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 quarterly period ended March 31, 2010

¨	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

(State or other jurisdiction of incorporation or organization)

71-1021813

(IRS Employer Identification Number)

#35, Baita Zhong Road,

Yujiang County, Jiangxi Province, P.R. of China 335200

(Address of principal executive offices)

(Zip Code)

+86-701-5881082

(Registrant'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, 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 ¨		Smaller reporting company x

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

Yes ¨ No x

As of May 19, 2010, 79,980,000 shares of the Registrant’s common stock, $0.001 par value, were outstanding.

JADE ART GROUP INC.

INDEX

Part I - Financial Information
		Page
Item 1.	Financial Statements	2
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	6
Item 4T.	Controls and Procedures	6

Part II - Other Information		7

Item 1.	Legal Proceedings	7
Item 1A.	Risk Factors	7
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7
Item 3.	Defaults Upon Senior Securities	7
Item 4.	Other Information	7
Item 5.	Exhibits	8
Signatures		9

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

JADE ART GROUP INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010 AND 2009

(Unaudited)

Consolidated Financial Statements-

Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009	F-1

Consolidated Statements of Operations and Comprehensive Income
for the Three Months Ended March 31, 2010 and 2009	F-2

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2010
and 2009	F-3

Notes to Consolidated Financial Statements March 31, 2010 and 2009	F-4

JADE ART GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2010 AND DECEMBER 31, 2009

(Unaudited)

	2010			2009

ASSETS

Current Assets:
Cash and cash equivalents	$	5,713,522		$	147,392
Accounts receivable - Trade (net of allowance for doubtful
accounts of $250,000 in 2010 and 2009)		5,987,008			7,502,004
Deferred tax assets – Current		62,500			-
Total current assets		11,763,030			7,649,396

Property and Equipment:
Office furniture and equipment		6,526			6,526
Less - Accumulated depreciation		(2,136	)		(1,825	)
Net property and equipment		4,390			4,701

Acquisition deposit		8,787,089			8,787,089
Exclusive jade distribution rights, net		62,391,084			63,108,842

Total Assets	$	82,945,593		$	79,550,028

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable - Trade and accrued liabilities	$	207,502		$	270,960
Advances payable		740,763			723,090
Taxes payable		2,240,915			2,050,385
Total current liabilities		3,189,180			3,044,435
Total liabilities		3,189,180			3,044,435

Commitments and Contingencies

Stockholders' Equity:
Common stock, par value $0.001 per share; 500,000,000 shares
authorized; 79,980,000 shares issued and outstanding in 2010,
and 2009, respectively		79,980			79,980
Additional paid-in capital		3,320,913			3,311,330
Statutory earnings reserve		3,678,080			3,678,080
Accumulated other comprehensive income		1,108,707			1,106,581
Retained earnings		71,568,733			68,329,622
Total stockholders' equity		79,756,413			76,505,593

Total Liabilities and Stockholders' Equity	$	82,945,593		$	79,550,028

The accompanying notes to consolidated financial statements are

an integral part of these consolidated balance sheets.

F-1

JADE ART GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

	Three Months Ended
	March 31,
	2010			2009

Sales	$	5,910,871		$	4,967,029

Cost of Goods Sold		1,142,636			1,090,642

Gross Profit		4,768,235			3,876,387

Selling, General and Administrative Expenses		289,014			334,631

Income From Operations		4,479,221			3,541,756

Other Income:
Interest income		4,598			281

Income Before Income Taxes		4,483,819			3,542,037

Provision for Income Taxes		(1,244,708	)		(1,092,992	)

Net Income	$	3,239,111		$	2,449,045

Comprehensive Income:
Foreign currency translation adjustment		2,126			194

Total Comprehensive Income	$	3,241,237		$	2,449,239

Earnings Per Common Share:
Earnings per common share - Basic	$	0.04		$	0.03

Earnings per common share - Diluted	$	0.04		$	0.03
Weighted Average Number of Common Shares
Outstanding - Basic		79,980,000			79,980,000

Weighted Average Number of Common Shares
Outstanding - Diluted		79,980,000			80,528,117

The accompanying notes to consolidated financial statements are

an integral part of these consolidated financial statements.

F-2

JADE ART GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended
	March 31,
	2010			2009

Cash Flows Provided by Operating Activities:
Net income	$	3,239,111		$	2,449,045
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		718,069			717,228
Deferred taxes		(62,500	)		-
Valuation of warrants and options issued for services		9,583			53,565
Changes in net assets and liabilities-
Accounts receivable -
Trade		1,514,996			(2,124,217	)
Other		-			19,014
Accounts payable - Trade and accrued liabilities		(63,458	)		359,464
Advances payable		17,673			-
Taxes payable		190,530			669,241

Net Cash Provided by Operating Activities		5,564,004			2,143,340

Cash Flows Used in Investing Activities:
Purchases of property and equipment		-			-

Net Cash Used in Investing Activities		-			-

Cash Flows Used in Financing Activities:
Payments made on Notes Payable		-			(1,361,777	)

Net Cash Used in Financing Activities		-			(1,361,777	)

Effect of Exchange Rate Changes on Cash		2,126			194

Net Increase in Cash and Cash Equivalents		5,566,130			781,757

Cash and Cash Equivalents - Beginning of Period		147,392			68,956

Cash and Cash Equivalents - End of Period	$	5,713,522		$	850,713

Supplemental Disclosure of Cash Flow Information:
Cash paid during the periods for:
Interest	$	-		$	-
Income taxes	$	1,054,178		$	1,268,488

The accompanying notes to consolidated financial statements are

an integral part of these consolidated financial statements.

F-3

JADE ART GROUP INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010 AND 2009

(Unaudited)

(1) Summary of Significant Accounting Policies

Basis of Presentation and Organization

Jade Art Group Inc. (the “Company” or “Jade Art”) was incorporated under the laws of the State of Nevada on September 30, 2005, as Vella Productions, Inc. (“Vella”). The initial business plan was to provide integrated brand management services to established and start-up companies in the food industry. Such services included the marketing, distribution, and sales of organic and natural food products to retail and foodservice outlets worldwide. Prior to the Merger Transaction, described below, the business operations of the Company were limited to development stage activities with respect to an exclusive distribution and marketing agreement with Spike Tea, Inc. for the development of a proprietary line of six blends of tea and caffeine-free hot drinks for distribution to the retail and foodservice sectors. For the period from inception (September 30, 2005) through December 31, 2007, the Company generated no revenues.

In September 2006, the Company filed a Registration Statement on Form SB-2 with the Securities and Exchange Commission (“SEC”) to register 20,000,000 shares of its common stock, par value $0.001 per share, to raise proceeds of up to $400,000 in the public markets. The Registration Statement was declared effective by the SEC on November 2, 2006.

On October 1, 2007, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with its wholly owned subsidiary, VELLA Merger Sub, Inc., and each of Guoxi Holding Limited ("GHL"), a British Virgin Islands holding company founded on July 28, 2006, 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 identified as the surviving entity (the “Merger Transaction”). GHL was the sole stockholder of 100 percent of the capital stock of the operating entity known as Jiangxi XiDa (“Jiangxi XiDa” and formerly known as Jiangxi Xi Cheong Lacquer, Inc.). Jiangxi XiDa was incorporated under the laws of the People’s Republic of China (“PRC”) on December 4, 2006, and is located in Yujiang, Jiangxi Province, PRC.

At the time of the Merger Transaction, Jiangxi XiDa 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 for surrendering their shares in GHL, the GHL stockholders received an aggregate of (i) 68,900,000 newly issued shares of the Company's common stock, par value $.001 per share, and (ii) $14,334,500, in the form of promissory notes resulting from declared dividends, payable on or before the first year anniversary of the Merger Transaction. Such consideration, including participation in the promissory notes, was distributed pro rata among the GHL stockholders in accordance with their respective ownership interests in GHL immediately before the completion of the Merger Transaction. Based on the consent of Jade Art’s Board of Directors, and all of the GHL stockholders, the due date for payment of the promissory notes was later extended to March 31, 2009. Subsequent to December 31, 2008, the Company again amended the due date of the promissory notes to March 31, 2010. The amendment included the calculation of accrued interest payable at a rate of 4 percent to be applied to the final amount owed of $903,074. During the year ended December 31, 2008, the Company paid $12,069,649 in principal related to the promissory notes. In addition, during the year ended December 31, 2009, the Company paid an additional $2,264,851 in principal payments on the promissory notes with accrued interest of $5,418. As such, as of December 31, 2009, the Company had paid off all of its obligations related to the promissory notes under the Merger Agreement.

F-4

Under accounting principles generally accepted in the United States, the share exchange completed under the Merger Agreement was considered as a capital transaction in substance, rather than a business combination. As such, GHL is considered to have acquired the Company by reverse merger. The reverse merger has been recorded as a recapitalization of the Company, with the net assets of the Company and GHL and its wholly owned subsidiary (Jiangxi XiDa) brought forward at their historical bases. The costs associated with the reverse merger were expensed as incurred.

On November 8, 2007, the Company amended and restated its Articles of Incorporation to change the name of the entity to Jade Art Group Inc. In addition, on January 11, 2008, the Company formed a new wholly owned Chinese subsidiary, JiangXi SheTai Jade Industrial Company Limited (“JST”), to engage in the processing and sale of jadeite and jade. JST is a wholly owned subsidiary of GHL.

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

The Exclusive Jade Distribution Rights Agreement further provides that, if the Company requests, production of jade by 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 of not more than RMB 2,000 (approximately $290). The cost per ton paid by Jade Art is subject to renegotiation every five years during the term of the Exclusive Jade Distribution Rights Agreement, with adjustments not to exceed 10 percent 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 Exclusive Jade Distribution Rights Agreement entitles the Company to payment from XiKai Mining of RMB 18,000 (approximately $2,630) for each ton ordered by but not supplied to the Company during any such fiscal year.

The Company’s current business operations include the production and sale of jade and related products. For the period from the date of completion of the Exclusive Jade Distribution Rights Agreement through March 31, 2010, the principal operations of the Company have been the distribution and sale of raw jade.

F-5

Principles of Accounting and Consolidation

The accompanying consolidated financial statements of the Company and its wholly owned subsidiaries were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), and include the assets, liabilities, revenues, expenses, and cash flows of all subsidiaries. All significant intercompany balances, transactions, and cash flows have been eliminated in consolidation.

Unaudited Interim Consolidated Financial Statements

The interim consolidated balance sheets of the Company as of March 31, 2010, and December 31, 2009, and the related interim statements of operations and comprehensive income and cash flows for the three-month periods ended March 31, 2010 and 2009, have been prepared in conformity with accounting principles generally accepted in the United States of America for interim reporting, and in accordance with the requirements of this Quarterly Report on Form 10-Q. The accompanying interim consolidated financial statements are unaudited, and are subject to year-end adjustments. In the opinion of management, the accompanying interim consolidated financial statements include all known adjustments (which consist primarily of normal, recurring accruals, estimates, and assumptions that impact the financial statements) necessary to present fairly the consolidated financial position as of the balance sheet dates and the consolidated results of operations for the three-month periods ended March 31, 2010 and 2009. The accompanying interim consolidated financial statements should be read in conjunction with the audited financial statements and footnotes thereto included within the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 filed with the SEC. The results of operations for the three months ended March 31, 2010 are not necessarily indicative of operating results of the full year ending December 31, 2010.

Foreign Currency Translation

The Company accounts for foreign currency translation pursuant to ASC Topic 830, Foreign Currency Matters (formerly SFAS No. 52, Foreign Currency Translation). The functional currency of Jade Art is the Chinese Yuan Renminbi (“RMB”). Under ASC Topic 830-30, all consolidated assets and liabilities are translated into United States Dollars using the current exchange rate in effect at the end of each fiscal period. The currency exchange rates used by the Company as of March 31, 2010 and December 31, 2009, to translate Chinese RMB into United States Dollars were 6.826:1 and 6.837:1, respectively. Consolidated revenues and expenses were translated using the average exchange rates prevailing throughout the three- month periods ended March 31, 2010 and 2009, which amounted to 6.827:1 and 6.835:1, respectively. Translation adjustments are included in other accumulated comprehensive income in the accompanying consolidated balance sheets.

Cash and Cash Equivalents

For purposes of reporting within the consolidated statements of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.

Accounts 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.

F-6

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. As of March 31, 2010 and December 31, 2009, the balance of the allowance for doubtful accounts was $250,000. While management uses the best information available upon which to base estimates, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used for the purposes of analysis.

Property and Equipment

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

Office furniture and equipment 5 years

Revenue Recognition

The Company recognizes revenues when goods are shipped, when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist, and, collectability is reasonably assured. Typical shipment terms for all customers are FOB shipping point. Goods are considered shipped and delivered when a customer’s truck picks up goods at the finished goods inventory location.

Fair Value of Financial Instruments

The Company has adopted ASC Topic 820, Fair Value Measurements and Disclosures, (formerly SFAS No.157, Fair Value Measurements) which defines fair value, establishes a framework for measuring fair value in US GAAP, and expands disclosures about fair value measurements. It does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information.

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, 2010 and December 31, 2009, respectively.

F-7

Earnings per share

Basic earnings per share is computed by dividing the net income attributable to the common stockholders by the weighted average number of shares of common stock outstanding during the periods. Diluted earnings per share is computed similar to basic earnings per share except that the denominator includes the number of net additional common shares that would have been outstanding if the potential common shares had been issued and if these additional common shares were dilutive.

Accounting for Stock-Based Compensation

The Company uses the fair value recognition provision of FASB ASC Topic 718, Compensation-Stock Compensation (formerly SFAS 123(R)), which requires the Company to expense the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of such instruments over the vesting period.

The Company also applies the provisions of FASB ASC Topic 505-50, Equity Based Payments to Non-Employees (formerly EITF 96-18) to account for stock-based compensation awards issued to non-employees for services. Such awards for services are recorded at either the fair value of the consideration received or the fair value of the instruments issued in exchange for such services, whichever is more reliably measurable.

Impairment of Long-Lived Assets

In accordance with FASB ASC Topic 360 (formerly SFAS No. 144), “Impairment or Disposal of Long-lived Assets,” Jade Art records an 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.

Income Taxes

The Company accounts for income taxes pursuant to FASB ASC Topic 740, Income Taxes (formerly SFAS No. 109). Income taxes are provided on an asset and liability approach for financial accounting and reporting of income taxes. Current tax is based on the profit or loss adjusted for items that are non-assessable or disallowable for income tax purpose and is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date. ASC Topic 740 also requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carryforwards. ASC Topic 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Realization of deferred tax assets, including those related to the U.S. net operating loss carryforwards, are dependent upon future earnings, if any, of which the timing and amount are uncertain.

The Company adopted FASB ASC Topic 740-10-05, Income tax, (formerly FASB Interpretation No. 48), which provides guidance for recognizing and measuring uncertain tax positions, it prescribes a threshold condition that a tax position must meet for any of the benefits of the uncertain tax position to be recognized in the financial statements. It also provides accounting guidance on derecognizing, classification, and disclosure of these uncertain tax positions. The Company’s policy on classification of all interest and penalties related to unrecognized tax is to record such items, if any, as a component of income tax provisions.

F-8

Value Added Tax

Operations of Jade Art in the PRC are subject to a value added tax (“VAT”) imposed by the PRC government on the purchase and sales of goods. The output VAT is charged to customers that purchase goods from the Company and the input VAT is paid when the Company purchases goods from its vendors. The VAT rate is 17 percent in general, depending on the types of products purchased and sold. The input VAT can be offset against the output VAT.

Concentration of Risk

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

Cash: The Company’s cash accounts are held in PRC bank accounts which are not insured by the FDIC. At March 31, 2010 and December 31, 2009, the Company’s cash balances, net of outstanding checks, in these bank accounts were $5,713,522 and $147,392, respectively.

Major Customers

For the period ended March 31, 2010, the Company had five major (four in 2009) customers that generated sales totaling $5,910,871 or 100% of its total revenues (2009 - $4,321,315 or 87% of its total revenues). As of March 31, 2010, the receivables from these customers totaled $6,237,008, representing all of the Company’s accounts receivable (2009 – $3,034,602 or 85% of the Company’s accounts receivable). All of the Company’s revenue is derived from sources within the PRC. The sales from major customers were as follows:

	For the Three Months ended March 31,
Customers	2010		2009

A		27%		22%
B		25%		22%
C		24%		22%
D		13%		21%
E		11%		-

Major Supplier

For the period ended March 31, 2010, the Company had one major supplier of raw jade, XiKai Mining, from which the Company purchased all of its raw jade. The total purchase price of raw jade purchased during the three months ended March 31, 2010 and 2009, from this supplier was $424,878 and $373,724, respectively. As of March 31, 2010, the accounts payable amount due to this vendor was $207,502. If there are any interruptions of this source of supply, the Company would have to cease operations until an alternative source of supply of jade could be found.

F-9

Lease Obligations

All noncancellable leases with an initial term greater than one year are categorized as either capital or operating leases. Assets recorded under capital leases are amortized according to the same methods employed for property and equipment or over the term of the related lease, if shorter.

Comprehensive Income

The Company presents comprehensive income in accordance with ASC 220 “Comprehensive Income” (formerly SFAS No. 130). ASC 220 states that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in the financial statements. For the years ended December 31, 2009 and 2008, the only components of comprehensive income were the net income for the periods, and the foreign currency translation adjustments.

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.

(2) Acquisition Deposit

On November 1, 2009, and effective November 15, 2009, the Company entered into an Investment Agreement with Shenzhen Huanyatong Investment Development Co., Ltd. Per the Investment Agreement, the Company agreed to pay Huanyatong RMB 60,000,000 (USD $8,787,089) as an acquisition deposit, and Huanyatong agreed to assist the Company in finding an acquisition target. The term of the Investment Agreement is nine months, and was effective on November 15, 2009. The acquisition deposit will be returned to the Company with no interest before August 14, 2010, if there are no investments or acquisitions presented for consideration as of July 15, 2010.

(3) Advances Payable

As of March 31, 2010 and December 31, 2009, an unrelated party had advanced to the Company $740,763 and $723,090, respectively. These advances consisted of payments made on behalf of the Company by the unrelated party for expenses incurred by the Company. These amounts are payable by the Company on demand, are unsecured, and bear no interest.

F-10

(4) Notes Payable

Pursuant to the Merger Agreement, the operating company, GHL’s subsidiary, agreed to pay its stockholders the amount of $14,334,500, in the form of promissory notes representing declared dividends, on or before the first anniversary of the Merger Agreement. As of December 31, 2008, the Company had paid $12,069,649 towards the notes. Based on the consent of Jade Art’s Board of Directors, and all of the GHL stockholders, the due date for payment of the promissory notes was extended to March 31, 2009. Subsequent to December 31, 2008, the Company again amended the due date of the promissory notes to March 31, 2010. The amendment included the calculation of accrued interest payable at a rate of 4 percent to be applied to the final amount owed of $903,074. During the year ended December 31, 2008, the Company paid $12,069,649 in principal related to the promissory notes. In addition, during the year ended December 31, 2009, the Company paid an additional $2,264,851 in principal payments on the promissory notes with accrued interest of $5,418. As such, as of December 31, 2009, the Company had paid off all of its obligations related to the promissory notes under the Merger Agreement.

(5) Intangible Assets

Exclusive Jade Distribution Rights

The Company accounts for intangible assets in accordance with ASC Topic 350, Goodwill and Other Intangible Assets (formerly named as 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 annually, 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 December 31, 2009, and 2008, the Company determined that there was no impairment to the intangible assets.

In January 2008, the Company transferred its ownership in its woodcarving operations, which had been its sole business operation, and agreed to pay RMB 60 million (approximately $8.8 million) to XiKai Mining. In return, the Company received the Exclusive Jade Distribution Rights, which enable it to purchase 90 percent of the raw jade produced by XiKai’s SheTai mine at a fixed price for five years, subject to adjustment every five years thereafter. The woodcarving operations were appraised as having a fair value of USD$60,400,000 at the time of the Exchange Agreement. The appraised value plus the cash payment (approximately $8.8 million) are the basis of the valuation of the Exclusive Jade Distribution Rights Agreement.

Intangible assets consisted of the following as of March 31, 2010 and December 31, 2009:

	March 31,			December 31,
	2010			2009
Exclusive Jade Distribution Rights	$	68,816,442		$	68,816,442

Less: Accumulated Amortization		(6,425,358	)		(5,707,600	)

Net Exclusive Jade Distribution Rights	$	62,391,084		$	63,108,842

F-11

The Company has elected to amortize the Exclusive Jade Distribution Rights using the straight-line method over an economic useful life of 25 years. Management of the Company is of the opinion that the useful life of Exclusive Jade Distribution Rights (25 years) is shorter than the 50-year term of the agreement due to uncertainties regarding the practical life of the SheTai Jade mine, its production capacity, quality of jade produced, pricing of jade purchased, and the strength of the Company’s markets in the PRC. In addition, the use of the straight-line method of amortization of the value of Exclusive Jade Distribution Rights is based on management’s estimate of future production requirements and sale of jade.

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 $717,758, and $716,918, for the three months ended March 31, 2010 and 2009, respectively.

Future amortization of these costs is as follows:

Rest of 2010	$	2,153,274
2011		2,871,032
2012		2,871,032
2013		2,871,032
2014		2,871,032
Thereafter		48,753,682
	$	62,391,084

(6) Commitments and Contingencies

Employee Benefits

As required under certain relevant PRC 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 PRC 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 2010, and 2009, were $3,973 and $3,455, 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 the PRC for administrative operations. The lease has a term of two years and requires monthly payments of RMB 20,000 (approximately $2,929). Future minimum lease payments are as follows:

Year		Amount
2010		$	26,361

Rent expense for the three months ended March 31, 2010 and 2009 were $8,787 and $8,778 respectively. The rent expenses were for the office space relating to manage the operations of the jade distribution business.

F-12

(7) Statutory Earnings Reserve

As stipulated by the Company Law of the 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; and (ii) allocations to the “reserve fund” of at least 10 percent of income after taxes, as determined under PRC accounting rules and regulations, until the fund amounts to 50 percent of the Company’s registered capital; if approved in the stockholders’ general meeting (see Note 4).This regulation was included in the Articles of Incorporation when the Company was formed and is applied by the Company. As of March 31, 2010, and December 31, 2009, the total reserves were $3,678,080.

(8) Common Stock

The Company has one class of stock. The Company has voting common stock of 500,000,000 shares authorized, par value $0.001 per share, with 79,980,000 shares issued and outstanding as of March 31, 2010 and December 31, 2009. Dividends relating to the period prior to the Merger Transaction of $2,264,851 and $12,069,649 were evidenced as promissory notes, and paid during the periods ended December 31, 2009 and 2008, respectively. No dividends were declared during the years ended December 31, 2009 and 2008, or for the three-month period ended March 31, 2010.

(9) Common Stock Warrants and Options

Warrants

On January 17, 2008, the Company granted warrants to purchase 333,333 shares of the Company’s common stock at a price of $3.24 to its investor relations firm pursuant to a consulting agreement which the Company entered into with this firm. These warrants can be exercised over a three-year period. The consulting expense for these services was 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 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 as of March 31, 2010 and December 31, 2009, was as follows:

F-13

			Weighted Average
	Shares		Exercise Price

Outstanding - January 1, 2009		333,333	$	3.24

Granted		-		-

Exercised		-		-

Forfeited		-		-

Expired		-		-

Outstanding - December 31, 2009		333,333	$	3.24

Granted		-		-

Exercised		-		-

Forfeited		-		-

Expired		-		-

Outstanding - March 31, 2010		333,333	$	3.24

No warrants were granted or exercised in 2009 or during the first three months of 2010. The remaining life of these warrants as of March 31, 2010 was 0.79 years.

Options

On April 15, 2008, the Company granted to a member of the Company’s Board of Directors, nonqualified stock options to purchase up to 33,333 shares of the Company’s common stock (the “Option Shares”), exercisable at a price of $3.45 per share (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 to be exercisable immediately; options to purchase an additional one third of the Option Shares were to be exercisable commencing April 15, 2009, and options to purchase the remaining one third of the Option Shares were to be exercisable commencing April 15, 2010. All of these options expired when this person resigned from the Board, which was on July 31, 2009.

(10) Income Tax

The Company has adopted ASC Topic 740, Income Taxes (formerly SFAS 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.

Components of deferred tax assets as of March 31, 2010 and December 31, 2009 respectively as follows:

	March 31,			December 31,
	2010			2009
Net operating loss carry forward	$	263,935		$	257,749
Allowance for doubtful accounts		62,500			-
Valuation allowance		(263,935	)		(257,749	)
Net deferred tax asset	$	62,500		$	-

F-14

The components of current income tax expense for the three months ended March 31, 2010 and 2009 respectively are as follows:

	March 31, 2010			March 31, 2009

Domestic - Current	$	-		$	-
Foreign – Current		1,307,208			1,092,992
Domestic – Deferred		-			-
Foreign – Deferred		(62,500	)		-
Income tax expense	$	1,244,708		$	1,092,992

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 statement of operations:

	Three Months Ended March 31, 2010		Three Months Ended March 31, 2009

Tax expense at statutory PRC rate		25.0%		25.0%

Effect of non-deductible items		4.2%		5.2%

Other		(1.4)%		0.7%

Tax expense at actual rate		27.8%		30.9%

The total income tax expense was $1,244,708 and $1,092,992 for the three months ended March 31, 2010 and 2009, respectively.

The accumulated US net operating losses available to the Company are approximately $754,100. These operating losses expire between 2028 and 2030.

(11)	Recent Accounting Pronouncements

In March 2008, the FASB issued FASB ASC 815, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement 133.” FASB ASC 815 enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how: (a) an entity uses derivative instruments; (b) derivative instruments and related hedged items are accounted for; and (c) derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Specifically, ASC 815 requires:

F-15

·	disclosure of the objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation;

·	disclosure of the fair values of derivative instruments and their gains and losses in a tabular format;

·	disclosure of information about credit-risk-related contingent features;

·	and cross-reference from the derivative footnote to other footnotes in which derivative-related information is disclosed.

FASB ASC 815 is effective for fiscal years and interim periods beginning after November 15, 2008. Earlier application is encouraged. The management of Company does not expect the adoption of this pronouncement to have a material impact on its financial statements.

On May 9, 2008, the FASB issued FASB ASC 105, “The Hierarchy of Generally Accepted Accounting Principles.” FASB ASC 105 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles for nongovernmental entities.

Prior to the issuance of FASB ASC 105, US GAAP hierarchy was defined in the American Institute of Certified Public Accountants (“AICPA”) Statement on Auditing Standards (“SAS”) No. 69, “ The Meaning of Present Fairly in Conformity with Generally Accept Accounting Principles .” SAS No. 69 has been criticized because it is directed to the auditor rather than the entity. ASC 105 addresses these issues by establishing that the US GAAP hierarchy should be directed to entities because it is the entity (not the auditor) that is responsible for selecting accounting principles for financial statements that are presented in conformity with US GAAP.

The sources of accounting principles that are generally accepted are categorized in descending order as follows:

FASB Statements of Financial Accounting Standards and Interpretations, FASB Statement 133 Implementation Issues, FASB Staff Positions, and American Institute of Certified Public Accountants (AICPA) Accounting Research Bulletins and Accounting Principles Board Opinions that are not superseded by actions of the FASB.

f.	FASB Technical Bulletins and, if cleared by the FASB, AICPA Industry Audit and Accounting Guides and Statements of Position.

g.	AICPA Accounting Standards Executive Committee Practice Bulletins that have been cleared by the FASB, consensus positions of the FASB Emerging Issues Task Force (EITF), and the Topics discussed in Appendix D of EITF Abstracts (EITF D-Topics).

h.	Implementation guides (Q&As) published by the FASB staff, AICPA Accounting Interpretations, AICPA Industry Audit and Accounting Guides and Statements of Position not cleared by the FASB, and practices that are widely recognized and prevalent either generally or in the industry.

F-16

FASB ASC 105 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendment to its authoritative literature. It is only effective for nongovernmental entities; therefore, the US GAAP hierarchy will remain in SAS 69 for state and local governmental entities and federal governmental entities. The management of Company does not expect the adoption of this pronouncement to have a material impact on its financial statements.

On May 26, 2008, the FASB issued FASB ASC 944, “Accounting for Financial Guarantee Insurance Contracts.” FASB ASC 944 clarifies accounting and reporting by insurance enterprises, and applies to financial guarantee insurance contracts issued by insurance enterprises, including the recognition and measurement of premium revenue and claim liabilities. It also requires expanded disclosures about financial guarantee insurance contracts.

The accounting and disclosure requirements of FASB ASC 944 are intended to improve the comparability and quality of information provided to users of financial statements by creating consistency. Diversity exists in practice in accounting for financial guarantee insurance contracts by insurance enterprises. That diversity results in inconsistencies in the recognition and measurement of claim liabilities because of differing views about when a loss has been incurred. FASB ASC 944 requires that an insurance enterprise recognize a claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. It also requires disclosure about (a) the risk-management activities used by an insurance enterprise to evaluate credit deterioration in its insured financial obligations and (b) the insurance enterprise’s surveillance or watch list.

FASB ASC 944 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years, except for disclosures about the insurance enterprise’s risk-management activities. Disclosures about the insurance enterprise’s risk-management activities are effective the first period beginning after issuance of FASB ASC 944. Except for those disclosures, earlier application is not permitted. The management of Company does not expect the adoption of this pronouncement to have material impact on its financial statements.

On May 22, 2009, the FASB issued FASB ASC 958, “Not-for-Profit Entities: Mergers and Acquisitions.” FASB ASC 958 is intended to improve the relevance, representational faithfulness, and comparability of the information that a not-for-profit entity provides in its financial reports about a combination with one or more other not-for-profit entities, businesses, or nonprofit activities. To accomplish that, this Statement establishes principles and requirements for how a not-for-profit entity:

e.	Determines whether a combination is a merger or an acquisition.

f.	Applies the carryover method in accounting for a merger.

g.	Applies the acquisition method in accounting for an acquisition, including determining which of the combining entities is the acquirer.

h.	Determines what information to disclose to enable users of financial statements to evaluate the nature and financial effects of a merger or an acquisition.

This Statement also improves the information a not-for-profit entity provides about goodwill and other intangible assets after an acquisition by amendment to make it fully applicable to not-for-profit entities.

FASB ASC 958 is effective for mergers occurring on or after December 15, 2009, and acquisitions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2009. Early application is prohibited. The management of Company does not expect the adoption of this pronouncement to have material impact on its financial statements.

F-17

On May 28, 2009, the FASB issued FASB ASC 855, “Subsequent Events.” FASB ASC 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, FASB ASC 855 provides:

4.	The period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements.

5.	The circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements.

6.	The disclosures that an entity should make about events or transactions that occurred after the balance sheet date.

In accordance with this Statement, an entity should apply the requirements to interim or annual financial periods ending after June 15, 2009. The adoption of this pronouncement did not have a material impact on the financial statements of the Company.

In June 2009, the FASB issued FASB ASC 860, “Accounting for Transfers of Financial Assets.” FASB ASC 860 is a revision to an existing pronouncement and will require more information about transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. It eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures.

This statement is effective for financial asset transfers occurring after the beginning of an entity's first fiscal year that begins after November 15, 2009. The management of Company does not expect the adoption of this pronouncement to have material impact on its financial statements.

In June 2009, the FASB issued FASB ASC 810, "Amendments to FASB Interpretation No. 46(R).” FASB ASC 810 amends certain requirements of this pronouncement and changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance.

This statement is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009. The management of Company does not expect the adoption of this pronouncement to have material impact on its financial statements.

In June 2009, the FASB issued FASB ASC 105, "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162.” FASB ASC 105 establishes the FASB Accounting Standards Codification (the "Codification") to become the single official source of authoritative, nongovernmental U.S. generally accepted accounting principles. The Codification did not change US GAAP but reorganizes the literature.

FASB ASC 105 is effective for interim and annual periods ending after September 15, 2009. The adoption of this pronouncement did not have a material impact on the financial statements of the Company.

F-18

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, 2009, 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.

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 had 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 was and continues to be to develop a meaningful participation in China’s raw jade market 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 2,000 (approximately $290) 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 the annual capacity in 2009 was approximately 25,000 metric tons. 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 resists fading. Observers have stated that 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.

The supply of Jade from XiKai Mining was interrupted on June 10, 2008, when an earthquake damaged the only 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 to prepare the jade for transport by the Company's customers at XiKai Mining’s warehouse. However, due to the tonnage load, the actual 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.

The Company had sales revenue of $5,910,871 during the quarter ended March 31, 2010. These sales resulted from orders for raw jade received by the Company from existing customers.

Results of Operations

The following table presents certain information, derived from the consolidated statements of operations of the Company for the three month periods ended March 31, 2010 and March 31, 2009.

	Three months ended									Percentage
	March 31,						Increase			Increase
	2010			2009			(Decrease)			(Decrease)
Revenues	$	5,910,871		$	4,967,029		$	943,842			19.0	%
Cost of Sales		1,142,636			1,090,642			51,994			4.8	%
Gross Profit		4,768,235			3,876,387			891,848			23.0	%
Selling, General and Administrative Expenses		289,014			334,631			(45,617	)		(13.6	)%
Income from Operations		4,479,221			3,541,756			937,465			26.5	%
Interest Income		4,598			281			4,317			N/M
Pre-Tax Income		4,483,819			3,542,037			941,782			26.6	%

Provision for Income Taxes		(1,244,708	)		(1,092,992	)		(151,716	)		(13.9	)%
Net Income	$	3,239,111		$	2,449,045		$	790,066			32.3	%

Revenue

Subsequent to the Company’s acquisition of the Exclusive Distribution Rights pursuant to the Exchange Agreement, the Company's sales revenue has been derived solely from the sale of raw jade. The revenue for the three months ended March 31, 2010 from the sale of raw jade was $5,910,871, compared to $4,967,029 for the three months ended March 31, 2009, an increase of $943,842, or 19.0%. This resulted from a higher volume of orders for the raw jade received by the Company from its customers due, we believe, in part to an improved economic environment. There were shipments of approximately 1,696 metric tons of jade in the first quarter of 2010 as compared to 1,494 metric tons shipped in the first quarter of 2009. The price per metric ton increased slightly to $3,480 as compared to $3,325, reflecting slightly higher size and grade of jade being shipped. After a slowing of its growth, the Chinese economy is recovering and showing improvement. This has had a positive impact on the commercial and residential construction markets and the jade jewelry market into which the Company sells the raw jade. Compared to the first quarter of 2009, the improved weather conditions in the first quarter of 2010 facilitated the customers’ ability to transport the jade.

Cost of Sales

The cost of sales was $1,142,636 during the three months ended March 31, 2010, compared to $1,090,642 during the three months ended March 31, 2009, an increase of $51,994, or 4.8%. The increase is primarily due to the increased tonnage shipped in the first quarter of 2010.

Gross Profit

The resulting gross profit for the three months ended March 31, 2010 was $4,768,235, which represented approximately 80.7% of revenue, comparing to $3,876,387 for the three months ended March 31, 2009, which represented approximately 78.0% of revenue. The increase of the percentage of gross profit to revenue in the three months ended March 31, 2010 is primarily due to the increase in sales in the three months of 2010. The increase of 2.7 percentage points in the gross profit as a percentage of revenue reflects the benefit of the fixed cost amortization of the Exclusive Distribution Rights Agreement being spread over a higher level of revenue.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $289,014 for the three months ended March 31, 2010, compared to $334,631 for the three months ended March 31, 2009, a decrease of $45,617, or 14%. This decrease was mainly due to the decrease in the Company's promotional expenses, since the Company’s sales in the first quarter of 2010 were solely derived from our existing customers.

Income before Taxes

Income before taxes was $4,483,819 for the three months ended March 31, 2010, compared to $3,542,037 for the three months ended March 31, 2009, an increase of $941,782, or 27%. This is primarily due to the increase in sales in the three months of 2010.

Provision for Income Tax

The income tax expense for the three months ended March 31, 2010 was $1,244,708, compared to $1,092,992 for the three months ended March 31, 2009, an increase of $151,716, or 13.9%.

Net Income

The net income for the three months ended March 31, 2010 was $3,239,111, compared to $2,449,045 for the three months ended March 31, 2009, an increase of $790,066, or 32.3%. This increase is primarily due to the increase in our sales revenue.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2010, the Company's cash and cash equivalents were $5,713,522 as compared to and $147,392 as of December 31, 2009. This $5,566,130 increase since December 31, 2009 consists of the following:

Cash Flow

	Three months ended March 31,
	2010		2009
Net cash provided by operating activities	$	5,564,004	$	2,143,340
Net cash used in investing activities		-		-
Net cash used in financing activities		-	$	(1,361,777	)
Effect of exchange rate changes	$	2,126	$	194
Net cash inflow	$	5,566,130	$	781,757

During the three months ended March 31, 2010, the Company met its working capital and capital investment requirements by using operating cash flows.

Net Cash Provided by Operating Activities

During the three months ended March 31, 2010, the Company had net cash flow from operating activities of $5,564,004, compared to $2,143,340 for the three months ended March 31, 2009, an increase of $3,420,664, or 160%, primarily attributable to a reduction in accounts receivable due to intensified collection, and an increase in net income.

Net Cash Used in Investing Activities and Financing Activities

The Company had no Investing Activities during the three months ended March 31, 2010, and none for the three months ended March 31, 2009.

During the first three months of 2009, the Company paid $1,361,777 to reduce its outstanding notes payable. There was no financing activity during the first three months of 2010.

The Company has continued to receive orders from, and make sales to, its existing customers through the quarter ended March 31, 2010. However, the Company has not obtained new customers since the second quarter ended June 30, 2008. The Company and its existing customers agreed to have future sales orders based on verbal contracts.

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 cash on hand and cash expected to be generated from operating activities will be sufficient to finance the Company's current operations through December 31, 2010.

The Company does not currently have any credit facilities with banks or other lenders. Furthermore, obtaining such financing may be difficult and costly and potentially more dilutive to our existing investors. The failure to secure such financing, if it were to be required, on favorable terms could have a material adverse affect on our operations.

Critical Accounting Policies and Estimates

See “Note 1. Summary of Significant Accounting Policies ” in “ Item 1. Financial Statements ” herein for a discussion of the critical accounting policies and estimates adopted in this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not required.

Item 4T. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). The evaluation of our disclosure controls and procedures included a review of our processes and the effect on the information generated for use in this Quarterly Report on Form 10-Q. In the course of this evaluation, we sought to identify any material weaknesses in our disclosure controls and procedures and to confirm that any necessary corrective action, including process improvements, was taken. The purpose of this evaluation is to determine if, as of the Evaluation Date, our disclosure controls and procedures were operating effectively such that the information, required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) was recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As of March 31, 2010, the Company’s Chief Executive Officer and its Chief Financial Officer have concluded that, as of that date, the Company’s controls and procedures were not effective due to some significant deficiencies in the Company’s internal controls over financial reporting. This is due to the fact that the Company lacks sufficient personnel with the appropriate level of knowledge, experience and training in the application of U.S. generally accepted accounting principals (“GAAP”) standards, especially related to complicated accounting issues. This could cause the Company to be unable to fully identify and resolve certain accounting and disclosure issues that could lead to a failure to maintain effective controls over preparation, review and approval of certain significant account reconciliation from Chinese GAAP to U.S. GAAP and necessary journal entries.

The Company has relatively small number of professionals employed by the Company in bookkeeping and accounting functions, which prevents the Company from appropriately segregating duties within its internal control systems. The inadequate segregation of duties is a weakness because it could lead to the untimely identification and resolution of accounting and disclosure matters or could lead to a failure to perform timely and effective reviews.

Based on the control deficiency identified above, we have designed and plan to implement, or in some cases have already implemented, the specific remediation initiatives described below:

We will evaluate the roles of our existing accounting personnel in an effort to realign the reporting structure of our internal auditing staff in China that will test and monitor the implementation of our accounting and internal control procedures.

We are in the process of completing a review and revision of the documentation of the Company’s internal control procedures and policies.

We will begin implementation an initiative and training in China to ensure the importance of internal controls and compliance with established policies and procedures are fully understood throughout the organization and will provide additional U.S. GAAP training to all employees involved with the performance of or compliance with those procedures and policies.

We will implement a formal financial reporting process that includes review by our Chief Executive Officer and the full Board of Directors of financial statements prior to filing with the SEC.

We will increase our accounting and financing personnel resources, by retaining more U.S. GAAP knowledgeable financial professionals.

The remedial measures being undertaken may not be fully effectuated or may be insufficient to address the significant deficiencies we identified, and there can be no assurance that significant deficiencies or material weaknesses in our internal control over financial reporting will not be identified or occur in the future. If additional significant deficiencies (or if material weaknesses) in our internal controls are discovered or occur in the future, among other similar or related effects: (i) the Company may fail to meet future reporting obligations on a timely basis, (ii) the Company’s consolidated financial statements may contain material misstatements, (iii) the Company’s business and operating results may be harmed.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were not operating effectively.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting for the six months ended March 31, 2010 that 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.

As of the date of this filing, there have been no material changes from the risk factors disclosed in the Company’s Annual Report on Form 10-K filed on May 17, 2010. We operate in a changing environment that involves numerous known and unknown risks and uncertainties that could materially affect our operations. The risks, uncertainties and other factors set forth in our Annual Report on Form 10-K may cause our actual results, performances and achievements to be materially different from those expressed or implied by our forward-looking statements. If any of these risks or events occur, our business, financial condition or results of operations may be adversely affected.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None

Item 4. Other Information.

None.

Item 5. Exhibits.

(a) Exhibits

Exhibit No.		Description
31.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

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

		JADE ART GROUP INC.

Date: May 21, 2010		/s/ Hua-Cai Song
		Hua-Cai Song
		Chief Executive Officer (Principal
		Executive Officer)

Date: May 21, 2010		/s/ Chen-Qing Luo
		Chen-Qing Luo
		Chief Financial Officer (Principal Financial
		and Accounting Officer)

Jade Art Group Inc. 10-Q