SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C.20549
 FORM 10-Q

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

For the quarterly period ended September 30, 2012

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

Commission File Number:  0-34713

MATCHES, INC.
 (Exact name of registrant as specified in its charter)

Wyoming

68-0664590

(State or other jurisdiction

(IRS Employer

of incorporation or

Identification No.)

organization)

c/o Suzhou Jinkai Textile Co.,Ltd., Yongle Development Zone,

HuangjingTown, Taicang City, Jiangsu Province, China, 215427
(Address of principal executive offices) (Zip Code)

(86)-512-53818777

(Registrant's telephone number)

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

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

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

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

The number of shares outstanding of the issuer's one class of Common Stock as of November 14, 2012 was 78,525,000.

TABLE OF CONTENTS

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MATCHES, INC.AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Note: In December 2010, the Company agreed to issue 170,948,684 shares of common stock in a transaction of share exchange, due to a shortage of currently authorized shares, 70,000,000 shares were issued at the closing of this transaction. Prior to share exchange, the Company has 8,525,000 shares of common stock issued and outstanding, see Note 1 and Note 21 for details)

See notes to the consolidated financial statements.

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MATCHES, INC.AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Note: pro forma earnings per share reflects the effect from 100,948,684 shares of common stock to be issued and authorized as of September 30, 2012 and December 31, 2011, respectively, see Note 1 and Note 24 for details)

See notes to the consolidated financial statements.

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MATCHES, INC.AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

See notes to the consolidated financial statements

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MATCHES, INC.AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Organization and Description of Business

Matches, Inc. (the “Company”) was incorporated pursuant to the laws of the State of Wyoming on November 28, 2007. On December 17, 2010, the Company entered into an Agreement and Plan of Reorganization (the “Exchange Agreement”), pursuant to which we agreed to acquire Golden Stone Rising Limited, a British Virgin Islands company (“Golden”). Golden, through its subsidiaries and controlled operations in the People’s Republic of China (the “PRC” or “China”), is in the business of producing polyester chemical fibers.  

The transaction closed on December 22, 2010 the (“Closing Date”). On the Closing Date, pursuant to the terms of the Exchange Agreement, the Company acquired Golden by agreeing to issue 170,948,684 shares of common stock of the Company, constituting 95.25% of the Company’s shares, to Golden’s owners after giving effect to the issuance of such shares. Due to a shortage of currently authorized shares, 70,000,000 shares were issued at the closing of the acquisition and the remaining shares will be issued at such time as the Company has completed an amendment to its articles to increase its authorized shares or the Company completes a contemplated reverse stock split, which will not affect the total authorized shares.  The stockholder entitled to the additional shares owns a majority of the outstanding common shares, which entitles her to approve the amendment or the reverse stock split. Golden’s owners waived the right to receive the remaining shares as the condition of closing the transaction, subject to being able to receive them at some future time. As of September 30, 2012, 78,525,000 shares are issued and outstanding and 100,948,684 shares are pending to be authorized and issued. These shares have been recorded in the balance sheets as common stock to be authorized and issued.

TaicangKehui Consulting Service Limited (“Kehui”) was incorporated under the laws of PRC as the wholly owned subsidiary of Triple Success Holding LLC (“Triple Success “) on October 22, 2010. Triple Success was incorporated in United States of America as a limited liability company on May 25, 2010, and is a wholly owned subsidiary of Golden.

Suzhou Jinkai Textile Co., Ltd (“Jinkai”) was organized under the laws of the  PRC on April 17, 2001 with registered capital of $60,401 (RMB 500,000). By the end of 2007, the owners made a further capital injection to increase the registered  capital to $7,140,958(RMB56,000,000), which was 90% owned by Mr. Chen Jinle, the Companies’ chairman, and 10% owned by Mr. Chen Chenxu, Mr. Chen Jinle’s nephew. In 2008, the owners injected further capital of $1,459,769 (RMB10,000,000) in Jinkai.

Suzhou Hangyu Textile Co., Ltd (“Hangyu”) was organized under the laws of PRC on January 11, 2006 with registered capital of $2,279,343 (RMB18,000,000), which was 90% owned by Mr. Chen Jinle, and 10% owned by Mr. Chen Chenxu. On January 28, 2010, Mr. Chen Jinle and Mr. Chen Chenxu, the two shareholders of Hangyu, each signed Share Transfer Agreements (the “Agreements”) with Jinkai. Pursuant to the Agreements, Mr. Chen Jinle and Mr. Chen Chenxu transferred their total equity interest of Hangyu, representing 90% and 10%, respectively, to Jinkai as as capital injection. Jinkai increased its registered capital from $8,600,727 (RMB66,000,000) to $11,465,122 (RMB88,000,000), Therefore, Hangyu became a wholly owned subsidiary of Jinkai as of January 28, 2010.

TaicangJinkai Differentiated Fibers Research and Development Co., Ltd (“TaicangJinkai”) was established on April 25, 2008 with registered capital of $146,088 (RMB1,000,000); it is a wholly owned subsidiary of Jinkai.

On February 2, 2010, Suzhou Zhongxian Supply Chain Management Co., Ltd (“Zhongxian”), a new subsidiary of Jinkai, was organized under the laws of the PRC with registered capital of $1,170,104 (RMB 8,000,000). On the date of inception, Jinkai owned 20% and Mr. Chen Jinle owns 30% of Zhongxian’s equity interest. In April 2010, Mr. Chen Jinle and another individual owner of Zhongxian transferred 10% and 25%, respectively, equity interest in Zhongxian to Jinkai for cash. Jinkai has owned a 55% equity interest of Zhongxian since then. In October 2011, Jinkai and other individual owners injected further capital of $1,098,849 (RMB7,000,000) in Zhongxian pro rata.  On December 26, 2011, Jinkai transferred 40% equity interest to Mr. Chen Jinle. Consequently, Jinkai’s equity interest in Zhongxian decreased from 55% to 15%, as a result, at December 31, 2011 Zhongxian was no longer consolidated and the Company’s investment in Zhongxian is accounted for under the cost method. This transaction is accounted for as transaction among entities under common control and no gain or loss was recognized.  

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Jiankai, together with its two subsidiaries, is engaged in the manufacturing and sale of terylene partially oriented filament and terylene draw textured yarn.  On November 20, 2010, Kehui entered into the following contractual arrangements with Suzhou Jinkai and its shareholders, providing Kehui the ability to control Jinkai, including its financial interest as described below. Thus, Jinkai became a contractually controlled subsidiary of Kehui (the “Reorganization”).

Entrusted Management Agreement-Pursuant to the Entrusted Management Agreement between Kehui, Jinkai and the Jinkai shareholders, Jinkai and its shareholders agreed to entrust the business operations of Jinkai and its management to Kehui until Kehui acquires all of the assets or equity of Jinkai (as more fully described under “Exclusive Option Agreement” below).  Under the Entrusted Management Agreement, Kehui manages Jinkai’s operations and assets, and controls all of Jinkai’s cash flow and assets through entrusted or designated bank accounts.  In turn, it is entitled to any of Jinkai’s net earnings as a management fee, and is obligated to pay all Jinkai’s debts to the extent Jinkai is not able to pay such debts.   The Entrusted Management Agreement will remain in effect until the acquisition of all assets or equity of Jinkai by Kehui is completed.

Shareholders’ Voting Proxy Agreement-Under the Shareholders’ Voting Proxy Agreement between Kehui and the Jinkai shareholders, the Jinkai shareholders irrevocably and exclusively appointed the board of directors of Kehui as their proxy to vote on all matters that require Jinkai shareholder approval.  The Shareholders’ Voting Proxy Agreement shall not be terminated prior to the completion of acquisition of all assets or equity of Jinkai by Kehui.

Exclusive Option Agreement-Under the Exclusive Option Agreement between Kehui, Jinkai and the Jinkai shareholders, the Jinkai shareholders granted Kehui an irrevocable exclusive purchase option to purchase all or part of the shares or assets of Jinkai.  The option is exercisable at any time but only to the extent that such purchase does not violate any PRC law then in effect.  The exercise price shall be determined by relevant agreements entered into by and between Kehui and Jinkai shareholders based on the circumstances of the option exercise, and such exercise price shall be refunded to Kehui or Jinkai.

 Shares Pledge Agreement-Under the Shares Pledge Agreement among Kehui, Suzhou Jinkai and the Jinkai shareholders, the Jinkai shareholders pledged all of their equity interests in Jinkai, including the proceeds thereof, to guarantee all of Kehui’s rights and benefits under the Entrusted Management Agreement, the Exclusive Option Agreement and the Shareholders’ Voting Proxy Agreement. Prior to termination of the Shares Pledge Agreement, the pledged equity interests cannot be transferred without Kehui’s prior consent.

Call Option Agreements-Chen Jinle and other several senior management and other parties (each of them, the “Purchaser”) have entered into call option agreements, dated as of November 30, 2010, with our major shareholder, Hung Tsui Mei, pursuant to which they are entitled to purchase up to 100% of the issued and outstanding shares of Hung Tsui Mei at a price of $0.0001 per share for a period of five years upon satisfaction of certain conditions.   These conditions are that (1) the Purchaser and Jinkai enter into a binding employment agreement for a term of not less than five years, the Purchaser will be entitled to purchase up to 40% of the total shares granted to the Purchaser; (2)  Suzhou Jinkai achieves  tax net income of not less than US$ 400,000 as determined under United States Generally Accepted Accounting Principles consistently applied (“US GAAP”) for the fiscal year ended December 31, 2010, the Purchaser will be entitled to purchase up to 40% of the total shares granted to the Purchaser; and (3)  Jinkai achieves not less than after tax net income of US$ 100,000 as determined under US GAAP for the period from January 1, 2011 to March 31, 2011. The shares covered under such call option agreements amount to 88% of all issued and outstanding shares as of this time, of which Chen Jinle will be entitled to purchase 35% of all issued and outstanding shares of Matches, Inc.

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As a result of these arrangements, Kehui maintains the ability to approve decisions made by Jinkai and is entitled to substantially all of the economic benefits of Jinkai. Therefore, Kehui is deemed to be the indirect sole interest holder of Jinkai and consolidates Jinkai from the date of the agreements in accordance with ASC 810-10, “Consolidation.” Jinkai’s controlling shareholder also substantially owned more than 50% of Golden at November 20, 2010. Golden and Jinkai were considered under common control at the date of Reorganization. Therefore the Reorganization was accounted for as a transaction between entities under common control in a manner similar to pooling of interests.

Details of the Company’s subsidiaries as of September 30, 2012 were as follows:

Note 2 - Summary of Significant Accounting Policies

Changes of reporting entity and basis of presentation

As a result of the Share Exchange on December 22, 2010, the former Golden shareholders acquired a majority of the common stock of the Company. The transaction was accounted for as a reverse merger whereby Golden was considered to be the accounting acquirer as its shareholders retained control of the Company after the Share Exchange, although the Company is the legal parent company. The share exchange was treated as a recapitalization of the Company. As such, Golden (and its historical financial statements) is the continuing entity for financial reporting purposes. Pursuant to the terms of the Share Exchange, the Company was delivered with no assets and no liabilities at time of closing. The financial statements have been prepared as if Golden had always been the reporting company and then on the share exchange date, had reorganized its capital stock.

The accompanying consolidated financial statements have been presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

In addition, these consolidated financial statements of the Company have been prepared on a going-concern basis which assumes that the Company will be able to realize assets and discharge liabilities in the normal course of business for the foreseeable future.

At September 30, 2012, the Company has a positive cash balance of $2,018,888 and negative working capital of $5,973,110. From inception through September 30, 2012 the Company has accumulated retained earnings of $1,323,877 and total equity of $ 16,441,918.

The Company plans to use cash generated from operations and proceeds from new bank loans to pay off all outstanding short-term bank loans for 2012. Upon maturity, the Company’s majority shareholder intends to provide sufficient working capital to allow the Company to repay the loan and fulfill its other payment obligations.

The Company believes that the estimated cash inflows from operations for the whole year of 2012, proceeds from additional bank loans, and the additional proceeds committed from its majority shareholder will be sufficient to meet the Company’s liquidity requirements for 2012. However, in the event of unforeseen circumstances, or unfavorable market or economic developments, the adequate capital is not available to us as required, or is not available on favorable terms; our business, financial condition and results of operations may be adversely affected.

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Principles of consolidation

The accompanying consolidated balance sheets as of September 30, 2012 and December 31, 2011 and the related consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2012 and cash flows for the nine months ended September 30, 2012 and 2011 include those of the Company and its subsidiaries. All transactions and balances between the Company and its direct or indirect owned subsidiaries have been eliminated upon consolidation.

Non-controlling interest represents the ownership interests in the subsidiary that are held by owners other than the parent. In December 2007,  “Non-controlling Interests in Consolidated Financial Statements ”  ASC Topic 810-10. ASC 810-10 requires that the non-controlling interest is reported in the consolidated statement of financial position within equity, separately from the parent’s equity and that net income or loss and comprehensive income or loss are attributed to the parent and the non-controlling interest.  If losses attributable to the parent and the non-controlling interest in a subsidiary exceed their interests in the subsidiary’s equity, the excess, and any further losses attributable to the parent and the non-controlling interest, is attributed to those interests. ASC 810-10 was effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company adopted this standard on January 1, 2010.

Interim Financial Statements

The accompanying unaudited consolidated financial statements have been prepared in accordance with US GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Certain information and disclosures that are normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to these rules and regulations.  These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 (the "2011 Form 10-K"), previously filed with the Securities and Exchange Commission.

In the opinion of management, all adjustments (consisting solely of normal recurring accruals) considered necessary for a fair presentation of the Company's results for the interim periods have been included.  The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the period.  Actual results could differ from those estimates.  The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.  Subsequent events were evaluated through the issuance date of the consolidated financial statements.

Use of estimates

The preparation of consolidated 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 disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include allowance for doubtful accounts, the useful lives of fixed assets, amortization of land use right and the assessment of impairment of long-lived assets. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.

Accounts receivable

Accounts receivable mainly represent amounts earned and are collectible from customers.  Accounts receivable are stated at the amount the Company expects to collect.  The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make the required payments and uses the specific identification method to record such allowances.  Management of the Company considers the following factors when determining the collectability of accounts receivable:  a customer's credit-worthiness, past collection history, and changes in a customer's payment terms. Allowance for doubtful accounts is made based on any specifically identified accounts receivable that may become uncollectible.

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Revenue recognition

Revenue from product sales is recognized when title has been transferred, which is generally at the time of customer’s receipt of product, the risks and rewards of ownership have been transferred to the customer, the price is fixed and determinable, and the collection of the related receivable is probable. The Company reports revenue net of value-added taxes if applicable.

Impairment of long-lived assets

In accordance with Impairment or Disposal of Long-Lived Assets Subsections of FASB ASC Subtopic 360-10, Property, Plant, and Equipment - Overall, long-lived assets, such as property, plant and equipment, and purchased intangible asset subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. No impairment of long-lived assets was recognized as of September 30, 2012 and December 31, 2011.

Recently issued accounting pronouncements

There are no new accounting pronouncements issued during the period that have a material impact on the consolidated financial statements upon adoption.

NOTE 3 – Restricted cash

The Company is required to make a restricted cash deposit between 30% and 100% of the face amount of the notes accepted by the bank for the Company until the notes are settled. Cash restricted for this purpose amounted to $12,168,684 and $5,124,559, as of September 30, 2012 and December 31, 2011, respectively. (See Note 14)

NOTE 4 – Notes receivable

Notes receivable of $ 3,461,016 as of September 30, 2012 and $4,333,150 as of December 31, 2011 represents bank acceptance notes the Company received from customers for sales of products. The notes have maturity durations of 6 months, and are accepted by banks.

NOTE 5 – Trade accounts receivable

Accounts receivable at September 30, 2012 and December 31, 2011 consisted of the following:

No allowance for doubtful accounts was recorded as of September 30, 2012 and December 31, 2011 as management believes no accounts are uncollectible as of September 30, 2012 and December 31, 2011.

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NOTE 6 – Advance to suppliers

In order to secure inventory supplies of raw materials, the Company made advance payments to certain suppliers. As of September 30, 2012 and December 31, 2011, the advance payments to suppliers amounted to $6,426,362 and $712,253, respectively.

NOTE 7 –Loan to a third party

On September 1, 2012, the Company entered a loan agreement with Taicang Bairui Co., Ltd(“Bairui”). According to this agreement, the Company loaned $7,578,150 (RMB48,000,000) to Bairui with an annual interest rate of 12%,  due upon the Company’s demand for Bairui’s daily operating needs.

NOTE 8 –Inventory

Inventories as of September 30, 2012 and December 31,2011consisted of the following:

No provision for inventory obsolescence was recorded as of September 31, 2012 and December 31, 2011.

NOTE 9 –Long term investment

Zhongxian was treated as a subsidiary of Jinkai, which owned 55% equity interest in Zhongxian through December 26, 2011. On December 26, 2011, Jinkai transferred 40% equity interest in Zhongxian to Mr. Chen Jinle. Consequently, Jinkai’s equity interest in Zhongxian decreased from 55% to 15%. Since then, Jinkai’s investment in Zhongxian is recorded as a cost method investment. This transaction is accounted for a transfer of assets among entities under common control and no gain or loss was recognized. The management regularly evaluates the impairment of cost method investments based on performance and the financial position of the investee as well as other evidence of market value. Such evaluation includes, but not limited to, reviewing the investee’s cash position, recent financings, projected and historical financial performance, cash flow forecasts and financing needs.

NOTE 10 –Property plant and equipment

Property, plant and equipment as of September 30, 2012 and December 31, 2011 consisted of the following:

The depreciation expenses were $551,642 and $534,295 for the three months ended September 30, 2012 and 2011, respectively. The depreciation expenses were $1,684,386 and $1,565,901 for the nine months ended September 30, 2012 and 2011, respectively.  The collateralized net book value of the equipment for bank loans was $2,026,914 and $2,357,572 at September 30, 2012 and December 31, 2011. The collateralized net book value of the buildings for these bank loans was $3,875,439 and $4,281,810 at September 30, 2012 and December 31, 2011. (See Note 12)

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NOTE 11 –Land use rights and land development, net

Land use rights, net as of September 30, 2012 and December 31,2011consisted of the following:

Amortization expenses were $23,049 and $22,606 for the three months ended September 30, 2012 and 2011, respectively. Amortization expenses were $69,191 and $67,292 for the nine months ended September 30, 2012 and 2011, respectively. The collateralized net book value of the lands for these bank loans was $4,007,709 and $4,054,971 at September 30, 2012 and December 31, 2011. (See Note 12)

NOTE 12 –Short-term bank loan

Short-term bank loans as of as of September 30, 2012and December 31, 2011 consisted of the following:

The interest expenses for these bank loans were $376,288 and $245,046 for the three months ended September 30, 2012 and 2011, respectively. The interest expenses for these bank loans were $1,003,915 and $705,806 for the nine months ended September 30, 2012 and 2011, respectively. The weighted average annual interest rates for these bank loans were 7.25% and 7.23% at September 30, 2012 and December 31, 2011, respectively. The loans’ terms are between four and twelve months. The collateralized net book value of the lands for these bank loans was $4,007,709 and $4,054,971 at September 30, 2012 and December 31, 2011, respectively. The collateralized net book value of the equipment for these bank loans was $2,026,914 and $2,357,572 at September 30, 2012 and December 31, 2011, respectively. The collateralized net book value of the buildings for these bank loans was $3,875,439 and $4,281,810 at September 30, 2012 and December 31, 2011, respectively. The company subsequently repaid matured bank loans through the date the financial statements have been issued.

NOTE 13 –Long-term loans

In January 2011, the Company borrowed $706,051, from Jiangsu Rural Commercial Bank, with a fixed interest rate of 6.71%, 110% over the benchmark interest rate of the People's Bank of China. Pursuant to the loan agreement, collateralized by office building, the Company shall repay in average capital method each quarter during the period from January 18, 2011 to January 17, 2014. As of September 30, 2012, $175,245 was due within one year.

The Company's long-term loan outstanding as of September 30, 2012 and December 31, 2011are as follows:

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The payment schedule of the Company's long-term loan outstanding as follows:

NOTE 14 –Notes payable

The Company issued certain notes payable aggregating $18,219,740 and $15,002,772 as of September 30, 2012 and December 31, 2011, respectively, to suppliers which are guaranteed by certain banks. There was no substantial modification in the amounts due. These notes payable were issued as replacements of the accounts payable. The terms of these draft notes payable vary depending on the negotiations with the suppliers. Typical terms are six months. On the maturity dates, the note holders present these notes to the banks to draw cash based on the note amounts.

The Company is required to make a restricted security deposit as collateral between 30% and 100% of the face amount of the notes in the banks until the notes are settled. Cash restricted for this purpose including notes payable-a related party amounted to $12,168,684 and $5,124,559 as of September 30, 2012 and December 31, 2011, respectively.

It is the Company's intention to pay the notes payable to the banks on the various due dates.

NOTE 15 –Other payables

Other payables as of September 30, 2012 and December 31, 2011 consisted of the following:

Accrued expense represents utility and rental expenses. The Company accrued utility expense and rental expense according to the contracts.

NOTE 16 –Capital lease payable

In September 2009, the Company signed a lease agreement with an equipment supplier under a capital lease arrangement. The arrangement entitles the Company to purchase  leased high-speed stretch yarn machines at $0 at the end of the 3-year lease term as of September 30, 2012. The installations for these machines were completed in December 2009. The leased assets were recorded under property plant and equipment at the lower of (a) the fair value of the leased asset at the inception of the lease or (b) the present value of the minimum lease payments (excluding executing costs) over the lease term, and amortized over the estimated productive lives, which is normally 10 years, on a straight-line basis. Capital lease obligations at September 30, 2012 and December 31, 2011 consisted of the following:

Interest expenses amortized under capital lease for the three months ended September 30, 2012 and 2011 were $521 and $4,709, respectively. Interest expenses amortized under capital lease for the nine months ended September 30, 2012 and 2011 were $4,788 and $17,021, respectively.

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As of September 30, 2012 and December 31, 2011, the gross amount of the equipment recorded under capital lease agreements was $1,092,235 and $1,086,967. Depreciation expense for the three months ended September 30, 2012 and 2011 was $23,020 and $22,638, respectively.  Depreciation expense for the nine months ended September 30, 2012 and 2011 was $69,101 and $67,204, respectively.

NOTE 17 –Statutory reserve

The Company is required to allocate at least 10% of its after tax profits as determined under generally accepted accounting principles in the PRC to a statutory surplus reserve until the reserve balance reaches 50% of its registered capital. The accumulated balances of the statutory reserve of the Company as of September 30, 2012 and December 31, 2011 were both $1,606,654.

In accordance with PRC laws and regulations, the Company is restricted in its ability to transfer a portion of its net assets to the Company in the form of dividends, which amounted to  $1,606,654, representing the amount of accumulated balance of statutory reserve of Jinkai and Hangyu attributable to the Company, as of September 30, 2012 and December 31, 2011.

NOTE 18 –Government grants

Government grants of $0 for the three months ended September 30, 2012 and 2011, and $243,662 and $385,833 for the nine months ended September 30, 2012 and 2011, respectively represented governmental subsidies received by the Company from the local government's innovation fund as a result of the Company qualifying as a Technology Middle/Small Enterprise.

NOTE 19 –Income taxes

Income tax benefit amounts of $414,795 and $808,954 for the three and nine months ended September 30, 2012 represents deferred taxes due to the operating loss from the subsidiary Jinkai during the three and nine months ended September 30, 2012. Income taxes expense amounts of $665,458 and $1,359,138 for the three months and nine months ended September 30, 2011 represents PRC current income taxes.

The Company's subsidiaries in China are subject to the PRC Enterprise Income Tax (EIT) on taxable income. According to PRC tax laws and regulations, the Company's subsidiaries in China are subject to EIT with a tax rate of 25% after January 1, 2008. The Company's distributions from its PRC subsidiaries are subject to U.S. federal income tax at 34%, less any applicable qualified foreign tax credits. Due to the Company's policy of reinvesting its earnings in its PRC business, the Company has not provided for deferred tax liabilities (which does not include any potential qualified foreign tax credits or potential PRC dividend withholding taxes), for U.S. federal income tax purposes on its PRC subsidiaries' undistributed earnings.

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Significant components of the Company’s deferred tax assets are as follows:

NOTE 20–Related party balance

Amount due from a related party

The amount due from a related party represented advance payments for the procurement of raw materials.

Notes payable-a related party

The notes payable-a related party represented payments for the procurement of raw materials.

The Company issued certain notes payable to Zhongxian which are guaranteed by certain banks. There was no substantial modification in the amounts due.These notes payable were issued as replacements of the accounts payable. The terms of these draft notes payable vary depending on the negotiations with Zhongxian. Typical terms are six months. On the maturity dates, the note holders present these notes to the banks to draw cash based on the note amounts.

The Company is required to make a restricted security deposit as collateral between 30% and 100% of the face amount of the notes in the banks until the notes are settled. Cash restricted for this purpose including notes payable-a related party amounted to $12,168,684 and $5,124,559 as of September 30, 2012 and December 31, 2011, respectively.

It is the Company’s intention to pay the notes payable to the banks on various due dates.

NOTE 21–Reverse merger and common stock (restatement of the stockholders’ equity)

SEC Manual Item 2.6.5.4, Reverse Acquisitions, requires that “in a reverse acquisition the historical stockholders’ equity of the accounting acquirer prior to the merger is retroactively reclassified (a recapitalization) for the equivalent number of shares received in the merger after giving effect to any difference in par value of the registrant’s and the accounting acquirer’s stock by an offset in paid in capital.”

Pursuant to the terms of the Share Exchange Agreement, Golden shareholders transferred to the Company all of the Golden shares in exchange for the issuance of 170,948,684 shares of the Company’s common stock. Therefore, the Company reclassified its common stock and additional paid-in-capital accounts for the period ended September 30, 2012 and year ended December 31, 2011 accordingly.

The Company had 80,000,000 shares of common stock authorized, with a par value of $0.001 per share. Prior to the share exchange on December 22, 2010, the Company had 8,525,000 shares issued and outstanding. Due to a shortage of currently authorized shares, 70,000,000 shares were issued at the Closing of this transaction and the remaining shares will be issued at such time as the Company has completed an amendment to its articles to increase its authorized shares or effects a reverse stock split. Golden’s owners waived the right to receive the remaining shares as the condition of closing the transaction, subject to being able to receive them at some future time. As of September 30, 2012, 78,525,000 shares are issued and outstanding, and 100,948,648 shares are pending to be authorized and issued. These shares have been recorded in the balance sheets as common stock to be authorized and issued.

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NOTE 22 –Concentrations and credit risks

As of September 30, 2012 and December 31, 2011, the Company held cash in banks of $2,018,888 and $2,699,255, respectively that is uninsured by the government authority. To limit exposure to credit risk relating to deposits, the Company primarily places cash deposits  with large financial institutions in the PRC with acceptable credit ratings.

The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC as well as by the general state of the PRC’s economy. The business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

No single customer accounted for 10% or more of total sales for the three and nine months ended September 30, 2012 and 2011.

Two major suppliers accounted for 90% ($6,506,021) of the Company’s inventory purchases for the three months ended September 30, 2012. Two major suppliers accounted for 90% ($16,784,742) of the Company's inventory purchases for the three months ended September 30, 2011. Three major suppliers accounted for 72% ($19,973,979) of the Company’s inventory purchases for the nine months ended September 30, 2012. Two major suppliers accounted for 87% ($48,524,160) of the Company’s inventory purchases for the nine months ended September 30, 2011. If these suppliers terminate their supply relationship with the Company, the Company may be unable to purchase sufficient raw material on acceptable terms, and finally the Company’s financial results may be adversely affected.

NOTE 23 – Commitments and contingencies

The Company is not currently a party to any legal proceeding, investigation or claim which, in the opinion of the management, is likely to have material adverse effect on the business, financial condition or results of operations.

The Company has not recorded any legal contingencies as of September 30, 2012.

Guaranteed Bank Loans

The Company has guaranteed certain loans for third-party enterprises, which, in turn, have guaranteed loans for the Company. These guarantees require payment from the Company in the event of default on payment by the respective debtor and, if the debtor defaults, the Company may be required to pay amounts outstanding under the related agreements in addition to the principal amount guaranteed, including accrued interest and related fees.

The Company and these third-party enterprises have been guaranteeing loans for each other in their day-to-day operations.  Both of these enterprises and the Company are considered good reputation debtors by local banks. The banks allow these companies to guarantee loans for each other instead of requiring the loans be secured by collateral.  The Company considers these third-party enterprises' current financial condition in estimating potential loan losses. None of the enterprises for which the Company has guaranteed loans has defaulted on any loan repayments, and accordingly, the Company has not recorded any liabilities or losses on such guarantees.

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Bank loans that the Company has guaranteed for third-party enterprises consist of the following as of September 30, 2012:

NOTE 24 –Earnings per share

(a) The following table presents a reconciliation of actual basic and diluted earnings per share:

All share and per share data have been retroactively adjusted to reflect the recapitalization of the Company after the share exchange agreement.

(b) In the share exchange on December 22, 2010, the Company agreed to issue 170,948,684 shares of common stock. Due to a shortage of currently authorized shares, 70,000,000 shares were issued at the closing of this transaction. Therefore, the Company has 78,525,000 shares of common stock issued and outstanding as of September 30, 2012, and the remaining shares will be issued in the future. The following table presents a reconciliation of pro forma basic and diluted earnings per share which give the effect that the remaining shares to be issued as if the remaining shares had issued on the closing of this transaction. All share and per share data have been retroactively adjusted to reflect the recapitalization of the Company after the share exchange agreement.

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Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

Disclaimer Regarding Forward-Looking Statements

This Current Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as “anticipate,” “expect,” “intend,” “plan,” “we believe,” “believes,” “management believes” and similar language.  Except for the historical information contained herein, the matters discussed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this report are forward-looking statements that involve risks and uncertainties. The factors listed in the section captioned “Risk Factors” in our Form 10-K for the year ended December 31, 2011,  as well as any cautionary language in this report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from those projected. Except as may be required by law, we undertake no obligation to update any forward-looking statement to reflect events after the date of this Form 10-Q.

Overview

We are a premium chemical fiber manufacturer of polyester fibers with operations based in Suzhou City, Jiangsu province. We commenced operations in 2001. We manufacture two types of chemical fibers, Pre-Oriented Yarn ( “POY”) and Draw Texturing Yarn (“DTY”). Our products are used to produce a variety of clothing and textile products.  We primarily sell our products to local distributors and textile manufacturers in the People’s Republic of China (the “PRC”). Our products are sold under the “Jinkai” brand, which is widely recognized among our customers as a premium brand. We place strong emphasis on product quality and use our modern production facility and industry expertise to produce high quality polyester fibers.  

Sales

We primarily focus on maintaining current business relationships as well as developing new ones. We have established four sales offices in Jiangsu Taicang, Jiangsu Jiangyin, Jiangsu Wujiang and Zhejiang Haining in efforts to provide our customers more convenient sales points and easier access to customer support. We typically charge a slight premium on our products as compared with other nearby chemical fiber manufacturers. Our order sizes vary from 1 to 1,000 metric tons and the duration of orders can vary from 10 days to 5 months. Typically, we require new customers to make full payments before shipment of our products. For long-time customers with good payment history, we require them to pay 30% down payment, with the remaining payment due 30 days after delivery.

Our business is affected by many factors, including the following:

(a)Raw Material Prices

Our main raw material is PET (Polyethylene Terephthalate), which is derived from crude oil; hence the fluctuation of crude oil price is an important factor affecting PET prices, and market supply and demand relations also affect PET prices.

(b)Our Production Capacity

Our production capacity is a function of our factory space, equipment, and staff experience and technical level. We currently produce at full production capacity and our ability to expand our production will have a significant impact in our ability to increase sales. We added a new POY production line at the end of 2010, and a new facility put into service at the end of May, 2011. Currently, we have outsourced a portion of our production to keep up with our current sales levels.

(c)Competition

The chemical fiber market in China is large and fragmented. There are many other companies that make similar products, and thus price levels are set by competition in the marketplace. We believe that we are considered better than average in quality and service, and accordingly have been receiving a moderate premium. We are located in a textile intensive region and have a large number of customers within a 200KM radius of our facility. While the Chinese chemical fiber market is vast and national price levels affect local levels, most of our competition takes place from regional companies, as customers desire quick delivery. Also chemical fiber is a major cost component for fabric makers and thus they often prefer chemical fiber suppliers that are closer in proximity to foster closer business ties. Likewise, we place great emphasis on the customer relationship, because all of our customers could find other sources if our price, quality, or service became noncompetitive.

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Cost of Sales

Our cost of sales consists primarily of raw materials, direct labor and production overhead costs.

Our key raw material is PET and we primarily procure this from several nearby raw material suppliers, all located within 200 kilometers of our production facility.  Direct labor includes salaries, wages and staff related costs of plant operators and those who are directly involved in the production of our products. Overhead consists mainly of depreciation charges on machinery, utilities (water and electricity) and other factory related costs. In addition to the volume of production, our costs of sales are affected by, (a) factors affecting the costs of raw materials, namely, the market demand and supply conditions for crude oil; (b) factors affecting labor costs, namely demand and supply of labor, general wage levels, and government regulations; as well as (c) factors affecting general manufacturing overhead, namely, our depreciation expense resulting from capital expenditures and general prices of utilities charges.

Selling, General and Administrative Expenses

Our selling and distribution costs consist of transportation fees, advertising and payroll-related costs. Our general and administrative costs consist of payroll-related costs, depreciation, office expenses and legal and professional fees.

Other Income/ (Expense)

Our other income/ (expense) consist of subsidy income, interest income, interest expense and other income. According to the governmental policies and regulations on encouraging the development of domestic enterprises, we sometimes receive government subsidies in the form of income-tax rebates, technical renovation subsidies, and incentive subsidies.

Interest Expense

Our interest expense consists of interest expense based on our bank borrowings.

Income Tax Expense

We pay income tax in accordance with our local divisional taxing authority.

Seasonality

We have lower sales during the Chinese Spring Festival, which usually occurs in January or February. Our customers typically halt production during this time and thus demand shrinks for our products.  We give our factory workers time off for this holiday and temporarily halt production.

Results of Operations for the Three Months Ended September 30, 2012 and for the Nine Months Ended September 30, 2012, as compared to the same periods Ended September 30, of 2011 

The following table sets forth a summary of certain key components of our results of operations for the periods indicated in dollars and as a percentage of sales.

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Comparing the three months ended September 30, 2012 with the same period of 2011, our sales have decreased by 61.5% from $24,092,128 to $9,277,078; also comparing the nine months ended September 30, 2012 with the same period of 2011, our sales have decreased by 55% from $ 73,290,859 to $32,992,471. The decrease in our sales is mainly due to the decrease in our product prices and decrease in our sales volume. As market demand has weakened and horizontal competition is heating up, the Coompany has been required to decrease sales prices. As a result,  average sales price decreased from $2,517 per metric tons during the third quarter of 2011 to $1,812 per metric tons during the third quarter of 2012. Also, sales volume decreased by 48% from 9,585 metric tons as of September 30, 2011 to 4,998 metric tons as of September 30, 2012 due to the decrease of market demands. The average sales price decreased from $2,448 per metric tons during the 9 months ended September 30, 2011 to $1,905 per metric tons during the 9 months ended September 30, 2012. Also,  sales volume decreased by 41% from 30,013 metric tons during the 9 months ended September 30, 2011 to 17,578 metric tons during the nine months ended September 30, 2012.

Cost of Sales

Comparing the three months ended September 30, 2012 with the three months ended September 30, 2011,  cost of sales decreased by 53.0% from $20,557,638 to $9,664,290. Comparing the  nine months ended September 30, 2012 with the same period of 2011, cost of sales decreased by 50.3% from $65,478,402 to $32,529,236. There are two major reasons attributable to the decrease of cost of sales: The decrease of unit price of the main raw materials in 2012 compared to 2011; and the decrease of sales volume. Our cost of sales consists primarily of our main raw material PET (Polyethylene Terephthalate), a by-product of crude oil. The decrease in cost of sales is due to the decrease in the price of crude oil.. The major raw materials' average price (PET) in the third quarter of 2012 decreased to $1,389 per metric ton from $1,654 per metric ton in the corresponding period of 2011. Also comparing the nine months ended September 30, 2012 with the same period of 2011, the major raw materials' average price (PET) decreased to $1,405 per metric tons from $1,680.

Gross Profit and Gross Margin

Comparing the three months ended September 30, 2012 with the same period of 2011, gross profit decreased by 111% to gross loss 387,212, and gross margin decreased from 14.7% to -4.2%. Comparing the nine months ended September 30, 2012 with the same period of 2011, gross profit decreased by 94.1% from $7,812,457 to $463,235, and the gross margin decreased from 10.7% to 1.4%. This decrease is mainly due to the decrease of sales price being  more than the decrease of unit price of raw materials and weakness of market demand.

General and Administrative Expenses and Selling Expenses

General and administrative expenses include payroll-related costs, travel expenses, business entertainment, bank service charges, and legal and professional fees. Comparing three months ended September 30, 2012 with the same period of 2011, our general and administrative expenses increased by 11.2% from $592,539 to $658,876. Also comparing the nine months ended September 30, 2012 with the same period of 2011,  general and administrative expenses increased 8.9% from $1,943,710 to $2,117,652. This increase was primarily due to the following expenses which increased from 2011 to 2012: salary expense, as the Company has raised the salary level of staff and recruited several full-time management personnel since April, 2011 due to the increase of average salary level in 2011; and social insurance, as the Company broadened the payment scale of staff social insurance.

Selling expenses include transportation fees, advertising and payroll-related costs. For the three months ended September 30, 2012 and 2011, selling expenses decreased by 30.3% from $176,672 to $123,063. For the nine months ended September 30, 2012 and 2011, the selling expenses decrease by 35.2% from $660,684 to $428,198. This was primarily due to the decrease in transportation fees as sales volume decreases.

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Other income/(Expense)

The following tables sets forth a breakdown of the other income /( expenses) of the company:

Other net expense includes interest expense offset by government grants, interest income and others. Comparing the three months ended September 30, 2012 with the same period of 2011, other expense increased 282.4% from $140,440 to $537,034. This increase was due to the increase of interest expense from $268,836 to $670,127 as the increase of discount notes receivable. Also comparing the nine months ended September 30, 2012 with the same period of 2011, other expense increased also increased 621.7% from $184,180 to $1,329,245. The increase was also due to the increase of interest expense from $811,828 to $1,783,040 as the increase of discount notes receivable for working capitals.

Income Tax Expense/( Benefit)

As the result of the deferred tax assets  recognized during the three months ended September 30,2012, we recognized income tax benefit amount $414,795 for the three months ended September 30,2012, compared to income tax expense amount $665,458 for the same period in 2011. For the nine months ended September 30, 2012, we recognized an income tax benefit amount of $808,954, compared to the income tax expense amount $1,359,138 for the same period in 2011. The decrease of income tax expense was due to the decrease of our profit before income taxes.

Net Income /(Loss) Attributable to Matches, Inc.  

We recorded $1,291,390 in net loss attributable to Matches, Inc. for the three months ended September 30, 2012, compared to net income of $1,962,647 attributable to Matches, Inc. for the same period of 2011. For the nine months ended September 30, 2012, we recorded $2,602,906 in  net loss attributable to Matches, Inc., compared to the net income $3,668,011 attributable to Matches, Inc. for the same period in 2011. This decrease is primarily due to a decrease in our gross profit.

LIQUIDITY AND CAPITAL RESOURCES

The Company has short-term bank loans outstanding of $20,996,746 and $15,908,055 as of September 30, 2012 and December 31, 2011 respectively. The Company plans to use cash generated from operations and proceeds from new bank loans to pay off all outstanding short-term bank loans in 2012.Upon maturity, the Company’s majority shareholder intends to provide sufficient working capital to allow the Company to repay the loan and fulfill its other payment obligations.

The Company believes that its cash and cash equivalents balance at December 31, 2011, estimated cash inflows from operations for 2012, and the additional proceeds committed from its majority shareholder will be sufficient to meet the Company’s liquidity requirements for 2012. However, in the event of unforeseen circumstances, or unfavorable market or economic developments, the adequate capital may not available to us as required, or is not available on favorable terms; our business, financial condition and results of operations may be adversely affected.

Restricted net assets

Our ability to pay dividends is primarily dependent on our receiving distributions of funds from our subsidiaries, which is restricted by certain regulatory requirements. Relevant PRC statutory laws and regulations permit payments of dividends by our PRC subsidiaries only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. In addition, our PRC Subsidiaries are required to set aside at least 10% of their after-tax profit, after deducting any accumulated deficit, based on PRC accounting standards each year to its general reserves until the accumulative amount of such reserves reach 50% of its registered capital. These reserves are not distributable as cash dividends. Our off-shore subsidiaries, including Golden Stone Rising Limited (“Golden”) and Triple Success Holding LLC (“Triple Success “), do not have material cash obligations to third parties. Therefore, the dividend restriction does not impact the liquidity of the companies. There is no significant difference between accumulated profit calculated pursuant to PRC accounting standards and those reflected in the financial statements prepared in accordance with U.S. GAAP.

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As of September 30, 2012 and December 31, 2011, restricted retained earnings were both $1,606,654 and restricted net assets were both $12,556,724. The unrestricted retained earnings as of September 30, 2012 and December 31, 2011 were $1,323,877 and $3,926,783, respectively, which were the amounts ultimately available for distribution if we were to pay dividends.

Restricted cash

The Company from time to time pays suppliers by means of notes payable. The Company is required to make a restricted security deposit between 30% and 100% of the face amount of the notes accepted by the bank for the Company until the notes are settled. Cash restricted for this purpose amounted to $12,168,684 and $5,124,559 as of September 30, 2012 and December 31, 2011, respectively, with an increase of $7,044,125, or approximately 137.5%.

The following table sets forth the summary of our cash flows for the nine months ended September 30, 2012, comparing with the nine months ended September 30, 2011:

Cash Flow from Operating Activities

Net cash provided by operating activities for nine months ended September 30, 2012 was $2,421,681. This was attributable to our net loss of $2,602,906, adjusted by non-cash related expense including depreciation of $1,684,386, amortization of land use rights and land development $69,191, and a net increase in cash from working capital items of $3,271,010. The net increase in working capital items was mainly due to the increase in restricted cash, inventories, and advance to suppliers, offset by the increase in notes payable and notes payable-RPT.

Cash Flow from Investing Activities

During the nine months ended September 30, 2012, net cash used in investing activities was $7,748,272, compared to $2,535,832 for the nine months ended September 30, 2011. The increase was primarily due to the increase in loan to a third party.   

Cash Flow from Financing Activities

During the nine months ended September 30, 2012, net cash provided by financing activities was $4,640,630 which mainly consisted of a repayment of capital lease obligations of $200,681, net proceeds from bank loans of $4,841,311. As compared with the same period of 2011 in which the net cash used in financing activities was $2,958,036, the increase of cash provided by financing activities was mainly due to the decrease of repayments of bank loans from $19,537,350 for nine months as of September 30, 2011 to $17,283,287 for the same period of 2012 and the increase in proceeds from bank loans from $16,819,859 to $22,124,598 for daily operation.    

 Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

Item 4.Controls and Procedures.

Disclosure Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules, regulations and related forms, and that such information is accumulated and communicated to our principal executive officer, as appropriate, to allow timely decisions regarding required disclosure.

As of September 30, 2012, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and our principal financial officer of the effectiveness of the design and operation of our disclosure controls and procedures as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e). Based upon those evaluations, our chief executive officer and our chief financial officer concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q. As such we believe that all material information relating to us and our consolidated subsidiaries required to be disclosed in our periodic filling with the SEC (i) is recorded, processed, summarized and reported within the required time period and (ii) is accumulated and communicated to our management, including our principal, executive officers and principal financial officers, as appropriate to allow timely decision regarding required disclosure.

Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

Changes in internal controls. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect the Company’s internal controls subsequent to the date of their evaluation.

PART II

Item 1.Legal Proceedings.

We are not a party to any pending legal proceeding that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.

Item 1A.Risk Factors.

Not applicable as the Company is a smaller reporting company.

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

None.

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Item 3. Defaults Upon Senior Securities.

None

Item 4.Mine Safety Disclosures.

Not applicable

Item 5.Other Information.

None.

 Item 6.Exhibits.

Number

Description

2.1

Share Exchange Agreement(2)

3.1

Articles of Incorporation(3)

3.2

Bylaws(3)

10.1

Entrusted Management Agreement(2)

10.2

Shareholders’ Voting Proxy Agreement(2)

10.3

Exclusive Option Agreement(2)

10.4

Shares Pledge Agreement(2)

10.5

Call Option Agreement between Hung Tsui Mei and 16 persons, with schedule of details.(2)

16.1

Letter from Sam Kan & Company regarding change in accountants(2)

16.2

Letter from Bernstein & Pinchuk, LLC.(4)

31.1

Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)(5)

31.2

Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)(5)

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350(5).

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350(5).

_________________________________________

(1)

Incorporated by reference to the exhibit so numbered in the Company's Registration Statement on Form S-1, file number 333-149293.

(2)

Incorporated by reference to the exhibit so numbered in the Company's Current Report on Form 8-K dated December 17, 2010.

(3)

Incorporated by reference to such exhibit as filed with the Company's Annual Report on Form 10-K for the year ended December 31, 2010.

(4) Incorporated by reference to such exhibit as filed with the Current Report on Form 8-K dated April 15, 2011.

(5)

Filed herewith.

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SIGNATURES

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

     MATCHES, INC.

Date: November 14, 2012

By /s/ Zhao Zhimeng

Zhao Zhimeng

Chief Financial Officer

(Principal Financial and Accounting Officer)

and Duly Authorized Officer

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