As filed with the Securities and Exchange Commission on November 2, 2009

Registration No. 333-162150

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

 

AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

 

QKL STORES INC.

(Exact Name of Registrant As Specified in Its Charter)

Delaware		445110		75-2180652
(State or Other Jurisdiction of Incorporation or Organization)		(Primary Standard Industrial Classification Code Number)		(IRS Employer Identification No.)

44 Jingqi Street
Dongfeng Xincun
Sartu District
163311 Daqing, P.R. China
(011) 86-459-4607987

(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant’s Principal Executive Offices)

 

Paracorp Incorporated
40 E. Division Street, Suite A
Dover, DE, 19901
302-730-1320

(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)

 

Copies to: Mitch Nussbaum, Esq. Loeb & Loeb LLP 345 Park Avenue New York, NY 10154 Tel. No. 212-407-4159 Fax No. 212-407-4990		Copies to: Steven Pidgeon, Esq. Paul Hurdlow, Esq. DLA Piper 2415 East Camelback Road, Ste 700 Phoenix, AZ 85016 Tel. No. 480-606-5124 Fax No. 480-606-5101

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the Registration Statement has been declared effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

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

Large Accelerated Filer o		Accelerated Filer o
Non-Accelerated Filer (Do not check if a smaller reporting company) o		Smaller Reporting Company x

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CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to Be Registered		Amount to Be Registered				Proposed Maximum Offering Price per Unit				Proposed Maximum Aggregate Offering Price(1)				Amount of Registration Fee(2)
Common stock, par value $.001 per share			—				—			$	34,500,000			$	1,925.10
Total			—				—			$	34,500,000			$	1,925.10

 

The registrant amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall hereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the registration statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION, DATED NOVEMBER 2, 2009

      Shares

QKL STORES INC.

We are offering       shares of common stock, $0.001 par value. Our common stock has been listed on the NASDAQ Capital Market (“NASDAQ”) under the symbol “QKLS” since October 21, 2009. On October 26, 2009, the last reported sale price of our common stock quoted on NASDAQ was $7.09 per share.

We are offering the shares at $       per share.

The purchase of the securities involves a high degree of risk. See section entitled “Risk Factors” beginning on page 8.

		Per Share				Total
Public offering price		$				$
Underwriting discounts and commissions		$				$
Proceeds, before expenses, to QKL Stores Inc.		$				$

The underwriter has a 30-day option to purchase up to additional shares of common stock from us solely to cover over-allotments, if any. The underwriter expects to deliver the shares to purchasers on or about     , 2009.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

Roth Capital Partners

The date of this Prospectus is     , 2009

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QKL STORES INC.

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		Page
Prospectus Summary			1
The Offering			5
Summary Consolidated Financial and Operating Data			6
Risk Factors			8
Cautionary Note Regarding Forward-Looking Statements and Other Information Contained in this Prospectus			26
Other References			26
Use of Proceeds			27
Dividend Policy			27
Capitalization			28
Market Price of and Dividends of Common Equity and Related Stockholder Matters			29
Exchange Rate Information			30
Selected Consolidated Financial and Operating Data			31
Management’s Discussion and Analysis of Financial Condition and Results of Operations			33
Industry Overview			49
Business			54
Properties			67
Legal Proceedings			71
Our History and Corporate Structure			72
Directors and Executive Officers			80
Executive Compensation			83
Security Ownership of Certain Beneficial Owners and Management			85
Certain Relationships and Related Transactions			87
Description of Our Securities			90
Shares Eligible for Future Sale			92
Material United States Federal Income Tax Considerations			93
Material PRC Income Tax Considerations			97
Underwriting			100
Transfer Agent and Registrar			102
Legal Matters			102
Experts			102
Interests of Named Experts and Counsel			102
Service of Process and Enforcement of Judgments			102
Changes in and Disagreements with Accountants			103
Where You Can Find More Information			104
Disclosure of Commission Position on Indemnification for Securities Act Liabilities			104
Index to Financial Statements			105
Appendix A DVD Presentation Transcript			A-1

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ABOUT THIS PROSPECTUS

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with any information or to make any representations about us, the securities or any matter discussed in this prospectus, other than the information and representations contained in this prospectus. If any other information or representation is given or made, such information or representation may not be relied upon as having been authorized by us.

The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. Neither the delivery of this prospectus nor any distribution of securities in accordance with this prospectus shall, under any circumstances, imply that there has been no change in our affairs since the date of this prospectus. This prospectus will be updated and updated prospectuses made available for delivery to the extent required by the federal securities laws.

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PROSPECTUS SUMMARY

This summary highlights selected information appearing elsewhere in this prospectus. While this summary highlights what we consider to be the most important information about us, you should carefully read this prospectus and the registration statement of which this prospectus is a part in their entirety before investing in our securities, especially the risks of investing in our securities, which we discuss later in the section of this prospectus entitled “Risk Factors,” and our consolidated financial statements and related notes beginning on page F-1. In particular, we do business through a corporate structure that is subject to a number of substantial risks. See “Risk Factors — Risks Related to Our Corporate Structure.”

References to “QKL-China” are to Daqing Qing Ke Long Chain Commerce & Trade Co., Ltd., a People’s Republic of China retail company that we control through a series of contractural arrangements described in the section entitled “Our History and Corporate Structure.” Unless otherwise specified or required by context, references to “we,” “our,” “us” and the “Company” refer collectively to (i) QKL Stores Inc. (formerly known as Forme Capital, Inc.), (ii) the subsidiaries of QKL Stores Inc., which are Speedy Brilliant Group Limited, a British Virgin Islands company (“Speedy Brilliant (BVI)”), which is wholly owned by QKL Stores Inc., and Speedy Brilliant Commercial Consultancy Co., Ltd. (“Speedy Brilliant (Daqing)”), which is wholly owned by Speedy Brilliant (BVI), (iii) QKL-China, and (iv) Daqing Qinglongxin Commerce & Trade Co., Ltd. (“QC&T”), a wholly owned subsidiary of QKL-China. For convenience, certain amounts in Chinese Renminbi (“RMB”) have been converted to United States dollars at an exchange rate of $1 = RMB 6.8448, the exchange rate on June 30, 2009. References to “IGA” are to the Independent Grocers Alliance, an international trade group and network of supermarkets that offers its members access to industry information, bargaining advantages with suppliers, and other benefits of affiliation with a large trade group. IGA reports that its member companies operate in 40 countries worldwide and have total revenues of $21 billion per year. Its website is www.IGA.com. References in this prospectus to the “PRC” or “China” are to the People’s Republic of China.

In keeping with standard practice and the practice of the National Bureau of Statistics of China, references to “northeastern China” are to the three northeastern provinces of Heilongjiang, Jilin and Liaoning. A map showing these provinces is included in the section of this prospectus entitled “Other References.”

References to QKL-China’s “registered capital” are to the equity of QKL-China, which under PRC law is measured not in terms of shares owned but in terms of the amount of capital that has been or will be contributed to a company by a particular shareholder or all shareholders. The portion of a limited liability company’s total capital contributed by a particular shareholder represents that shareholder’s ownership of the company and the total amount of capital contributed by all shareholders is the company’s total equity. Capital contributions are made to a company by deposits into a dedicated account in the company’s name, which the company may access in order to meet its financial needs. When a company’s accountant certifies to PRC authorities that a capital contribution has been made and the company has received the necessary government permission to increase its contributed capital, the capital contribution is registered with regulatory authorities and becomes a part of the company’s “registered capital.”

This prospectus assumes the over-allotment has not been exercised, unless otherwise indicated.

Our Company

We are a regional supermarket chain that currently operates 31 supermarkets and two department stores in northeastern China and Inner Mongolia. Our supermarkets sell a broad selection of merchandise including groceries, fresh food and non-food items. We have one distribution center servicing our supermarkets.

We believe that we are the only supermarket chain in northeastern China and Inner Mongolia that is a licensee of the Independent Grocers Alliance, or IGA, a United States-based global grocery network with aggregate retail sales of more than $21.0 billion per year. As a licensee of IGA, we are able to engage in group bargaining with suppliers and have access to more than 2,000 private IGA brands, including many that are exclusive IGA brands.

Our total revenues for the six months ended June 30, 2009 were approximately $118.8 million, an increase of $60.0 million, or 102.0%, compared to total revenues of $58.8 million for the six months ended June 30, 2008. Our total revenues for 2008 were $161.5 million, an increase of $69.1 million, or 74.8%,

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compared to total revenues of $92.4 million for 2007. Our net income for the six months ended June 30, 2009 was approximatley $6.0 million, an increase of $3.6 million, or 149.2%, from approximately $2.4 million for the first half of 2008. Our net income for 2008 was approximately $9.0 million, an increase of $3.2 million, or 55.6%, compared to net income of approximately $5.8 million for 2007.

Our Industry

We operate in the supermarket industry in China, which is a part of the country’s retail trade sector. We believe the retail market has benefited from compelling industry fundamentals such as rapid economic growth, urbanization and increasing disposable income.

China’s economy has been experiencing consistent growth with nominal GDP growing from approximately $1.9 trillion in 2004 to approximately $4.3 trillion in 2008. As a result of China’s rapid economic growth, the urban population has increased dramatically as people in rural and less developed areas migrate to cities in search of better jobs and higher living standards. During the period between 2004 and 2008, the total urban population in China increased by approximately 63.9 million, or approximately 11.8%. This growth has been accompanied by rising income levels of urban households where annual per capita disposable income increased from approximately $1,138 in 2004 to approximately $2,271 in 2008, a compound growth rate of approximately 18.9%. A growing middle class combined with an increasing affluence and purchasing power has driven the rapid development of the retail sector and in turn driven a large increase in consumer spending. Consumer spending has grown from $719 billion in 2004 to approximately $1.6 trillion in 2008, a compound growth rate of approximately 21.4%.

Northeast China has a population of 130 million, or approximately 9% of China’s population. In December 2007, a major economic-development plan for northeastern China, the “Plan for Revitalizing Northeast China,” was announced by an office of the PRC’s State Counsel. We believe that the plan indicates a commitment by the PRC government to make economic development of northeastern China a high priority. We also believe that this development is likely to contribute to our growth.

Our Competitive Strengths

We believe that our competitive advantages include our low prices, the quality of our meat and produce, our breadth of products, and the location of our stores.

The location of our stores is also essential to our competitiveness, and our current competition strategy focuses on locating our stores within the three provinces of northeastern China and the eastern region of Inner Mongolia. Within those areas, we try to locate our stores in small- and medium-sized cities where we expect to face limited competition from large foreign or national supermarket chains.

In addition to the competitive advantages described above, we believe we have specific and distinct advantages over our domestic and foreign competitors.

Compared with local supermarkets, we believe we have the following advantages:

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Compared with large foreign supermarkets, we believe we have the following advantages:

Business Strategy

Our strategy is to expand our current market share and to benefit from the anticipated growth in China’s retail industry. Our operating strategy consists of the following key elements:

In 2008 and 2007, we acquired approximately 10.0% and 7.0%, respectively, of our merchandise directly from manufacturers (not including private label merchandise). We estimate that approximately 5.5% of our total revenue in 2008 was due to sales of self-prepared foods compared to approximately 2.0% of our total revenue in 2007.

Our goal is to bring our sales of these cost-saving and higher-margin categories of merchandise — direct-from-manufacturer, self-prepared food, private label and IGA-related — up to 20.0% of our total revenues. In addition to emphasizing sales of these categories, we also emphasize sales of other higher-margin items, such as fashionable clothing and cosmetics, and seasonal items like gloves, coats, sun-block and swimsuits.

Company History

On March 28, 2008, QKL Stores Inc. (formerly known as Forme Capital, Inc.) acquired control of QKL-China through a “reverse merger” transaction. Upon completion of the reverse merger transaction, QKL Stores Inc. ceased to be a shell company (as that term is defined in Rule 12b-2 under the Securities Exchange Act of 1934 (the “Exchange Act”)).

Private Placement Transaction

At the same time as the closing of the reverse merger transaction, we closed a private placement of securities, in which we sold 9,117,647 units to certain accredited investors, for gross proceeds to us of $15.5 million, at a purchase price of $1.70 per unit. Each unit consists of one share of Series A Preferred Stock (each of which is convertible into one share of our common stock), one Series A Warrant and one Series B Warrant (each of which is exercisable to purchase 0.625 of a share of common stock or, in the aggregate, are exercisable to purchase up to a total of 11,397,058 shares of our common stock). The Series A Warrants have an exercise price of $3.40 per share (subject to adjustment) and the Series B Warrants have an

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exercise price of $4.25 per share (subject to adjustment). We received $13.5 million as net proceeds from this private placement. The closing of the private placement was conditioned on the closing of the reverse merger transaction.

For more information about the private placement you should read the section of this prospectus entitled “Our History and Corporate Structure.”

Name Change

On June 18, 2008, we changed our name from Forme Capital, Inc. to QKL Stores Inc. On the same date, our name change was reflected on the Over-the-Counter Bulletin Board (“OTCBB”) and our common stock began trading under the stock symbol QKLS.OB. On October 21, 2009, our common stock was listed on NASDAQ under the symbol “QKLS.”

Executive Offices

Our executive offices are located at 44 Jingqi Street, Dongfeng Xincun, Sartu District, Daqing, 163311 P.R.C. and our telephone number is (011) 86-459-4607987. Our corporate website is www.qklstoresinc.com. Information contained on, or accessed through our website is not intended to constitute and shall not be deemed to constitute part of this prospectus.

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THE OFFERING

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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

The following summary of our consolidated statement of income data for the two years ended December 31, 2008 and 2007, and consolidated balance sheet data as of December 31, 2008 is derived from our audited consolidated financial statements and related notes thereto included elsewhere in this prospectus. The audited consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”), and have been audited by Albert Wong & Co., an independent registered public accounting firm. The consolidated statement of income data for the six months ended June 30, 2009 and 2008, and the consolidated balance sheet data as of June 30, 2009 presented below is derived from our unaudited consolidated financial statements that are included elsewhere in this prospectus.

The consolidated financial statements are reported in United States dollar amounts and are prepared in accordance with U.S. GAAP. This data should be read in conjunction with the section of this prospectus entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus.

The as adjusted balance sheet data reflects the balance sheet data as of June 30, 2009, as adjusted to reflect our receipt of the estimated net proceeds from our sale of     shares in this offering at an offering price of $     per share, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

		Year Ended December 31,								Six Months Ended June 30,
		2007				2008				2008				2009
Income Statement Data:
Revenues:
Direct sales		$	90,464,198			$	157,841,011			$	57,344,322			$	116,511,127
Other operating income			1,908,614				3,640,342				1,449,015				2,262,053
Total revenues			92,372,812				161,481,353				58,793,337				118,773,180
Cost of sales			(73,597,592 )				(127,172,246 )				(45,310,247 )				(96,488,680 )
Gross profit			18,775,220				34,309,107				13,483,090				22,284,500
Selling expenses			(8,620,735 )				(16,558,820 )				(6,350,502 )				(12,076,402 )
General and administrative expenses			(1,303,130 )				(3,249,506 )				(1,198,919 )				(2,165,650	)
Income from operations			8,851,355				14,500,781				5,933,669				8,042,448
Transaction cost of reverse merger			—				(1,976,470 )				—				—
Interest income			58,641				272,551				107,198				153,106
Interest expenses			(169,375	)			(240,330	)			(128,651	)			(20,796	)
Other expenses			—				(2,990	)			(1,976,470 )				—
Other income – government grant			39,385				—				—				—
Income before income taxes			8,780,006				12,553,542				3,935,746				8,174,758
Income taxes			(2,997,615 )				(3,556,474 )				(1,520,450 )				(2,156,759	)
Net income			5,782,391				8,997,068				2,415,296				6,017,999
Other comprehensive income:
Foreign currency translation adjustment			997,088				2,434,364				—				—
Comprehensive income			6,779,479				11,431,432				—				—
Basic earnings per share		$	0.30			$	0.43			$	0.12			$	0.29
Diluted earnings per share		$	0.30			$	0.29			$	0.08			$	0.20
Basic weighted average shares outstanding			19,082,299				20,882,353				20,882,353				20,882,353
Diluted weighted average shares outstanding			19,082,299				31,137,642				30,753,466				30,000,000

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		As of December 31, 2007				As of December 31, 2008				As of June 30, 2009
										Actual				As Adjusted
Balance Sheet Data:
Cash and cash equivalents		$	10,742,064			$	19,285,021			$	21,276,845			$
Working capital			9,276,387				10,463,961				14,587,540
Total assets			34,646,839				77,713,476				80,014,594
Total liabilities			16,861,896				33,846,389				29,773,701
Total liabilities and stockholders’ equity			34,646,839				77,713,476				80,014,594
Stockholders’ equity			17,784,943				43,867,087				50,240,893

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RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below and the other information contained in this prospectus before deciding to invest in our common stock. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. The trading price of our securities could decline due to any of these risks, and you may lose all or part of your investment.

Risks Related to Our Business

If we do not receive prompt delivery of the goods we order, in good condition, and at the prices we expect, our ability to generate profits could be harmed.

As a retail company, our ability to keep our shelves stocked with a wide variety of merchandise is essential to our success and is dependent on the prompt delivery of the goods we order, in good condition, and at the prices we expect. Disruptions to our supply chain could cause us to reduce the variety or overall amount of goods we sell; to seek alternative sources for affected supplies; or to increase our prices, decrease our profit margins, or both. Any of these consequences could lead to our customers buying less, shopping elsewhere or criticizing our reputation. If this occurred, our income, profitability, reputation and competitive position would all suffer.

Our supply chain and costs could be disrupted by a wide variety of events. The most significant of these are described below:

Delivery of our supplies depends on the smooth passage of commercial cargo through the railways, highways and waterways in and around northeastern China and Inner Mongolia. Transportation infrastructure in and around northeastern China and Inner Mongolia may suffer more breakdowns and offer fewer alternative routes than systems in many western countries.

Severe storms could also reduce supplies of fresh foods by destroying crops and livestock and, in extreme cases, could reduce supplies of processed foods by reducing overall availability of the agricultural raw materials from which they are made, and cause shortages of, and price increases for, the affected supplies.

Poor yields of crops and livestock, whether due to bad weather, disease, errors in agricultural planning or other causes, could reduce the market supplies of fresh foods as well as processed foods that depend on agricultural products as raw materials. Such reductions could raise the cost of our supplies and cause the supply shortages.

We rely on suppliers to provide sufficient amounts of merchandise that meet our quality standards and government health and consumer-protection standards. A significant portion of our supplies (approximately 14.7% in 2008 and 9.1% in 2007) come from our top 10 suppliers, which are primarily large wholesalers and meat processors. We usually secure a primary vendor and a secondary vendor for each category of merchandise by entering into standard contracts with them, which typically have a term of one year and provide for payment at market prices. In case there are merchandise shortages, we utilize the secondary vendor. If one or more of these suppliers experiences quality control failures or is unable to secure its own supply of merchandise, whether self-produced or purchased from others, the merchandise that it delivers to us could fail to meet our or the government’s quality standards or arrive in insufficient amounts to meet our needs. If such risks do materialize, there is no guarantee we would succeed in securing replacement supplies meeting our and the government’s standards from other suppliers quickly and at reasonable prices, or at all, and we could suffer the consequences of supply chain disruption described above.

Under our supply contracts, our suppliers are responsible for damage that occurs during shipping and, under the PRC’s consumer protection laws, our suppliers must reimburse us for the cost of spoiled goods returned to

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us by customers for a refund. Nevertheless, significant spoilage could reduce the amount of fresh food we are able to offer, which could reduce our income.

Economic conditions, in northeastern China in particular, affect the price and availability of our supplies. Inflation in prices of agricultural products and in general is a significant concern in China. If inflation develops and becomes a significant problem, many retailers in China, including us, will have to choose between increasing the prices we charge our customers and reducing the profit margins on our sales. In either case, our competitive position and operating results could be harmed, and the value of any investment in our common stock could be reduced.

In addition, the geographic concentration of our operations exposes us to the risks of the local economy. We operate in northeastern China and Inner Mongolia, and our near-term plans call for expansion only within the three provinces of northeastern China and the eastern region of Inner Mongolia. Our headquarters, warehouses and distribution facilities and all of our stores are located within a relatively limited geographic area. As a result, our business is more susceptible to regional conditions, including conditions affecting infrastructure, agriculture, inflation and employment, than our more geographically diversified competitors.

The supermarket industry in the PRC is becoming increasingly competitive and, unless we are able to compete effectively with domestic and foreign retailers, and restaurants and fast food chains, our profits could suffer.

The supermarket industry in the PRC is highly and increasingly competitive. Giant international retailers such as Wal-Mart and Carrefour have entered the market, national retailers such as Bailian and Lianhua have expanded, and local and regional competition has grown. Some of these companies have substantially greater financial, marketing, personnel and other resources than we do.

Our competitors could adapt more quickly than we do to evolving consumer preferences or market trends, have more success than we do in their marketing efforts, control supply costs and operating expenses more effectively than we do, or do a better job than we do in formulating and executing expansion plans. Increased competition may also lead to price wars, counterfeit products or negative brand advertising, all of which may adversely affect our market share and profit margins. Expansion of large retailers into new locations may limit the locations into which we may profitably expand. To the extent that our competitors are able to take advantage of any of these factors, our competitive position and operating results may suffer.

We also face heightened competition from restaurants and fast food chains, which are capturing an increasing portion of household food expenditures in the PRC.

Because we face intense competition, we must anticipate and quickly respond to changing consumer demands more effectively than our competitors. In order to succeed in implementing our business plan, we must achieve and maintain favorable recognition of our private label brands, effectively market our products to consumers, competitively price our products, and maintain and enhance a perception of value for consumers. We must also source and distribute our merchandise efficiently. Failure to accomplish these objectives could impair our ability to compete successfully and adversely affect our growth and profitability.

Our limited operating history makes it difficult to evaluate our future prospects and results of operations; our business could fail, and you could lose some or all of your investment.

We have a limited operating history and the PRC supermarket industry is young and continually growing. Accordingly, you should consider our future prospects in light of the risks and uncertainties experienced by early-stage companies in evolving markets. Some of these risks and uncertainties relate to our ability to:

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Because we are a relatively new company, we may not be experienced enough to address all the risks in our business or in our expansion plan. If we are unsuccessful in addressing any of these risks and uncertainties, our business may fail.

Economic conditions that affect consumer spending could limit our sales and increase our costs.

Our results of operations are sensitive to changes in overall economic conditions that affect consumer spending, including discretionary spending. Inflation and adverse changes to employment levels, business conditions, interest rates, energy and fuel costs and tax rates can, in addition to causing the supply chain cost challenges described above, reduce consumer spending and change consumer purchasing habits.

As of the date of this prospectus, we have not been significantly negatively impacted by the economic downturn in the PRC. The recession in the PRC to date has mainly impacted the export sector based in southeastern China. Northeastern China and Inner Mongolia, where our stores are located, have not been affected to the same extent. Should the economic downturn worsen and spread to northeastern China and Inner Mongolia, where we are based, a general reduction in the level of consumer spending in the region would likely result, which would reduce our sales revenues and profits.

Much of our income comes from sales of perishable merchandise, which can lose its value quickly; such losses could harm our operating results.

We could suffer spoilage if supply chain disruptions occur, if our refrigerators and freezers malfunction or if we suffer lapses of quality control inspection and supervision. If our inspections fail to discover spoilage in a shipment of fresh food or if we fail to routinely inspect perishable merchandise on our shelves, we could inadvertently offer spoiled food for sale, which could harm our reputation, competitive position and operating results. Moreover, if we fail to accurately predict future customer demand for perishable food, we would be forced to discard unsold perishable food once it spoils, which would also negatively affect our operating results.

Consumer concerns regarding the safety and quality of food products or health concerns could adversely affect sales of our high-margin products, which would negatively impact our profits.

Our sales results could be harmed if consumers lose confidence in the safety and quality of our fresh food products. Consumers in the PRC are becoming increasingly conscious of food safety and nutrition. Consumer concerns about, for example, the safety of meat, fish, or dairy products, or about the safety of food additives used in processed food products, could discourage them from buying these relatively high-margin products and cause our profit margins to fall and our results of operations to suffer.

We rely on the performance of our individual stores, individual store managers, three regional managers and our operating director for our sales, and should any or all of them perform poorly for any reason, our sales results, reputation and competitive position would suffer.

We sell all of our products through our individual stores. Each supermarket is managed by a store manager who reports directly to one of our three regional managers. Each regional manager manages around 10 stores and reports to our operating director, who reports to our COO, Mr. Alan Stewart. Regional managers spend their time in stores to work together with each individual store manager. Each region holds teleconferences every week. Although all purchasing decisions as to vendors and costs are made by company management and not store managers, the store manager makes the decision as to order quantities and is responsible for the daily operation of the store. If factors either in or out of a store manager’s control reduce a store’s business — for example, disruption of customer traffic by nearby construction or customer

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dissatisfaction with store employees — the individual store’s income could fall, which would negatively impact our sales. Also, if our managers and operating director fail to adequately manage store employees and day-to-day operations in a manner that pleases our customers, our reputation and competitive position will suffer.

We may fail to identify or anticipate trends in consumer preferences, which could result in decreased demand for our merchandise, and lower revenues and profits.

Our continued success in the retail market depends on our ability to anticipate the changing tastes, dietary habits and lifestyle preferences of customers. If we are not able to anticipate and identify new consumer trends and stock our shelves accordingly, our sales may decline and our operating results may be adversely affected. For example, we believe meat and dairy products have strong growth potential in northeastern China and Inner Mongolia. Accordingly, we have increased our focus on sales of these products, which tend to have higher profit margins than our other products. If the market for these products in the PRC does not grow as we expect, our income may not grow as we expect and our operating results may suffer.

Our profit margins could narrow and as a result the value of any investment in our common stock could be reduced.

Profit margins in the grocery retail industry are narrow. In order to increase or maintain our profit margins, we are developing strategies to reduce costs by attempting to increase efficiencies and increase sales of higher-margin items such as private label merchandise, prepared-in-store foods, and meat and dairy products, but we can offer no assurance that such strategies, or our execution of such strategies, will be successful. We also implement promotional price reductions as part of our competitive strategy that may further affect our profit margin. Thus, there is no guarantee that our current profit margin will not decline, which would negatively impact our profitability.

We rely heavily on information technology systems, which could fail, causing damage to our operations.

We have a large and complex information technology system that we rely on to keep track of inventory and sales, determine our ordering of supplies, and communicate among stores, our distribution center and our corporate headquarters. Like any electronic data management system, ours is subject to malfunction. In such a case, our operations could be significantly disrupted as we work to fix the problem, upgrade our system or adopt a new system.

In addition, despite our efforts to secure our computer network, the security of our network could be compromised, confidential information could be misappropriated and other system disruptions could occur. This could lead to loss of sales and diversion of corporate resources from operations and planning.

If we have difficulties finding and leasing new retail space for new stores or retaining existing retail space, our operations could be disrupted and we will be unable to grow as planned, which would negatively affect our stock price.

We currently lease the majority of our store locations. Typically our supermarket leases have initial 10- to 20-year lease terms and may include renewal options for up to an additional 10 or 20 years. Our revenues and profitability would be negatively impacted if we are unable to renew these leases at reasonable rates.

Under our expansion plan, in 2009 we opened three new stores that have, in the aggregate, approximately 16,000 square meters of space and, in 2008, we opened 10 new stores that have, in the aggregate, approximately 50,000 square meters of space. Our expansion plan for the remainder of 2009 calls for us to open four additional stores that will have, in the aggregate, approximately 11,400 square meters of retail space and one additional distribution center that will have approximately 19,600 square meters of space. Our success in executing our expansion plan depends on our ability to open or acquire new stores in existing and new retail areas and to operate these stores successfully. We may also choose to continue to expand through acquisitions. We must find suitable locations for those stores and reach reasonable terms with building owners and other interested parties, which could be difficult as we face intense competition from other retailers for such sites. If we cannot find suitable locations at a reasonable cost, our ability to grow will be compromised, which would negatively affect our stock price.

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Our insurance coverage may be inadequate and, if any of the products we sell causes personal injury or illness, we could be exposed to significant losses resulting from negative publicity and harm to our reputation. This exposure could harm our business.

The sale of food products for human consumption involves an inherent risk of injury to consumers. Such injuries may result from tampering by unauthorized third parties, contamination, including by bacteria, insecticides, fertilizers and other substances, spoilage and mislabeling. Although we and our suppliers are subject to governmental inspections and regulations, consumption of our products could still cause a health-related illness in the future and we could be subject to claims or lawsuits relating to such events. Under certain circumstances, we could be required to recall products. Unlike most supermarket companies in the United States, but in line with industry practice in the PRC, we do not maintain product liability insurance, and we cannot predict the extent of liability we could face if such events were to occur.

Although the standard contracts we sign with our suppliers include a provision that shifts liability to our suppliers if a consumer is injured by a supplier’s product, the negative publicity surrounding any assertions that merchandise we carry caused personal injury or illness could adversely affect our reputation and competitive position. In addition, our property and equipment insurance does not cover the full value of our property and equipment, which leaves us with exposure in the event of loss or damage to our properties. Except for property, accident and automobile insurance, we do not have other insurance such as business liability or disruption insurance coverage for our operations in the PRC.

We do not maintain a reserve fund for potential warranty or defective products claims. If we experience an increase in warranty claims or if our repair and replacement costs associated with warranty claims increase significantly, our results of operations and financial condition would suffer.

Our company name and private label merchandise may be subject to counterfeiting or imitation, which could damage our reputation and brand image, and lead to higher administrative costs.

We regard brand positioning as an important element of our competitive strategy, and intend to position our private label brands to be associated with low prices, high quality, convenience and a positive shopping experience. There have been frequent occurrences of counterfeiting and imitation of products in the PRC in the past. Imitation of our company name or logo could occur in the future and there is no guarantee that we will be able to detect it and deal with it effectively. Any occurrence of counterfeiting or imitation could damage our corporate and brand image.

If we do not effectively manage our growth, our expansion efforts could fail, which would negatively affect our stock price.

There is no guarantee that our expansion plan will be successfully implemented. In order to fully implement these plans, we will have to hire a large number of additional employees, secure new retail locations, and integrate new stores and distribution routes into our existing business. There is no guarantee that we will meet all or any of these needs and therefore no guarantee that we will succeed in our efforts to expand.

Moreover, our future expansion will depend both on the profitability of our business and our ability to raise capital from outside sources. We intend to finance our expansion plan, which includes the opening of four additional stores during the remainder of 2009, from funds generated from operations, bank loans, and proceeds from this offering.

If our business and markets grow and develop, it will be necessary for us to finance and manage expansion in an orderly fashion. We may not have the requisite experience to manage and operate a larger network of stores and distribution centers. In addition, we may face challenges in integrating acquired businesses with our own. These events would increase demands on our existing management, workforce and facilities. Failure to satisfy these increased demands could interrupt or adversely affect our operations and cause production backlogs, longer product development time frames and administrative inefficiencies.

If our expansion plans are not fulfilled, our stock price will decline.

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We may not be able to hire and retain qualified personnel to support our growth and if we are unable to retain or hire such personnel in the future, our ability to implement our business objectives could be limited. Difficulties with hiring, employee training and other labor issues could disrupt our operations.

Our operations depend on the work of nearly 3,000 employees. We may not be able to retain those employees, successfully hire and train new employees or integrate new employees into the programs and policies of the Company. Any such difficulties would reduce our operating efficiency and increase our costs of operations, and could harm our overall financial condition.

If one or more of our senior executives or other key personnel are unable or unwilling to continue in their present positions, we may not be able to replace them within a reasonable time, and our business may be disrupted and our financial condition and results of operations may be materially and adversely affected. Competition for senior management and personnel is intense, the pool of qualified candidates is very limited, and we may not be able to retain the services of our senior executives or senior personnel, or attract and retain high-quality senior executives or senior personnel in the future. This failure could limit our future growth and reduce the value of our common stock.

We may have difficulty establishing adequate management, legal and financial controls in the PRC, which may result in a material misstatement of our annual or interim consolidated financial statements.

Companies in the PRC have not historically adopted a western style of management and financial reporting concepts and practices, or a modern western style of banking, computer and other control systems. We may have difficulty in hiring and retaining a sufficient number of employees qualified in these areas to work for our operating company in the PRC. As a result of these factors, we may experience difficulty in establishing management, legal and financial controls, collecting financial data, preparing financial statements, books of account and corporate records, and instituting business practices relating to our PRC operations that meet western standards. Any such difficulty could result in a material misstatement of our annual or interim consolidated financial statements.

Our internal control over financial reporting and our disclosure controls and procedures have been ineffective, and failure to improve them could lead to errors in our financial statements that could require a restatement or untimely filings, which could cause investors to lose confidence in our reported financial information, and a decline in our stock price.

In connection with the review by the Division of Corporation Finance of the Securities and Exchange Commission (“SEC”) of the Company’s (i) audited financial statements for the fiscal year ended December 31, 2007 and 2006 (as set forth in our Registration Statement on Form S-1 (File No. 333-150800) originally filed on May 9, 2008, as amended on May 22, 2008, August 7, 2008 and October 15, 2008 and Current Report on Form 8-K/A (File No. 33-10893) filed on April 15, 2008); and (ii) interim financial statements for the three- and six-month periods ended June 30, 2008 (as set forth in our Quarterly Report on Form 10-Q filed on August 14, 2008), management identified certain material weaknesses, as defined in Public Company Accounting Oversight Board Auditing Standard No. 2, in our internal controls. A material weakness is a control deficiency, or a combination of control deficiencies, that result in more than a remote likelihood that errors will not be prevented or detected. The Board of Directors concluded, based on the recommendation of management that those financial statements should be restated and should no longer be relied upon.

On November 12, 2008, our Board of Directors received a letter from Albert Wong & Co, the Company’s independent registered public accounting firm, advising the Board of certain deficiencies in our internal controls that Albert Wong & Co. considered to be material weaknesses. These deficiencies related to errors regarding revenue recognition and classification. After receipt of this letter, management and the Board concluded that the Company had improperly recognized as revenue income from suppliers and consignees paid in connection with product promotions, general sponsorships, and savings relating to transportation and early settlement of our accounts. Consistent with Emerging Issues Task Force Issue No. 02-16, product promotions and general sponsorships should have been classified as a reduction in the cost of inventory, and other income from suppliers and consignees, such as savings relating to transportation and early settlement of our accounts, should have been included as other operating income in total revenues. The auditors recommended that a better understanding be obtained regarding the proper classification of revenue, and that

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this understanding be clearly communicated to all employees, particularly the employees coding and recording the receipt of these revenues. The auditors also suggested that the best approach would be the adoption of a revenue recognition policy that addresses recording income from suppliers and consignees.

As required by Rule 13a-15 promulgated under the Exchange Act, in connection with the filing of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, our management, including our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of December 31, 2008 and determined that our disclosure controls and procedures were not effective as of such date.

As disclosed in the section of this prospectus entitled “Acquisition of Existing Businesses,” the Company acquired the operating rights and certain assets of Hulunbeier Huahui Department Store Co., Ltd (“Hailar Store”) during the fourth quarter of 2008.

At the end of March 2009 and in connection with the audit of the Company’s 2008 financial statements, Albert Wong & Co. advised the Company that the acquisition of the operating rights and certain assets of Hailar Store for a purchase price of approximately $9.65 million was a “significant acquisition” as defined in SEC Rule 3-05 of Regulation S-X because the purchase price exceeded 10% percent of the Company’s assets as of the end of its last fiscal year (the Company had total assets of $34,646,839 as of December 31, 2007). Accordingly, the closing of the acquisition of the Hailar Store on December 5, 2008 required the Company to file a Current Report on Form 8-K within four business days of the closing of the transaction, which it failed to do, and a further 8-K within 75 business days of the closing containing audited financial statements of the Hailar Store as well as pro-forma financials statements. Such audited financial statements and pro-forma statements were not filed until June, 23, 2009, when the Company filed a Current Report on Form 8-K.

In April 2009, the Company implemented procedures to ensure that all required disclosures are made, and that they are made in a timely manner, including procedures for educating management on disclosure requirements and the adoption of formal disclosure controls and procedures.

In order to assist us in bringing our internal control over financial reporting and disclosure controls and procedures into compliance, we hired PricewaterhouseCoopers in June 2008 to setup internal control systems and an internal control department for the Company, which now consists of six full-time employees. We also adopted a Financial Reporting and Disclosure Controls and Procedures Policy in January 2009. As a result of the material weakness in our internal controls and the ineffectiveness of our disclosure controls and procedures described above, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading price of our stock.

As described in a Current Report on Form 8-K we filed on October 16, 2009, we recently terminated Albert Wong & Co. (“Albert Wong”) and appointed BDO Guangdon Dahua Delu CPAs, LLP (“BDO”) to be our independent auditor. It is possible that BDO may not be satisfied that the new procedures that we have implemented to remedy the weaknesses and deficiencies in our internal control over financial reporting and disclosure controls and procedures into compliance are sufficient, and that, as a result, there continue to be material weaknesses or deficiencies in our internal controls or ineffectiveness of our disclosure controls and procedures. If BDO comes to such conclusion, it could cause our current and potential stockholders to lose confidence in our financial reporting, which could negatively impact the trading price of our stock.

Our new auditor, BDO, may disagree with the accounting principles or practices, financial statement disclosure consolidation practices, or auditing scope and procedure that was employed by our prior auditor, Albert Wong. A disagreement by BDO with our prior financial statements could require a restatement of our financial statements in certain of our periodic reports that could cause investors to lose confidence in our reported financial information, which could lead to a decline in our stock price.

On October 15, 2009, the Company dismissed its principal independent accountant, Albert Wong from its engagement with the Company, which dismissal was effective immediately. On October 16, 2009, the Company engaged BDO to serve as its independent auditor, effective immediately. In connection with its review of our unaudited financial statements for the period ended September 30, 2009, or its audit of our financial statements for the period ending December 31, 2009, it is possible that BDO will disagree with the

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accounting principles or practices, financial statement disclosure, or consolidation practices or auditing scope that were acceptable to Albert Wong. As a result, a disagreement by BDO with our prior financial statements may require us to restate certain of our financial statements in previously filed periodic reports, which could result in late filings of future periodic reports. Any such restatement or late filing could cause our stockholders to lose confidence in our financial reporting and could harm our business and the trading price of our stock.

We could be required to pay liquidated damages to our investors under the registration rights agreement entered into with our investors and such payment could harm our financial condition.

On March 28, 2008, as part of a $15.5 million private placement, we entered into a registration rights agreement (as amended on May 8, 2008) with certain investors, pursuant to which we agreed to register for resale up to an aggregate of 41,495,261 shares of common stock, including shares of common stock underlying Series A Preferred Stock, Series A Warrants and Series B Warrants. The registration rights agreement provided that if the initial registration statement required to be filed thereunder was not declared effective by September 24, 2008, we would be required to pay certain liquidated damages to the investors. On March 9, 2009, the investors party to the registration rights agreement waived their right to such liquidated damages and on August 11, 2009, the initial registration statement covering 2,070,836 shares of the total shares registrable pursuant to the registration rights agreement was declared effective. We were not able to register all of the 41,495,261 shares in the initial registration statement due to limits imposed by the Securities Exchange Commission’s interpretation of Rule 415 of Regulation C promulgated under the Securities Act of 1933, as amended (the “Securities Act”).

There are additional deadlines we are required to meet if the private placement investors request that we file one or more registration statements covering the remaining shares that we are obligated to register pursuant to the registration rights agreement. If we fail to meet one or more of those deadlines, we would, in the absence of an additional waiver, be required to pay the investors up to a maximum of $1,550,000 in liquidated damages. Payment of a significant amount of liquidated damages would harm our profitability and we may not have sufficient cash to pay them.

If our lease agreements for certain stores are nullified due to title deficiencies of our landlords, our business may be adversely affected.

The PRC real property laws and regulations require landlord to be the legal owner of the relevant leased properties, otherwise the lease agreement may be nullified. We have not received or confirmed documentation evidencing our landlord’s legal ownership for 14 of our stores. If any of these landlords do not legally own the leased properties, the actual legal owners could force the affected stores to relocate and operation of the stores concerned may be temporarily terminated until such stores are relocated.

In addition, the PRC real property laws and regulations require landlords to obtain prior consent from the legal owner of the relevant leased properties before the execution of any sublease agreements; otherwise the sublease agreement may be nullified if the legal owner refuses to rectify his consent. We have not independently confirmed whether consents authorizing our subleases for our supermarkets and distribution centers have been obtained. If the legal owners of the stores claim that the subleases were invalid, operation of the supermarkets or distribution centers concerned may be terminated until the supermarkets or distribution centers are relocated.

Some of our stores may not be in full compliance with legal requirement on their sector approvals and business licenses and may therefore be subject to punishment imposed by the relevant PRC authorities.

The PRC laws and regulations require that store operators obtain a Public Site Hygiene License and, if applicable, a Food Hygiene License if there are edible products being processed or distributed in the store. Store operators are also required to indicate “store operation” on the Public Site Hygiene License and to specify each category of edible product (i.e., vegetables, fresh seafood, etc.) distributed. Failure to do so may expose the store to administrative punishments imposed by the relevant government authorities. Punishments include administrative penalty up to RMB20,000 (approximately US$3,000), confiscation of income generated from the excluded business items and, in extreme cases, revocation of the business license of the violating store.

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Several of our stores have either not obtained the Public Site Hygiene License or are distributing edible products without specifying the product category on their Food Hygiene License. Such stores may be subject to sanction as discussed above, which may be imposed at the sole discretion of PRC authorities.

In addition, several of our stores are distributing products salt, alcohol, audio-video products and tobacco which are not permitted on their business license. While such stores have not been sanctioned for such discrepancy, we cannot guaranty that the relevant PRC authority will not impose administrative penalties on such stores in the future, which penalties could be up to RMB100,000 (approximately US$15,000) per store.

We are not current in our payment of social insurance and housing accumulation fund for our employees and such shortfall may expose us to relevant administrative penalties.

The PRC laws and regulations require all the employers in China to fully contribute their own portion of the social insurance premium and housing accumulation fund for their employees within a certain period of time. Failure to do so may expose the employers to make rectification for the accrued premium and fund by the relevant labour authority. Also, an administrative fine may be imposed on the employers as well as the key management members. Speedy Brilliant (Daqing), QKL-China and QT&C have failed to fully contribute the social insurance premium and housing accumulation fund. Therefore, they may be subject to the administrative punishment as mentioned above.

Risks Related to Our Corporate Structure

We control QKL-China through a series of contractual arrangements, which may not be as effective in providing control over the entity as direct ownership and may be difficult to enforce.

We operate our business in the PRC through our variable interest entity, QKL-China. QKL-China holds the licenses, approvals and assets necessary to operate our business in the PRC. We have no equity ownership interest in QKL-China and rely on contractual arrangements with QKL-China and its shareholders that allow us to substantially control and operate QKL-China. These contractual arrangements may not be as effective as direct ownership in providing control over QKL-China because QKL-China or its shareholders could breach the arrangements.

Our contractual arrangements with QKL-China are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. If QKL-China or its shareholders fail to perform their respective obligations under these contractual arrangements, we may have to

The legal environment in the PRC is not as developed as in the United States and uncertainties in the Chinese legal system could limit our ability to enforce these contractual arrangements. In the event that we are unable to enforce these contractual arrangements, our business, financial condition and results of operations could be materially and adversely affected.

If the PRC government determines that the contractual arrangements through which we control QKL-China do not comply with applicable regulations, our business could be adversely affected.

Although we believe our contractual relationships through which we control QKL-China comply with current licensing, registration and regulatory requirements of the PRC, we cannot assure you that the PRC government would agree, or that new and burdensome regulations will not be adopted in the future. If the PRC government determines that our structure or operating arrangements do not comply with applicable law, it could revoke our business and operating licenses, require us to discontinue or restrict our operations, restrict our right to collect revenues, require us to restructure our operations, impose additional conditions or requirements with which we may not be able to comply, impose restrictions on our business operations or on our customers, or take other regulatory or enforcement actions against us that could be harmful to our business.

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The controlling shareholders of QKL-China have potential conflicts of interest with us, which may adversely affect our business.

The controlling shareholders of QKL-China are also beneficial holders of our common shares. They are also directors of both QKL-China and us. These shareholders hold a larger interest in QKL-China when compared to their beneficial ownership in our shares. Conflicts of interest between their dual roles as shareholders and directors of both QKL-China and us may arise. We cannot assure you that when conflicts of interest arise, any or all of these individuals will act in the best interests of the Company or that conflicts of interest will be resolved in our favor. In addition, these individuals may breach or cause QKL-China to breach or refuse to renew the existing contractual arrangements that allow us to receive economic benefits from QKL-China. Currently, we do not have existing arrangements to address potential conflicts of interest between these individuals and our company. We rely on these individuals to abide by the laws of the State of Delaware, which provide that directors owe a fiduciary duty to the Company, and which require them to act in good faith and in the best interests of the Company, and not use their positions for personal gain. If we cannot resolve any conflicts of interest or disputes between us and the shareholders of QKL-China, we would have to rely on legal proceedings, which could result in disruption of our business and substantial uncertainty as to the outcome of any such legal proceedings.

Risks Related to Doing Business in the People’s Republic of China

Our business operations are conducted entirely in the PRC. Because China’s economy and its laws, regulations and policies are different from those typically found in western countries and are continually changing, we will face risks including those summarized below.

The PRC is a developing nation governed by a one-party government and may be more susceptible to political, economic, and social upheaval than other nations; any such upheaval could cause us to temporarily or permanently cease operations.

China is a developing country governed by a one-party government that imposes restrictions on individual liberties that are significantly stricter than those typically found in western nations. China has an extremely large population, significant levels of poverty, widening income gaps between rich and poor and between urban and rural residents, large minority ethnic and religious populations, and growing access to information about the different social, economic, and political systems to be found in other countries. China has also experienced rapid economic growth over the last decade, and its legal and regulatory systems have changed rapidly to accommodate this growth. These conditions make China unique and may make it susceptible to major structural changes. Such changes could include a reversal of China’s movement to encourage private economic activity, labor disruptions or other organized protests, nationalization of private businesses, internal conflicts between the police or military and the citizenry, and international political or military conflict. If any of these events were to occur, it could damage China’s economy and impair our business.

We are subject to comprehensive regulation by the PRC legal system, which is uncertain. As a result, it may limit the legal protections available to you and us and we may not now be, or remain in the future, in compliance with PRC laws and regulations.

QKL-China, our operating company, is incorporated under and is governed by the laws of the PRC; all of our operations are conducted in the PRC; and our suppliers and the agricultural producers on whom they depend are all located in the PRC. The PRC government exercises substantial control over virtually every sector of the PRC economy, including the production, distribution and sale of our merchandise. In particular, we are subject to regulation by local and national branches of the Ministries of Agriculture, Commerce and Health, as well as the General Administration of Quality Supervision, the State Administration of Foreign Exchange, and other regulatory bodies. In order to operate under PRC law, we require valid licenses, certificates and permits, which must be renewed from time to time. If we were to fail to obtain the necessary renewals for any reason, including sudden or unexplained changes in local regulatory practice, we could be required to shut down all or part of our operations temporarily or permanently.

QKL-China is subject to PRC accounting laws, which require that an annual audit be performed in accordance with PRC accounting standards. The PRC foreign-invested enterprise laws require that our

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subsidiary, Speedy Brilliant (Daqing), submit periodic fiscal reports and statements to financial and tax authorities and maintain its books of account in accordance with Chinese accounting laws. If PRC authorities were to determine that we were in violation of these requirements, we could lose our business license and be unable to continue operations temporarily or permanently.

The legal and judicial systems in the PRC are still rudimentary. The laws governing our business operations are sometimes vague and uncertain and enforcement of existing laws is inconsistent. Thus, we can offer no assurance that we are, or will remain, in compliance with PRC laws and regulations.

The approval of the China Securities Regulatory Commission and/or Ministry of Commerce may be required in connection with this offering under potentially applicable PRC regulations.

On August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce (“MOFCOM”), the State Assets Supervision and Administration Commission (“SASAC”), the State Administration for Taxation, the State Administration for Industry and Commerce, the China Securities Regulatory Commission (“CSRC”) and the PRC State Administration of Foreign Exchange (“SAFE”), jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the “New M&A Rule”), which became effective on September 8, 2006 and revised on June 22, 2009.

The new regulations require, among other things, offshore special purpose vehicles that are controlled by PRC companies or residents and that have been formed for the purpose of seeking a public listing on an overseas stock exchange through acquisitions of PRC domestic companies or assets to obtain MOFCOM approval and CSRC approval prior to publicly listing their securities on an overseas stock exchange. Companies fitting that description might be required to submit an application to MOFCOM and/or CSRC for the approvals of the listing and trading.

We completed our corporate restructuring after September 8, 2006, the effective date of the New M&A Rules, but we are not presently seeking an approval from either MOFCOM or the CSRC for the listing and trading of our shares on NASDAQ. We believe that no approval by either MOFCOM or CSRC is required under the New M&A Rule with respect to this offering or the Company’s structure, however we cannot assure you that applicable PRC regulatory bodies will come to the same conclusion.

If they do not, the failure to submit an application to MOFCOM and/or CSRC and proceeding in the offering may result in the levying of penalties against our company and some or all of its PRC shareholders and in particular, as provided under the Article 11 of the New M&A Rule, the regulators may impose sanctions against our PRC subsidiaries, including without limitation:

PRC regulations also involve complex procedures for acquisitions conducted by foreign investors that could make it more difficult for us to grow through acquisitions.

The New M&A Rules also established additional procedures and requirements that are expected to make merger and acquisition activities in China by foreign investors more time-consuming and complex, including requirements in some instances that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, or that the approval from the MOFCOM be obtained in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic companies and special anti-monopoly submissions for parties meeting certain reporting thresholds. We may grow our business in part by acquiring other retail companies. Complying with the requirements of the new regulations to complete such transactions could be time-consuming, and any required approval processes, including approval from MOFCOM, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

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In addition, our Chief Executive Officer, Mr. Wang, has the right to acquire all of the shares of Winning State (BVI), which currently owns 19,082,299 (approximately 88%) shares of our common stock. While it is the case that our PRC counsel Deheng Law Firm believes that this arrangement is lawful under PRC laws and regulations, there are, however, substantial uncertainties regarding the interpretation and application of the current or future PRC laws and regulations, including regulations governing the validity and legality of such call options. Accordingly, we cannot assure you that PRC government authorities will not ultimately take a view contrary to the opinion of our PRC legal counsel.

The new regulations also established additional procedures and requirements that are expected to make merger and acquisition activities in China by foreign investors more time-consuming and complex, including requirements in some instances that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, or that the approval from the MOFCOM be obtained in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic companies. We may grow our business in part by acquiring other retail companies. Complying with the requirements of the new regulations to complete such transactions could be time-consuming, and any required approval processes, including approval from MOFCOM, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

In addition, our Chief Executive Officer, Mr. Wang, has the right to acquire all of the shares of Winning State (BVI), which currently owns 19,082,299 (approximately 88%) shares of our common stock, through a call option. While it is the case that our PRC counsel Deheng Law Firm believes that this arrangement is lawful under PRC laws and regulations, there are substantial uncertainties regarding the interpretation and application of the current or future PRC laws and regulations, including regulations governing the validity and legality of such call options. Accordingly, we cannot assure you that PRC government authorities will not ultimately take a view contrary to the opinion of our PRC legal counsel.

PRC laws and regulations governing our businesses and the validity of certain of our contractual arrangements are uncertain. If we are found to be in violation, we could be subject to sanctions. In addition, changes in such PRC laws and regulations may materially and adversely affect our business.

We do not currently have any equity interest in QKL-China or its subsidiary, but instead enjoy economic benefits and control over these entities substantially similar to equity ownership through contractual arrangements among our wholly-owned subsidiary in China, Speedy Brilliant (Daqing), QKL-China and their respective shareholders. Consistent with the provisions of Financial Accounting Standard Board “FASB” Interpretation No. 46 (revised), “Consolidation of Variable Interest Entities — an Interpretation of ARB No. 51”, we consolidated QKL-China from its inception.

There are substantial uncertainties regarding the interpretation and application of the current or future PRC laws and regulations, including regulations governing the validity and enforcement of such contractual arrangements. Accordingly, we cannot assure you that PRC government authorities will not ultimately take a view contrary to the opinion of our PRC legal counsel and Albert Wong & Co. that we have properly consolidated QKL-China from its inception.

The PRC government has broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business and other licenses, proscribing remittance of profits offshore and requiring actions necessary for compliance. In particular, licenses and permits issued or granted to us by relevant governmental bodies may be revoked at a later time by higher regulatory bodies. We cannot predict the effect of the interpretation of existing or new PRC laws or regulations on our businesses. We cannot assure you that our current ownership and operating structure would not be found to be in violation of any current or future PRC laws or regulations. As a result, we may be subject to sanctions, including fines, and could be required to restructure our operations or cease to provide certain services. Any of these or similar actions could significantly disrupt our business operations or restrict us from conducting a substantial portion of our business operations, which could materially and adversely affect our business, financial condition and results of operations.

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Anti-inflation measures could harm the economy generally and could harm our business.

The PRC government exercises significant control over the PRC economy. In recent years, the PRC government has instituted measures to curb the risk of inflation. These measures have included devaluations of the RMB, restrictions on the availability of domestic credit, and limited re-centralization of the approval process for some international transactions. These measures may not succeed in controlling inflation, or they may slow the economy below a healthy growth rate and lead to economic stagnation or recession; in the worst-case scenario, the measures could slow the economy without curbing inflation, causing “stagflation.” The PRC government could adopt additional measures to further combat inflation, including the establishment of price freezes or moratoriums on certain projects or transactions. Such measures could harm the economy generally and hurt our business by limiting the income of our customers available to purchase our merchandise, by forcing us to lower our profit margins, and by limiting our ability to obtain credit or other financing to pursue our expansion plan or maintain our business.

Governmental control of currency conversions could prevent us from paying dividends.

All of our revenue is earned in RMB and current and future restrictions on currency conversions may limit our ability to use revenue generated in RMB to make dividend or other payments in United States dollars. Although the PRC government introduced regulations in 1996 to allow greater convertibility of the RMB for current account transactions, significant restrictions still remain, including the restriction that foreign-invested enterprises like us may buy, sell or remit foreign currencies only after providing valid commercial documents at a PRC banks specifically authorized to conduct foreign-exchange business.

In addition, conversion of RMB for capital account items, including direct investment and loans, is subject to governmental approval in the PRC, and companies are required to open and maintain separate foreign-exchange accounts for capital account items. There is no guarantee that PRC regulatory authorities will not impose additional restrictions on the convertibility of the RMB. These restrictions could prevent us from distributing dividends and thereby reduce the value of our stock.

Fluctuation in the exchange rate of the RMB against the United States dollar could result in foreign currency exchange losses.

In 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the United States dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy has resulted in an appreciation of the RMB against the United States dollar of approximately 17.5% from July 1, 2005 through September 1, 2009. There remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in a further and more significant appreciation of the RMB against the United States dollar.

The value of our common stock will be affected by the foreign exchange rate between United States dollars and RMB. For example, to the extent that we need to convert United States dollars we receive from an offering of our securities into RMB, appreciation of the RMB against the United States dollar could reduce the value in RMB of our proceeds. Conversely, if we decide to convert our RMB into United States dollars for the purpose of declaring dividends on our common stock or for other business purposes, and the United States dollar appreciates against the RMB, the United States dollar equivalent of our earnings from our business would be reduced. In addition, the depreciation of significant United States dollar-denominated assets could result in a charge to our income statement and a reduction in the value of these assets.

The RMB is not a freely convertible currency, which could limit our ability to obtain sufficient foreign currency to support our business operations in the future.

We receive all of our revenues in RMB. The PRC government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of the PRC. Shortages in the availability of foreign currency may restrict our ability to remit sufficient foreign currency to pay dividends, or otherwise satisfy foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from the transaction, can be made in foreign currencies without prior approval from SAFE by complying with certain

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procedural requirements. However, approval from appropriate governmental authorities is required where RMB are to be converted into foreign currency and remitted out of the PRC to pay capital expenses, such as the repayment of bank loans denominated in foreign currencies.

The PRC government could restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay certain expenses as they come due.

Our PRC stockholders are required to register with SAFE; their failure to do so could cause us to lose our ability to remit profits out of the PRC as dividends.

SAFE has promulgated several regulations, including Circular No. 75 (“Circular 75”), which became effective in November 2005, requiring PRC residents, including both PRC legal person residents and PRC natural person residents, to register with the competent local SAFE branch before establishing or controlling any company outside of the PRC for the purpose of equity financing with assets or equities of PRC companies, referred to in the Circular 75 as an “offshore special purpose company.” PRC residents that have established or controlled an offshore special purpose company, which has finished a round-trip investment before the implementation of Circular 75, are required to register their ownership interests or control in such “special purpose vehicles” with the local offices of SAFE. Under Circular 75, the term “PRC legal person residents” as used in Circular 75 refers to those entities with legal person status or other economic organizations established within the territory of the PRC. The term “PRC natural person residents” as used in Circular 75 includes all PRC citizens and all other natural persons, including foreigners, who habitually reside in the PRC for economic benefit. The term “special purpose vehicle” refers to an offshore entity established or controlled, directly or indirectly, by PRC residents or PRC entities for the purpose of seeking offshore equity financing using assets or interests owned by such PRC residents or PRC entities in onshore companies, and the term “round-trip investment” refers to the direct investment in PRC by PRC residents through “special purpose vehicles,” including without limitation, establishing foreign invested enterprises and using such foreign invested enterprises to purchase or control (by way of contractual arrangements) onshore assets.

In addition, any PRC resident that is the shareholder of an offshore special purpose company is required to amend his/her/its SAFE registration with the local SAFE branch upon (i) injection of equity interests or assets of an onshore enterprise to the offshore entity, or (ii) subsequent overseas equity financing by such offshore entity. PRC residents are also required to complete amended registrations or filing with the local SAFE branch within 30 days of any material change in the shareholding or capital of the offshore entity not involving a round-trip investment, such as changes in share capital, share transfers and long-term equity or debt investments or, already organized or gained control of offshore entities that have made onshore investments in the PRC before Circular 75 was promulgated must register with their shareholdings in the offshore entities with the local SAFE branch on or before March 31, 2006.

Under Circular 75, PRC residents are further required to repatriate into the PRC all of their dividends, profits or capital gains obtained from their shareholdings in the offshore entity within 180 days of their receipt of such dividends, profits or capital gains. The registration and filing procedures under the Circular 75 are prerequisites for other approval and registration procedures necessary for capital inflow from the offshore entity, such as inbound investments or shareholders loans, or capital outflow to the offshore entity, such as the payment of profits or dividends, liquidating distributions, equity sale proceeds, or the return of funds upon a capital reduction.

To further clarify the implementation of Circular 75, SAFE issued Circular No. 106 (“Circular 106”) on May 9, 2007, which is a guidance that SAFE issued to its local branches with respect to the operational process for SAFE registration that standardizing mores specific and stringent supervision on the registration relating to the Circular 75. Under Circular 106, PRC subsidiaries of an offshore special purpose company are required to coordinate and supervise the filing of SAFE registrations by the offshore holding company’s shareholders who are PRC residents in a timely manner. If these shareholders and/or beneficial owners fail to comply, the PRC subsidiaries are required to report such failure to the local SAFE authorities and, if the PRC subsidiaries do report the failure, the PRC subsidiaries may be exempted from any potential liability to them related to the stockholders’ failure to comply. The failure of these shareholders and/or beneficial owners to timely amend their SAFE registrations pursuant to the Circular 75 and Circular 106 or the failure of future

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shareholders and/or beneficial owners of our company who are PRC residents to comply with the registration procedures set forth in the Circular 75 and Circular 106 may subject such shareholders, beneficial owners and/or our PRC subsidiaries to fines and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiaries, limit our PRC subsidiaries ability to distribute dividends to our company or otherwise adversely affect our business.

These regulations apply to our stockholders who are PRC residents. In the event that our PRC-resident stockholders do not follow the procedures required by SAFE, we could (i) be exposed to fines and legal sanctions, (ii) lose the ability to contribute additional capital into our PRC subsidiaries or distribute dividends to our company, (iii) face liability for evasion of foreign-exchange regulations, and/or (iv) lose the ability to consolidate the financial statements of our PRC subsidiaries and of QKL-China under applicable accounting principals.

Mr. Wang, our Chief Executive Officer, is required to register with the competent SAFE branch prior to exercise of his call option, and he completed such registration on October 10, 2009. Mr. Wang has not yet exercised his call option.

Enforcement against us or our directors and officers may be difficult and you could be unable to collect amounts due to you in the event that we or any officer or director violates applicable law.

Our operating company, QKL-China, is located in the PRC and substantially all of our assets are located in the PRC. Most of our current officers and directors are residents of the PRC, and most of their assets are located in the PRC. As a result, it could be difficult for investors to effect service of process on us or those persons in the United States, or to enforce a judgment obtained in the United States against us or any of these persons. See the section of this prospectus entitled “Service of Process and Enforcement of Judgments” below.

Health problems in the PRC could negatively affect our operations.

A renewed outbreak of severe acute respiratory syndrome, or SARS, or another widespread public health problem in the PRC, such as bird flu, could have an adverse effect on our ability to receive and distribute merchandise, the ability of our employees and customers to reach our stores, and other aspects of our operations. Public-safety measures such as quarantines or closures of some stores could disrupt our operations. Any of the foregoing events or other unforeseen consequences of public health problems could adversely affect our business.

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Risks Related to an Investment in Our Common Stock

Our Chief Executive Officer beneficially owns a significant portion of our common stock and will be able to exert significant influence over us through his position and stock ownership; his interests may differ from yours, and he could cause us to take actions that are contrary to your interests and that could reduce the value of your stock.

Our Chief Executive Officer, Mr. Wang, has a call option to acquire all of the shares of Winning State (BVI), which currently owns 19,082,299 (approximately 88%) shares of our common stock. This call option is currently exercisable. Even assuming conversion of all of the outstanding Series A Preferred Stock and the exercise of all of the Series A Warrants and Series B Warrants, Mr. Wang will own a significant portion of our outstanding common stock. As a result, Mr. Wang will be able to influence the outcome of stockholder votes on various matters, including the election of directors and extraordinary corporate transactions such as business combinations. In any such stockholder vote, Mr. Wang’s interests may differ from that of other stockholders, and he could cause us to take actions that are contrary to your interests and that could reduce the value of your stock.

If our distribution at certain of our roadshow presentations of a DVD containing information about our company were held to be in violation of the Securities Act, we could be required to repurchase the securities sold in this offering. You should rely only on statements made in this prospectus in determining whether to purchase our shares.

Information about our company has been distributed in a DVD at certain of our roadshow presentations. The text and description of the visual scenes depicted in the DVD, which is included in this prospectus as Appendix A, contains information derived from our registration statement of which this prospectus is a part, and, as described below, some new information that had not been previously disclosed. The DVD includes video footage of our chief executive officer, Zhuangyi Wang, our chief financial officer, Crystal Chen, and our chief operating officer, Alan Stewart, describing various aspects of our company, as well as a narrative of our company. The DVD presented certain statements about our company in isolation and did not disclose many of the related risks and uncertainties described in this prospectus. As a result, the DVD should not be considered in isolation and you should make your investment decision only after reading this entire prospectus carefully.

You should carefully evaluate all the information in this prospectus, including the risks described in this section and throughout this prospectus. You should rely only on the information contained in this prospectus in making your investment decision.

We may have violated Section 5 of the Securities Act. If such distribution were held by a court to be in violation of the Securities Act, we could be required to repurchase the shares sold to purchasers in this offering at the original purchase price, plus statutory interest from the date of purchase, for a period of one year following the date of the violation. We would contest vigorously any claim that a violation of the Securities Act occurred.

Investors should be aware of the following modifications and updates that have been made to this prospectus after being disseminated in the DVD presentation:

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The possible return of shares to Winning State (BVI) pending our achievement of the performance thresholds under an Escrow Agreement in the March 2008 private placement would result in a non-cash compensation expense, which will have a negative impact on our Statement of Income for 2009.

The possible return of shares to Winning State (BVI) pending our achievement of the performance thresholds under an Escrow Agreement entered into in the March 2008 private placement would result in a non-cash compensation expense which will have a negative impact on our Statement of Income for 2009. Under the Escrow Agreement with the holders of the Series A Convertible Preferred Stock, if we meet the certain net income and earnings per share targets for 2008 and 2009, the shares held in escrow will be returned to Winning State (BVI) and will result in a non-cash compensation expense in fiscal year 2009. We targeted $9.4 million in net income and $0.23 earnings per share for the fiscal year 2008. For the year ended December 31, 2008, our net income was $9.0 million which achieved 96% of the 2008 performance threshold. Because we achieved at least 95% of the 2008 performance target the shares held in escrow are continuing to be held in escrow pending the results of the 2009 performance target, which is $11.2 million in audited net income and $0.27 earnings per share. Because Winning State (BVI) is our controlling stockholder and the return of these shares is conditioned upon our operating performance, the shares are deemed to be compensation to Winning State (BVI) and under applicable accounting rules, we will have to record a non-cash charge to our earnings for the fiscal year 2009. The charges to our earnings as a result of the release of the shares held in escrow will have a negative impact on our consolidated statements of income for the fiscal year ended December 31, 2009, by reducing net income and our earnings per share.

We do not intend to pay cash dividends in the foreseeable future; this may affect the price of our stock.

We currently intend to retain all future earnings for use in the operation and expansion of our business. We do not intend to pay any cash dividends in the foreseeable future but will review this policy as circumstances dictate. Should we decide in the future to do so, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from Speedy Brilliant (Daqing). Speedy Brilliant (Daqing) may, from time to time, be subject to restrictions on its ability to make distributions to us, including as a result of restrictions on the conversion of local currency into United States dollars or other hard currency and other regulatory restrictions. (See “Risks related to doing business in the People’s Republic of China” above.) In addition, under the terms of the securities purchase agreement relating to the private placement, as long as any Series A Preferred Stock remains outstanding, the Company cannot pay any dividends on the common stock unless such dividends are also paid to the holders of the Series A Preferred Stock.

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Our common stock is illiquid and subject to price volatility unrelated to our operations and could lose some or all of its value even if our business is strong.

The market price of our common stock could fluctuate substantially in the future due to a variety of factors, including the market perception of our ability to achieve our planned growth, quarterly operating results of other companies in the same industry, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. The failure to establish and maintain an active trading market for our common stock may adversely affect our shareholders’ ability to sell our common stock in short periods of time, or at all. Trading of our common stock has been sporadic and our common stock has experienced, and may experience in the future, significant price and volume fluctuations. Future sales of substantial amounts of our common stock in the trading market could adversely affect market prices.

The resale in the public market of the shares underlying the Series A Preferred Stock and Series A Warrants and Series B Warrants issued in the March 2008 private placement and of the shares acquired prior to the private placement may cause the market value of our common stock to fall.

In August of this year we registered for resale 2,070,836 shares of our common stock by certain selling stockholders. As of October 28, 2009, there were issued and outstanding (i) 22,512,131 shares of common stock, (ii) 7,612,198 shares of Series A Preferred Stock (convertible into 7,612,198 shares of common stock); (iii) Series A Warrants to purchase 5,822,655 shares of common stock; and (iv) Series B Warrants to purchase 5,800,910 shares of common stock. Assuming conversion of all of the Series A Preferred Stock and exercise of all of the Series A Warrants and Series B Warrants, there will be 41,905,425 shares of common stock outstanding. Many of our shares, including all of the shares underlying the Series A Preferred Stock, are currently eligible for resale under Rule 144. As of the date of this prospectus the shares underlying the Series A and Series B Warrants are not eligible for resale under Rule 144.

Also, as a result of this offering, there will be a significant number of new shares of common stock in the market in addition to the current public float. Sales of substantial amounts of common stock, or the perception that such sales could occur under Rule 144 or otherwise, and the existence of warrants to purchase shares of common stock at prices that may be below the then current market price of the common stock, could reduce the market price of our common stock and could impair our ability to raise capital through the sale of our equity securities.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
AND OTHER INFORMATION CONTAINED IN THIS PROSPECTUS

This prospectus contains forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements involve risks and uncertainties. Forward-looking statements include statements regarding, among other things, (a) our projected sales, profitability and cash flows, (b) our growth strategies, (c) anticipated trends in our industries, (d) our future financing plans and (e) our anticipated needs for working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plan,” “potential,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” or the negative of these words or other variations on these words or comparable terminology. In particular, these include statements relating to future actions, future performance, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results.

Any or all of our forward-looking statements in this prospectus may turn out to be inaccurate. They can be affected by inaccurate assumptions we might make or by known or unknown risks or uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this prospectus generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur and you should not place undue reliance on these forward-looking statements.

OTHER REFERENCES

In keeping with standard practice and the practice of the National Bureau of Statistics of China, references to “northeastern China” are to the three northeastern provinces of Heilongjiang, Jilin and Liaoning.

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USE OF PROCEEDS

We estimate that the net proceeds from the sale of the     shares of common stock in the offering at an offering price of $     per share will be approximately $     million after deducting the underwriting discounts and commissions and estimated offering expenses. Our net proceeds will be approximately $     million if the underwriter exercises its over-allotment-option to purchase additional shares of common stock from us in full.

We intend to use the net proceeds from the offering to implement our expansion plan by opening four stores and one distribution center during the remainder of 2009, additional stores and distribution centers in 2010, and to update our information systems. We may use the proceeds for working capital and general corporate purposes as well.

The amounts and timing of our actual expenditures will depend on numerous factors, including the status of our development efforts, sales and marketing activities, and the amount of cash generated or used by our operations. We may find it necessary or advisable to use portions of the proceeds for other purposes, and we will have broad discretion in the application of the net proceeds. Additionally, we may choose to expand our current business through acquisition of other complimentary businesses, using cash or shares. However, we have not entered into any negotiations, agreements or commitments with respect to any such acquisitions at this time.

DIVIDEND POLICY

We do not anticipate paying cash dividends in the foreseeable future. Presently, we intend to retain all of our earnings, if any, to finance development and expansion of our business.

We are a holding company incorporated in the State of Delaware and do not have any assets or conduct any business operations other than our investments in our subsidiaries and affiliates. As a result of our holding company structure, we rely entirely on dividend payments from Speedy Brilliant (Daqing). PRC accounting standards and regulations currently permit payment of dividends only out of accumulated profits, a portion of which is required to be set aside for certain reserve funds. Our inability to receive all of the revenues from QKL-China’s operations may provide an additional obstacle to our ability to pay dividends if we so decide in the future.

In addition, under the terms of Series A Preferred Stock set forth in a Certificate of Designation, which was filed in the office of Secretary of State for the State of Delaware on March 13, 2008, if we pay dividends on the common stock, the holders of Series A Preferred are entitled to receive dividends on an “as converted” basis.

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CAPITALIZATION

The following table summarizes our capitalization as of June 30, 2009, on an actual basis and as adjusted basis to reflect our receipt of estimated net proceeds from the sale of     shares of common stock (excluding the     shares of common stock which the underwriter has the option to purchase to cover over-allotments, if any) in this offering at an offering price of $     per share, and after deducting estimated underwriting discounts and commissions and estimated offering expenses of approximately $     .

You should read this table in conjunction with the sections of this prospectus entitled “Use of Proceeds,” “Summary Consolidated Financial Information,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

		June 30, 2009
		Actual				As Adjusted
Stockholders’ equity:
Common stock, $0.001 par value, 100,000,000 shares authorized, 20,882,353 shares outstanding at June 30, 2009(1)		$	20,882			$
Series A preferred stock, $0.01 par value, 10,000,000 shares authorized, 9,117,647 shares outstanding at June 30, 2009			91,176
Additional paid-in capital			21,783,477
Statutory reserves			3,908,247
Accumulated other comprehensive income			4,214,943
Retained earnings			20,222,168
Total stockholders’ equity			50,240,893
Total capitalization		$	50,240,893			$

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MARKET PRICE OF AND DIVIDENDS OF
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

On October 21, 2009, our common stock was listed on NASDAQ under the symbol “QKLS.”

Since the completion of the reverse merger on March 28, 2008, the trading in our stock has been very limited. Consequently, our historical prices may not be an accurate indication of the future prices of our common stock.

The following table sets forth the high and low bid prices, on the OTCBB, as reported and summarized by the OTCBB, for each fiscal quarter during the fiscal years ended December 31, 2007 and December 31, 2008 and for the first three quarters of 2009. These prices are adjusted for the one-for-9 reverse split which occurred on December 5, 2007 and are based on inter-dealer prices, without retail markup, markdown or commission and may not represent actual transactions.

Quarter Ended		High				Low
2009:
First Quarter		$	2.50			$	2.50
Second Quarter			5.50				2.50
Third Quarter			8.75				3.50
2008:
First Quarter		$	3.00			$	1.25
Second Quarter			6.40				1.60
Third Quarter			6.50				5.50
Fourth Quarter			6.50				2.50
2007:
First Quarter		$	0.52			$	0.18
Second Quarter			0.52				0.35
Third Quarter			0.35				0.35
Fourth Quarter			1.25				0.07

As of October 26, 2009, the last reported sale price of our common stock was $7.09 per share.

Holders

As of October 28, 2009, there were 22,512,131 shares of our common stock and 7,612,198 shares of our Series A Preferred Stock issued and outstanding and we had approximately 681 shareholders of record of our common stock and eight holders of record of our Series A Preferred Stock. This does not reflect the number of persons or entities who hold stock in nominee or “street” name through various brokerage firms.

Equity Compensation Plan Information

As of December 31, 2008, we did not have any equity compensation plans in effect. On September 14, 2009, we adopted the 2009 Omnibus Securities and Incentive Plan (the “Plan”). The Plan provides for the grant of incentive stock options and restricted stock awards (the “Awards”). The Plan has not been approved by our stockholders.

The total number of shares of common stock that may be issued under the Plan may not exceed 3,750,000. The total number of shares may be increased annually based upon the total number of shares of common stock outstanding in subsequent years. In connection with the private placement we completed in March 2008, we agreed to limit the number of awards we grant under any stock option, restricted or other equity incentive plans to no more than 12.5% of the sum of the number of shares of common stock issued and outstanding and the number of shares of common stock into which the issued and outstanding shares of Series A Preferred Stock are convertible at any time.

On September 14, 2009, the Company issued non-transferable options to three newly appointed independent directors to purchase an aggregate of 60,000 shares of common stock at an exercise price of

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$8.00 per share. The options vest and become exercisable in three equal amounts on the three subsequent anniversary dates of the grant. The board of directors approved such grants.

EXCHANGE RATE INFORMATION

Our business is primarily conducted in China and all of our revenues are denominated in RMB. Capital accounts of our consolidated financial statements are translated into United States dollars from RMB at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of the balance sheet date. Income and expenditures are translated at the average exchange rate of the period. RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into United States dollars at the rates used in translation.

The following table sets forth information concerning exchange rates between the RMB and the United States dollar for the periods indicated.

Year Ended December 31,		Year End				Yearly Average
2007			7.31410				7.61720
2008			6.85420				6.96225

Six Months Ended June 30,		Period End				Average
2009			6.8448				6.8432

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SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

The following selected consolidated statement of income data for the two years ended December 31, 2008 and 2007 (other than percentage of sales data) and the selected consolidated balance sheet data as of December 31, 2008 and 2007 are derived from our audited consolidated financial statements included elsewhere in this prospectus. The audited consolidated financial statements have been prepared in accordance with U.S. GAAP, and have been audited by Albert Wong & Co., an independent registered public accounting firm. The consolidated statement of income data for the six months ended June 30, 2009 and the consolidated balance sheet data as of June 30, 2009 have been derived from our unaudited consolidated financial statements that are included elsewhere in this prospectus.

Our historical results for any period are not necessarily indicative of results to be expected for any future period. You should read the following selected financial information in conjunction with the consolidated financial statements and related notes and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

		Year Ended December 31,								Six Months Ended June 30,
		2007				2008				2008				2009
		(Audited)				(Audited)
Income Statement Data:
Revenues:
Direct sales		$	90,464,198			$	157,841,011			$	57,344,322			$	116,511,127
Other operating income			1,908,614				3,640,342				1,449,015				2,262,053
Total revenues			92,372,812				161,481,353				58,793,337				118,773,180
Cost of sales			(73,597,592	)			(127,172,246	)			(45,310,247	)			(96,488,680	)
Gross profit			18,775,220				34,309,107				13,483,090				22,284,500
Selling expenses			(8,620,735	)			(16,558,820	)			(6,350,502	)			(12,076,402	)
General and administrative expenses			(1,303,130	)			(3,249,506	)			(1,198,919	)			(2,165,650	)
Income from operations			8,851,355				14,500,781				5,933,669				8,042,448
Transaction cost of reverse merger			—				(1,976,470	)			—				—
Interest income			58,641				272,551				107,198				153,106
Interest expenses			(169,375	)			(240,330	)			(128,651	)			(20,796	)
Other expenses			—				(2,990	)			(1,976,470	)			—
Other income – government grant			39,385				—				—				—
Income before income taxes			8,780,006				12,553,542				3,935,746				8,174,758
Income taxes			(2,997,615	)			(3,556,474	)			(1,520,450	)			(2,156,759	)
Net income			5,782,391				8,997,068				2,415,296				6,017,999
Other comprehensive income:
Foreign currency translation adjustment			997,088				2,434,364				—				—
Comprehensive income			6,779,479				11,431,432				—				—
Basic earnings per share		$	0.30			$	0.43			$	0.12			$	0.29
Diluted earnings per share		$	0.30			$	0.29			$	0.08			$	0.20
Basic weighted average shares outstanding			19,082,299				20,882,353				20,882,353				20,882,353
Diluted weighted average shares outstanding			19,082,299				31,137,642				30,753,466				30,000,000

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		As of December 31,								As of June 30,
		2007				2008				2009
Balance Sheet Data:
Cash and cash equivalents		$	10,742,064			$	19,285,021			$	21,276,845
Working capital			9,276,387				10,463,961				14,587,540
Total assets			34,646,839				77,713,476				80,014,594
Total liabilities			16,861,896				33,846,389				29,773,701
Total liabilities and stockholders’ equity			34,646,839				77,713,476				80,014,594
Stockholders’ equity			17,784,943				43,867,087				50,240,893

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

This section discusses and analyzes our results of operations and financial condition, including the results and condition of our operating company, QKL-China, which have been consolidated with our own results for all periods presented. The discussion compares our results for (i) the six-month period ended June 30, 2009 with results for the six months ended June 30, 2008, (ii) 2008 with our results for 2007, and (iii) 2007 with our results for 2006. QKL-China’s operations are our only operations.

This discussion is intended to help you understand our financial results and the current facts and trends that may cause them to change, so that you may make informed judgments about our likely financial results in the future and, insofar as those results may affect our stock price, informed investment decisions. Unless otherwise specified, references to years are to calendar years (for example, “2008” refers to the twelve-month period ended December 31, 2008) and references to half years are to six-month periods (for example the first half of 2009, refers to the six-month period ended June 30, 2009).

Overview

We are a regional supermarket chain that currently operates 31 supermarkets and two department stores in northeastern China and Inner Mongolia. Our supermarkets sell a broad selection of merchandise including groceries, fresh food and non-food items. We currently have one distribution center servicing our supermarkets.

We believe that we are the only supermarket chain in northeastern China and Inner Mongolia that is a licensee of the Independent Grocers Alliance, or IGA, a United States-based global grocery network with aggregate retail sales of more than $21.0 billion per year. As a licensee of IGA, we are able to engage in group bargaining with suppliers and have access to more than 2,000 private IGA brands, including many that are exclusive IGA brands.

Our expansion strategy emphasizes growth through geographic expansion in northeastern China and Inner Mongolia, where we believe local populations can support profitable supermarket operations, and where we believe competition from large foreign and national supermarket chains, which generally have resources far greater than ours, is limited. Our strategies for profitable operations include buy-side initiatives to reduce supply costs; focusing on merchandise with higher margins, such as foods we prepare ourselves and private label merchandise; and increasing reliance on the benefits of membership in the international trade group IGA.

We completed the initial steps in the execution of our expansion plan in March 2008, when we raised financing through the combination of our reverse merger and private placement. Under that plan, we opened three new stores in 2009 that have, in the aggregate, approximately 16,000 square meters of space and 10 new stores in 2008 that have, in the aggregate, approximately 50,000 square meters of space. Six stores opened in 2008 were opened by us and four of the new stores were opened through the acquisition of existing businesses by us. We plan to open four additional supermarkets in 2009 that will have, in the aggregate, approximately 11,400 square meters of retail space and one additional distribution center that will have approximately 19,600 square meters of space. In 2010, we plan to open hypermarkets and additional supermarkets and department stores having, in the aggregate, approximately 120,000 square meters of space. We are also making improvements to our logistics and information systems to support our supermarkets. We expect to finance our expansion plan from funds generated from operations, bank loans and proceeds from this offering, and our long-term target is to open 200 stores over the next five years, including department stores, hypermarkets and supermarkets.

Our Operations in China

Our headquarters and most of our stores are located in the provinces of northeastern China and Inner Mongolia. The economy of northeastern China has grown rapidly over the last four to five years and we believe that the national government is committed to enhancing economic growth in the region. In December 2007, a major economic-development plan for northeastern China, the “Plan for Revitalizing Northeast China,” was announced by an office of the national government’s State Council.

Based on our own research, we believe there are approximately 200 to 300 small and medium-sized cities in northeast China without modern supermarket chains. We believe the number of supermarket

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customers and the demand for supermarkets in these cities are likely to grow significantly over the next several years as the region continues to experience urbanization.

Our Strategy for Growth and Profitability

Our strategic plan includes two principal components: expanding by opening stores in new strategic locations, and improving profitability by increasing the percentage of our sales attributable to private label merchandise.

Expanded Operations

As of June 30, 2009, we operated 31 supermarkets, two department stores and one distribution center. Under our expansion plan, in the second quarter of 2009, we opened three new stores that have, in the aggregate, approximately 16,000 square meters of space. Two of these stores were opened by us and the other one was opened through an acquisition. We plan to open four additional supermarkets in 2009, that will have, in the aggregate, approximately 22,000 square meters of space and one additional distribution center that will have approximately 19,600 square meters of space. In 2010, we plan to open hypermarkets and additional supermarkets and department stores having, in the aggregate, approximately 120,000 square meters of space. Some of the stores will be opened by us and others will be opened by acquisition. We are also making improvements to our logistics and information systems to support our supermarkets. We expect to finance our expansion plan from funds generated from operations, bank loans and proceeds from this offering, and our long-term target is to open 200 stores over the next five years, including department stores, hypermarkets and supermarkets. Based on our previous experience, we believe it takes approximately three months for a new store to achieve profitability.

Private Label Merchandise

Sales of private label merchandise accounted for approximately 5% of our total revenues for the first half of 2009 (compared to 3% for the first half of 2008). Sales of private label merchandise accounted for approximately 3% of our total revenues for 2008 (up from 1% from the prior year). In June 2008, we established a specialized department for designing and purchasing private label merchandise. Eight full-time employees currently work in this department. We plan to increase the proportion of private label merchandise sold over the next several quarters. Our goal is to eventually increase private label sales to 20% of our total revenues.

Principal Factors Affecting Our Results

The following factors have had, and we expect they will continue to have, a significant effect on our business, financial condition and results of operations. Please also see the risks described in our “Risk Factors” section above.

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Results of Operations

Six Months Ended June 30, 2009 Compared With Six Months Ended June 30, 2008

The following table sets forth our operating results for the six-month periods ended June 30, 2009 and 2008.

		Six Months Ended June 30,
		2008				2009
Revenues:
Direct sales		$	57,344,322			$	116,511,127
Other operating income			1,449,015				2,262,053
Total revenues			58,793,337				118,773,180
			58,793,337				118,773,180
Cost of sales			(45,310,247	)			(96,488,680	)
Gross profit			13,483,090				22,284,500
Selling expenses			(6,350,502	)			(12,076,402	)
General and administrative expenses			(1,198,919	)			(2,165,650	)
Income from operations			5,933,669				8,042,448
Transaction cost of reverse merger			(1,976,470	)
Interest income			107,198				153,106
Interest expenses			(128,651	)			(20,796	)
Income before income taxes			3,935,746				8,174,758
Income taxes			(1,520,450	)			(2,156,759	)
Net income			2,415,296				6,017,999

As of June 30, 2009 we had 31 supermarkets and two department stores compared to 28 supermarkets and two department stores as of January 1, 2009.

		January 1, 2009				June 30, 2009
Number of supermarket stores open and operating			28				31
Number of department stores open and operating			2				2

Revenues

Total revenues consist of retail sales revenue (98.1% and 97.5% of total revenues in the first six months of 2009 and 2008, respectively), and other total revenues (1.9% and 2.5% of total revenues in the first six months of 2009 and 2008, respectively). Other total revenues come from rental income from leasing spaces in our supermarkets (approximately $1.6 million in the first half of 2009 and $1.1 million in the first half of 2008), and is more fully described below. Total revenues for the six months ended June 30, 2009 were approximately $118.8 million, an increase of $60.0 million, or 102.0%, compared with total revenues of approximately $58.8 million for the six months ended June 30, 2008. The increase in total revenues is due primarily to the opening of new stores and an increase in sales volume due to sales growth in stores that have been in existence for more than one year. The stores that have been operating for more than one year attracted more customers, and therefore generated more revenue in 2009 than in 2008 as they benefited from more than 12 months’ operating experience and became better established in their communities over time.

Retail Sales Revenue

Retail sales revenue for the six months ended June 30, 2009 was approximately $116.5 million, representing an increase of $59.2 million, or 103.2%, from approximately $57.3 million for the six months ended June 30, 2008. Approximately $44.4 million, or 74.5% of the increase in retail sales revenue was attributable to 12 new stores that opened after January 1, 2008. Approximately $14.8 million, or 25.5% of the

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increase was attributable to an increase in comparable store sales. Comparable stores are stores that were open for at least one year before the beginning of the comparison period, or, in this case, by January 1, 2008. The 19 comparable stores generated approximately $72.6 million in retail sales revenue in the first half of 2009.

Other Operating Income

The portion of our total revenues that is not retail sales revenue (1.9% in the first half of 2009; 2.5% in the first half of 2008) is other operating income. Other operating income for the first half of 2009 was approximately $2.3 million, representing an increase of $0.8 million, or 56.1%, compared with $1.4 million for the first half of 2008.

The main components of other operating income are:

Income from suppliers came from the following sources:

We anticipate that our total revenues will continue to increase over the next several quarters as we implement our expansion plan, open new stores and increase the volume of merchandise we sell.

Cost of Sales

Our cost of sales for the first half of 2009 was approximately $96.5 million, representing an increase of $51.2 million, or 113.0%, from approximately $45.3 million for the first half of 2008. The increase in costs of sales was due to increased sales volume. Our cost of sales consists almost entirely of the cost of the merchandise we sell, and includes a small amount, generally less than 1%, relating to packaging and shipping costs. Packaging and shipping costs are relatively small as they are generally borne by our suppliers.

We anticipate that our cost of sales over the next few quarters will continue to increase as we implement our expansion plan, open new stores and increase the volume of merchandise we sell.

Gross Profit

Gross profit, or total revenues minus cost of sales, was approximately $22.3 million for the first half of 2009, representing an increase of $8.8 million, or 65.3%, from approximately $13.5 million for the first half of 2008. This increase was due primarily to increased sales volume, which resulted from the opening of new stores and an increase in comparable store sales.

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Our gross profit as a percentage of total revenues, or “gross margin,” decreased to approximately 18.8% for the first half of 2009 from approximately 23.0% for the first half of 2008. This decrease in gross margin is due to an increase in promotional price reductions incurred as part of our competitive strategy. We believe that our gross margin is likely to be between 17.0% and 19.0%, over the next few business quarters. The main reason for the expected decline is that our expansion plan calls for us to open a large number of new stores. New stores tend to be less profitable during their early months of operation. In addition, China’s retail industry in general, and its supermarket industry in particular, are becoming more competitive every year. In this competitive marketplace, it is likely that we will focus on providing our customers with low prices in order to increase our market share and long-term sales volume.

Selling Expenses

Selling expenses, which principally include promotional, marketing and advertising expenses, and also include rental payments, were approximately $12.0 million for the first half of 2009, representing an increase of $5.7 million, or 90.2%, from approximately $6.4 million for the first half of 2008. This increase was due primarily to marketing expenses relating to promotional and marketing events during the first six months of 2009, especially for the New Year and Chinese New Year holidays. We anticipate that marketing expenses will continue to increase over the next several quarters as we implement our expansion plan, open new stores, increase our sales volumes and increase our advertising activities.

Selling expenses as a percentage of net sales were relatively unchanged at 10.2% for the first half of 2009, compared to 10.8% for the first half of 2008, due to the fact that net sales increased commensurately with the increase in selling expenses.

General and Administrative Expenses

General and administrative expenses, which include salaries, rents and general overhead, were approximately $2.2 million for the first half of 2009, representing an increase of $1.0 million, or 80.6%, from approximately $1.2 million for the first half of 2008. The increase was due primarily to salaries we paid the new employees we recruited to staff our new stores and manage our growing business in the first half of 2009.

As a percentage of total revenues, general and administrative expenses decreased to 1.8% for the first half of 2009 from 2.0% for the first half of 2008. This decrease generally indicates that our sales increased more than we spent on the salaries, rents and overhead we used to generate each dollar of revenue in the first half of 2009.

We anticipate that our general and administrative expenses, measured in terms of dollars, will grow over the next few business quarters. We believe that general and administrative expense as a percentage of total revenues will remain at the same level as we implement our expansion plan and open new stores, restructure our management to meet the requirements of an expanding enterprise, and make considerable investments in assessing, improving and modifying our reporting, compliance, internal-control and corporate-governance systems as is appropriate for a United States public company.

Income from Operations

Income from operations, which is calculated as gross profit minus both selling expenses and general and administrative expenses, was approximately $8.0 million for the first half of 2009, an increase of $2.1 million, or 35.5%, from approximately $5.9 million for the first half of 2008. This increase was primarily due to the increase in gross profit as described above.

Income from operations as a percentage of total revenues, or “operating margin,” was approximately 6.8% for the first half of 2009, compared to 10.1% for the first half of 2008. The decrease in operating margin is due to the decrease in our gross margin, described above, which outweighed the decrease in selling expenses and general and administrative expenses during the same period. We believe that our operating margin could continue to fall over the next several quarters as we pursue an aggressive expansion plan, causing our selling and general and administrative expenses to rise as our industry continues to become more competitive.

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Other Expenses

On March 28, 2008, we expensed all $ 2.0 million of the transaction costs of our reverse merger and recapitalization transactions. These transaction costs include legal and investment banking fees, and stock issuance fees. The accounting treatment is in line with the SEC Staff View on Reverse Acquisitions that an operating company’s reverse acquisition of a non-operating company having some cash be viewed as the issuance of equity by the accounting acquirer for the cash of the shell company, and therefore transaction costs may be charged directly to equity only to the extent of the cash received, while all costs in excess of cash received should be charged to expenses. The amount of cash held by the non-operating company at the time the reverse merger was consummated was immaterial.

Interest Expense

Interest expense for the first half of 2009 was $20,796, representing a decrease of $107,855, or 83.8%, from $128,651 for the first half of 2008. In the first half of 2009 we paid down our short-term borrowings with cash from operations and proceeds from the private placement completed on March 28, 2008.

Income Taxes

Provision for income taxes was approximately $2.2 million for the first half of 2009, compared to $1.5 million for the first half of 2008. Our income tax rate was reduced from 33% to 25% effective January 1, 2008, due to changes in PRC tax laws. We do not expect further reductions in our income tax rate.

Net Income

Net income for the first half of 2009 was approximately $6.0 million, representing an increase of $3.6 million, or 149.2%, from approximately $2.4 million for the first half of 2008. The increase is primarily due to the increase in revenue from our increased sales and the reduction in our tax rate described above. Because we expect our total revenues to grow over the next several quarters as we increase the number of stores we operate, we expect our net income to grow as well during that time, in spite of the increasing costs of expansion. We also expect the reduced tax rate to continue to increase our net income throughout 2009, as compared with periods in 2008. We do not expect those relative increases to continue after 2009.

Net income as a percentage of total revenues, or “net profit margin,” was approximately 5.1% for the first half of 2009, compared with 4.1% in the first half of 2008. This increase is primarily attributable to the existence of the non-recurring transaction costs incurred in connection with the reverse merger that occurred in the first half of 2008. We believe that our net profit margins could remain at 4%-5% over the next several quarters, because our costs are anticipated to increase commensurate with our revenues as we execute our expansion plan and promotion strategy in the new local retail markets that we enter.

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2008 Compared with 2007

The following table sets forth our operating results for the years ended 2008 and 2007.

		2007				2008
Revenues:
Direct sales		$	90,464,198			$	157,841,011
Other operating income			1,908,614				3,640,342
Total revenues			92,372,812				161,481,353
			92,372,812				161,481,353
Cost of sales			(73,597,592	)			(127,172,246	)
Gross profit			18,775,220				34,309,107
Selling expenses			(8,620,735	)			(16,558,820	)
General and administrative expenses			(1,303,130	)			(3,249,506	)
Income from operations			8,851,355				14,500,781
Transaction costs of reverse merger			—				(1,976,470	)
Interest income			58,641				272,551
Interest expenses			(169,375	)			(240,330	)
Other expenses			—				(2,990	)
Other income – government grant			39,385				—
Income before income taxes			8,780,006				12,553,542
Income taxes			(2,997,615	)			(3,556,474	)
Net income			5,782,391				8,997,068

As of December 31, 2008 we had 28 supermarkets and two department stores compared to 19 supermarkets and one department store as of December 31, 2007.

		December 31, 2007				December 31, 2008
Number of supermarket stores open and operating			19				28
Number of department stores open and operating			1				2

Revenues

Total revenues for 2008 was approximately $161.5 million, representing an increase of $69.1 million, or 74.8%, compared with total revenue of approximately $92.4 million for 2007. Retail sales revenue comprised 97.7% and 97.9% of total revenues in 2008 and 2007, respectively, but also includes other operating income (described below). The increase in retail sales revenue accounted for approximately 97.5% of the increase in our total revenues from 2008 to 2007.

Retail Sales Revenue

Retail sales revenue for 2008 was $157.8 million, representing an increase of $67.4 million, or 74.5%, from approximately $90.5 million for 2007. Approximately $17.0 million, or 25.0%, of that $67.4 million increase was due to sales from the 10 new stores opened during 2008. Of this $17.0 million, approximately $3.1 million was attributable to the four stores acquired during 2008, three of which re-opened in November and one of which re-opened in December. Approximately $50.3 million, or approximately 75.0%, of the $67.3 million increase was due to an increase in comparable store sales. Comparable stores are stores that were open for at least one year before the beginning of the comparison period, or by January 1, 2007. Those 19 stores generated approximately $134.6 million in 2008, an increase of $50.5 million, or approximately 60.0%, compared with the approximately $84.5 million of revenue generated in 2007.

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Other Operating Income

The portion of our total revenues that is not retail sales revenue (2.3% in 2008 and 2.1% in 2007) is other operating income. Other operating income for 2008 was approximately $3.6 million, representing an increase of $1.7 million, or 89.5%, compared with $1.9 million for 2007. Income from renters was approximately $2.7 million in 2008, representing an increase of $1.1 million, or 68.8%, from $1.6 million in 2007. The increase is due primarily to increases in the rents we charge to lessees in our stores. The increase accounts for approximately 63.5% of the total increase in other operating income. Income from suppliers and concessionaires was approximately $983,000 for 2008, representing an increase of $632,000 or 180.0%, from approximately $351,000 for 2007. The increase accounts for approximately 36.5% of the total increase in other operating income.

Income from suppliers came from the following sources:

Cost of Sales

Our cost of sales for 2008 was approximately $127.2 million, representing an increase of $53.6 million, or 73.0%, from approximately $73.6 million for 2007. The increase in cost of sales was due to the increased sales volume. Our cost of sales consists almost entirely of the cost to us of the merchandise we sell, and also includes a small amount, generally less than 1%, relating to costs of packaging and shipping our merchandise to our stores. Packaging and shipping costs do not account for a greater portion of our cost of sales as they are generally borne by our suppliers.

Gross Profit

Gross profit, or total revenues minus cost of sales, was $34.3 million for 2008, representing an increase of $15.5 million, or 82.7%, from approximately $18.8 million for 2007. This increase was due primarily to the greater sales volume, and therefore greater profits achieved in 2008.

Our gross profit as a percentage of total revenues, or “gross margin,” rose from approximately 20.3% for 2007 to 21.2% for 2008. This increase in gross margin represents an increase in the efficiency of our operations, which we believe was due largely to the increased profitability in 2008 of the one new store we opened in 2007. The increase was also due, to a lesser extent, to our selling a greater volume of merchandise with relatively high profit margins, such as fresh foods.

Selling Expenses

Selling expenses were approximately $16.6 million for 2008, representing an increase of $7.9 million, or 92.1%, compared with approximately $8.6 million for 2007. This increase was due primarily to increased marketing expenses relating to the 10 new stores we opened in 2008 and, to a lesser extent, to an increase in rent expenses for those stores, whose first full year of operation was 2008.

Selling expenses as a percentage of total revenues were 10.3% for 2008, compared with 9.3% for 2007. This increase represents an increase in proportion of advertising expenses we incurred to generate each dollar of revenue in 2008. We believe the increase was the result of increased promotional activity in 2008 in all of our stores and reflects the costs of maintaining and expanding market share in the increasingly competitive supermarket industry in China.

General and Administrative Expenses

General and administrative expenses were approximately $3.2 million for 2008, representing an increase of $1.9 million or 146.0%, from approximately $1.3 million for 2007. The increase was due primarily to salaries paid to new employees we recruited to staff our stores opened in 2008 and manage our growing business. As a percentage of total revenues, general and administrative expenses increased to 2.0% for 2008

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from 1.4% for 2007. This increase indicates that we spent slightly more on the salaries, rents and overhead that we used to generate each dollar of revenue in 2008.

Income from Operations

Income from operations was approximately $14.5 million for 2008, an increase of $5.6 million, or 63.8%, from approximately $8.9 million for 2007. This increase was primarily due to the increase in gross profit described above. Income from operations as a percentage of total revenues, or “operating margin,” was approximately 9.0% for 2008, compared to 9.6% for 2007. This decrease represents a slight increase in our cost of generating each dollar of revenue in 2008, which we believe reflects the increasing costs of competing in our industry in China, as discussed above.

Transaction Costs of Reverse Merger

On March 28, 2008, we expensed all of the transaction costs of approximately $2.0 million in relation to our reverse merger and recapitalization transactions. These transaction costs include legal and investment banking fees, and stock issuance fees. The accounting treatment is in line with the SEC Staff View on Reverse Acquisitions that an operating company’s reverse acquisition with a non-operating company having some cash be viewed as the issuance of equity by the accounting acquirer for the cash of the shell company, and therefore transaction costs may be charged directly to equity only to the extent of the cash received, while all costs in excess of cash received should be charged to expenses. The amount of cash held by Forme Capital, Inc. at the time the reverse merger was consummated was immaterial.

Interest Expense

Interest expense for 2008 was $240,330, representing an increase of $70,955, or 41.9%, from $169,375 for 2007. The increase was due to an increase in our short-term borrowings, which we used to meet the increased demands for working capital in connection with our opening of 10 new stores in 2008. As a percentage of total revenues, net interest expense decreased to 0.15% for 2008 from 0.18% for 2007, due to part of the short-term borrowing we returned in 2008.

Other Income

We had no other income in 2008. Other income for 2007 was $39,385 and consisted of a government grant.

Income Taxes

Provision for income taxes was approximately $3.6 million for 2008, compared to $3.0 million for 2007. Effective January 1, 2008, due to changes in PRC tax law our income tax rate was reduced from 33% to 25%. As a result our provision for income taxes increased slightly despite a large increase in income before income taxes in 2008 compared to 2007.

Net Income

Net income for 2008 was approximately $9.0 million, representing an increase of $3.2 million, or 55.6%, from approximately $5.8 million for 2007. The increase is primarily due to the increase in revenue from our increased sales and the reduction in our tax rate described above.

Net income as a percentage of total revenues, or “net profit margin,” was approximately 5.6% for 2008, compared with 6.3% for 2007. This decrease is primarily attributable to both an increase in selling expenses and general and administrative expenses as described above.

Liquidity and Capital Resources

We generally finance our business with cash flows from operations and short-term bank loans. The large-scale capital expenditures relating to our current expansion plan was funded by the private placement that closed March 28, 2008 and funds from operations.

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Our working capital requirement consists mainly of inventory, salaries, operating overhead (including auxiliary materials and utilities) and finance expenses. Inventory accounts for the majority of our working capital. Our working capital requirements may be influenced by many factors, including cash flow, competition, our relationships with suppliers, and the availability of credit facilities and financing alternatives, none of which can be predicted with certainty. We have a revolving credit facility of 37 million RMB (approximately $5.4 million) with Daqing City Commercial Bank.

Our 2008 expansion activities were financed primarily by the $13.5 million of net proceeds we received from the private placement that closed on March 28, 2008. In addition, the purchase price for the stores acquired during 2008 were funded in part with funds from operations. In the first half of 2009, we opened three stores and seven stores were under construction. This was funded with funds from the net proceeds we received from the private placement, bank loans and from funds from operations. We plan to open four additional supermarkets in 2009 that will have, in the aggregate, approximately 11,400 square meters of retail space and one additional distribution center that will have approximately 19,600 square meters of space. We are also making improvements to our logistics and information systems to support our supermarkets and department stores. We expect to finance our expansion plan from funds generated from operations, bank loans and proceeds from this offering. If we are unable to obtain financing needed in the future on a timely basis and with acceptable terms, we will not be able to fully implement our expansion plan. In such a situation, our ability to expand would be entirely dependent on funds generated from operations and our financial position, competitive condition, growth and profitability may be adversely affected.

We regularly review our cash funding requirements and attempt to meet those requirements through a combination of cash on hand, cash provided by operations and available borrowings under bank lines of credit.

Cash from Operating Activities

First Half of 2009 Compared With First Half of 2008

Net cash generated from operating activities for the first half of 2009 was approximately $7.2 million, representing an increase of $0.7 million, or 10.9%, from approximately $6.4 million for the first half of 2008. The increase was due primarily to the increase in accounts payable that resulted from having more favorable payment terms with suppliers within the first half of 2009.

2008 Compared With 2007

Net cash generated from operating activities for 2008 was approximately $18.7 million, representing an increase of $13.3 million, from approximately $5.4 million generated from operating activities for 2007. The increase was due primarily to the increase in accounts payable in 2008. We opened 10 additional stores during 2008. Our accounts payable increased due to the extended terms we were able to obtain from our vendors due to our increased bargaining power.

Analysis and Expectations

Our net cash from operating activities fluctuates significantly due to changes in our inventories and other receivables such as those described just above. Other factors that may vary significantly include the amounts of our accounts payable, advances to suppliers and prepayments of general expenses and our income taxes. The table below provides figures for the past two years and also for the six months ended June 30, 2009, and shows that net cash flow from operating activities increased significantly in 2008 and also increased during the six months ended June 30, 2009.

		2007				2008				June 30, 2009
Net cash from operating activities		$	5,417,099			$	18,661,267			$	7,151,340

Looking forward, as we implement our expansion plan over the next several quarters, we expect the net cash we generate from operating activities to continue to fluctuate as our inventories, other receivables, accounts payables and the other factors described above, change with the opening and operation of new stores. These fluctuations could cause net cash from operating activities to fall, even if, as we expect, our net income grows as we expand. Although we expect that net cash from operating activities will rise over the long term, we cannot predict how these fluctuations will affect our cash flows in any particular quarter.

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Under our expansion plan, in 2009, we opened three new stores that have, in the aggregate, approximately 16,000 square meters of space and, in 2008, we opened 10 new stores that have, in the aggregate, approximately 50,000 square meters of retail space. We plan to open four additional supermarkets in 2009 that will have, in the aggregate, additional space of approximately 11,400 square meters of retail space and one additional distribution center which will have approximately 19,600 square meters of space. We are also making improvements to our logistics and information systems to support our supermarkets and department stores. We expect to finance our expansion plan from funds generated from operations, bank loans and proceeds from this offering.

Cash from Investing Activities

First Half of 2009 Compared With First Half of 2008

Net cash used in investing activities for the first half of 2009 was approximately $3.0 million, an increase of $1.9 million from approximately $1.1 million for the first half of 2008. Nearly all of this cash was used for plant and equipment expenses.

2008 Compared With 2007

Net cash used in investing activities for 2008 was approximately $24.5 million, an increase of $23.1 million from approximately $1.4 million for 2007. Approximately $19.6 million of this was used for the acquisition of the five new stores acquired in 2008 and approximately $3.8 million was used for the acquisition of new plant and equipment. These investments were financed primarily by the $13.5 million of net proceeds we received from the private placement that closed March 28, 2008 as well as from funds from operations.

Analysis and Expectations

Our net cash used in investing activities can fluctuate significantly due to changes in our plant and equipment expenses for new stores and the amounts of our lease prepayments. The table below provides figures showing a significant increase in 2008.

		2007				2008				June 30, 2009
Net cash used in investing activities		$	1,427,839			$	24,528,810			$	3,012,825

Our investing activities are likely to consume greater amounts of our cash over the next several quarters as our opening of new stores (whether through acquisitions or organically) causes our plant and equipment expenses to increase. This consumption of cash will be offset by our efforts, to the extent we are successful, to obtain additional financing.

Cash from Financing Activities

First Half of 2009 Compared With First Half of 2008

Net cash used by financing activities for the first half of 2009 was approximately $2.2 million, which was the result of paying back bank loans.

Net cash provided by financing activities for the first half of 2008 was approximately $12.7 million, which was the result of our raising net proceeds of $13.5 million from the private placement transaction, which closed on March 28, 2008, partially offset by our repayment of $2.8 million of bank debt in the first half of 2008.

Loans.  We had no outstanding short-term bank loans on June 30, 2009, compared with $2.2 million as of June 30, 2008. As we expand over the next several quarters, we anticipate that our working capital needs will increase, and we may need to increase our short-term bank borrowing.

As of June 30, 2009, we had a credit line of up to RMB 9.7 million (approximately $1.4 million). As of the date of this prospectus, we have credit lines of up to RMB 37 million (approximately $5.4 million). We believe that this credit line is sufficient for our working capital needs over the next several quarters.

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2008 Compared With 2007

Net cash provided by financing activities for 2008 was approximately $12.6 million, the result of our raising net proceeds of $13.5 million from the private placement transaction, which closed on March 28, 2008, which was partially offset by our repayment of $2.8 million of bank debt in the first half of 2008. In 2007, we repaid our bank loan for $517,465, which generated negative cash flows from financing activities.

Loans.  The balance of our outstanding short-term bank loans on December 31, 2008 was approximately $2.2 million, compared with $2.7 million as of December 31, 2007. The outstanding short-term bank loan on December 31, 2008 was repaid in February 2009. As of March 31, 2009, we had no outstanding short-term bank loans. As we expand over the next several quarters, we anticipate that our working capital needs will increase, and as a result we may need to increase our short-term bank borrowing.

As of December 31, 2007, we had a credit line of up to RMB 50.0 million (approximately $6.84 million).

Analysis and Expectations

The variability of our net cash generated from or used in financing activities over the last two years and for the six-month period ended June 30, 2009 is presented in the table below, which shows that our financing activities generated significant cash in 2007, provided an even larger amount of cash through a private placement in 2008 and used a significant amount of cash in the first half of 2009.

		2007				2008				June 30, 2009
Net cash provided/(used) by financing activities		$	2,100,509			$	12,627,365			$	(2,191,947	)

The proceeds of the private placement that closed March 28, 2008 caused our cash provided by financing activities in 2008 to be significantly higher than in 2007. If our expansion proceeds as we expect in 2009, our cash provided by financing activities in 2009 will increase significantly in comparison to the cash provided by financing activities in 2008. If we are unable to expand as we expect in 2009 and do not raise significant outside financing, our bank loan repayments could cause our financing activities to use cash as opposed to generating cash.

Future Cash Commitments

Under our expansion plan, in 2009, we opened three new stores that have, in the aggregate, approximately 16,000 square meters of space and, in 2008, we opened 10 new stores which have, in the aggregate, approximately 50,000 square meters of space. Six of the stores opened in 2008 were opened by us and four of the stores were opened through the acquisition of existing businesses by us. Under our expansion plan, we plan to open four additional supermarkets in 2009 that will have, in the aggregate, approximately 11,400 square meters of retail space and one additional distribution center that will have approximately 19,600 square meters of space. In 2010, we plan to open hypermarkets and additional supermarkets and department stores having, in the aggregate, approximately 120,000 square meters of space. We are also making improvements to our logistics and information systems to support our supermarkets. We expect to finance our expansion plan from funds generated from operations, bank loans and proceeds from this offering.

As of June 30, 2009, we had cash and cash equivalents equal to approximately $21.3 million, a decrease of $8.6 million or 28.8%, compared to $29.9 million as of June 30, 2008. The decrease is primarily due to net proceeds of approximately $12.1 million that we received from our private placement transaction in the first quarter of 2008, while we did not complete any financing in the first half of 2009.

As of December 31, 2008, we had cash and cash equivalents equal to approximately $19.3 million, an increase of $8.6 million or 79.5%, compared to $10.7 million as of December 31, 2007. Approximately $13.5 million was due to the net proceeds received from our private placement transaction in 2008 and approximately $6.6 million was primarily attributable to the greater cash and cash equivalents we had at the beginning of 2008 compared to the beginning of 2007, as well as the greater net cash provided by operating activities in 2008.

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Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements, and there are no such arrangements that have or are likely to have a current or future effect on our financial condition.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of its financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. Our financial statements reflect the selection and application of accounting policies, which require management to make significant estimates and judgments. See Note 1 to our consolidated financial statements, “Summary of Significant Accounting Policies.” We believe that the following paragraphs reflect the more critical accounting policies that currently affect our financial condition and results of operations.

Method of Accounting

We maintain our general ledger and journals with the accrual method accounting for financial reporting purposes. Accounting policies adopted by us conform to U.S. GAAP and have been consistently applied in the presentation of financial statements.

Use of Estimates

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

Economic and Political Risks

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

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

Revenue Recognition

Revenue represents the purchase price of goods sold, recognized upon the delivery of goods to customers at the point of sale, generally at the checkout counter. We generally recognize revenue at the time of sale, when goods are delivered to the customer and cash is received and recorded by our employees. In addition to cash payments, we receive payments by bank debit card, for which we also recognize revenue at the time of sale. We also receive payments by a pre-paid Company cash card, which represents a cash account that the customer has funded prior to the sale. Revenue from cash cards is recognized at the time the customer funds the card account. We do not accept any other method of payment and we do not deliver goods on credit.

Customers have a general right to return spoiled or defective products. Under PRC law, the suppliers of these goods are required to reimburse the Company for the purchase price that we have refunded to the customer. Management has not made allowance for estimated sales returns because they are considered immaterial based on the Company’s experience.

In recognizing revenue, we assume that the currency we receive from customers is valid legal tender in the PRC, that our cash card accounts have been properly funded and our electronic record-keeping system has not been tampered with or malfunctioned, that we will not inadvertently sell significant amounts of defective or spoiled goods, and that our suppliers will comply with their obligations under PRC law to reimburse us for

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the purchase price that we have refunded to customers for defective or spoiled goods. If any of these assumptions prove to be incorrect, we could have to restate our revenue. In our operating history as of the date of this prospectus, none of these assumptions has been incorrect.

Land Use Rights

Under PRC law, all land in the PRC is owned by the government and cannot be sold to an individual or company. The government grants individuals and companies the right to use parcels of land for specified periods of time. These land use rights are sometimes referred to informally as “ownership.” Land use rights are stated at cost less accumulated amortization. Amortization is provided over the respective useful lives, using the straight-line method. Estimated useful lives typically range from 30 to 40 years, and are determined to be the term of the land use right.

Property, Plant and Equipment

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

Buildings			30 – 40  years
Shop equipment			6  years
Office equipment			5  years
Motor vehicles			8  years
Car park			43  years
Leasehold improvements			5  years

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized.

Accounting for the Impairment of Long-Lived Assets

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

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

The Company did not recognize any impairment loss in 2007, 2008 or the six-month period ended June 30, 2009. Competitive pricing pressure and changes in interest rates, could materially and adversely affect our estimates of future net cash flows to be generated by our long-lived assets.

Inventories

Inventories consisting of finished goods, materials on hand, packaging materials and raw materials are stated at the lower of cost or market value. Finished goods are comprised of direct materials, direct labor and an appropriate proportion of overhead.

Management regularly evaluates the composition of its inventory to identify slow-moving and obsolete goods to determine if write-downs are required. Obsolete goods include inventory lost due to employee theft, shoplifting, administrative error and vendor fraud, or “inventory shrink.”

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Changes in sales volumes due to unexpected economic or competitive conditions could materially affect the adequacy of these write-downs. We have never had to retroactively amend or restate our inventory figures.

Cash and Cash Equivalents

We consider all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. We maintain bank accounts only in the PRC.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

On October 15, 2009, we dismissed Albert Wong & Co. (“Albert Wong”), as our independent registered public accounting firm. The reports of Albert Wong on our financial statements for each of the past two fiscal years contained no adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. The decision to change independent accountants was approved by our Audit Committee on October 14, 2009.

During our two most recent fiscal years and through October 16, 2009, the date of filing our Current Report on Form 8-K announcing the dismissal of Albert Wong, we have had no disagreements with Albert Wong on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Albert Wong, would have caused it to make reference to the subject matter of such disagreements in its report on our financial statements for such periods.

During our two most recent fiscal years there have been no reportable events as defined under Item 304(a)(1)(v) of Regulation S-K adopted by the SEC.

Albert Wong has provided us with a letter addressed to the SEC stating that it agreed with the above statements. This letter was filed as an exhibit to our Current Report on Form 8-K, which was filed with the SEC on October 16, 2009.

On October 16, 2009, we appointed BDO Guangdong Dahua Delu CPAs, LLP (“BDO”) as our new independent registered accounting firm. The appointment of BDO was approved by our Audit Committee on October 14, 2009.

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INDUSTRY OVERVIEW

We operate in the supermarket industry in China, which is a part of the country’s retail trade sector. We believe the PRC retail market has benefited from compelling industry fundamentals, including rapid economic growth, accelerating urbanization and increasing disposable income among urban households.

Growth of the PRC economy

China’s economy has grown significantly over the past three decades. According to the National Bureau of Statistics of China, a PRC governmental agency, China’s economy has been experiencing consistent growth with nominal gross domestic product (the “nominal GDP”) growing from approximately $1.9 billion in 2004 to approximately $4.4 trillion in 2008. The nominal GDP per capita increased from approximately $1,490 to approximately $3,267 during the same period. According to the International Monetary Fund (the “IMF”), the nominal GDP per capita is projected to further increase to approximately $5,663 by 2013.

Nominal GDP and Nominal GDP per capita
in the PRC, 2004-2013 (Estimate)

Source: Historical data converted into US$ from RMB with an exchange rate of $1 = RMB 6.8493, the exchange rate on June 30, 2009: National Bureau of Statistics of China; projected data: IMF.

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Accelerating Urbanization Trend

Urbanization has accelerated in China as a result of the country’s rapid economic growth. The urban population has increased dramatically as people from rural and less developed areas migrate to cities in search of better jobs and higher living standards. Across China, cities have expanded their boundaries to accommodate this migration. During the period between 2004 and 2008, the total urban population in China increased by approximately 63.9 million, or approximately 11.8%. In 2008, the total urban population was approximately 606.7 million and accounted for approximately 45.7% of the total population.

Urban Population and Urbanization Rate in the PRC, 2004-2013 (Estimate)

Source: Historical data: National Bureau of Statistics of China; projected data: Frost & Sullivan, a business research and consulting firm.

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Disposable Income Growth of Urban Households

The growth of the urban population has been accompanied by rising income levels of urban households. According to the National Bureau of Statistics of China, the annual per capita disposable income of urban households in the PRC increased from approximately $1,138 in 2004 to approximately $2,271 in 2008, a compound annual growth rate of approximately 18.9%. According to Frost & Sullivan, the annual per capita disposable income of urban households in China is projected to increase to approximately $3,785 in 2013.

Annual per capita Disposable Income
of Urban Households in the PRC, 2004-2013 (Estimate)

Source: Historical data: National Bureau of Statistics of China; projected data: Frost & Sullivan

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Strong Retail Growth

A growing middle class, combined with an increasing affluence and purchasing power of urban consumers have driven the rapid development of the retail sector in China. Consumer spending, as measured by the total value of retail sales of consumer goods, has grown from approximately $719.0 billion in 2004 to approximately $1.6 trillion in 2008, a compound annual grown rate of approximately 21.4%. According to Frost & Sullivan, the total retail sales value is projected to further increase to approximately $2.8 trillion by 2013.

The Retail Sales of Consumer Goods in the PRC, 2004-2013 (Estimate)

Source: Historical data: National Bureau of Statistics of China; projected data: Frost & Sullivan

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Format of Retail Operations in the PRC

To meet the different consumption needs of customers, retailers in China have established store formats which are differentiated by location, size, target customers, types of merchandise and operating style. The primary formats that have been established include department stores, supermarkets, hypermarkets, convenience stores, specialty or franchise stores and warehouse markets.

We currently operate under three formats, namely supermarkets, hypermarkets and department stores. A supermarket offers various daily necessities on a self-service basis. A hypermarket is similar to a supermarket but has a larger operating scale. A department store is a large retail outlet in a building complex which offers various goods through its various sales departments. Some of the key features of these formats are set forth in the below table:

Key Features of Different

Format		Typical Location		Typical Size		Typical Merchandise		Services and Facilities
Supermarket		Residential and commercial areas, reachable by approximately 10 minutes’ walk		Around 1000 m2		Fast-moving household goods		Self-selection sales, daily business hours usually not less than 11 hours
Hypermarket		Suburban areas, near main traffic routes		Over 2,500 m2		Household goods, with emphasis on self-developed brands		Self-selection sales, parking lots available nearby
Department Store		Downtown, near main traffic routes		Over 5,000 m2		Household goods		Elegant decoration, counter and self-selection sales

Source: State Internal Trade Bureau, a PRC governmental agency: Opinion regarding standardization of retailing business classification — June 2004, available at http://www.people.com.cn/item/flfgk/gwyfg/1998/ 232101199809.htm

Northeastern China

Northeastern China, includes Heilongjiang, Jilin and Liaoning Provinces. The toal area of northeastern China is 793,300 square kilometers, or 13% of China’s geographic area, and has a population of 130 million, or approximately 9% of China’s population. In December 2007, a major economic-development plan for the three provinces of northeastern China, the “Plan for Revitalizing Northeast China,” was announced by an office of the PRC’s State Council. The plan calls for the PRC government to support the following kinds of economic development, among others, in northeastern China:

We believe that the plan indicates a commitment by the PRC government to make economic development of northeastern China a high priority. We also believe that this development is likely to contribute to our financial results, for example, by making transportation of supplies and of customers less expensive.

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BUSINESS

Overview

We are a regional supermarket chain that currently operates 31 supermarkets and two department stores in northeastern China and Inner Mongolia. Our supermarkets sell a broad selection of merchandise including groceries, fresh food and non-food items. We currently have one distribution center servicing our supermarkets.

We believe that we are the only supermarket chain in northeastern China and Inner Mongolia that is a licensee of the Independent Grocers Alliance, or IGA, a United States-based global grocery network with aggregate retail sales of more than $21.0 billion per year. As a licensee of IGA, we are able to engage in group bargaining with suppliers and have access to more than 2,000 private IGA brands, including many that are exclusive IGA brands.

Our expansion strategy emphasizes growth through geographic expansion in northeastern China and Inner Mongolia, where we believe local populations can support profitable supermarket operations, and where we believe competition from large foreign and national supermarket chains, which generally have resources far greater than ours, is limited. Our strategies for profitable operations include buy-side initiatives to reduce supply costs; focusing on merchandise with higher margins, such as foods we prepare ourselves and private label merchandise; and increasing reliance on the benefits of membership in the international trade group IGA.

We completed the initial steps in the execution of our expansion plan in March 2008, when we raised financing through the combination of our reverse merger and private placement. Under our expansion plan, we opened three new stores in 2009 that have, in the aggregate, approximately 16,000 square meters of space and 10 new stores in 2008 that have, in the aggregate, approximately 50,000 square meters of space. Six of the stores opened in 2008 were opened by us and four of the stores were opened through the acquisition of existing businesses by us. We plan to open four additional supermarkets in 2009 that will have, in the aggregate, approximately 11,400 square meters of retail space and one additional distribution center that will have approximately 19,600 square meters of space. In 2010, we plan to open hypermarkets and additional supermarkets department stores having, in the aggregate, approximately 120,000 square meters of space. We are also making improvements to our logistics and information systems to support our supermarkets. We expect to finance our expansion plan from funds generated from operations, bank loans and proceeds from this offering, and our long-term target is to open 200 stores over the next five years, including department stores, hypermarkets and supermarkets.

Our Competitive Advantages

We believe that our competitive advantages include our low prices, the quality of our meat and produce, our breadth of products, and the location of our stores.

The location of our stores is also essential to our competitiveness, and our current competition strategy focuses on locating our stores within the three provinces of northeastern China and the eastern region of Inner Mongolia. Within those areas, we try to locate our stores in small- and medium-sized cities where we expect to face limited competition from large foreign or national supermarket chains.

In addition to the competitive advantages described above, we believe we have specific and distinct advantages over our domestic and foreign competitors.

Compared with local supermarkets, we believe we have the following advantages:

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Compared with large foreign supermarkets, we believe we have the following advantages:

Business Strategy

Our strategy is to expand our current market share and to benefit from the anticipated growth in China’s retail industry. Our operating strategy consists of the following key elements:

In 2008 and 2007, we acquired approximately 10.0% and 7.0%, respectively, of our merchandise directly from manufacturers (not including private label merchandise). We estimate that approximately 5.5% of our total revenue in 2008 was due to sales of self-prepared foods compared to approximately 2.0% of our total revenue in 2007.

Our goal is to bring our sales of these cost-saving and higher-margin categories of merchandise — direct-from-manufacturer, self-prepared food, private label and IGA-related — up to 20.0% of our total revenues. In addition to emphasizing sales of these categories, we also emphasize sales of other higher-margin items, such as fashionable clothing and cosmetics, and seasonal items like gloves, coats, sun-block and swimsuits.

Our Stores and Merchandise

Our stores are spread throughout northeastern China and Inner Mongolia with a concentration in Heilongjiang Province. The map below shows the location within Heilongjiang province of all of our current locations. The right side of the map depicts Heilongjiang Province; the left side depicts Daqing and its surrounding areas. Each retail location is indicated by a “QKL” mark; our distribution center is indicated by a red truck icon.

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Map of locations — Heilongjiang Province and Municipality of Daqing

Our Supermarkets

Our supermarkets generated approximately 97.7% of our revenues in 2008 and 97.9% of our revenue in 2007. Our current supermarkets have a total area of approximately 131,000 gross square meters, which includes all rental space as opposed to retail space, with an average area of 2,240 square meters of retail space. The supermarkets share the same general format and sell from the same inventory, however the larger stores carry a greater variety of items than the smaller stores.

Our supermarkets are designed to provide our customers with quality merchandise at a low price and carry a broad selection of grocery, meat, produce, liquor and tobacco, clothing, household items, small electronics, jewelry and general merchandise.

Our supermarkets carry merchandise divided into three major categories: grocery, fresh food, and non-food items.

The table below sets forth our total revenues for our sales of grocery, fresh food and non-food items for the years ended December 31, 2007 and 2008 and the six months ended June 30, 2009.

		Percentage of Total Revenues for the Year Ended December 31,								Percentage of Total Revenues for the Six-Months Ended June 30,
		2007				2008				2009
Grocery			30.0	%			34.2	%			34.7	%
Fresh food			54.1	%			48.6	%			47.0	%
Non-food items			15.9	%			17.2	%			18.3	%

Grocery items include:

Fresh-food items include:

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Non-food items include all non-food items, except cleaning and cosmetic items included in grocery; specifically:

Our target rate for loss due to spoilage and breakage of perishable and breakable items is 0.4% of total revenue. This was also our approximate rate of loss for spoilage and breakage in both 2007 and 2008.

Private Label

Some of the merchandise we sell in our supermarkets is made to our specifications by manufacturers, using a brand name used only by us. We refer to such merchandise as ”private label” merchandise. With private label merchandise, we entrust the manufacturer to make the product and to select the name and design. Under our agreements with the private label manufacturers, the private label manufacturers cannot sell the product to any other company. Average profit margins from private label products are typically 20%-30%, with certain products having a profit margin of 30-50%, and are generally higher than profit margins for other grocery items which are typically 12-13%.

Sales of private label merchandise represented approximately 5.0% and 3.2% of our total sales revenue for the six-month period ended June 30, 2009 and 2008, respectively. In June 2008, we established a specialized department for designing and purchasing private label merchandise. Eight full-time employees currently work in this department. We plan to increase the proportion of private label merchandise sold over the next several quarters with the goal of increasing private label sales to 20% of our total revenues.

Our Department Stores

As of the date of this prospectus, we operate two department stores through QKL-China’s subsidiary, Daqing Qinglongxin Commerce & Trade Co., Ltd. (“QC&T”). Our department stores generated 1.1%, 1.2% and 1.0% of our total revenues in 2007, 2008 and the first six months of 2009, respectively. Our department stores are located in the same buildings as our supermarkets and are licensed to sell all of the non-food products sold by our supermarkets. Our department stores sell brand-name and luxury clothing and accessories, cosmetics, small electronics, jewelry, books, home furnishings, and bedding, and contain a movie theater and a traditional beauty salon.

Our first department store opened in September 2006 and is located in Ranghulu District of Daqing. It has a total area of 12,000 square meters, not including approximately 3,000 square meters occupied by our supermarket on the ground floor of the building.

On September 28, 2008, we opened a new supermarket store and a department store in Taikang, a city in Heilongjiang Province located approximately 30 kilometers from Daqing. It is the Company’s second unit comprised of a supermarket and department store. It occupies roughly 10,000 square meters of leased space (the supermarket is approximately 2,800 square meters and the department store is nearly 7,200 square feet) in the commercial center of the city.

Our department store business model is different from our supermarket business model. The department stores operate on a concession and rents basis, with the selling space occupied by retail partners who either sublet their space from, or pay concession fees for use of the space to, QC&T. We do not own any of the merchandise sold in the department stores and we do not directly receive the proceeds of the sales of merchandise in the department stores; instead, the merchandise is owned and revenue is collected by our retail partners. In 2008 and 2007, approximately 81.0% and 82.7%, respectively, of our department store revenue came from concession fees and approximately 19.0% and 17.3%, respectively, came from rents.

Our department store business model also differs from our supermarket business model, in that our retail partners conduct their own purchasing operations (in consultation with QC&T employees) and do not use our purchasing department. Our retail partners receive their merchandise by delivery from distributors and do not use our distribution center, delivery vehicles or logistics resources. Each of the three above-ground floors in each of the department stores (but not the ground floor, which houses a QKL-China supermarket) is occupied

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by a number of stores, each operated by a retail partner. Each floor has one floor manager who is employed by QC&T and who oversees the workings of that floor. The employees charged with the logistical operation of the stores are employees of our retail partners. Compared to our supermarket operations, our department store operations are simpler and are less demanding of our resources, including time and labor.

Our Distribution Center

We currently distribute grocery products to our supermarkets from our distribution center located outside of Daqing. Approximately 45.0% of the merchandise sold in our supermarkets is distributed through this facility, which is located, on average, approximately 60 kilometers from our stores. We plan to open a second distribution center in 2009 located in Harbin, a city in Heilongjiang Province, which will have approximately 19,600 square meters of space.

Size of Our Supermarkets

The table below sets forth the size of our stores in net square meters, which includes retail space as opposed to all rental space, and the average monthly sales per square meter of each of our supermarkets during 2007, 2008 and the first six months of 2009.

Store Number		Store Name				Date Opened				Square Meters				Average Monthly Sales (In RMB, Thousands) per Square Meter, 2007				Average Monthly Sales (In RMB, Thousands) per Square Meter, 2008				Average Monthly Sales (In RMB, Thousands) per Square Meter, Six Months Ended June 30, 2009
1			Xincun Store				01/23/99				4,408				1,094				1,371				2,421
2			Longfeng Store				06/18/00				1,499				2,507				2,920				3,239
3			Chengfeng Store				05/12/01				2,706				1,418				1,644				1,627
4			Hengmao Store				11/16/02				1,906				2,691				3,141				3,768
5			Yixi Store				01/18/03				1,557				2,352				2,796				3,056
6			Wanbao Store				04/26/03				1,290				1,122				1,453				1,859
7			Xizhai Store				06/28/03				3,118				1,707				2,295				1,724
8			Zhaoyuan Store				03/29/08				2,246				—				479				1,806
9			Zhaodong Store				12/07/03				1,669				2,254				3,151				2,983
10			Wanli Store				04/18/04				1,541				973				1,468				1,837
11			Hubin Store				12/25/04				1,163				648				1,049				1,816
12			Donghu Store				09/24/05				1,895				1,321				1,855				2,982
13			Yichun Store				01/23/06				3,160				1,236				1,522				1,266
14			Jixi Store				09/17/06				2,500				1,519				1,939	(1)			2,066
15			Acheng Store				05/20/06				4,035				1,518				2,436				1,929
16			Lusejiayuan Store				04/30/06				760				514				1,108				2,174
17			Jixi Store 2				03/29/07				1,720				1,666				1,955				1,663
18			Yixi Store 2				09/09/06				866				328				664				2,173
19			Harbin Store				12/27/06				2,370				543				1,245				1,697
20			Central Street Store				09/27/08				4,968				—				2,781	(2)			2,231
21			Suihua Store				07/12/08				1,883				—				1,223	(3)			2,315
22			Taikang Store				09/14/08				1,560				—				3,313	(4)			2,303
23			Zhaodong Dashijie				05/27/09				2,587				—				—				—
24			Lindian				04/01/09				2,196				—				—				1,165
25			Boli Store				12/21/08				4,045				—				433	(5)			1,033
26			Xinguangtiandi Store				04/28/09				2,066				—				—				2,222
27			Hailaer Store				12/28/09				4,606				—				3,113	(6)			2,174
28			Anda Store				11/22/08				1,595				—				2,962	(7)			2,934
29			Fuyu Store				11/29/08				1,630				—				3,303	(8)			2,303
30			Nehe Store				11/11/08				1,774				—				2,801	(9)			2,354
31			Shidai Lijing Store				06/21/03				110				344				616				608
			Average								2,240				1,356				1,835				2,124

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We generate a small percentage of our total revenues from rent or concession fees received in return for allowing third-party sellers to use our retail space in our department stores and our supermarkets. For the six-month period ended June 30, 2009, approximately 1.4% of our total revenues were generated by concession fees and rents. In each of 2008 and 2007, approximately 1.7% of our total revenues were generated by concession fees and rents.

Recent Developments

Supermarket Store Openings

Zhaoyuan Store

On March 24, 2008, we opened a new supermarket store in Zhaoyuan, a county in Heilongjiang Province near Daqing. The new supermarket was our 19^th supermarket and our 21^st retail location. The new store occupies approximately 5,600 square meters on three floors of leased space. The lease has a term of 10 years with annual rent of RMB 840,000 (approximately $122,721) for the first three years, RMB 893,750 (approximately $130,574) for the next three years, and RMB 947,500 (approximately $138,426) for the last four years. Our total investment in the store as of its opening day, including pre-opening expenses for construction, training and salaries, and administrative and related fees and other costs such as furnishings, decorations and equipment, was approximately RMB 7.2 million (approximately $1.0 million).

The county of Zhaoyuan has a population of over 400,000 people but had, prior to the opening of our store, no large supermarkets based on our own independent research. Our new store is located in a large (28,000 square meter) shopping mall in Zhaoyuan county.

Suihua Store

On July 12, 2008, we opened a new supermarket store in Suihua, a city in Heilongjiang Province, approximately 110 kilometers from the provincial capital, Harbin. The supermarket became our 20^th supermarket and our 22^nd retail location. The new store occupies approximately 4,600 square meters in a large commercial center in Suihua. The lease has a term of 10 years with annual rent of RMB 900,000 (approximately $131,517) per year. We hired 61 new employees and have relocated 17 existing employees from other stores to work in the Suihua store.

The city of Suihua has a population of approximately 300,000, and we believe that a much larger rural and semi-rural population lives close enough that they are also potential customers of the new store. Based on our own independent research, we believe that there are two other large supermarket stores in Suihua, and that they represent our only significant competitors there.

Taikang Store

On September 28, 2008, we opened a new supermarket store and a department store in Taikang, a county in Heilongjiang Province approximately 30 kilometers from Daqing. It is our second unit comprised of a supermarket and a department store. It occupies roughly 10,000 square meters of leased space (the supermarket is approximately 2,800 square meters and the department store is nearly 7,200 square meters) in the commercial center of the county.

The county of Taikang has a population of approximately 100,000. As the only modern supermarket in the area, we believe this store location has the potential to attract an additional 300,000 customers living in 15 adjacent villages.

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Central Street Store

On September 30, 2008, we opened a new supermarket store in west Daqing. This supermarket is located in the commercial and residential center of Ranghulu district of Daqing. The supermarket occupies approximately 8,300 square meters on two floors of leased space and carries a wide variety of grocery, fresh food and non-food products. This location contains a higher percentage of non-food products, such as electronics and high-end apparel. Since the grand opening, the Central Street Store has averaged 7,000 transactions daily at a per-basket average that is approximately 30% higher than the Company’s average store.

The district of Ranghulu has a population of approximately 450,000.

Boli Store

On December 22, 2008, we opened a new supermarket store in Boli, a city in Heilongjiang Province, approximately 500 kilometers from Daqing. The new store occupies approximately 9,000 square meters in the commercial center in Boli.

The county of Boli has a population of approximately 120,000. Based on our own independent research, we believe that there are no other large supermarket stores in Boli.

Lindian Store

On April 1, 2009, we opened a new supermarket store in Lindian, a city in Heilongjiang Province, approximately 140 kilometers from Daqing. The new store occupies approximately 5,000 square meters in the commercial center of Lindian.

The county of Lindian has a population of approximately 80,000. Based on our own independent research, we believe there are no other large supermarket stores in Lindian.

Zhaodong Dashijie Store

On May 27, 2009, we opened a new supermarket store in Zhaodong, a city in Heilongjiang Province, approximately 115 kilometers from Daqing. The new store occupies approximately 6,000 square meters in the commercial center of Zhaodong. It is the second store the Company opened in Zhaodong city.

The city of Zhaodong has a population of approximately 230,000.

Acquisitions of Existing Businesses

Anda Store

On August 31, 2008, we entered into an agreement with Heilongjiang Longmei Commerce Co., Ltd. to acquire the business and all of the assets of a supermarket store located in Anda. The assets included the lease, the inventory and all licenses held. The transfer of the assets occurred on August 31, 2008. The Anda store occupies approximately 2,500 square meters in the largest commercial center in Anda. The purchase price of RMB 22.7 million (approximately $3.3 million), was paid in two installments: a deposit of RMB 100,000 (approximately $14,590) was paid prior to September 15, 2008 and the remaining balance was paid on October 8, 2008, the date of the completion of the transfer of the seller’s assets and the relevant government registration procedures regarding the change of the ownership.

On November 21, 2008, we reopened the Anda store. Anda is a city in Heilongjiang Province approximately 30 kilometers from Daqing. The city of Anda has a population of approximately 230,000. Based on our own independent research, we believe that there is only one other large supermarket store in Anda, which occupies approximately 2,300 square meters and represents our only significant competitor there.

Nehe Store

On September 30, 2008, we entered into an agreement with Nehe County Wanlong Commercial Building Co., Ltd, to acquire the business and all of the assets of a supermarket store located in Nehe. The transfer of the assets occurred on September 30, 2008. The assets included the lease, the inventory and all licenses held. The Nehe store occupies approximately 3,700 square meters of leased space in the commercial center in Nehe. The purchase price of RMB 16.8 million (approximately $2.5 million) was paid in two installments: a deposit of RMB 100,000 (approximately $14,590) was paid prior to October 15, 2008 and the remaining balance was paid on December 15, 2008, the date of the completion of the transfer of the seller’s assets and the relevant government registration procedures regarding the change of the ownership.

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On November 11, 2008 we reopened the Nehe supermarket store. Nehe is a county in Heilongjiang Province approximately 280 kilometers from Daqing. It has a population of approximately 170,000. Based on our own independent rearch, we believe that our new store is the only modern supermarket in the area.

Fuyu Store

On October 31, 2008, we entered into an agreement with Fuyu County Xinshuguang Real Estate Development Co., Ltd. to acquire the business and all of assets of a supermarket store located in Fuyu. The assets included the lease, the inventory and all licenses held. The transfer occurred on October 31, 2008. The Fuyu store occupies approximately 2,700 square meters in a commercial center in Fuyu. The purchase price of RMB 17.4 million (approximately $2.5 million) was paid in two installments: a deposit of RMB 300,000 (approximately $43,769) was paid on October 31, 2008 and the remaining balance was paid on November 13, 2008, the date of the completion of the transfer of the seller’s assets and the relevant government registration procedures regarding the change of ownership.

On November 29, 2008, we reopened the Fuyu store. Fuyu is a city in Heilongjiang Province approximately 200 kilometers from Daqing. The city of Fuyu has a population of approximately 110,000. Based on our own independent research, we believe that there is only one other large supermarket store in Fuyu, which occupies about 1,200 square meters and represents our only significant competitor there.

Hailar Store

On October 31, 2008, we entered into an agreement with Hulunbeier Huahui Department Store Co., Ltd. to acquire the business and all of the assets of a supermarket store located in Hailar. The assets included the lease, the inventory and all licenses held. The Hailar store occupies approximately 11,800 square meters of space in the commercial center in Hailar. The purchase price of RMB 66 million (approximately $9.6 million) was paid in two installments: a deposit of RMB 300,000 (approximately $43,769) was paid prior to November 15, 2008 and the remaining balance was paid on December 5, 2008, the date of the completion of the transfer of the seller’s assets and the relevant government registration procedures regarding the change of the ownership.

On December 28, 2008, we reopened the Hailar store. Hailar is a city in Inner Magnolia approximately 600 kilometers from Daqing. The city of Hailar has a population of approximately 300,000. Based on our own independent research, we believe that there is no other large supermarket store in Hailar.

Xinguangtiandi Store

On September 30, 2008, we entered into an agreement with Daqing Xinguangtiandi Shopping Center Co., Ltd. to acquire the business and all of the assets of a supermarket store located in the Xinguangtiandi shopping center in Daqing. The assets included the lease, the inventory and all licenses held. The Xinguangtiandi store occupies approximately 3,700 square meters in a commercial shopping center in Daqing. The purchase price of RMB 13.8 million (approximately $2.0 million) was paid in two installments: a deposit of RMB 100,000 (approximately $14,590) was paid prior to October 15, 2008 and the remaining balance was paid on December 2, 2008, the date of the completion of the transfer of the seller’s assets and the relevant government registration procedures regarding the change of the ownership.

We reopened the Xinguangtiandi Store on April 30, 2009.

Our Equipment

The equipment we use in operating our business includes standard equipment for our industry, such as display cases, freezers and ovens, delivery trucks, and the computer hardware and software used in our electronic information, inventory and logistics system. All of our equipment is owned outright by us and was acquired by cash purchase.

Advertising and Publicity

We advertise in many ways, including direct-marketing circulars, local newspaper advertisements and coupons, membership cards and member promotions, and general promotions such as discounts and prize lotteries.

Our marketing and advertising activities are conducted by our marketing department, which staffs nine employees. The department’s responsibility covers a wide range of issues, including our brand strategy and

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brand promotion, sales promotion, design of advertising materials, design of décor of stores, and management of our club membership. They are also engaged in market and price investigation. We base our advertising on our analysis and observations of the market and our competitors. The head of the marketing department works closely with the purchasing department in determining purchasing and sales patterns.

Under contracts we have with our suppliers, our suppliers are responsible for the costs of all discounts and promotions.

Customers and Pricing

Our pricing strategy is to offer merchandise of a quality comparable to that of our competitors and at a competitive price.

In general, all customers pay the same price for our merchandise. However, the following discounts are available to some customers as part of our promotional marketing strategy.

The rest of our customers, including large customers such as school cafeterias, pay our standard price.

Payment methods for customers include cash, bank cards, and two kinds of store cards: cash cards, which can be charged in advance and used as cash, and membership cards, which accumulate points and provide discounts.

In recent years, the pricing of our merchandise has changed as the price of our supplies has changed. For example, in 2007, the price of pork rose significantly and store prices rose correspondingly, until they were partially offset by government subsidies. The price of imported products, primarily including wine, beer and liquor, has changed as the RMB exchange rate has changed. We do not believe any price changes have had a significant effect on our business to date.

Suppliers

Our 10 largest suppliers of merchandise in 2008 were, from largest to smallest:

Customers have the right under PRC law to return defective or spoiled products to us for a full refund. Pursuant to the same law, our suppliers are required to fully reimburse us for these returns.

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Choosing Suppliers

We typically have two or more suppliers for each product we sell. Even for special brands, including western beverages, we have several distributors from whom we can order. We choose among competing suppliers on the basis of price and the strategic needs of our business.

Shipping from Suppliers

We receive most of our merchandise from suppliers, which are often large distribution companies, which deliver goods by their own trucks sent either to our distribution center (in the case of grocery and non-food items) or directly to our stores (in the case of fresh food items).

We receive some merchandise direct from agricultural producers or manufacturers, which arrive by train or truck and ships to a convenient location where we transfer it to our delivery trucks. Our Daqing distribution center also receives train shipments directly into its main warehouse through train tracks on the premises.

Distribution to Our Supermarkets and Department Stores

For distribution from our distribution center to our supermarkets, we use our own trucks and follow a delivery schedule determined by our electronic information, inventory and logistics system.

Distribution to our department stores is arranged by our retail partners, as described under “Our Department Stores” above.

Pricing and Terms of Payment to Suppliers

We have three kinds of payment arrangements with our suppliers: cash payment, pre-payment and payment in arrears. The terms of these arrangements are negotiated individually with each supplier and formalized in written contracts.

Employees

As of June 30, 2009, we had approximately 3,000 employees, all of whom are full-time employees. Approximately 2,600 of our employees work in operations and approximately 400 work in management. We have signed standard labor employment contracts with all our employees, including our executive officers, with a standard term of two to five years, and we have an employee manual that sets forth relevant policies. We also hire temporary employees, typically for a term of three months.

Under each of our employment contracts, we are required to comply with applicable labor laws and are obligated to:

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Employee benefits include five state-mandated insurance plans:

In 2008 our average compensation per employee per month was RMB 1,084 (approximately $156) compared to RMB 1,218 (approximately $160) in 2007. The decrease resulted from our hiring additional employees, most of whom were lower skilled workers, in connection with the new stores opened during 2008 in cities that have a lower standard of living.

We also pay benefits in the form of social security insurance fees for each of our employees.

We have a system of human resource performance review and incentive policies that allow personnel reviews to be carried out monthly, quarterly or annually.

Training

We have a business school and training center at our headquarters in Daqing, which includes a lecture hall where we provide professional advancement and management courses, training in company policies and compliance with regulations, and lectures by outside members of the business community.

There are also monthly meetings with all the store managers, led by our CEO or COO. There are regional training conferences once per week, which provide opportunities for sharing experiences and improving our business performance, as well as for developing the skills and judgment of our store managers.

Intellectual Property

We have registered the name “Qingkelong” as a trademark in the PRC, details of which are set forth below:

Trademark		Certificate No.		Category		Owner		Valid Term
Qingkelong		No. 1995020		No. 35: “sales promotion (for others)”		Qingkelong		4/7/03 – 4/6/13

Insurance

Vehicle Insurance

We have a standard commercial vehicle insurance policy in place for all of our delivery trucks.

Comprehensive (“All-Risk”) Property Insurance

A number of comprehensive property insurance policies are held by us covering losses to our retail stores and distribution center. Our “all-risk” policies range in coverage amounts from RMB 270,000 (approximately

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$39,455) to RMB 51.6 million (approximately $7.5 million) at related premiums that range between RMB 51,639 (approximately $7,546) to RMB 270 (approximately $39), respectively, for the one-year periods they cover.

Public Liability Insurance

Each of our stores carries a public liability insurance policy, covering losses relating to claims of loss or damage due to injuries occurring on our premises. Our public liability policies typically have a coverage amount of RMB 2 million (approximately $292,261) and a premium of RMB 3,000 (approximately $438), with the exception of our Acheng store, which has a coverage amount of RMB 7.2 million (approximately $1.1 million) and a premium of RMB 7,212 (approximately $1,054), for the one-year periods they cover.

Research and Development Activities

We are not presently engaged in any research and development activities. However, for self-prepared products (e.g. baked goods), our fresh foods department and bakery department perform continuing market investigations in order to determine how other companies are making prepared foods and whether we can improve on those methods. Our cooking personnel and head chef work with the purchasing department to develop formulas for use in our stores.

Government Regulation of Our Operations

Our operations are subject to a wide range of regulations covering every aspect of our business. The most significant of these regulations are set forth below. In each case, we have passed the most recent required inspections and have received appropriate and up-to-date licenses, certificates and authorizations, as set forth in the next subsection of this prospectus.

Approvals, Licenses and Certificates

We require a number of approvals, licenses and certificates in order to operate our business. We believe we are in compliance in all material respects with all laws relevant to the operation of our business.

Competition

Competitive Environment

The supermarket industry in China is intensely competitive, with many companies, both local and foreign, competing as retailers of food, groceries and other merchandise, using a variety of business strategies.

Our main competitors are local, regional and national chain supermarkets, and national and foreign chain retailers operating “big box” or hypermarket stores of the kind made famous by Wal-Mart and Carrefour. We also face competition from traditional street markets and markets where customers can purchase live poultry and fish, convenience stores, tobacco and liquor retailers, restaurants, specialty retailers and large drugstore chains.

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We do not believe we currently face significant direct competition from China’s large national supermarket chains as we have decided not to compete in the areas in which they focus their operations, which are China’s biggest cities and surrounding suburbs-Shanghai, Shenzhen, Guangzhou, Beijing, and Chongqing-all areas outside of northeastern China and Inner Mongolia. Instead, we have decided to focus on China’s less-populated “second tier” and “third tier” cities and surrounding areas in northeastern China and Inner Mongolia, which we believe provide ample opportunity for expansion.

Among the large foreign supermarket chains currently doing business in China, we believe that Wal-Mart is currently our only significant direct competitor. This is also primarily due to our choice of store locations. Although Carrefour, Metro, Tesco and other foreign companies also operate in China and compete with local supermarkets in their locations, they do not have a significant number of stores in northeastern China or Inner Mongolia, where our stores are located. In addition, our expansion plan targets small and medium-sized cities and counties, which we believe are not being targeted by these large international retailers. We believe that these plans will allow us to avoid intense competition from these retailers.

Our Competitors — Domestic Supermarkets

We believe that the two supermarket companies listed below are our most significant direct domestic competitors based in China:

Our Competitors — Foreign Supermarkets

Wal-Mart is the world’s largest retailer and has more than 200 stores and 70,000 employees in China. Of its China stores, nearly 100 are in its superight or hypermarket format, three are in its Sam’s Club format, two are in its neighborhood market format, and approximately 100 are operated under the name of its partially-owned PRC affiliate, Trust-Mart. We believe that approximately six of our stores compete directly with a Wal-Mart store.

National and foreign retailers have greater resources and a greater geographic range than we do, and their stores are often bigger (hypermarkets often have an area of 14,000 square meters of retail space, compared to the average 2,240 square meters of retail space of our stores), which may enable them to offer a greater variety of products. This may give them advantages in terms of pricing, ability to expand, advertising budgets, efficiencies in distribution, bargaining power, and other areas.

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PROPERTIES

All land in the PRC is owned by the government and cannot be sold to any individual or entity. Instead, the government grants or allocates landholders a “land use right,” which we sometimes refer to informally as land ownership. There are four ways of acquiring land use rights in the PRC:

Granted land use rights are provided by the government in exchange for a grant fee, and carry the rights to pledge, mortgage, lease and transfer the land within the term of the grant. Land is granted for a fixed term, generally 70 years for residential use, 50 years for industrial use, and 40 years for commercial and other use. The term is renewable in theory. Unlike in western nations, granted land must be used for the specific purpose for which it was granted.

Allocated land use rights are generally provided by the government for an indefinite period (usually to state-owned entities) and cannot be pledged, mortgaged, leased, or transferred by the user unless otherwise approved by the competent government authorities. Allocated land can be reclaimed by the government at any time. Allocated land use rights may be converted into granted land use rights upon the payment of a grant fee to the government.

We have land use rights to our headquarters and two other stores; we lease our 31 other retail locations and our distribution center. Most of our lease agreements have a typical term of 8 to 15 years, and most of our leased properties have a fixed rent based on a price per square meter, which cannot be raised during the term of the lease.

Our land use rights are set forth below:

Land Use Rights Acquired through Grants from Land Management Authority

Land No.		No. 1		No.2
Land Use Right Certificate No.		Daqing Guo Yong (2006) No. 001485		Daqing Guo Yong (2006) No. 001488
User of the Land		Qingkelong		Qingkelong
Location		North Building 3-23, East Jing Qi Street, Dongfeng Xincun Village		Building 3-36A East Jing Qi Street, Dongfeng Xincun Village, Sartu District
Usage		Commercial Use		Commercial Use
Area (square meters)		3193.70		34.30
Form of Acquisition		From related land authority		From related land authority
Expiration Date		2044-6-27		2044-6-27
Encumbrances		Mortgaged to Daqing Commercial Bank from June 18, 2009 to June 18, 2011		Mortgaged to Daqing Commercial Bank from December 12, 2008 to November 20, 2010.

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Land Use Rights Acquired by Transfer

Land No.		No. 1		No.2		No.3
Land Use Right Certificate No.		Daqing Guo Yong (2008) No. 02-31415		Daqing Guo Yong (2008) No. 02-31383		Daqing Guo Yong (2008) No. 02-31396
User of the Land		Qingkelong		Qingkelong		Qingkelong
Location		No. 44 of Jingqi Street, Dongfeng Xincun, Sartu District		No. 44 of Jingqi Street, Dongfeng Xincun, Sartu District		Shangfu No.4 Building 7, Wanbao No. 2 Community Sartu District
Usage		Commercial Use		Commercial Use		Commercial Use
Area (square meters)		68.5		503.6		1,242.58
Form of Acquisition		Transferred Land		Transferred Land		Transferred Land
Expiration Date		2043-6-19		2043-6-19		2048-3-10
Encumbrances		None		Mortgaged to Daqing Commercial Bank from December 12, 2008 to November 20, 2010.		Mortgaged to Daqing Commercial Bank from December 12, 2008 to November 20, 2010.

Owned Premises

		1		2		3		4
Certificate No.		Qing Fang Quan Zheng Sartu District Zi No. NA337278		Qing Fang Quan Zheng Sartu District Zi No. NA337270		Qing Fang Quan Zheng Sartu District Zi No. NA229912		Qing Fang Quan Zheng Sartu District Zi No. NA221332
Owner		Qingkelong		Qingkelong		Qingkelong		Qingkelong
Location		Shangfu No.4, Building 7, Wanbao No. 2 Community, Sartu District		No. 44 of Jing Qi Street, Dongfeng Xincun, Sartu District		No. 44 of Jing Qi Street, Sartu District		No.5, 6, 7, Ground Floor, 3-36A, Dongfeng Xincun, Sartu District
Category		Owned by Joint Stock Company		Owned by Joint Stock Company		Owned by joint stock company		Private
Area (square meters)		1,872.62		1,500		6,674.43		137.57
Encumbrances		Mortgaged to Daqing Commercial Bank with the guaranty value of RMB 4,369,010 from December 12, 2008 to November 20, 2010.		Mortgaged to Daqing Commercial Bank with the guaranty value of RMB 4,549,545 from December 12, 2008 to November 20, 2010		Mortgaged to Daqing Commercial Bank with the guaranty value of RMB 37,600,000 from June 18, 2009 to June 18, 2011		Mortgaged to Daqing Commercial Bank with the guaranty value of RMB 481,445 from December 12, 2008 to November 20, 2010

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Leased Premises

No.		Lessor		Location of Building		Term		Rent per Year (Yuan)
1		Daqing Longfeng Shopping Center Company Limited		First Floor of Longfeng Shopping Center		5-1-2000 to 5-1-2010		200,000
*2		Daqing Hongyun Shopping Center		Department Store of Chengxin En Cum Second Community of Chengxin, Ranghu Road		2-1-2009 to 1-31-2010		400,000
3		Nonggongshang Branch of Transportation Company		Xizhai Market of Longnan Qiushi Road (2,650m2, additional 137 m2)		2003-2-15 to 2011-2-15		700,000 for year 1-2; 750,000 for year 3-6; 800,000 for year 7-8.
4		Hengmao Company of Daqing Oilfield		Cheng Bei Qi Street, Rang District, Daqing		2002-12-15 to 2010-12-15		350,000
5		Yixi Huayou Store		Operation Area, warehouse, three rooms for Office, West of Huayou Road, Yixi Xinghua Street, Longfeng District		2003-1-1 to 2013-1-1		270,000
*6		Petro China Daqing Petro Chemical Company		Second and third Floor of Yixi Huayou Shopping Center (1,620 m2)		2008-1-1 to 2018-1-1		300,000
7		Yigeng Property Management Company of Daqing Development Zone		Shidai Lijing Building 107# (135 m2)		2003-4-20 to 2011-4-20		Free for first 2 years,30,000 for last 6 years
8		Zhaodong Yibai Company Limited		South of Xinjian Yibai Building, Nanerdao Street, East of Zhengyang Street, Zhaodong		2004-1-1 to 2014-1-1		200,000
9		Haibo Zhao		Room 201, 2nd Floor, Building 1, Hubin Community, Sartu District		2005-1-1 to 2015-1-1		20,000
10		Hui Hu		Room 326, 2nd Floor, Building 1, Hubin Community, Sartu District		2005-1-1 to 2015-1-1		10,000
11		Yajuan Wu		No.15 (first and second floor), Building 1, Hubin Community, Sartu District		2005-1-1 to 2015-1-1		80,000
12		Yajuan Wu		No.14 (first and second floor), Building 1, Hubin Community, Sartu District		2005-1-1 to 2015-1-1		80,000
13		Yingtian Li		No.9 (first and second floor), Building 1, Hubin Community, Sartu District		2005-1-1 to 2015-1-1		80,000
14		Shuzhi Liang		No.13 (first and second floor), Building 1, Hubin Community, Sartu District		2005-1-1 to 2015-1-1		80,000
15		Runzhi Chen		No.10 (first and second floor), Building 1, Hubin Community, Sartu District		2005-1-1 to 2015-1-1		80,000
16		Xiaoguang Qin		No. (first and second floor), Building 1, Hubin Community, Sartu District		2005-1-1 to 2015-1-1		80,000

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No.		Lessor		Location of Building		Term		Rent per Year (Yuan)
17		Qing Xiao & Hong Xiao		No. (first and second floor), Building 1, Hubin Community, Sartu District		2005-1-1 to 2015-1-1		80,000
*18		Logistics Company of Daqing Oilfield		N0.7 Qinfen East Road, Sartu District, Daqing		2006-1-1 to 2010-12-31		252,000/year, (total fee: 1,260,000)
19		Daqing Beichen Real Estate Development Company Limited		First Floor of Lüse Jiayuan Guild Hall, Xuewei Road, Daqing (1,450.22 m2)		2005-12-1 to 2015-12-1		Free for first to third year and 114,300 for fourth to tenth year
20		Yichun Mengke Shopping Center		First Floor of Basement, Mengke Shopping Center No. 62, Tonghe Road, Yichun		2006-3-5 to 2021-3-5		Free for first year 200,000 for second year, 300,000 for third to fifth year, 400,000 for sixth to tenth year and 500,000 for eleventh to fifteenth year
21		Jixi Green Sea Consuming Goods Market		Ground Floor, Jixi Green Sea Square		2006-6-11 to 2016-6-11		700,000
22		Mengke Real Estate Development Company Limited		Buildings and facilities at Jiyuan Culture Square, Yanchuan South Street, ACheng		2006-8-20 to 2021-8-20		350,000 for first to fifth year, and 400,000 for sixth to tenth year, and 2,100,000 for the remaining years.
23		Guifen Zhao		Basement 1 of Dongfeng Garden 3, Donfeng Road, Jiguan District, Jixi (2,700 m2)		2007-1-1 to 2017-1-1		600,000
24		Daqing Factory for SINOFECT		Zone 8, Xinhua Village, Longfeng District (2,800 m2)		2006-12-14 to 2010-12-13		260,000
25		Heilongjiang Beidahuang Food and Oil Wholesale Company Limited		No. 41 Xiangdian Street, Xiangfang District, Harbin (2,950 m2)		2006-10-15 to 2016-10-14		720,000 for year 1-3, 735,000 for year 4-6, and 750,000 for year 7-10
26		Qiquan Zhou		Songjiang Mingzhu Shopping Center, West of Zhongyang St. Zhaoyuan County, Heilong jiang		2008-4-10 to 2018-4-09		84,000 for 1st to 3rd year; 89,375 for 4th to 6th year; 94,750 for 7th to 10th year

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No.		Lessor		Location of Building		Term		Rent per Year (Yuan)
27		Suihua Fudu Construction and Installation Ltd.		Zhongxing East Road, Suihua No. 79-81 Zhongyang Blvd. Ranghu District, Daqing, China		2008-7-1 to 2018-6-30		800,000 for 1st to 3rd years, 850,000 for 4th to 6th,90,000 for 7th to 10th years.
28		Beiya Construction and Development Ltd. Of Qitaihe		Kanghua St. Boli County, Heilongjiang, China		2008-10-30 to 2023-10-30		110,000 for 1st to 5th year, 120,000 for 6th to 15th year.
29		Mo Xu		No. 78 Zhongyang Blud. Ranghulu District, Daqing		5-20-2008 to 6-20-2016		530,000 for 1st to 3rd year 580,000 for 4th to 8th year
30.		Shujun Wang		No. 78 Zhongyang Blvd. Ranghulu District, Daqing		5-20-2008 to 6-20-2016		530,000 for 1st to 3rd year 560,000 for 4th to 8th year
31.		Lexi xu		No. 78 Zhongyang Blvd. Ranghulu District, Daqing		6-20-2008 to 6-20-2016		540,000 for 1st to 3rd year 580,000 for 4th to 8th year
32.		Yusheng Cheng		No. 78 Zhongyang Blvd.Ranghulu District, Daqing		5-20-2008 to 6-20-2016		74,000 per year
33.		Alateng Shopping Center Co. Ltd.		Alateng Shopping Center		9-1-2008 to 8-31-2023		700,000
34.		Zhaodong Huafu Pharmaceutical Co. Ltd.		South of the Crossing between No. 9 Street and Zhengyang Street, Zhaodong		11-01-2008 to 10-31-2018		1,800,000 for 1st to 2nd year 900,000 since 3rd year
35.		Lin Dian Lianyi Commerce Co. Ltd.		The crossing between Hexiang Road and Daqi Street, Lidian county		1-1-2009 to 12-31-2024		using area x 0.4/m2 x 365 for 1st to 5th year using area x 0.45/m2 x 365 for 6th to 10th year using area x 0.5/m2 x 365 for 11th to 15th
36.		Daqing Wanbao Property Management Co. Ltd.		Third Community of Wanbao Zone, Sartu District, Daqing		4-10-2003 to 10-4-2013		90,000 for 1st year 11,000 for 2nd year 12,000 for 3rd year 15,000 for 4th to 10th year

LEGAL PROCEEDINGS

Neither we, nor any of our subsidiaries, is a party to any pending legal proceedings.

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OUR HISTORY AND CORPORATE STRUCTURE

Organizational History of QKL Stores Inc.

Prior to June 18, 2008, QKL Stores Inc. was known as Forme Capital, Inc.

Forme Capital, Inc. (“Forme”) was incorporated in Delaware on December 2, 1986. Prior to 1989, Forme’s only activity was the creation and spinning off to its stockholders of nine blind pool companies, or companies with no specified business plan. From 1989 to 1998, Forme was a real estate company. From 1999 to 2000, Forme invested in fine art. From 2000 to 2007, Forme had no operations or substantial assets. Accordingly, Forme was deemed to be a “blank check” or shell company, that is, a development-stage company that has no significant non-cash assets and either has no specific business plan or purpose or has indicated that its business plan is to engage in a merger or other acquisition with an unidentified company.

On November 13, 2007, Forme filed an Amended and Restated Certificate of Incorporation to change the number of shares of stock that it was authorized to issue to 100,000,000 shares of common stock, par value $0.001 per share, and 100,000,000 shares of preferred stock, par value $0.01 per share. The change became effective on December 5, 2007.

We have no operations or substantial assets other than those of QKL-China, over which we acquired control in the reverse merger transaction discussed below. Prior to the reverse merger transaction, our business plan was to seek out and obtain candidates with which we could merge or whose operations or assets could be acquired through the issuance of common stock and possibly debt.

The Reverse Merger Transaction

On March 28, 2008, we completed a number of related transactions through which we acquired control of QKL-China: (i) a restructuring transaction which granted control of QKL-China to another PRC entity, Speedy Brilliant (Daqing), and (ii) a share exchange transaction, which transferred ownership and control of Speedy Brilliant (Daqing) to us.

We refer to the restructuring transaction and the share exchange transaction together as the “reverse merger transaction.” The purpose of the reverse merger was to acquire control of QKL-China. We did not acquire QKL-China directly by either issuing stock or paying cash for QKL-China (or for Speedy Brilliant (Daqing)) because under PRC law it is uncertain whether a share exchange would be legal, and the terms of a cash purchase would not have been favorable. Speedy Brilliant (Daqing) did not acquire QKL-China directly, by either issuing its own stock or paying cash for QKL-China, because under PRC law it is uncertain whether such a share exchange would be legal, and the terms of a cash purchase would not have been favorable to Speedy Brilliant (Daqing).

We instead chose to acquire control of QKL-China through the contractual arrangements described below because alternative methods of acquisition — specifically, the acquisition of QKL — China outright either by share exchange or by cash payment — was not available or advisable as described above Acquisition of QKL-China by share exchange was not available to Speedy Brilliant (Daqing) because (i) Speedy Brilliant (Daqing) is wholly owned by Speedy Brilliant (BVI), a British Virgin Islands company, and is therefore a wholly foreign-owned entity under PRC law, (ii) wholly foreign-owned entities are, under PRC law, treated as foreign entities for relevant regulatory purposes, and (iii) under PRC laws that became effective on September 8, 2006, it is uncertain both what procedures must be used in order for a foreign entity to acquire a PRC entity by share exchange and whether such an acquisition would have binding legal effect in the PRC. Acquisition of QKL-China for cash was not advisable for Speedy Brilliant (Daqing) because the terms of such a cash acquisition, including (i) a purchase price for QKL-China determined under PRC law and (ii) the terms of a financing transaction in which we would raise the funds to pay the purchase price, would not have been favorable to Speedy Brilliant (Daqing).

PRC Restructuring Agreements

The PRC restructuring transaction was effected by the execution of five agreements between Speedy Brilliant (Daqing), on the one hand, and QKL-China (and in some cases the shareholders of QKL-China), on the other hand. Those five agreements and their consequences are described below.

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Consigned Management Agreement

The Consigned Management Agreement among Speedy Brilliant (Daqing), QKL-China and all of the shareholders of QKL-China, provides that Speedy Brilliant (Daqing) will provide financial, business management and human resources management services to QKL-China that will enable Speedy Brilliant (Daqing) to control QKL-China’s operations, assets and cash flow, and in exchange, QKL-China will pay a management fee to Speedy Brilliant (Daqing) equal to 4.5% of QKL-China’s annual revenue. The management fee for each year is due by January 31 of the following year. The agreement will remain effective until Speedy Brilliant (Daqing) or its designees have acquired 100% of the equity interests of QKL-China or substantially all of the assets of QKL-China.

Technology Service Agreement

The Technology Service Agreement among Speedy Brilliant (Daqing), QKL-China and all of the shareholders of QKL-China, provides that Speedy Brilliant (Daqing) will provide technology services, including the selection and maintenance of QKL-China’s computer hardware and software systems and training of QKL-China employees in the use of those systems, and in exchange QKL-China will pay a technology service fee to Speedy Brilliant (Daqing) equal to 1.5% of QKL-China’s annual revenue. The technology service fee for each year is due by January 31 of the following year. The agreement will remain effective until Speedy Brilliant (Daqing) or its designees have acquired 100% of the equity interests of QKL-China or substantially all of the assets of QKL-China.

Loan Agreement

The Loan Agreement among Speedy Brilliant (Daqing) and all of the shareholders of QKL-China, provides that Speedy Brilliant (Daqing) will make a loan in the aggregate principal amount of RMB 77 million (approximately $11.2 million) to the shareholders of QKL-China, each shareholder receiving a share of the loan proceeds proportional to its shareholding in QKL-China, and in exchange each shareholder agreed (i) to contribute all of its proceeds from the loan to the registered capital of QKL-China in order to increase the registered capital of QKL-China, (ii) to cause QKL-China to complete the process of registering the increase in its registered capital with PRC regulatory authorities within 30 days after receiving the loan, and (iii) to pledge their equity to Speedy Brilliant (Daqing) under the Equity Pledge Agreement described below.

The loan is repayable by the shareholders at the option of Speedy Brilliant (Daqing) either by the transfer of QKL-China’s equity to Speedy Brilliant (Daqing) or through proceeds indirectly from the transfer of QKL-China assets to Speedy Brilliant (Daqing). The loan does not bear interest, except that if (x) Speedy Brilliant (Daqing) is able to purchase the equity or assets of QKL-China, and (y) the lowest allowable purchase price for that equity or those assets under PRC law is greater than the principal amount of the loan, then, insofar as it is allowable under PRC law, interest will be deemed to have accrued on the loan in an amount equal to the difference between the lowest allowable purchase price for QKL-China and the principal amount of the loan. The effect of this interest provision is that, if and when permitted under PRC law, Speedy Brilliant (Daqing) may acquire all of the equity or assets of QKL-China by forgiving the loan, without making any further payment. If the principal amount of the loan is greater than the lowest allowable purchase price for the equity or assets of QKL-China under PRC law, then Speedy Brilliant (Daqing) would exempt the shareholders from paying the difference between the two amounts. The effect of this provision is that (insofar as allowable under PRC law) the shareholders of QKL-China may satisfy their repayment obligations under the loan by transferring all of QKL-China’s equity or assets to Speedy Brilliant (Daqing), without making any further payment.

The Loan Agreement also contains promises from the shareholders of QKL-China that during the term of the agreement they will elect as directors of QKL-China only candidates nominated by Speedy Brilliant (Daqing), and they will use their best efforts to ensure that QKL-China does not take certain actions without the prior written consent of Speedy Brilliant (Daqing), including (i) supplementing or amending the articles of association or rules of QKL-China, or of any subsidiary controlled or wholly owned by it, (ii) increasing or decreasing its registered capital or shareholding structure, (iii) transferring, mortgaging or disposing of any interests in its assets or income, or encumbering its assets or income in a way that would affect Speedy Brilliant (Daqing)’s security interest unless required for QKL-China’s normal business operations, (iv) incurring or succeeding to any debts and liabilities, (v) entering into any material contract (exceeding RMB

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5.0 million, or approximately $0.7 million, in value); (vi) providing any loan or guarantee to any third party; (vii) acquiring or consolidating with any third party, or investing in any third party; and (viii) distributing any dividends to the shareholders in any manner. In addition, the Loan Agreement provides that at Speedy Brilliant (Daqing)’s request, QKL-China will promptly distribute all distributable dividends to its shareholders.

The funds that Speedy Brilliant (Daqing) used to make the loan came from the proceeds received by us, its indirect parent company, in the private placement transaction completed in March 2008.

Exclusive Purchase Option Agreement

The Exclusive Purchase Option Agreement, among Speedy Brilliant (Daqing), QKL-China, and all of the shareholders of QKL-China, provides that QKL-China will grant Speedy Brilliant (Daqing) or its designated third party an irrevocable and exclusive right to purchase all or part of QKL-China’s assets, and the shareholders of QKL-China will grant Speedy Brilliant (Daqing) or its designated third party an irrevocable and exclusive right to purchase all or part of their equity interests in QKL-China. Either right may be exercised by Speedy Brilliant (Daqing) in its sole discretion at any time that the exercise would be permissible under PRC law, and the purchase price for Speedy Brilliant (Daqing)’s acquisition of equity or assets will be the lowest price permissible under PRC law. QKL-China and its shareholders are required to execute purchase agreements and related documentation within 30 days of receiving notice from Speedy Brilliant (Daqing) that it intends to exercise its right to purchase.

The Exclusive Purchase Option Agreement contains promises from QKL-China and its shareholders that they will refrain from taking actions, such as voting to dissolve or declaring dividends, that could impair Speedy Brilliant (Daqing)’s security interest in the equity of QKL-China or reduce its value. These promises are substantially the same as those contained in the Loan Agreement described above.

The agreement will remain effective until Speedy Brilliant (Daqing) or its designees have acquired 100% of the equity interests of QKL-China or substantially all of the assets of QKL-China. The exclusive purchase options were granted under the agreement on the closing date.

Equity Pledge Agreement

The Equity Pledge Agreement, among Speedy Brilliant (Daqing), QKL-China, and all of the shareholders of QKL-China, provides that the shareholders of QKL-China will pledge all of their equity interests in QKL-China to Speedy Brilliant (Daqing) as a guarantee of the performance of the shareholders’ obligations and QKL-China’s obligations under each of the other PRC Restructuring Agreements. Under the Equity Pledge Agreement, the shareholders of QKL-China have also agreed (i) to cause QKL-China to have the pledge recorded at the appropriate office of the PRC Bureau of Industry and Commerce, (ii) to deliver any dividends received from QKL-China during the term of the agreement into an escrow account under the supervision of Speedy Brilliant (Daqing), and (iii) to deliver QKL-China’s official shareholder registry and certificate of equity contribution to Speedy Brilliant (Daqing).

The Equity Pledge Agreement contains promises from QKL-China and its shareholders that they will refrain from taking actions, such as voting to dissolve or declaring dividends, that could impair Speedy Brilliant (Daqing)’s security interest in the equity of QKL-China or reduce its value. These promises are substantially the same as those contained in the Loan Agreement described above.

Completion of the PRC Restructuring

The PRC restructuring transaction closed on March 28, 2008 and after the closing date, Speedy Brilliant (Daqing) completed all required post-closing steps, including the payment and verification of all the installments of Speedy Brilliant (Daqing)’s registered capital.

The remaining portion of Speedy Brilliant (Daqing)’s registered capital was contributed and verified by August 1, 2009, two years after the issuance of its business license.

Share Exchange Transaction

In the share exchange transaction, Forme acquired control of Speedy Brilliant (BVI), a British Virgin Islands holding company and the parent company of Speedy Brilliant (Daqing), by issuing to the stockholders of Speedy Brilliant (BVI) shares of common stock in exchange for all of the outstanding capital stock of

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Speedy Brilliant (BVI). The stockholders of Speedy Brilliant (BVI) with whom we completed the share exchange were (i) the majority holder, Winning State International Limited, a British Virgin Islands holding company (“Winning State (BVI)”) all of whose stock may be acquired in the future by our Chief Executive Officer, Mr. Zhuangyi Wang, pursuant to a currently exercisable call option held by Mr. Wang and (ii) three minority stockholders, Ms. Fang Chen, Mr. Yang Miao, and Ms. Ying Zhang.

Share Exchange Agreement

On March 28, 2008, Forme entered into a share exchange agreement with (i) Speedy Brilliant (BVI); (ii) Speedy Brilliant (Daqing); (iii) the owners of all of the outstanding voting stock of Speedy Brilliant (BVI), namely (a) Winning State (BVI) (a company that is wholly owned and controlled by Mr. Chin Yoke Yap (all of whose stock may be acquired by our CEO, Mr. Zhuangyi Wang, pursuant to a currently exercisable call option held by Mr. Wang)), which owned approximately 98.5% of the Speedy Brilliant (BVI) stock, and (b) three individuals, Ms. Fang Chen, Ms. Yang Miao and Ms. Ying Zhang, who collectively owned approximately 1.5% of the Speedy Brilliant (BVI) stock; and (iv) Forme’s then controlling stockholders, Vision Opportunity China LP, Stallion Ventures, LLC, and Castle Bison, Inc. Under the terms of the share exchange agreement, the Speedy Brilliant (BVI) stockholders exchanged all of the outstanding shares of Speedy Brilliant (BVI) for a total of 19,382,298 newly issued shares of Forme common stock. As a result of the share exchange, Forme acquired Speedy Brilliant (BVI) as a wholly owned subsidiary, and the Speedy Brilliant (BVI) stockholders became holders of 92.8% of our common stock on a non-diluted basis (64.6% of our common stock assuming conversion of our newly-issued Series A Preferred Stock and 46.3% of our common stock assuming conversion of our newly-issued Series A Preferred Stock and exercise of all of the Series A Warrants and Series B Warrants).

In the PRC restructuring transaction described above, Speedy Brilliant (BVI) gained control of our operating company, QKL-China. Therefore, when we acquired control of Speedy Brilliant (BVI) in the share exchange, we acquired indirect control of QKL-China. As a result, at the time of the share exchange, (i) we ceased to be a shell company as that term is defined in Rule 12b-2 under the Exchange Act, (ii) Speedy Brilliant (BVI) became our wholly owned subsidiary, and (iii) through our newly-acquired indirect subsidiary Speedy Brilliant (Daqing) we now control, through the contractual arrangements described above.

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Our current structure, after completion of the reverse merger transaction, is set forth in the diagram below:

Private Placement Transaction

The other transaction we completed on March 28, 2008 was a private placement in which we raised funds through a private sale of securities that was exempt from the registration requirements under Section 4(2) of the Securities Act as a result of our compliance with Rule 506 of Regulation D promulgated under the Securities Act. In the private placement we sold to certain accredited investors, for gross proceeds to us of $15.5 million, 9,117,647 units, each unit consisting of one share of Series A Preferred Stock (each of which is convertible into one share of our common stock), one Series A Warrant and one Series B Warrant (each of which is exercisable for 0.625 shares of common stock).

The agreements through which the private placement were carried out are described in detail below, all of which were entered into on March 28, 2008 unless otherwise indicated.

Securities Purchase Agreement

The securities purchase agreement among Vision Opportunity Master Fund Ltd. (“Vision Master”), Vision Opportunity China Fund Limited (together with Vision Master, “Vision”) and certain other investors listed in Exhibit A thereto involved the sale of an aggregate of 9,117,647 units, each unit consisting of one share of Series A Preferred Stock, one Series A Warrant and one Series B Warrant. The closing of the private placement transaction and the securities purchase agreement was contingent upon and dependent on the closing of the reverse merger transaction. Each share of Series A Preferred Stock is convertible into one share of common stock subject to adjustment as described below. Each warrant is exercisable for 0.625 shares of common stock or an aggregate of up to 11,397,058 shares of common stock. The Series A Warrants are exercisable for up to 5,698,529 shares of common stock and have an exercise price of $3.40 per share, subject to adjustment. The Series B Warrants are exercisable for up to 5,698,529 shares of common stock and have an exercise price of $4.25 per share, subject to adjustment. The warrants expire on March 28, 2013, which is five years from the date of issuance.

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The terms of our Series A Preferred Stock are set forth in a Certificate of Designations, which we filed with the Secretary of State of the State of Delaware on March 13, 2008. For more information regarding the material terms of Series A Preferred Stock, see the section of this prospectus entitled “Description of our Securities” under the subheadings “Preferred Stock” and “Terms of Series A Preferred Stock.”

Securities Escrow Agreement

The securities escrow agreement among Vision, as representative of the purchasers under the securities purchase agreement, Winning State (BVI), and Loeb & Loeb LLP, as escrow agent, was entered into as an inducement to the purchasers to enter into the securities purchase agreement. Winning State (BVI) agreed to deliver 18,235,294 shares of our common stock owned by Winning State (BVI) as escrow shares (the “Escrow Shares”) to the escrow agent for the benefit of the purchasers, and to deliver some or all of those shares to the purchasers in the event the Company fails to achieve certain financial performance thresholds for the 12-month periods ending December 31, 2008 and December 31, 2009.

The financial performance thresholds for 2008 required that the Company achieve (i) both net income and cash from operations greater than $9.4 million and (ii) fully diluted earnings per share equal to or greater than $0.23. Under the terms of the agreement these thresholds were met if the Company achieved at least 95% thereof. The Company reported net income of $9.0 million, cash from operations of $18.7 million and diluted earnings per share of $0.29 for 2008, and therefore the thresholds for 2008 were met by the Company. Accordingly, all of the Escrow Shares remain in escrow, pending the performance of the 2009 performance thresholds described below.

The financial performance thresholds for 2009 will be satisfied if the Company achieves (i) both net income and cash from operations of greater than $11.2 million and (ii) fully diluted earnings per share of $0.27. At June 30, 2009, the Company had net income of $6.0 million, cash from operations of $7.2 million and fully diluted earnings per share of $0.20.

If we achieve less than 50% of any of the 2009 financial performance thresholds set forth above, then all of the Escrow Shares will be delivered to the purchasers and distributed to them ratably according to the number of shares of Series A Preferred Stock that each of them holds at that time.

If we achieve at least 50%, but less than 95%, of any of the 2009 performance thresholds set forth above, then the escrow agent will deliver to the purchasers a percentage of the escrow shares determined by doubling the percentage by which the 2009 performance threshold was not achieved. The remaining escrow shares, if any, will then be returned to Winning State (BVI).

If we achieve at least 95% of each of the 2009 performance thresholds, all of the 2009 escrow shares will be returned to Winning State (BVI).

For purposes of determining the performance thresholds described above, fully diluted earnings per share was calculated by (x) dividing the lesser of net income and cash from operations, as reported in our 2008 financial statements plus any amounts that may have been recorded as charges or liabilities on the 2008 financial statements due to the application of Emerging Issues Task Force Issue No. 00-19 that are associated with (1) any outstanding warrants issued in connection with the Securities Purchase Agreement or (2) any liabilities created as a result of the escrow shares being released to any of our officers or directors by (y) the aggregate number of shares of our then outstanding common stock on a fully-diluted basis which number includes, without limitation, the number of shares of common stock issuable upon conversion of the then outstanding shares of Series A Preferred Stock and the number of shares of common stock issuable upon the exercise of any then outstanding preferred stock, warrants or options of the Company.

Also under the securities escrow agreement, if we fail to list our common stock on the NASDAQ Capital Market, NASDAQ Global Select Market or NASDAQ Global Market or the New York Stock Exchange prior to March 28, 2010, one million shares of common stock owned by Winning State (BVI) will be distributed to the purchasers in the private placement on a pro rata basis. On October 21, 2009, our common stock was listed on the NASDAQ Capital Market.

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Investor and Public Relations Escrow Agreement

We also entered into an investor and public relations agreement with Vision Opportunity China LP, as representative of the purchasers under the securities purchase agreement, and Loeb & Loeb LLP, as escrow agent. Under the agreement, $300,000 of the proceeds of the private placement was deposited into an escrow account with Loeb & Loeb LLP for use in investor and public relations.

Settlement Agreement

On January 22, 2008, QKL terminated its engagement agreement with Kuhns Brothers to provide QKL with investment banking services, on an exclusive basis, with respect to the private placement transaction and the share exchange transaction, and the parties executed a settlement agreement. Under the terms of the settlement agreement, we were required to pay Khuns Brothers (i) a cash fee equal to 8.5% of the gross proceeds invested in the financing by investors introduced to the Company by Kuhns Brothers, Inc. (“Introduced Investors”), and (ii) warrants to purchase up to a number of shares of common stock of the Company equal to 8.5% of the dollar amount of the shares purchased by the Introduced Investors divided by the per-share purchase price of the common stock or preferred stock in the financing. The warrants have the same terms as warrants received by the Introduced Investors. Accordingly, Kuhns Brothers received $1,300,500 Series A Warrants to purchase 191,250 shares of our common stock and Series B Warrants to purchase 153,000 shares of our common stock.

Lock-Up Agreement

In connection with the private placement we also entered into an agreement with Winning State (BVI) under which, in order to induce Forme to enter into the share exchange agreement, certain stockholders including Mr. Zhuangyi Wang, our CEO and Mr. Xudong Wang, our former CFO, agreed that (i) they would not sell or transfer any shares of our common stock until at least 12 months after the effective date of a registration statement filed with the SEC registering for resale the shares of common stock underlying the Series A Preferred Stock issued in the private placement transaction and (ii) for an additional 24 months after the end of that 12 month period, would not sell or transfer more than one-twelfth of its total shares of that common stock during any one month. To date, only 687,399 of the 9,117,647 shares of common stock underlying the series A Preferred Stock have been registered for resale.

Agreements Executed in Connection with the Offering

Waiver to Registration Rights Agreement

On October 16, 2009, Vision Opportunity China LP, as representative of the purchasers listed on Schedule I to the Registration Rights Agreement dated as of March 28, 2008, agreed to waive the notice and piggyback registration rights provided by the Registration Rights Agreement solely with respect to this offering.

Waiver to Securities Purchase Agreement

On October 16, 2009, Vision Opportunity China LP, as representative of the purchasers listed on Schedule A to the Securities Purchase Agreement dated as of March 28, 2008, agreed to waive the notice and preemption rights provided by the Securities Purchase Agreement, solely with respect to this offering.

Amendment to Securities Escrow Agreement

On October 15, 2009, we entered into an Amendment to Securities Escrow Agreement, amending the Securities Escrow Agreement dated March 28, 2008, by and among the Company, Vision Opportunity China LP as representative of the Purchasers, Winning State Investment Limited and Loeb & Loeb LLP, as escrow agent, to revise the definition of “Net income” and “Cash from Operations” for the fiscal year ended December 31, 2009 to exclude the one time non-recurring cash expenses incurred by us in connection with this offering and the transactions contemplated by this offering that were not contemplated by the Securities Escrow Agreement.

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Lock-Up Letters

On October 15, 2009, in connection with the offering and in order to induce Roth Capital Partners, LLC to act as our underwriter, each of our directors and executive officers, and Winning State (BVI) agreed that, without the prior written consent of Roth Capital Partners, LLC, they would not, during the period commencing on October 15, 2009 and ending 180 days after the date of the final prospectus relating to this offering (i) either directly or indirectly sell, pledge, lend or transfer any shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock, subject to certain exclusions, or (ii) make any demand for or exercise any right with respect to the registration of any shares of common stock or any security convertible into or exercisable or exchangeable for shares of common stock.

Vision Opportunity China LP has agreed to enter into a 90-day lock-up agreement with Roth Capital Partners, LLC at the closing of the offering.

Our Corporate Structure

Our current corporate structure, assuming conversion of all outstanding shares of Series A Preferred Stock into common stock, is set forth in the diagram below. Solid lines indicate equity ownership; dashed lines indicate contractual relationships.

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DIRECTORS AND EXECUTIVE OFFICERS

Our current executive officers and directors as of the date of this prospectus are as follows:

Directors and Executive Officers		Position/Title		Age
Zhuangyi Wang		Chief Executive Officer, Director		49
Crystal L. Chen		Chief Financial Officer		35
Alan D. Stewart		Chief Operating Officer		66
Limin Zheng		Director		46
Gary B. Crook		Director		56
Zhiguo Jin		Director		53
Chaoying Li		Director		38

In connection with the change in control of the Company, which occurred as a result of the reverse merger transaction in March 2008, we appointed Mr. Zhuangyi Wang as our Chairman and Chief Executive Officer and each of Mr. Zhuangyi Wang and Ms. Limin Zheng as directors. Alan D. Stewart was appointed as our Chief Operating Officer on August 6, 2008. Crystal L. Chen joined the Company as the Vice President of Finance on February 6, 2009, and was appointed as our Chief Financial Officer effective April 30, 2009.

Messrs. Crook, Stewart and Ms. Chen are citizens of the United States, and Messrs. Wang, Jin and Li and Ms. Zheng are residents of the PRC. With respect to the directors and officers located in the PRC, it may be difficult for investors to effect service of process within the United States upon any of them or to enforce court judgments obtained against them in the United States courts. See the section of this prospectus entitled “Service of Process and Enforcement of Judgments.”

The following is a summary of the biographical information of our directors and officers. Any gap in employment background of an individual indicates that during the gap, the individual did not obtain work experience relevant to his or her role as an officer or director.

Mr. Zhuangyi Wang is the founder of QKL-China and since its inception in 1998 has been its Chief Executive Officer and Chairman of its Board of Directors. From 1998 to the present, Mr. Wang has also worked as the store manager of one of our supermarket stores. Mr. Wang received his bachelors degree from Heilongjiang Radio & TV University in 1984.

Ms. Crystal L. Chen was appointed as our Chief Financial Officer effective May 5, 2009 and was previously our Vice President, Finance from February 2009 until her appointment as Chief Financial Officer. Ms. Chen is an active United States Certified Public Accountant with approximately 10 years of experience in accounting and finance. From November 2007 to January 2009, she was the managing partner of United International Accounting Corporation, an accounting firm providing auditing and accounting services. From November 2007 to October 2008 she served as a consultant to Zhong Wang Aluminum, an entity affiliated with PC Aluminum Enterprises, Inc., a California-based aluminum wholesaler, and from September 2008 to October 2008 served as Chief Financial Officer of PC Aluminum. While as a consultant to Zhong Wang Aluminum and as Chief Financial Officer of PC Aluminum, she oversaw accounting, treasury, tax and financial planning and analysis for PC Aluminum. From August 2006 to March 2007, Ms. Chen was an accountant at PricewaterhouseCoopers LLP, and, from 1999 to 2005, she worked from an entry level accountant to a supervising senior accountant at Simon & Edward LLP, a registered public accounting firm in California. During her tenure at Simon & Edward, PricewaterhouseCoopers and PC Aluminum Enterprises, Ms. Chen gained extensive experience in both United States domestic and multinational operations along with corporate and operational exposure ranging from accounting and finance, strategic planning and forecasting, internal controls (including Sarbanes-Oxley Section 404 compliance) public accounting, auditing and SEC reporting for public companies. She received her MBA in Finance from California State University, Los Angeles in 2002. Ms. Chen is fluent in both English and Chinese.

Mr. Alan D. Stewart was appointed as our Chief Operating Officer on August 6, 2008. From 2006 to 2008, Mr. Stewart served as General Hypermarket Manager of Fairprice Co-operative Ltd., a multi-format retailer in Singapore. From 2004 to 2006, Mr. Stewart served as Hypermarket Director at PT Matahari Putra Prima Tbk., a multi-format retailer in Indonesia. From 2001 to 2004, Mr. Stewart served as CEO of the Supermarket Division, Director of Hypermarkets, and Marketplace Director of PT Matahari Putra Prima.

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Mr. Stewart received his degree in 1963 from Mt. San Antonio College in 1963, the Advanced Management Program at Harvard Business School in 1986, and the Restaurant Executive Program of Cornell University in 1998.

Ms. Limin Zheng has been a director of QKL-China since 1998. Ms. Zheng worked as a financial manager in the Daqing Sartu Grain Administration from 1983 to 1989. Ms. Zheng earned her Financial Planner Certificate from Harbin Normal University in 1991. Ms. Zheng is the wife of our CEO.

Mr. Gary Crook was appointed chairman of audit committee of the Company in September of 2009. Mr. Crook has been a financial consultant since 2005. Previous engagements included various financial projects for private companies as well as roles as acting CFO at a publicly traded alternative energy company and a privately held professional sports and broadcasting firm. Prior to these roles, he was Senior Vice President of Operations with the INTEQ Group, Inc. from 2000 to 2005 and Senior Vice President and Chief Financial Officer of SOS Staffing Services, Inc. from 1995 to 2000. Mr. Crook served as Vice President and Controller at Food 4 Less Supermarkets in La Habra, California, was the VP and Controller of Alpha Beta Company from 1986 to 1991, and served in various positions in American Stores Company in Salt Lake City in Utah from 1979 to 1986. He also served as an independent director and chairman of the audit committee at Q Comm International, Inc., a technology company traded on the American Stock Exchange, from 2004 until the company was sold in 2007. Mr. Crook has a Bachelor’s degree in Business Economics and MBA from the University of Utah.

Mr. Zhiguo Jin was appointed as a director of the Company in September of 2009. Mr. Jin has been the Chairman of Tsingtao Brewery Company Limited since June 2008. He joined Tsingtao Beer in 1975. He became the Vice-chairman and President of Tsingtao Brewery in July 2001. Mr. Jin was profiled as one of the top 10 prominent figures in business by CCTV in 2007. Mr. Jin has spent his entire career with Tsingtao Beer Group, Ltd. He received a PhD in Natural Science from Qingdao University and an EMBA from the China Europe International Business School (CEIBS).

Mr. Chaoying Li was appointed as a director of the Company in September of 2009. Mr. Li is a founding partner of the Han Kun Law Offices, where he has worked since January 2005. Mr. Li specializes in foreign direct investment, mergers and acquisitions, public and private financings (equity and debt), incorporation and corporate restructuring, as well as intellectual property protection. From August 2001 to December 2004, he was a partner at T&C Law Offices in Beijing. Prior to that, he was a founder and general counsel of Bookoo, Inc., a pioneer in the e-book marketplace and one of the first Internet companies in Greater China to emphasize the management of intellectual property rights. Before founding Bookoo, Mr. Li spent over four years working for Cha & Cha, an international law firm. Mr. Li received a Bachelor of Science in Mathematics in 1995, a Bachelor of Laws in 1996 and a Master of Laws from Peking University. In 2003, he also obtained a Master of Laws from University of Ottowa. Mr. Li has written numerous academic and professional articles that have been widely published internationally and in Mainland China, Taiwan and Hong Kong.

All of our directors will hold their positions on the board until our next annual meeting of the stockholders and until their respective successors have been elected or appointed. Officers serve at the discretion of the board of directors.

Limin Zheng, a director, is the wife of our Chief Executive Officer and director, Zhuangyi Wang. There are no other family relationships among our directors and executive officers. There is no arrangement or understanding between or among our executive officers and directors pursuant to which any director or officer was or is to be selected as a director or officer, and there is no arrangement, plan or understanding as to whether non-management shareholders will exercise their voting rights to continue to elect the current board of directors.

Our directors and executive officers have not, during the past five years:

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Corporate Governance

Board of Directors

We have five members serving on our Board of Directors, a majority of which are considered “independent directors” as defined under NASDAQ Marketplace Rules. All actions of the Board of Directors require the approval of either a majority of the directors in attendance at a meeting, duly called and noticed, at which a quorum is present or the unanimous written consent of all of the members of the Board of Directors. From March 2008 until September 14, 2009, the Board consisted solely of Mr. Wang and his wife, Ms. Limin Zheng. In 2008, our Board of Directors met in person one time and acted by written consent three times.

Board Committees

The Board of Directors has an audit committee, a nominating and corporate governance committee and a compensation committee, each of which was formed on September 14, 2009.

Audit Committee

Our audit committee consists of Messrs. Crook, Jin and Li, each of whom is considered “independent” under Rule 5605(a)(2) of the NASDAQ Marketplace Rules as determined by our Board of Directors. The audit committee recommends to the Board of Directors the annual engagement of a firm of independent accountants and reviews with the independent accountants the scope and results of audits, our internal accounting controls and audit practices and professional services rendered to us by our independent accountants. The audit committee operates under a written charter. Mr. Crook is the Chairman of our audit committee.

The Board of Directors determined that Mr. Crook possesses accounting or related financial management experience that qualifies him as financially sophisticated within the meaning of Rule 4350(d)(2)(A) of the Nasdaq Marketplace Rules and Section 803 of the NYSE Amex Company Guide and that he is an “audit committee financial expert” as defined by the rules and regulations of the SEC.

Nominating and Corporate Governance Committee

The purpose of the nominating and corporate governance committee is to assist the Board of Directors in identifying qualified individuals to become members of our Board of Directors, in determining the composition of the Board of Directors and in monitoring the process to assess Board effectiveness. Each of Messrs. Crook, Jin and Li are members of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee operates under a written charter. Mr. Jin is the Chairman of Nominating and Corporate Governance Committee.

Compensation Committee

The compensation committee is responsible for (a) reviewing and providing recommendations to the Board of Directors on matters relating to employee compensation and benefit plans, and (b) assisting the Board in determining the compensation of the chief executive officer and making recommendations to the Board with respect to the compensation of the chief financial officer, other executive officers of the Company and independent directors. Each of Messrs. Crook, Jin and Li are members of the Compensation Committee. The Compensation Committee operates under a written charter. Mr. Li is the Chairman of Compensation Committee.

Code of Ethics

We adopted a Code of Business Conduct and Ethics on February 6, 2009. The Code of Ethics, in accordance with Section 406 of the Sarbanes-Oxley Act of 2002 and Item 406 of Regulation S-K, constitutes

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our Code of Ethics for our principal executive officer, our principal financial and accounting officer and our other senior financial officers. The Code of Ethics is intended to promote honest and ethical conduct, full and accurate reporting, and compliance with laws as well as other matters. A printed copy of the Code of Ethics may be obtained free of charge by writing to us at QKL Stores Inc., Jingqi Street, Dongfeng Xincun, Sartu District 163311 Daqing, P.R. China.

EXECUTIVE COMPENSATION

The following is a summary of the compensation we paid to persons who served as our chief executive officer and chief financial officer during the years ended December 31, 2008 and December 31, 2007. Except as listed below, no executive officer received compensation in excess of $100,000 for any of the two years listed below.

Name and Principal Position		Year				Salary ($)(1)(6)				Bonus ($)				Stock Awards ($)(6)				Option Awards ($)				Non-Equity Incentive Plan Compensation ($)				Nonqualified Deferred Compensation Earnings ($)				All Other Compensation ($)				Total ($)(6)
Zhuangyi Wang, CEO(2)			2008				18,980				-0-				-0-				-0-				-0-				-0-				-0-				18,980
			2007				8,770				-0-				-0-				-0-				-0-				-0-				-0-				8,770
John Vogel, former CEO(3)			2008				-0-				-0-				-0-				-0-				-0-				-0-				-0-				-0-
			2007				-0-				-0-				9,450				-0-				-0-				-0-				-0-				9,450
Xudong Wang, CFO(4)			2008				-0-				-0-				-0-				-0-				-0-				-0-				-0-				-0-
			2007				-0-				-0-				-0-				-0-				-0-				-0-				-0-				-0-
Alan D. Stewart, COO(5)			2008				95,650				-0-				-0-				-0-				-0-				-0-				-0-				95,650
			2007				-0-				-0-				-0-				-0-				-0-				-0-				-0-				-0-

Outstanding Equity Awards at 2008 Fiscal Year End

There were no outstanding options, no outstanding stock awards (vested or unvested) and no other equity plan awards as of December 31, 2008.

Option Exercises and Stock Vesting during 2008

None.

Employment Agreements

We have signed standard Chinese employment agreements as required by PRC Labor Contract Law with all of our employees, including executive officers, which have a term of two to five years.

Mr. Zhuangyi Wang entered into a two-year agreement on October 1, 1998 with QKL-China, which was renewed every two years until October 1, 2008. The current contract was signed in 2008 for five-year term and a salary of RMB 40,000 ($5,845) per month.

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Mr. Alan Stewart entered into a two-year agreement on July 1, 2008 with QKL-China for a salary of RMB 109,120 ($15,946) per month. The Board of Directors has determined that Mr. Stewart is also entitled on the anniversary of his employment at the Company to receive a warrant to purchase 10,000 shares of the Company’s common stock at an exercise price of $1.70 per share. The warrant will be exercisable immediately on issuance.

Crystal Chen entered into a two-year agreement effective on February 5, 2009 with QKL-China for a salary of RMB 80,000 ($11,690) per month. The Board of Directors has determined that Ms. Chen is also entitled on the first anniversary of her employment at the Company to receive a warrant to purchase no less than 5,000 shares of the Company’s common stock at an exercise price of $1.70 per share. The warrant will be exercisable immediately upon issuance.

Compensation Discussion and Analysis

We intend to provide our named executive officers (as defined in Item 402 of Regulation S-K) with a competitive base salary that is in line with their roles and responsibilities when compared to peer companies of comparable size in similar locations.

It is not uncommon for PRC private companies in northeastern China to have base salaries as the sole form of compensation. The base salary level is established and reviewed based on the level of responsibilities, the experience and tenure of the individual and the current and potential contributions of the individual. The base salary is compared to the list of similar positions within comparable peer companies and consideration is given to the executive’s relative experience in his or her position. Base salaries are reviewed periodically and at the time of promotion or other changes in responsibilities.

We plan to implement a more comprehensive compensation program, which takes into account other elements of compensation, including, without limitation, short and long term compensation, cash and non-cash, and other equity-based compensation such as stock options. We expect that this compensation program will be comparable to the programs of our peer companies and aimed to retain and attract talented individuals.

We have a compensation committee to oversee the compensation of our named executive officers. The majority of the members of the compensation committee are independent directors.

Additional Narrative Disclosure

We have no plans that provide for the payment of retirement benefits or benefits that will be paid primarily following retirement, including, but not limited to, tax qualified defined benefit plans, supplemental executive retirement plans, tax qualified defined contribution plans and non-qualified defined contribution plans.

There are no contracts agreements, plans or arrangements, whether written or oral, that provide for payment to a named executive officer at, following, or in connection with the resignation, retirement or other termination of a named executive officer or a change in control of the Company or a change in the executive officers responsibilities following a change in control, with respect to each named executive officer.

Compensation of Directors

None of our directors were compensated for serving as directors during the fiscal year ended December 31, 2008. Our non-independent directors are not compensated for their service as directors.

On September 14, 2009, we entered into agreements with each of our three independent directors. The agreements provide for annual cash compensation of $15,000. In addition, on September 14, 2009 we granted stock purchase options to each of the three newly appointed independent directors to purchase 20,000 shares of common stock at an exercise price of $7.50 per share (the stock price at the date of the grant). The options vest and become exercisable in three approximately equal amounts on the three subsequent anniversary dates of the grant. The board of directors approved such grants.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information with respect to the beneficial ownership of our voting securities by (i) any person or group owning more than 5% of each class of voting securities, (ii) each director, (iii) each executive officers and (iv) all executive officers and directors as a group, as of October 28, 2009.

Name and Address of Beneficial Owner		Amount and Nature of Beneficial Ownership(1) Common Stock				Percentage of Class(1)(2) Common Stock
Owners of More than 5% of Class
Winning State International Ltd Road Town, Tortola VG1110 British Virgin Islands(3)			19,082,299				84.76	%
Mr. Yoke Chin Yap(4) c/o Winning State Intl Ltd. Road Town, Tortola VG1110 British Virgin Islands			19,082,299				84.76	%
Directors and Executive Officers(5)
Mr. Zhuangyi Wang (director and CEO)(6)			19,082,299				84.76	%
Ms. Limin Zheng (director)(7)			0				0
Mr. Alan Stewart (COO)
Ms. Crystal Chen (CFO)			0				0
Mr. Gary Crook (Independent Director)			0				0
Mr. Zhiguo Jin (Independent Director)			0				0
Mr. Chaoying Li (Independent Director)			0				0
All Directors and Executive Officers (7 persons)			19,082,299				84.76	%

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Since January 1, 2007, we have engaged in the following transactions with our directors, executive officers, holders of more than five percent of our voting securities, and affiliates of our directors, executive officers and five-percent stockholders.

Transactions With Vision

The largest investor in the private placement transaction that closed in March 2008 was Vision Opportunity China LP (“Vision”), a party related to us as described below. For more information about the transaction and the agreements governing the transaction, see the section of this prospectus entitled “Reverse Merger and Private Placement” above.