 13 - INCOME TAX

The Company has adopted Financial Accounting Standards No. 109, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Temporary differences between taxable income reported for financial reporting purposes and income tax purposes are insignificant.

Components of deferred tax assets as of March 31, 2009 and 2008, respectively, are as follows:

 March 31, March 31,
 2009 2008
 -------- --------
Net operating loss carry forward $ -- $ --
Valuation allowance -- --
 -------- --------
Net deferred tax asset $ -- $ --
 ======== ========

The components of current income tax expense as of March 31, 2009 and 2008, respectively, are as follows:

 March 31, March 31,
 2009 2008
 ---------- ----------

Domestic - Current $ -- $ --
Foreign - Current 1,092,992 2,330,560
Domestic - Deferred -- --
Foreign - Deferred -- --
 ---------- ----------
 Income tax expense $1,092,992 $2,330,560
 ========== ==========

Because all of the Company's operations are conducted by a subsidiary in China, the income tax provision is not applicable to U.S. taxation.

JADE ART GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009

NOTE 13 - INCOME TAX (Continued)

The following is a reconciliation of the provision for income taxes at the prevailing PRC income tax rate to the income taxes reflected in the statements of operations:

 Three months ended March Three months ended March
 March 31, 2009 March 31, 2008
 ------------------------ ------------------------

Tax expense at
statutory PRC rate 25% 25%

Effect of
non-deductible items 6% 3%
 ------------------------ ------------------------
Tax expense at actual
rate 31% 28%
 ======================== ========================

Due to uncertainty of the deductibility of consulting and professional expense and other G&A expenses incurred during the three months ended March 31, 2009 and 2008, the tax provision did not assume that this expense would be deductible. The total income tax expense was $1,092,992 and $2,330,560 for the periods ended March 31, 2009 and March 31, 2008, respectively.

NOTE 14 - SUBSEQUENT EVENTS

Subsequent to the three months ended March 31, 2009, the Company paid, in full, income taxes, sales taxes and stamp taxes in the total amount of $1,937,858. The payment of this amount completely relieved the Company of the taxes payable balance at March 31, 2009.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Notice Regarding Forward-Looking Statements

Jade Art Group Inc. (referred to in this Quarterly Report on Form 10-Q as "we" or the "Company") desires to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. This report contains a number of forward-looking statements that reflect management's current views and expectations with respect to our business, strategies, future results and events and financial performance. All statements made in this report, other than statements of historical fact, including statements that address operating performance, events or developments that management expects or anticipates will or may occur in the future, including statements related to future cash flows, revenues, profitability, adequacy of funds from operations, statements expressing general optimism about future operating results and non-historical information, are forward-looking statements. In particular, the words "believe," "expect," "intend," "anticipate," "estimate," "may," "plan," "will," variations of such words and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements and their absence does not mean that the statement is not forward-looking.

Forward-looking statements are subject to certain known and unknown risks and uncertainties, which may cause our actual results, performance or achievements to differ materially from historical results as well as those expressed in, anticipated or implied by these forward-looking statements. We do not undertake any obligation to revise forward-looking statements to reflect any future events or circumstances. Factors that could cause or contribute to such differences include, but are not limited to, those set forth in our Annual Report on Form 10-K for the year ended December 31, 2008, and in our quarterly reports to be filed with the Securities and Exchange Commission, together with the risks discussed in our press releases and other communications to shareholders issued by us from time to time, which attempt to advise interested parties of the risks and factors that may affect our business. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein include, but are not limited to, our ability to raise capital as and when required, the availability of raw products and other supplies, competition, environmental risks, the prices of goods and services, government regulations, and political and economic factors in the People's Republic of China ("China" or the "PRC") in which our operating subsidiary operates.

Introduction

Overview

The Company is a seller and distributor in China of raw jade, ranging in uses from decorative construction material for both the commercial and residential markets to high-end jewelry. For more than 30 years, the Company's business consisted of manufacturing and selling hand and machine-carved wood products, such as furniture, architectural accents and Buddhist figurines in China. Commencing in 2007, we experienced a reduction of revenue from our woodcarving business, which largely resulted from increased competition. As a result, we decided to dispose of our wood products business and to enter the business of raw jade sales and distribution, which management believed presented a better long-term growth potential. On January 11, 2008, we formed a new wholly-owned Chinese subsidiary, JiangXi SheTai Jade Industrial Company Limited ("STJ"), to engage in the sale and distribution of raw jade throughout China. Our goal is to meet China's increasing demand for jade and to eventually vertically integrate our raw jade distribution activities with jade processing, carving, polishing, and, at a later date, retail sales.

On January 17, 2008, the Company entered into an Exclusive Distribution Rights Agreement (the "Exchange Agreement") with Wulateqianqi XiKai Mining Co., Ltd. ("XiKai Mining"). Under the Exchange Agreement, XiKai Mining committed to sell to the Company 90% of the raw jade material produced from its SheTai Jade mine, located in Wulateqianqi, China, for a period of 50 years (the "Exclusive Rights"). In exchange for these Exclusive Rights, the Company agreed to pay XiKai Mining RMB 60 million (approximately $8.8 million) by March 31, 2009 and, to transfer to XiKai Mining 100% of our ownership interest in all of the Company's woodcarving operations, which were contained in Jiangxi XiDa. This transfer of Jiangxi XiDa was made on February 20, 2008.

XiKai Mining is the Company's sole source for raw jade. Under the Exchange Agreement, the price for the raw jade material has been set for the first five years at RMB 2000 (approximately $285) per metric ton, and is subsequently subject to renegotiation every five years with adjustments not to exceed 10%. This mine commenced operation in 2002 and is estimated to have an annual operating capacity of approximately 40,000 metric tons by 2009. It has one of the largest jade reserves in China. According to a survey report issued by the Inner Mongolia Geological Institution, the mine has proven and probable reserves of approximately six million metric tons. SheTai Jade is a form of jadeite found in the mountain ranges of Inner Mongolia, China. The jade from the SheTai mine is stainless, non-corrosive, non-weathering and unfadable. It has a glassy luster and a pure and an attractive green color. It is also much harder and more durable than other forms of jade. As a result of such characteristics, SheTai Jade has a broad spectrum of applications, ranging from commercial and residential construction, and decorative jade artwork to intricately carved jade jewelry.

We commenced the distribution and sale of jade in January 2008. During the quarter ended March 31, 2008, we entered into five contracts for the sale of raw jade. During the quarter ended June 30, 2008, the Company entered into one additional contract. The total value of these contracts is approximately $42 million. The contracts require the customers to purchase specified amounts raw jade over periods ranging from six months to one year at times which are at the discretion of the customer. The contracts for the sale of raw jade generally provide that the Company is to receive 30% of the contracted value of the order before shipment, with the balance to be paid within 10 days after customer's inspection and acceptance of the jade. However, the Company's customers generally have, instead, paid the balance within 45 days after shipment. Xikai Mining mines the raw jade and prepares the raw jade for pick-up by the Company's customers at a warehouse which Xikai Mining maintains near its She Tai Jade mine.

The supply of Jade from XiKai Mining was interrupted on June 10, 2008, when an earthquake damaged the sole road on which raw jade is transported from Xikai Mining's warehouse. A smaller service road was still navigable, allowing basic mining operations to continue. The mine was able to continue to mine raw jade, cut jade and prepared for pick-up by the Company's customers at warehouse, however due to the larger tonnage requirements, the shipment of raw jade from the warehouse by the Company's customers was completely halted. The road was subsequently repaired and the shipment of raw jade from the mine commenced again on September 23, 2008. As a result of the interruption in the shipment of raw jade from the SheTai Jade mine, the Company's revenues in its second quarter ended June 30, 2008, and its third quarter ended September 30, 2008, were substantially below the levels which the Company had anticipated.

The Company had sales revenue of $4,967,029 during the quarter ended March 31, 2009. These sales resulted from orders for raw jade received by the Company from existing customers in 2008. As more fully described below because of the downturn in the Chinese economy, the Company did not acquire any new customers or enter into any new contracts with existing customers during the first quarter of 2009.

Results of Operations

The following table presents certain information, relating solely to our continuing operations, derived from the consolidated statements of operations of the Company for the three months ended March 31, 2009.

 Three months Three months
 ended March ended March
 31, 2009 31, 2008
------------------------------------------------- -------------------- ---------------------
REVENUES $4,967,029 $10,663,024
------------------------------------------------- -------------------- ---------------------
COST OF SALES 1,090,642 1,574,831
------------------------------------------------- -------------------- ---------------------
GROSS PROFIT 3,876,387 9,088,193
------------------------------------------------- -------------------- ---------------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 334,631 718,715
------------------------------------------------- -------------------- ---------------------
INCOME FROM OPERATIONS 3,541,756 8,369,478
------------------------------------------------- -------------------- ---------------------
INTEREST INCOME (EXPENSE) 281 (20,274)
------------------------------------------------- -------------------- ---------------------
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES 3,542,037 70,809,483
------------------------------------------------- -------------------- ---------------------
INCOME TAX EXPENSE 1,092,992 2,330,560
------------------------------------------------- -------------------- ---------------------
NET INCOME FROM CONTINUING OPERATIONS 2,449,045 6,018,644
------------------------------------------------- -------------------- ---------------------
NET INCOME $2,449,045 $70,809,483
------------------------------------------------- -------------------- ---------------------

REVENUE

Subsequent to the acquisition of the Exclusive Rights pursuant to the Exchange Agreement, The Company's sales revenue has been derived solely from the sale of raw jade. The revenue from the sale of raw jade was $4,967,029 for the three months ended March 31, 2009, compared to $10,663,024 for the three months ended March 31, 2008, a decrease of $5,695,995, or 53%. The decrease in revenue resulted from a decrease in orders of raw jade received by the Company from existing customers in 2008 and a lack of new customers. The Chinese economy has experienced a slowing growth rate due to a number of factors explained in more detail below. This has had a negative impact on the commercial and residential construction markets and the high-end jewelry market into which the company sells raw jade. As demand has declined, our customers have been negatively affected which, in turn, has resulted in a slowdown of customer orders and an inability of the company to obtain new customers in the second half of 2008 and first quarter of 2009.

COST OF SALES

The cost of sales was $1,090,642 during the three months ended March 31, 2009, compared to $1,574,831 during the three months ended March 31, 2008, a decrease of $484,189, or 31%. The decrease is primarily due to the decrease in sales in the first quarter of 2009.

GROSS PROFIT

The resulting gross profit for the three months ended March 31, 2009 was $3,876,387, which represented approximately 78% of revenue, compared to $9,088,193 for the three months ended March 31, 2008, which represented approximately 85% of revenue. The decrease of $5,211,806 in gross profit is primarily due to the decrease in sales in the first quarter of 2009.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, General and Administrative Expenses (SG&A) were $334,631 for the three months ended March 31, 2009, compared to $718,715 for the three months ended March 31, 2008. The decrease in SG&A was mainly due to the decrease in the Company's normal operational activities.

INCOME BEFORE TAXES FROM CONTINUING OPERATIONS

Income before taxes from continuing operations was $3,541,756 for the three months ended March 31, 2009, compared to $8,369,478 for the three months ended March 31, 2008, which resulted primarily from the sale of raw jade from SheTai mine by the Company. Comparing the Income before taxes from continuing operations of the first quarter of 2009 with the first quarter of 2008, there is a decrease of $4,827,722, or a 58% decrease is primarily due to the same reason that affects our revenue above.

INCOME TAX EXPENSE

The income tax expense pertaining to continuing operations for the three months ended March 31, 2009 was $1,092,992, compared to $2,330,560 for the three months ended March 31, 2008, a decrease of $1,237,568, or 53%. This decrease is primarily due to the decrease in revenue.

NET INCOME FROM CONTINUING OPERATIONS

The Company recorded Net Income from Continuing Operations of $2,449,045 during the three months ended March 31, 2009, compared to $6,018,644 recorded during the three months ended March 31, 2008, a decrease of $3,569,599, or 59%. This decrease is primarily due to the decrease in our revenue as explained above.

NET INCOME

The Net income for the three months ended March 31, 2009 was $2,449,045 compared to $70,809,483 for the three months ended March 31, 2008, a decrease of $68,360,438, or 97%. This decrease is primarily due to the fact that net income from discontinued operations, totaling $55,419,366, was included in net income for the first quarter of 2008, which contributes 81% of the difference between the first quarter of 2009 and the first quarter of 2008.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2009, the Company's cash was $850,713 as compared to $684,103 as of March 31, 2008. The components of this $507,290 increase are reflected below.

Cash Flow

 Three Months Ended March 31
 --------------------------------
 2009 2008
 -------------- -------------
Net cash provided by operating activities $ 2,143,340 $ 6,231,316
 -------------- -------------
Net cash (used by) investing activities $ -- $ (13,019,930)
 -------------- -------------
Net cash provided (used) by financing activities $ (1,361,777) $ 6,800,000
 -------------- -------------
Effect of exchange rate changes $ 194 $ 371,514
 -------------- -------------
Net cash inflow $ 781,757 $ 382,900
 -------------- -------------

During the quarter ended March 31, 2009, the Company met its working capital and capital investment requirements by using operating cash flows. The Company is obligated to pay the remaining balance of $903,074 owed to former GHL shareholders in connection with the Merger Transaction on or before March 31, 2010, together with interest at the rate of 4% per year.

Net Cash Provided by Operating Activities

During the three months ended March 31, 2009, the Company had net cash flow from operating activities of $2,143,340, compared to $6,231,316 for the three months ended March 31, 2008, a $4,087,976 decrease or 66%, primarily attributable to the decrease in net income from continuing operation.

Net Cash Provided (Used) by Investing Activities and Financing Activities

The Company used $0 in its Investing Activities during the three months ending March 31, 2009, compared to $13,019,930 used in investing activities for the three months ended March 31, 2008. The Company spent $6,792,244 in purchasing distribution rights and $33,353 in purchasing property and equipment, and $6,194,333 for notes receivable.

The Chinese economy has experienced a slowing growth rate due to a number of factors, including the global economic crisis, the appreciation of the RMB and economic and monetary policies adopted by the Chinese government aimed at preventing overheating of the Chinese economy and inflation. This has had a negative impact on the commercial and residential construction markets and the high-end jewelry markets into which the Company sells raw jade. As demand has declined, our customers have been negatively affected which, in turn, has resulted in a slowdown in customer orders and the inability of the Company to obtain new customers in the second half of 2008 and the first quarter of 2009. The Company cannot predict how long the downturn in the Chinese economy will last, the continuing impact of the downturn on its business and operating results and the timing of any subsequent recovery.

The Company has continued to receive orders from and make sales to its existing customers through its first quarter ended March 31, 2009. However, the Company has not obtained new customers since the second quarter ended June 30, 2008. Four of the Company's six customers have fulfilled their purchase obligations under their respective contracts with the Company. Two of the Company's customers remain obligated to purchase a total of 3,750 metric tons of raw jade, for a total purchase price of $11.5 million. However, as a result of the adverse impact of the downturn in the Chinese economy on these customers, the Company has informally agreed to extend the period in which the customers must fulfill their purchase obligations to a date to be mutually agreed upon in the future.

Due to the nature of the Company's business as a reseller and distributor of raw jade, principal components of the Company's overhead, such as salaries and lease obligations, are relatively low. Management presently anticipates that the Company's present cash on hand and cash expected to be generated from operating activities will, under current conditions, be sufficient to finance the Company's planned operations until December 31, 2009. Subsequent to that time, in the event that the Company does not obtain new customers or new orders from existing customers, the Company will not be able to meet its operating expenses with cash flow from operations. Under such circumstances, the Company would need to obtain additional debt or equity financing.

The Company does not have any credit facilities with banks or other lenders. Furthermore, the economic downturn and the deterioration in equity and credit markets generally has made obtaining financing more difficult and costly and potentially more dilutive to our existing investors. The failure to secure any necessary additional financing in a timely manner and on favorable terms could have a material adverse affect on our ability to conduct our operations, satisfy our existing debt obligations and to implement our expansion plans.

Critical Accounting Policies and Estimates

The following discussion and analysis of financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. The Company's significant accounting policies are more fully described in Note 1 of the Notes to Consolidated Financial Statements. Certain accounting estimates are particularly important to the understanding of the Company's financial position and results of operations and require the application of significant judgment by the Company's management or can be materially affected by changes from period to period in economic factors or conditions that are outside the control of management. The Company's management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on historical operations, future business plans and projected financial results, the terms of existing contracts, the observance of trends in the industry, information provided by customers and information available from other outside sources, as appropriate. The following discusses the Company's critical accounting policies and estimates.

Accounting Method

The consolidated financial statements are prepared using the accrual method of accounting. The Company changed its fiscal year-end from July 31 to December 31 in fiscal year 2007.

Principles of Consolidation

Use of Estimates

Foreign Currency Translation

Accounts Receivable and Notes Receivable

The Company makes provision for bad debts based on an assessment of the recoverability of accounts receivable. Specific provisions are applied to related-party receivables and third-party receivables where events or changes in circumstances indicate that the balances may not be collectible. However, due to the Company's experience in the sale and distribution of raw jade in 2008, and the nature of the Company's business, management did not expect any uncollectible receivables. As of March 31, 2009, there was no allowance recorded for the doubtful accounts.

Inventories

During 2007, raw materials and supplies are stated at the lower of cost (computed on an average cost basis) or market. Work-in-process and finished goods are stated at the lower of average cost or market. If required, the Company provides inventory allowances based on excess and obsolete inventories determined principally by customer demand. This policy only applied to the Company's woodcarving business that was discontinued in early 2008.

Revenue Recognition

Accounting for Stock-Based Compensation

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The Company's principal wholly owned subsidiary operates in China, and is exposed to foreign exchange rate fluctuations related to the translation of the financial results of our operations in China into U.S. dollars during consolidation. The value of the RMB-to-U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. As exchange rates fluctuate, these results, when translated, may vary from expectations and adversely impact overall expected profitability.

Since 1994, the conversion of RMB into foreign currencies, including U.S. dollars, had been based on rates set by the People's Bank of China, which are set daily based on the previous day's inter-bank foreign exchange market rates and current exchange rates on the world financial markets. Since 1994, the official exchange rate for the conversion of RMB to U.S. dollars had generally been stable and RMB had appreciated slightly against the U.S. dollar.

However, on July 21, 2005, the Chinese government changed its policy of pegging the value of RMB to the U.S. dollar. Under the new policy, RMB may fluctuate within a narrow and managed band against a basket of certain foreign currencies. Recently there has been increased political pressure on the Chinese government to decouple the RMB from the United States dollar. At the recent quarterly regular meeting of People's Bank of China, its Currency Policy Committee affirmed the effects of the reform on RMB exchange rate.

Since February 2006, the new currency rate system has operated; the currency rate of RMB has become more flexible while basically maintaining stability and the expectation for a larger appreciation range is shrinking.

The Company has never engaged in currency hedging operations and has no present intention to do so.

Item 4. Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the "SEC"), and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 15d-15(e) under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

At the end of the period covered by this Quarterly Report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based upon the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2009, the disclosure controls and procedures of the Company were effective to ensure that the information required to be disclosed in our Exchange Act reports was recorded, processed, summarized and reported on a timely basis.

The Company's independent registered public accounting firm advised the Company of the following material weakness in its financial reporting: lack of sufficient resources to identify and properly address technical SEC reporting issues.

There were no changes in internal controls over financial reporting that occurred during the quarter ended March 31, 2009, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

A discussion of risk factor of the company is set forth in Part I, Item IA or the company's report on Form 10-K for the year ended Dec 31, 2008.

Item 2. Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities.

None.

Item 3. Defaults Upon Senior Securities.

None

Item 4. Submission of Matters to Vote of Security Holders.

None

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibit No. Description

 31.1 Certification of Chief Executive Officer pursuant to Section 302
 of the Sarbanes-Oxley Act of 2002

 31.2 Certification of Chief Financial Officer pursuant to Section 302
 of the Sarbanes-Oxley Act of 2002

 32.1 Certification pursuant to 18 U.S.C. 1350, adopted pursuant to
 Section 906 of the Sarbanes-Oxley Act of 2002, by Chief
 Executive Officer

 32.2 Certification pursuant to 18 U.S.C. 1350, adopted pursuant to
 Section 906 of the Sarbanes-Oxley Act of 2002, by Chief
 Financial Officer

SIGNATURES

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

JADE ART GROUP INC.

Date: May 20, 2009 /s/ Hua-Cai Song
 -----------------------
 Name: Hua-Cai Song
 Title: Chief Executive Officer


Date: May 20, 2009 /s/ Chen-Qing Luo
 -----------------------
 Name: Chen-Qing Luo
 Title: Chief Financial Officer

Index to Exhibits

Exhibit No. Description

 31.1 Certification of Chief Executive Officer pursuant to Section 302
 of the Sarbanes-Oxley Act of 2002

 31.2 Certification of Chief Financial Officer pursuant to Section 302
 of the Sarbanes-Oxley Act of 2002

 32.1 Certification pursuant to 18 U.S.C. 1350, adopted pursuant to
 Section 906 of the Sarbanes-Oxley Act of 2002, by Chief
 Executive Officer

 32.2 Certification pursuant to 18 U.S.C. 1350, adopted pursuant to
 Section 906 of the Sarbanes-Oxley Act of 2002, by Chief
 Financial Officer

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