BEFUT International Co., Ltd. - FORM 10-Q/A

Attached files

file	filename
EX-32.1 - EXHIBIT 32.1 - BEFUT International Co., Ltd.	v235048_ex32-1.htm
EX-31.1 - EXHIBIT 31.2 - BEFUT International Co., Ltd.	v235048_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - BEFUT International Co., Ltd.	v235048_ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - BEFUT International Co., Ltd.	v235048_ex32-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Amendment No. 1)

(Mark One)

¨	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended December 31, 2010

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

For the transition period from ____________ to ____________

Commission File Number 000-51336

BEFUT INTERNATIONAL CO., LTD.

(Exact name of registrant as specified in its charter)

Nevada		20-2777600
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)

27th Floor, Liangjiu International Tower,

No.5, Heyi Street, Xigang District, Dalian City, China 116011

(Address of principal executive offices) (Zip Code)

86 0411-8367-0755

(Issuer's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

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):

Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	¨	Smaller reporting company	x
(Do not check if a smaller reporting company)

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 29,715,640 shares of Common Stock, $.001 par value, were outstanding as of February 10, 2011.

EXPLANATORY NOTE

This Amendment No. 1 to the Quarterly Report on Form 10-Q (the “Amended 10-Q”) of BEFUT International Co., Ltd. (the “Company”) amends the Company’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2010, filed with the Securities and Exchange Commission (the “SEC”) on February 14, 2011 (the “Original 10-Q”). In connection with the preparation of its responses to comments received from the SEC, the Company identified certain reporting errors and omissions in the Original 10-Q and in its previously issued financial statements, some of which the Company considers material. The Amended 10-Q is being filed to amend the Original 10-Q as follows:

Revise the Consolidated Balance Sheet to reclassify advance payments for fixed assets and research and development as non-current assets;

Revise the Consolidated Statements of Operations and Other Comprehensive Income into two separate statements: Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income;

Revise the Statements of Operations to present interest expenses separately from interest income;

Reclassify certain line items in the Consolidated Statement of Cash Flows resulting in changes from net cash used in operating activities of $1,429,171 to $3,668,743 for the six months ended December 31, 2010 and from $1,091,519 to $1,677,519 for the six months ended December 31, 2009, and changes from net cash provided by financing activities of $2,158,719 to $4,398,291 for the six months ended December 31, 2010;

Revise “Note 1 – Organization and Nature of Business” to include the description of interest in Dalian Yuansheng;

Revise Basis of Presentation under “Note 2 – Summary of Significant Accounting Policies” to include consolidation as a critical accounting policy;

Revise “Note 5 – Loans to Unrelated Parties” to identify unrelated parties;

Add a footnote for Bank Loan Security Deposits;

Revise “Note 9 – Advance Payments – Research and Development” to address that these amounts are determined to be recoverable;

Revise “Note 11 – Trade Notes Payable” to include the maturity date of the promissory notes;

Revise “Note 12 – Short-Term Bank Loans” to include average annual interest rates;

Revise “Note 13 – Loans from Unrelated Parties” to include information regarding maturity date and financial or non-financial covenants associated with the loans;

Add a footnote for Government Subsidy Income;

Revise “Note 14 – Long-Term Bank Loans” to include average annual interest rate;

Revise “Note 16 – Stockholders’ Equity and Related Financing Agreements” to include a summary of intangible assets received for ownership;

Revise “Note 17 – Income Taxes” to address the timing of the Company’s payments for income taxes;

Add a footnote for Restatement to Reflect Correction of Accounting Errors;

Add the words “Restated”, as applicable, to column headings of certain financial tables;

Make several minor, miscellaneous corrections in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations;” and

Amend and restate, in its entirety, Item 4. “Controls and Procedures,” due to the errors and omissions in the Company’s financial statements, to state that the Company had material weaknesses in its disclosure controls and procedures and internal control over financial reporting at December 31, 2010.

Except as set forth above, the Amended 10-Q is identical to the Original 10-Q. The Amended 10-Q does not reflect events occurring after the filing of the Original 10-Q and no attempt has been made in the Amended 10-Q to modify or update other disclosures as presented in the Original 10-Q. Accordingly, this Amended 10-Q should be read in conjunction with the Company’s filings with the SEC subsequent to the filing of the Original Form 10-Q. Additionally, the Company has attached to the Amended 10-Q updated certifications executed as of the date of the Amended 10-Q by the Company’s chief executive officer and chief financial officer as required by Sections 302 and 906 of the Sarbanes Oxley Act of 2002. These updated certifications are attached as Exhibits 31.1, 31.2, 32.1 and 32.2 to the Amended 10-Q.

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements.	3

	Restated Consolidated Balance Sheets
	As of December 31, 2010 (Unaudited) and June 30, 2010	5

	Restated Consolidated Statements of Operations
	For the Three Months and Six Months Ended December 31, 2010 and 2009 (Unaudited)	6

	Restated Consolidated Statements of Comprehensive Income
	For the Three Months and Six Months Ended December 31, 2010 and 2009 (Unaudited)	7

	Restated Consolidated Statements of Cash Flows
	For the Six Months Ended December 31, 2010 and 2009 (Unaudited)	8

	Notes to Restated Consolidated Financial Statements December 31, 2010 and 2009 (Unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

Item 4.	Controls and Procedures.	33

PART II	OTHER INFORMATION	34

Item 6.	Exhibits	34

Signatures		35

Exhibits/Certifications		36

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

BEFUT INTERNATIONAL CO., LTD.

RESTATED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND 2009

BEFUT INTERNATIONAL CO., LTD.

Consolidated Financial Statements

December 31, 2010 and 2009

(Unaudited)

Table of Contents

	Page

Consolidated Balance Sheets	5

Consolidated Statements of Operations	6

Consolidated Statements of Comprehensive Income	7

Consolidated Statements of Cash Flows	8

Notes to Consolidated Financial Statements	9

BEFUT INTERNATIONAL CO., LTD.

Consolidated Balance Sheets

	December 31,		June 30,
	2010		2010
Assets	(Restated)		(Restated)
Current assets:
Cash and cash equivalents	$	761,460	$	1,319,173
Restricted cash		3,494,084		1,181,095
Accounts receivable, net of allowance for doubtful accounts of $85,783		17,292,392		9,292,310
and $83,295 at December 31, 2010, and June 30, 2010, respectively
Inventory		5,234,237		2,543,789
Loans to unrelated parties		1,888,835		1,054,090
Bank loan security deposits		1,089,206		1,031,100
Advance payments		1,521,188		399,868
Due from related party		-		472,838
Other current assets		1,227,666		521,739
Total current assets		32,509,068		17,816,002

Property and equipment, net		32,394,534		31,618,074

Other assets:
Intangibles, net		15,485,194		15,669,375
Advance payments – non-current		408,279		293,605
Advance payments – Research & Development		2,151,106		2,088,714
Total other assets		18,044,579		18,051,694

Total assets	$	82,948,181	$	67,485,770

Liabilities
Current liabilities:
Accounts payable and accrued expenses	$	2,770,621	$	3,119,646
Trade notes payable		3,034,000		-
Short-term bank loans		9,086,830		6,039,300
Current portion of long-term bank loans		758,500		294,600
Loans from unrelated parties		2,220,740		370,000
Advances from customers		1,007,947		533,806
Income taxes payable		3,120,515		1,655,747
Other current liabilities		1,334,564		969,787
Total current liabilities		23,333,717		12,982,886

Long-term bank loan		14,108,100		14,435,400

Total liabilities		37,441,817		27,418,286

Equity
Stockholders’ equity:
Preferred stock, $0.001 par value, 10,000,000 shares authorized,		-		-
no shares issued or outstanding
Common stock, $0.001 par value, 200,000,000 shares authorized,		29,716		29,716
29,715,640 and 29,715,666 shares issued and outstanding at
December 31, 2010 and June 30, 2010, respectively
Additional paid-in capital		21,838,047		21,838,047
Statutory reserves		1,181,189		1,181,189
Retained earnings		17,994,979		13,810,157
Accumulated other comprehensive income		3,447,965		2,166,533
Total stockholders’ equity		44,491,896		39,025,642

Noncontrolling interest		1,014,468		1,041,842

Total equity		45,506,364		40,067,484

Total liabilities and equity	$	82,948,181	$	67,485,770

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

BEFUT INTERNATIONAL CO., LTD.

Consolidated Statements of Operations

(Unaudited)

	For the Three Months Ended						For the Six Months Ended
	December 31,						December 31,
	2010			2009			2010			2009
	(Restated)			(Restated)			(Restated)			(Restated)

Sales	$	14,871,164		$	7,126,044		$	30,801,975		$	12,609,703

Cost of sales		10,954,272			5,235,323			22,625,032			9,098,097

Gross profit		3,916,892			1,890,721			8,176,943			3,511,606

Operating expenses:
Selling expenses		149,643			14,828			188,250			36,701
General and administrative expenses		1,032,259			442,264			2,043,879			1,030,549
Total operating expenses		1,181,902			457,092			2,232,129			1,067,250

Income from operations		2,734,990			1,433,629			5,944,814			2,444,356

Other income (expenses):
Government subsidy		180,155			304,704			316,642			354,658
Interest income		1,462			3,728			9,966			3,728
Interest expense		(494,852	)		(8,923	)		(889,754	)		(141,232	)
Other income (expenses)		107,024			(403,138	)		138,145			(397,441	)
Total other income (expenses)		(206,211	)		(103,629	)		(425,001	)		(180,287	)

Income before provision for income tax		2,528,779			1,330,000			5,519,813			2,264,069

Provision for income tax		614,895			336,819			1,422,030			585,723

Net income		1,913,884			993,181			4,097,783			1,678,346

Less: Net loss attributable to noncontrolling		(22,681	)		(963	)		(87,038	)		(6,121	)
interest

Net income attributable to BEFUT International Co., Ltd.		1,936,565			994,144			4,184,821			1,684,467

Basic earnings per share	$	0.07		$	0.03		$	0.14		$	0.06
Diluted earnings per share	$	0.07		$	0.03		$	0.14		$	0.06

Weighted average number of common shares
outstanding:
Basic		29,715,640			29,511,277			29,715,640			29,511,277
Diluted		29,786,677			30,280,532			29,771,813			30,280,532

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

BEFUT INTERNATIONAL CO., LTD.

Consolidated Statements of Comprehensive Income

	For the Three Months Ended						For the Six Months Ended
	December 31,						December 31,
	2010			2009			2010			2009
	(Restated)			(Restated)			(Restated)			(Restated)

Net income	$	1,913,884		$	993,181		$	4,097,783		$	1,678,346

Other comprehensive income
Foreign currency translation adjustment		598,078			264			1,341,096			92,590

Comprehensive income		2,511,962			993,445			5,438,879			1,770,936

Less: comprehensive income (loss) attributable to noncontrolling interest		(22,177	)		(962	)		(27,374	)		38,399

Comprehensive income attributable to BEFUT International Co., Ltd.	$	2,534,139		$	994,407		$	5,466,253		$	1,732,537

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

BEFUT INTERNATIONAL CO., LTD.

Consolidated Statements of Cash Flows

(Unaudited)

	For the Six Months Ended
	December 31,
	2010			2009
	(Restated)			(Restated)
Cash flows from operating activities:
Net Income	$	4,097,783		$	1,678,346
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization		1,583,652			718,680
Changes in current assets and current liabilities:
Restricted Cash		(2,239,572	)		586,000
Accounts receivable		(7,894,969	)		(53,500	)
Inventory		(2,574,960	)		(1,000,998	)
Advance payments		(1,066,359	)		(197,666	)
Other current assets		(2,258,178	)		(1,032,681	)
Accounts payable and accrued expenses		(176,022	)		1,637,214
Trade notes payable		2,983,200			(1,173,120	)
Advances from customers		450,523			(174,496	)
Income taxes payable		1,391,612			585,724
Other taxes payable		248,962			(163,417	)
Other current liabilities		1,785,585			267,433
Total adjustments		(7,766,526	)		(827	)

Net cash provided by (used in) operating activities		(3,668,743	)		1,677,519

Cash flows from investing activities:
Due from related party		478,809			-
Additions to property and equipment		(755,610	)		(1,594,161	)
Additions to construction in progress		(39,808	)		(2,442,107	)
Advance payment for fixed assets		(104,131	)		(8,011,520	)
Acquisition of intangible assets		(5,964	)		(6,452	)
Long-term investment		-			2,933
Loans to unrelated parties		(789,809	)		1,521,543

Net cash used in investing activities		(1,216,513	)		(10,529,764	)

Cash flows from financing activities:

Bank loan security deposits		(26,849	)		(163,877	)
Loans from unrelated party		1,819,753			2,274,251
Proceeds of short-term bank loans		8,975,000			-
Repayment of short-term bank loans		(6,130,476	)		(2,786,160	)
Repayment of long-term bank loans		(298,320	)		14,664,000
Capital contribution from noncontrolling interest for BEFUT Zhong Xing		59,183			43,992

Net cash provided by financing activities		4,398,291			14,032,206

Effect of foreign currency translation on cash		(70,748	)		(4,369	)

Net increase (decrease) in cash and cash equivalents		(557,713	)		5,175,592

Cash and cash equivalents – beginning		1,319,173			210,301

Cash and cash equivalents – ending	$	761,460		$	5,385,893

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

BEFUT INTERNATIONAL CO., LTD.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Organization and Nature of Business

BEFUT International Co., Ltd., formerly known as Frezer, Inc. (“Frezer”), a former public shell company as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended, was established under the laws of Nevada on May 2, 2005. The accompanying consolidated financial statements include the financial statements of BEFUT International Co., Ltd. and its subsidiaries (collectively, the “Company”). The Company’s primary business is to design manufacture and sell industrial wires and cables.

On March 13, 2009, Frezer entered into and consummated a series of transactions whereby (a) Frezer acquired 100% of the outstanding shares of common stock of BEFUT Corporation, a company incorporated in the State of Nevada on January 14, 2009 (“Befut Nevada”), constituting all of the capital stock of Befut Nevada, from Befut International Co. Limited, a British Virgin Islands company (“Befut BVI”) in exchange for the issuance to Befut BVI of an aggregate of 117,768,300 shares of Frezer’s common stock and the cancellation of an aggregate of 2,176,170 shares of Frezer’s common stock and (b) Frezer raised $500,000 in gross proceeds from the sale to four investors of convertible promissory notes of Frezer in the aggregate principal amount of $500,000 and warrants to purchase an aggregate of 720,076 shares of Frezer’s common stock. The acquisition was accounted for as a reverse acquisition under the purchase method for business combinations. On June 18, 2009, the Company effectuated a name change from its original name “Frezer, Inc.” to “BEFUT International Co., Ltd.”.

Hongkong BEFUT Co., Ltd. (“Befut Hongkong”) was incorporated on September 10, 2008 under the laws of Hong Kong and is a wholly-owned subsidiary of Befut Nevada. On February 13, 2009, Befut Hongkong invested 100% of the registered capital to form Befut Electric (Dalian) Co., Ltd. (“WFOE”), a Chinese company incorporated in the city of Dalian, the People’s Republic of China (the “PRC” or “China”).

On February 16, 2009, WFOE entered into a series of agreements, the purpose of which was to restructure Dalian Befut Wire & Cable Manufacturing Co., Ltd. (“Dalian Befut”) in accordance with applicable PRC law so that Dalian Befut could raise capital and grow its business (the “Restructuring”). Dalian Befut was incorporated on June 13, 2002 under the laws of the PRC. The Restructuring included the following arrangements: First, WFOE entered into an Original Equipment Manufacturer Agreement (the “OEM Agreement”) with Dalian Befut containing the following material provisions: (i) Dalian Befut may not manufacture products for any person or entity other than WFOE without the written consent of WFOE; (ii) WFOE is to provide all raw materials and advance related costs to Dalian Befut, as well as provide design requirements for products to be manufactured; (iii) WFOE is responsible for marketing and distributing the products manufactured by Dalian Befut and will keep all related profits and revenues; and (iv) WFOE has an exclusive right, exercisable in its sole discretion, to purchase all or part of the assets and/or equity of Dalian Befut at a mutually agreed price to the extent permitted by applicable PRC law. In addition, on February 16, 2009, WFOE entered into two ancillary agreements with Dalian Befut: (i) an Intellectual Property License Agreement, pursuant to which WFOE shall be permitted to use intellectual property rights such as trademarks, patents and know-how for the marketing and sale of the products manufactured by Dalian Befut; and (ii) a Non-competition Agreement, pursuant to which Dalian Befut shall not compete against WFOE.

On April 14, 2006, Dalian Marine Cable Co., Ltd. (“Dalian Marine Co.”) was incorporated in the PRC by Dalian Befut. Its current shareholders are Dalian Befut (owning 86.6% of the equity interests) and three individual shareholders. Dalian Marine Co. was formed to conduct marketing activities and produce marine cables for Dalian Befut.

On July 1, 2009, Dalian Befut, our captive manufacturer, formed a joint venture under the laws of the PRC, Dalian Befut Zhong Xing Switch Co., Ltd. (“Befut Zhong Xing”), with pre-registered capital of RMB1,000,000 (approximately $147,000). Dalian Befut invested RMB700,000 (approximately $103,000) for its 70% equity interest in Befut Zhong Xing. In January, 2010, Dalian Befut increased its investment capital to RMB14.7 million (approximately $2 million) with a transfer of intangible assets to Befut Zhong Xing on 1/1/2010 and raised its equity ownership percentage in Befut Zhong Xing to 73.5%. The noncontrolling interest also increased its equity investment by contributing additional cash of RMB 5,000,000 (approximately $733,350).

BEFUT INTERNATIONAL CO., LTD.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Organization and Nature of Business (continued)

There were no equity transactions (purchasing or selling the noncontrolling interest) between the Company and the noncontrolling interest shareholders for the six months ended December 31, 2010.

Dalian Yuansheng was established on June 3, 2009 with a registered capital of RMB 1,000,000 (approximately $146,700). Two individual shareholders, Chengnian Yan and Xianjun Cheng, owned 60% and 40% of Dalian Yuansheng, respectively. On July 23, 2010, Dalian Befut contributed RMB 5,000,000 (approximately $735,294) and purchased the original 60% interest from Chengnian Yan at RMB 600,000 (approximately $88,235). As a result, Dalian Befut became 93.3% owner of Dalian Yuansheng. For the periods ended September 30, 2010 and December 31, 2010, the Company consolidated the financial statements of Dalian Yuansheng with intercompany transactions, including investment in Dalian Yuansheng of RMB 5,600,000 (approximately $823,529), eliminated and reported noncontrolling interest per ASC 810-10 as part of the Company’s equity. The purchase of Chengnian Yan’s interest in Dalian Yuansheng at RMB 600,000 (approximately $88,235) was recorded as an equity transaction at cost and no gain or loss was recorded.

Note 2 – Summary of Significant Accounting Policies

Basis Of Presentation

As disclosed in Note 1, WFOE entered into an Original Equipment Manufacturer Agreement, an Intellectual Property License Agreement and a Non-competition Agreement (collectively, the “OEM Agreements”) with Dalian Befut. Under FASB ASC 810-10 (formerly FIN 46R), Dalian Befut is the variable interest entity, or VIE, of WFOE by virtue of the OEM Agreements. As Dalian Befut’s sole purpose and objective is to provide resources and benefits to WFOE, WFOE is the primary beneficiary that can consolidate Dalian Befut. Therefore, Dalian Befut and its controlled subsidiaries, Dalian Marine Co., Dalian Yuansheng and Befut Zhong Xing, are consolidated into the Company’s financial statements.

The Company’s consolidated financial statements include the accounts of its controlled subsidiaries. All intercompany balances and transactions are eliminated in consolidation. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles applicable to interim financial information and the requirements of Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included.

In preparing the accompanying unaudited consolidated financial statements, the Company evaluated the period from December 31, 2010 through the date the financial statements were issued for material subsequent events requiring recognition or disclosure. No such events were identified for this period.

Interim Financial Statements

These interim financial statements should be read in conjunction with the audited consolidated financial statements for the years ended June 30, 2010 and 2009, as not all disclosures required by generally accepted accounting principles for annual financial statements are presented. The interim financial statements follow the same accounting policies and methods of computations as the audited consolidated financial statements for the years ended June 30, 2010 and 2009.

Reclassification

Certain amounts as of June 30, 2010 and December 31, 2010 were reclassified for presentation purposes.

BEFUT INTERNATIONAL CO., LTD.

Notes to Consolidated Financial Statements

(Unaudited)

Note 3– Restricted Cash

Cash balances in the amount of $1,218,584 and $1,181,095 were restricted as of December 31, 2010 and June 30, 2010, respectively, as collateral for the construction loan obtained from the PRC National Development Bank Joint Equity Corporation, which is exhibited in Note 14. The balance of $758,500 as of December 31, 2010 was restricted as collateral for the Bank of East Asia. The balance of $1,517,000 as of December 31, 2010 was restricted for the settlement of trade notes payable in connection with inventory purchases.

Note 4– Inventory

Inventory consisting of material, labor and manufacturing overhead as of December 31, 2010 and June 30, 2010 consists of the following:

	December 31,		June 30,
	2010		2010

Raw materials	$	2,339,670	$	1,093,193
Work in process		365,680		323,275
Finished goods		2,528,887		1,127,321

Total	$	5,234,237	$	2,543,789

Note 5– Loans to Unrelated Parties

As of December 31, 2010, the Company had outstanding loans to unrelated parties in the aggregate amount of $1,888,835, consisting of $1,350,679 to Dalian Haide Electric Power Equipment Co., Ltd, a research and development partner of the Company (“Dalian Haide”) and $538,156 to Dalian Chenglian Electrical Installation Engineering Co., Ltd, a customer of the Company (“Dalian Chenglian”). These loans are made to primarily fund working capital requirements and are payable on demand. In addition, the loans are unsecured and non-interest bearing.

As of June 30, 2010, the Company had outstanding loans to unrelated parties in the aggregate amount of $1,054,090, consisting of $531,543 to Dalian Haide and $522,546 to Dalian Chenglian.

Note 6 – Bank Loan Security Deposits

The Company obtained financing from various banks through third party guarantors. The Company is responsible to provide security deposits to third party guarantors per the agreements between the Company and the third guarantors. The balance of such bank loan security deposits as of December 31, 2010 and June 30, 2010 consist of the following:

	December 31,		June 30,
	2010		2010
Bank loan security deposits – short-term	$	785,806	$	736,500
Bank loan security deposits – long-term		303,400		294,600
Total	$	1,089,206	$	1,031,100

Note 7– Property and Equipment

Property and equipment as of December 31, 2010 and June 30, 2010 consist of the following:

	December 31,		June 30,
	2010		2010

Buildings	$	20,475,630	$	19,877,285
Machinery and equipment		13,679,454		12,673,324
Office equipment and furniture		173,121		100,927
Vehicles		521,273		466,380
Subtotal		34,849,478		33,117,916
Less: Accumulated depreciation		2,495,322		1,499,842
		32,354,156		31,618,074
Add: Construction in progress		40,378		-
Total	$	32,394,534	$	31,618,074

BEFUT INTERNATIONAL CO., LTD.

Notes to Consolidated Financial Statements

(Unaudited)

Depreciation expense for the three months ended December 31, 2010 and 2009 was $503,245 and $78,604, respectively. Depreciation expense for the six months ended December 31, 2010 and 2009 was $936,460 and $169,816, respectively.

Note 8 – Intangible Assets

Intangible assets as of December 31, 2010 and June 30, 2010 consist of the following

	December 31,		June 30,
	2010		2010

Software	$	29,326	$	22,684
Trademark		86,469		83,961
Land use rights		5,669,469		5,505,028
Patent		11,947,892		11,601,348
Subtotal		17,733,156		17,213,021
Less: Accumulated amortization		2,247,962		1,543,646
Total	$	15,485,194	$	15,669,375

Amortization expense for the three months ended December 31, 2010 and 2009 was $326,576 and $288,022, respectively. Amortization expense for the six months ended December 31, 2010 and 2009 was $647,192 and $548,864, respectively.

Note 9 – Advance Payments – Research and Development

As a common business practice in China, the Company is required to make advance payments for goods or services that will be used in future research and development activities. The Company made the original advance payments for research and development to a third party in August 2008 for the development of twenty patents. The Company realizes the advance payments when certain progress targets are achieved, including, but not limited to, obtaining the intellectual property certificate issued by the PRC State Intellectual Property Office and passing the two-year declaration period, and related costs have been incurred and reported by the third party to the Company. Such advance payments are amortized as research and development expense in the years in which the patents have passed the two- year declaration period. As of December 31, 2010 and June 30, 2010, the Company determined that these advance payments are recoverable.

Note 10 – Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses as of December 31, 2010 and June 30, 2010 consist of the following:

	December 31,		June 30,
	2010		2010

Accounts payable	$	2,705,013	$	3,009,646
Accrued expenses		65,608		110,000

Total	$	2,770,621	$	3,119,646

The carrying value of accounts payable and accrued expenses approximate their fair values due to the short-term nature of these obligations.

BEFUT INTERNATIONAL CO., LTD.

Notes to Consolidated Financial Statements

(Unaudited)

Note 11 – Trade Notes Payable

Trade notes payable consist of uncollateralized non-interest bearing promissory notes issued in connection with the acquisition of certain inventory and equipment. The maturity date of the promissory notes is March 28, 2011. Balances outstanding under such notes as of December 31, 2010 and June 30, 2010 were $3,034,000 and $-0-, respectively.

Note 12 – Short-Term Bank Loans

Short-term bank loans consist of the following:

	December 31,		June 30,
	2010		2010
On September 16, 2009, the Company obtained a loan from Harbin Bank, the principal and accrued interest of which was paid in full by September 15, 2010. The interest was calculated using an annual fixed interest rate of 6.372% and paid monthly. The loan was secured by the Company’s property and equipment.	$	-	$	2,946,000

On October 30, 2009, the Company obtained a loan from Bank of Dalian, the principal and accrued interest of which was paid in full by October 29, 2010. The interest was calculated using an annual fixed interest rate of 6.903% and paid monthly. The loan is guaranteed by Dalian Fangyuan Financial Guarantee Co. ,Ltd., an unaffiliated third party.	$	-	$	2,356,800

On June 25, 2010, the Company obtained a loan from the Bank of East Asia, the principal of which was paid in full by December 25, 2010. The interest was calculated using an annual fixed interest rate of 6.318%, and paid monthly. The loan was guaranteed by the Company’s accounts receivables.	$	-	$	736,500

On September 14, 2010, the Company obtained a loan from Harbin Bank with a maturity date of September 13, 2011. The interest is paid monthly at a variable rate equal to 30% per annum above the floating base interest for loans of the same term issued by the People’s Bank of China, the PRC’s central bank. The average annual interest rate for the three months ended December 31, 2010 was approximately 7.228%. The loan is secured by the Company’s property and equipment.	$	3,034,000	$	-

On October 21, 2010, the Company obtained a loan from the Dalian Economic Development Zone Xinhui Town Bank with a maturity date of October 20, 2011. The interest is paid monthly at a variable rate equal to 50% per annum above the floating base interest for loans of the same term issued by the People’s Bank of China. The average annual interest rate for the three months ended December 31, 2010 was approximately 8.34%. The loan is secured by the Company’s inventory.	$	1,501,830	$	-

On November 11, 2010, the Company obtained a loan from the Bank of Dalian with a maturity date of November 10, 2011. The interest is paid monthly at a variable rate equal to 30% per annum above the floating base interest for loans of the same term issued by the People’s Bank of China,. The average annual interest rate for the three months ended December 31, 2010 was approximately 7.228%. The loan is guaranteed by Dalian Zhongdingxin Investment Guarantee Co., Ltd., an unaffiliated third party.	$	1,517,000	$	-

On November 23, 2010, the Company obtained a loan from the Bank of Dalian with a maturity date of November 22, 2011. The interest is paid monthly at a variable rate equal to 10% per annum above the floating base interest for loans of the same term issued by the People’s Bank of China. The average annual interest rate for the three months ended December 31, 2010 was approximately 6.116%. The loan is guaranteed by Dalian Tiansi Joint Guarantee Co., Ltd., an unaffiliated third party.	$	1,517,000	$	-

On December 30, 2010, the Company obtained a loan from the Bank of East Asia with a maturity date of June 30, 2011. The interest is paid monthly at a variable rate equal to 30% per annum above the floating base interest for loans of the same term issued by the People’s Bank of China. The average annual interest rate for the three months ended December 31, 2010 was approximately 6.63%. The loan is secured by the Company’s accounts receivables.	$	1,517,000	$	-

Total	$	9,086,830	$	6,039,300

BEFUT INTERNATIONAL CO., LTD.

Notes to Consolidated Financial Statements

(Unaudited)

Note 13 – Loans From Unrelated Parties

These loans are based on good-faith, and are non-interest bearing and payable on demand. There are no financial or non-financial covenants associated with these loans. The proceeds from these loans are utilized for working capital. As of December 31, 2010 and June 30, 2010, the Company had outstanding loans from unrelated parties of $2,220,740 and $370,000, respectively.

Note 14 – Long-Term Bank Loans

Long-term bank loans consist of the following:

	December 31,		June 30,
	2010		2010
On November 2, 2009, Dalian Befut entered into a Loan Agreement with the PRC National Development Bank Joint Equity Corporation (“NDB”) pursuant to which Dalian Befut borrowed RMB100,000,000 (approximately $14,670,000) from NDB (the “Loan”), The term of the Loan is seven years, with a maturity date of November 1, 2016. The interest rate is a variable rate equal to 5% per annum above the floating base interest for loans of the same term promulgated by the People’s Bank of China. The average annual interest rate for the three months ended December 31, 2010 was approximately 6.258%.The Loan was designated to finance the construction of Dalian Befut’s planned specialty cable production lines with a production capacity of 4,000 KM. The Loan was secured by, among other liens, a first priority lien on Dalian Befut’s land use right and its building property ownership and guaranteed by, among other guarantees, Mr. Hongbo Cao and Mr. Tingmin Li, Dalian BEFUT’s two major shareholders.	$	14,866,600	$	14,730,000

Total	$	14,866,600	$	14,730,000

Less: Current portion		758,500		294,600

Total noncurrent portion	$	14,108,100	$	14,435,400

Note 15 – Government Subsidy Income

Government subsidy income for the six months ended December 31, 2010 and 2009 consists of the following:

	For the Six Months Ended December 31
	2010		2009
Newly Identified Municipal Technical Center Subsidy	$	74,580	$	-
Appropriation of Technology Innovation Subsidy		215,089		-
"Famous Trademark" subsidy				293,280
Value added tax refund for employing physically-challenged workers		26,973		61,378
Total	$	316,642	$	354,658

BEFUT INTERNATIONAL CO., LTD.

Notes to Consolidated Financial Statements

(Unaudited)

Note 16 –Earnings Per Share

The Company presents earnings per share on a basic and diluted basis. Basic earnings per share are computed by dividing income available to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per share are computed by dividing income available to common shareholders by the weighted average number of shares outstanding plus the dilutive effect of potential securities. All shares and per share data have been adjusted retroactively to reflect the recapitalization of the Company pursuant to the Share Exchange Agreement with Befut Nevada.

	For the Three Months Ended December 31,
	2010		2009

Net income	$	1,936,565	$	994,144

Weighted average common shares
(denominator for basic earnings per share)		29,715,640		29,511,277

Effect of dilutive securities:		71,037		769,255

Weighted average common shares
(denominator for diluted earnings per share)		29,786,677		30,280,532

Basic earnings per share	$	0.07	$	0.03
Diluted earnings per share	$	0.07	$	0.03

	For the Six Months Ended December 31,
	2010		2009

Net income	$	4,184,821	$	1,684,467

Weighted average common shares
(denominator for basic earnings per share)		29,715,640		29,511,277

Effect of dilutive securities:		56,173		769,255

Weighted average common shares
(denominator for diluted earnings per share)		29,771,813		30,280,532

Basic earnings per share	$	0.14	$	0.06
Diluted earnings per share	$	0.14	$	0.06

BEFUT INTERNATIONAL CO., LTD.

Notes to Consolidated Financial Statements

(Unaudited)

Note 17– Stockholders’ Equity And Related Financing Agreements

On March 13, 2009, as part of the reverse merger transaction, the Company acquired, from Befut BVI, 100% of the outstanding shares of common stock of Befut Nevada. In exchange, Befut BVI was issued 117,768,300 shares of the Company’s Common Stock, under a Share Exchange Agreement (“SEA”) pursuant to an exemption under Section 4(2) of the Securities Act of 1933, as amended, for issuances not involving a public offering. As a result of the transaction, Befut Nevada became a wholly-owned subsidiary of the Company.

On March 13, 2009, the Company completed a private financing totaling $500,000, for which convertible promissory notes were issued, with four accredited investors (the “March 2009 Financing”). Consummation of the March 2009 Financing was a condition to the completion of the share exchange transaction with Befut BVI and the Befut BVI Stockholders under the SEA. The securities offered in the March 2009 Financing were sold pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) by and among the Company and the investors named in the Purchase Agreement.

In accordance with the Purchase Agreement, the Company issued securities consisting of: (i) 3,130,869 shares of the Company’s common stock $0.001 par value per share in connection with the private financing; (ii) Five (5) year warrants to purchase 720,076 shares of the Company’s common stock at an initial exercise price of $0.1916 per share.

On June 18, 2009, the Company effectuated a 1 for 4.07 reverse stock split of its outstanding common stock (the “Reverse Split”). The Reverse Split did not alter the number of shares of the common stock the Company is authorized to issue, but rather simply reduced the number of shares of its common stock issued and outstanding. Any fractional shares issued as a result of the Reserve Split was rounded up. In addition, any shareholder owning at least 100 shares but less than 407 shares of the Company’s common stock on June 17, 2009, would own at least 100 shares after giving effect to the Reverse Split.

On March 13, 2009, the Company issued convertible notes in an aggregate principal amount of $500,000 at an annual interest of 15%. On March 12, 2010, the maturity date of the convertible notes, the Company repaid convertible notes in the amount of $370,000 and an interest payment of $55,500. The remaining convertible notes in an aggregate principal amount of $130,000 were converted into 200,000 shares of common stock of the Company at the conversion price of $0.65 per share on May 6, 2010.

During the year ended June 30, 2009, the Company received cash contributions from shareholders in the amount of $5,301,971 and intangible assets with an aggregate fair value of $11,383,050 in exchange for ownership, both of which were accounted for as additional paid-in-capital. During the year ended June 30, 2009, two shareholders of the Company, Tingmin Li and Hongbo Cao, contributed two patents into the Company as increases to their respective capital contributions. The two patents were Intelligent Reactive Power Compensation and Automatic Protection Ni-mh Battery Screen, which were valued as $11,383,050 in total by a professional valuation firm. The contribution was treated as capital transaction per ASC 505-10.

Note 18– Income Taxes

The Company is a Nevada corporation and conducts all of its business through its Chinese subsidiaries. The Company’s business is conducted solely in the PRC. As the Company is a U.S. holding company, it has not recorded any income for the six months ended December 31, 2010 and 2009, there was no provision or benefit for U.S. income tax purpose.

The Company is governed by the Income Tax Law of the PRC concerning private-run enterprises, which are generally subject to a statutory tax rate of 25% and were previously, until January 2008, subject to a statutory tax rate of 33% (30% state income tax plus 3% local income tax) on income reported in the statutory statements after appropriate tax adjustments.

BEFUT INTERNATIONAL CO., LTD.

Notes to Consolidated Financial Statements

(Unaudited)

Note 18– Income Taxes (continued)

On March 16, 2007, the National People’s Congress of China approved the Corporate Income Tax Law of the PRC (the “New CIT Law”), which became effective from January 1, 2008. Under the New CIT Law, the corporate income tax rate applicable to all companies, including both domestic and foreign-invested companies, is 25%, replacing the previous applicable tax rate of 33%. For the six months ended December 31, 2010 and 2009, the income tax provision for the Company was $1,422,030 and $585,723, respectively.

The Company’s provision for income taxes consists of:

	For the Three Months Ended December 31,
	2010		2009

Current – PRC	$	614,895	$	336,819
Deferred		-		-
Total provision for income taxes	$	614,895	$	336,819

	For the Six Months Ended December 31,
	2010		2009

Current – PRC	$	1,422,030	$	585,723
Deferred		-		-
Total provision for income taxes	$	1,422,030	$	585,723

A reconciliation of the provision for income taxes with amounts determined by applying the statutory income tax rate to income before income taxes is as follows:

	For the Six Months Ended December 31,
	2010			2009
Computed tax @ statutory rate of 25%
($5,519,81325% and $2,264,06925% for June 30, 2010
and 2009, respectively)	$	1,379,953		$	566,017

Entertainment expense add-back		5,202			6,594
Government subsidy income		(11,418	)		-
Deductions permitted for salaries paid to physically-challenged employees		(8,774	)		(8,202	)
Additional deductions permitted for R&D costs		(32,629	)		-
Current year losses from PRC subsidiaries		60,663			-
Current year losses from U.S. parent holding company not subject to PRC income taxes		29,033			21,314

Total provision for income taxes
Computed tax @ statutory rate of 25%	$	1,422,030		$	585,723

In July 2006, the FASB issued FASB Interpretation No.48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for income taxes by prescribing a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined in FIN 48 as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company does not recognize any benefits in the financial statements for the six month ended December 31, 2010 and 2009.

BEFUT INTERNATIONAL CO., LTD.

Note 18– Income Taxes (continued)

The Company has not paid income taxes for the three months ended September 30, 2010 and 2009 although it has accrued a liability for income tax payable on its balance sheet. To date, the Company has not been granted an extension to pay its income tax obligations, however, the Company intends to commence negotiations with the local tax authorities regarding the availability of tax exemptions relating to the manufacturing of specialty cables and the payment of any remaining income tax obligations after application of available exemptions. In addition, the Company is applying for the electronic remittance of outstanding tax payments due the local tax bureau, if any. The Company expects a final determination on this matter and payment of any tax amounts due within two years

Note 19 – Employee Welfare Plan

The Company has established an employee welfare plan in accordance with applicable Chinese laws and regulations. Full-time employees of the Company in the PRC participate in a government-mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance and other welfare benefits are provided to employees. PRC labor regulations require the Company to accrue for these benefits based on a certain percentage of the employees’ salaries.

Note 20 – Risk Factors

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 conditions in the PRC. The Company's business may also 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.

Note 21 – Risk of Concentration and Credit Risk

During the six months ended December 31, 2010, five vendors accounted for approximately 76% of the Company’s purchases of raw materials, while during the six months ended December 31, 2009, two major vendors accounted for approximately 56.19% of the Company’s purchases of raw materials. Total purchases from these vendors were $20,227,944 and $6,524,876 for the six months ended December 31, 2010 and 2009, respectively.

Five major customers accounted for 24% and 44.01% of the net revenue for the six months ended December 31, 2010 and 2009, respectively. Total sales to these customers were $6,919,765 and $5,550,159, for the six months ended December 31, 2010 and 2009, respectively.

Financial instruments which potentially subject the Company to credit risk consist principally of cash on deposit with financial institutions. Management believes that the financial institutions that hold the Company’s cash and cash equivalents are financially sound and minimal credit risk exists with respect to these investments.

Note 22 – Supplemental Cash Flow Disclosures

The following is supplemental information relating to the consolidated statements of cash flows:

	Six Months Ended December 31,
	2010		2009

Cash paid for interest	$	357,993	$	137,504
Cash paid for income taxes	$	-	$	-

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

BEFUT INTERNATIONAL CO., LTD.

Note 23 – Restatement to Reflect Correction of Accounting Errors

The effect of restatement for 2010 is as follows:

Consolidated Balance Sheets

	December 31,		December 31,		Effect of
	2010		2010		Change
Assets	(Restated)		(Originally)
Current assets:
Cash and cash equivalents	$	761,460	$	761,460
Restricted cash		3,494,084		3,494,084
Accounts receivable, net of allowance for doubtful
accounts of $85,783 at December 31, 2010,		17,292,392		17,292,392
Inventory		5,234,237		5,234,237
Loans to unrelated parties		1,888,835		1,888,835
Bank loan security deposits		1,089,206		1,089,206
Advance payments		1,521,188		1,929,467		(408,279	)
Due from related party		-		-
Other current assets		1,227,666		1,227,666
Total current assets		32,509,068		32,917,347		(408,279	)

Property and equipment, net		32,394,534		32,394,534

Other assets:
Intangibles, net		15,485,194		15,485,194
Advance payments – non-current		408,279		-		408,279
Advance payments – Research & Development		2,151,106		2,151,106
Total other assets		18,044,579		17,636,300		408,279

Total assets	$	82,948,181	$	82,948,181

Liabilities
Current liabilities:
Accounts payable and accrued expenses	$	2,770,621	$	2,770,621
Trade notes payable		3,034,000		3,034,000
Short-term bank loans		9,086,830		9,086,830
Current portion of long-term bank loans		758,500		758,500
Loans from unrelated parties		2,220,740		2,220,740
Advances from customers		1,007,947		1,007,947
Income taxes payable		3,120,515		3,120,515
Other current liabilities		1,334,564		1,334,564
Total current liabilities		23,333,717		23,333,717

Long-term bank loan		14,108,100		14,108,100

Total liabilities		37,441,817		37,441,817

Equity
Stockholders’ equity:
Common stock, $0.001 par value, 200,000,000 shares authorized,
29,715,640 and 29,715,666 shares issued and outstanding at
December 31, 2010 and June 30, 2010, respectively		29,716		29,716
Additional paid-in capital		21,838,047		21,838,047
Statutory reserves		1,181,189		1,181,189
Retained earnings		17,994,979		17,994,979
Accumulated other comprehensive income		3,447,965		3,447,965
Total stockholders’ equity		44,491,896		44,491,896

Noncontrolling interest		1,014,468		1,014,468

Total equity		45,506,364		45,506,364

Total liabilities and equity	$	82,948,181	$	82,948,181

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

BEFUT INTERNATIONAL CO., LTD.

Note 23 – Restatement to Reflect Correction of Accounting Errors (Continued)

Consolidated Statements of Operations

(Unaudited)

	For the Three Months Ended December 31, 2010			For the Three Months Ended December 31, 2010			Effect of Change
	(Restated)			(Originally)

Sales	$	14,871,164		$	14,871,164

Cost of sales		10,954,272			10,954,272

Gross profit		3,916,892			3,916,892

Operating expenses:
Selling expenses		149,643			149,643
General and administrative expenses		1,032,259			1,032,259
Total operating expenses		1,181,902			1,181,902

Income from operations		2,734,990			2,734,990

Other income (expenses):
Government subsidy		180,155			180,155
Interest Income		1,462			-			1,462
Interest expense		(494,852	)		(493,390	)		(1,462	)
Other income (expenses)		107,024			107,024
Total other income (expenses)		(206,211	)		(206,211	)

Income before provision for income tax		2,528,779			2,528,779

Provision for income tax		614,895			614,895

Net income		1,913,884			1,913,884

Less: Net loss attributable to noncontrolling interest		(22,681	)		(22,681	)

Net income attributable to BEFUT International Co., Ltd.		1,936,565			1,936,565

Basic earnings per share	$	0.07		$	0.07
Diluted earnings per share	$	0.07		$	0.07

Weighted average number of common shares
outstanding:
Basic		29,715,640			29,715,640
Diluted		29,786,677			29,786,677

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

BEFUT INTERNATIONAL CO., LTD.

Note 23 – Restatement to Reflect Correction of Accounting Errors (Continued)

Consolidated Statements of Operations

(Unaudited)

	For the Three Months Ended December 31, 2009			For the Three Months Ended December 31, 2009			Effect of Change
	(Restated)			(Originally)

Sales	$	7,126,044		$	7,126,044

Cost of sales		5,235,323			5,235,323

Gross profit		1,890,721			1,890,721

Operating expenses:
Selling expenses		14,828			14,828
General and administrative expenses		442,264			442,264
Total operating expenses		457,092			457,092

Income from operations		1,433,629			1,433,629

Other income (expenses):
Government subsidy		304,704			304,704
Interest Income		3,728			-			3,728
Interest expense		(8,923	)		(5,195	)		(3,728	)
Other income (expenses)		(403,138	)		(403,138	)
Total other income (expenses)		(103,629	)		(103,629	)

Income before provision for income tax		1,330,000			1,330,000

Provision for income tax		336,819			336,819

Net income		993,181			993,181

Less: Net loss attributable to noncontrolling interest		(963	)		(963	)

Net income attributable to BEFUT International Co., Ltd.		994,144			994,144

Basic earnings per share	$	0.03		$	0.03
Diluted earnings per share	$	0.03		$	0.03

Weighted average number of common shares
outstanding:
Basic		29,511,277			29,511,277
Diluted		30,280,532			30,280,532

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

BEFUT INTERNATIONAL CO., LTD.

Note 23 – Restatement to Reflect Correction of Accounting Errors (Continued)

Consolidated Statements of Operations

(Unaudited)

	For the Six Months Ended December 31, 2010			For the Six Months Ended December 31, 2010			Effect of Change
	(Restated)			(Originally)

Sales	$	30,801,975		$	30,801,975

Cost of sales		22,625,032			22,625,032

Gross profit		8,176,943			8,176,943

Operating expenses:
Selling expenses		188,250			188,250
General and administrative expenses		2,043,879			2,043,879
Total operating expenses		2,232,129			2,232,129

Income from operations		5,944,814			5,944,814

Other income (expenses):
Government subsidy		316,642			316,642
Interest Income		9,966			-			9,966
Interest expense		(889,754	)		(879,788	)		(9,966	)
Other income (expenses)		138,145			138,145
Total other income (expenses)		(425,001	)		(425,001	)

Income before provision for income tax		5,519,813			5,519,813

Provision for income tax		1,422,030			1,422,030

Net income		4,097,783			4,097,783

Less: Net loss attributable to noncontrolling interest		(87,038	)		(87,038	)

Net income attributable to BEFUT International Co., Ltd.		4,184,821			4,184,821

Basic earnings per share	$	0.14		$	0.14
Diluted earnings per share	$	0.14		$	0.14

Weighted average number of common shares
outstanding:
Basic		29,715,640			29,715,640
Diluted		29,771,813			29,771,813

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

BEFUT INTERNATIONAL CO., LTD.

Note 23 – Restatement to Reflect Correction of Accounting Errors (Continued)

Consolidated Statements of Operations

(Unaudited)

	For the Six Months Ended December 31, 2009			For the Six Months Ended December 31, 2009			Effect of Change
	(Restated)			(Originally)

Sales	$	12,609,703		$	12,609,703

Cost of sales		9,098,097			9,098,097

Gross profit		3,511,606			3,511,606

Operating expenses:
Selling expenses		36,701			36,701
General and administrative expenses		1,030,549			1,030,549
Total operating expenses		1,067,250			1,067,250

Income from operations		2,444,356			2,444,356

Other income (expenses):
Government subsidy		354,658			354,658
Interest income		3,728			-			3,728
Interest expense		(141,332	)		(137,504	)		(3,728	)
Other income (expenses)		(397,441	)		(397,441	)
Total other income (expenses)		(180,287	)		(180,287	)

Income before provision for income tax		2,264,069			2,264,069

Provision for income tax		585,723			585,723

Net income		1,678,346			1,678,346

Less: Net loss attributable to noncontrolling interest		(6,121	)		(6,121	)

Net income attributable to BEFUT International Co., Ltd.		1,684,467			1,684,467

Basic earnings per share	$	0.06		$	0.06
Diluted earnings per share	$	0.06		$	0.06

Weighted average number of common shares
outstanding:
Basic		29,511,277			29,511,277
Diluted		30,280,532			30,280,532

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

BEFUT INTERNATIONAL CO., LTD.

Notes to Consolidated Financial Statements

(Unaudited)

Note 23 – Restatement to Reflect Correction of Accounting Errors (Continued)

Consolidated Statements of Cash Flows

(Unaudited)

	For the Six Months Ended December 31, 2010			For the Six Months Ended December 31, 2010			Effect of Change
	(Restated)			(Originally)
Cash flows from operating activities:
Net Income	$	4,097,783		$	4,097,783
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization		1,583,652			1,583,652
Changes in current assets and current liabilities:
Restricted Cash		(2,239,572	)		-			(2,239,572	)
Accounts receivable		(7,894,969	)		(7,894,969	)
Inventory		(2,574,960	)		(2,574,960	)
Advance payments		(1,066,359	)		(1,066,359	)
Other current assets		(935,345	)		(935,345	)
Accounts payable and accrued expenses		(176,022	)		(176,022	)
Trade notes payable		2,983,200			2,983,200
Advances from customers		450,523			450,523
Income taxes payable		1,391,612			1,391,612
Other current liabilities		711,714			711,714
Total adjustments		(7,766,526	)		(5,526,954	)		(2,239,572	)

Net cash provided by (used in) operating activities		(3,668,743	)		(1,429,171	)		(2,239,572	)

Cash flows from investing activities:
Due from related party		478,809			478,809
Additions to property and equipment		(755,610	)		(755,610	)
Additions to construction in progress		(39,808	)		(39,808	)
Advance payment for fixed assets		(104,131	)		(104,131	)
Acquisition of intangible assets		(5,964	)		(5,964	)
Long-term investment		-			-
Loans to unrelated parties		(789,809	)		(789,809	)

Net cash used in investing activities		(1,216,513	)		(1,216,513	)

Cash flows from financing activities:
Restricted cash		-			(2,239,572	)		2,239,572
Bank loan security deposits		(26,849	)		(26,849	)
Loans from unrelated party		1,819,753			1,819,753
Proceeds of short-term bank loans		2,844,524			2,844,524
Repayments of long-term bank loans		(298,320	)		(298,320	)
Capital contribution from noncontrolling interest for BEFUT Zhong Xing		59,183			59,183

Net cash provided by financing activities		4,398,291			2,158,719			2,239,572

Effect of foreign currency translation on cash		(70,748	)		(70,748	)

Net increase (decrease) in cash and cash equivalents		(557,713	)		(557,713	)

Cash and cash equivalents – beginning		1,319,173			1,319,173

Cash and cash equivalents – ending	$	761,460		$	761,460

BEFUT INTERNATIONAL CO., LTD.

Notes to Consolidated Financial Statements

(Unaudited)

Note 23 – Restatement to Reflect Correction of Accounting Errors (Continued)

	For the Six Months Ended December 31, 2009			For the Six Months Ended December 31, 2009			Effect of Change
	(Restated)			(Orginally)
Cash flows from operating activities:
Net Income	$	1,678,346		$	1,678,346
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		718,680			718,680
Changes in current assets and current liabilities:
Restricted Cash		586,000			-			586,000
Accounts receivable		(53,500	)		(53,500	)
Inventory		(1,000,998	)		(1,000,998	)
Advance payments		(197,666	)		(197,666	)
Other current assets		(1,032,681	)		(1,032,681	)
Accounts payable and accrued expenses		1,637,214			1,637,214
Trade notes payable		(1,173,120	)		(1,173,120	)
Advances from customers		(174,496	)		(174,496	)
Income taxes payable		585,724			585,724
Other current liabilities		104,016			104,016
Total adjustments		(827	)		(586,827	)		586,000

Net cash provided by (used in) operating activities		1,677,519			1,091,519			586,000

Cash flows from investing activities:
Due from related party		-			-
Additions to property and equipment		(1,594,161	)		(1,594,161	)
Additions to construction in progress		(2,442,107	)		(2,442,107	)
Advance payment for fixed assets		(8,011,520	)		(8,011,520	)
Acquisition of intangible assets		(6,452	)		(6,452	)
Long-term investment		2,933			2,933
Loans to unrelated parties		1,521,543			1,521,543

Net cash used in investing activities		(10,529,764	)		(10,529,764	)

Cash flows from financing activities:
Restricted cash		-			586,000			(586,000	)
Bank loan security deposits		(163,877	)		(163,877	)
Loans from unrelated party		2,274,251			2,274,251
Proceeds (repayment) of short-term bank loans		(2,786,160	)		(2,786,160	)
Proceeds (repayment) of long-term bank loans		14,664,000			14,664,000
Capital contribution from noncontrolling interest for BEFUT Zhong Xing		43,992			43,992

Net cash provided by financing activities		14,032,206			14,618,206			(586,000	)

Effect of foreign currency translation on cash		(4,369	)		(4,369	)

Net increase (decrease) in cash and cash equivalents		5,175,592			5,175,592

Cash and cash equivalents – beginning		210,301			210,301

Cash and cash equivalents – ending	$	5,385,893		$	5,385,893

Consolidated Statements of Cash Flows

Unaudited)

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those financial statements appearing elsewhere in this report.

Certain statements in this report constitute “forward-looking statements”. Such forward-looking statements include statements, which involve risks and uncertainties, regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategy, (c) our anticipated trends in our industry (d) our future financing plans, and (e) our anticipated needs for, and use of, working capital. Forward-looking Statements are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plan,” “potential,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” or the negative of these words or other variations on these words or comparable terminology. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks and matters described in this report 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. You should not place undue reliance on these forward-looking statements.

Any forward-looking statements speak only as of the date on which they are made and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. Further, the information about our intentions contained in this report is a statement of our intention as of the date of this report and is based upon, among other things, the existing regulatory environment, industry conditions, market conditions and prices, the economy in general and our assumptions as of such date. We may change our intentions, at any time and without notice, based upon any changes in such factors, in our assumptions or otherwise.

Unless the context indicates otherwise, as used in the following discussion, the words “Company”, “we,” “us,” and “our,” each refer to (i) BEFUT International Co., Ltd. (f/k/a Frezer, Inc.), a corporation incorporated in the State of Nevada; (ii) BEFUT Corporation, a corporation incorporated in the State of Nevada and a wholly owned subsidiary of the Company (“Befut Nevada”); (ii) Hongkong BEFUT Co., Ltd. (“Befut Hongkong”), a wholly-owned subsidiary of Befut Nevada, incorporated under the laws of Hong Kong; (iii) Befut Electric (Dalian) Co., Ltd. (“WFOE”), a corporation incorporated under the laws of the People’s Republic of China (the “PRC”), and a wholly-owned subsidiary of Befut Hongkong; (vi) Dalian Befut Wire and Cable Manufacturing Co., Ltd. (“Dalian Befut”), a corporation incorporated under the laws of the PRC, which is a captive manufacturer of WFOE pursuant to a series of contractual agreements; (vii) Dalian Marine Cable Co., Ltd. (“Befut Marine”), a corporation incorporated under the laws of the PRC, and that is 86.6% owned by Dalian Befut; (viii) Dalian Befut Zhong Xing Switch Co., Ltd. (“Befut Zhong Xing”), a corporation incorporated under the laws of the PRC, and that is 73.5% owned by Dalian Befut; and (ix) Dalian Yuansheng Technology Co., Ltd. (“Dalian Yuansheng”), a corporation incorporated under the laws of the PRC, and that is 93.3% owned by Dalian Befut.

Unless the context otherwise requires, all references to (i) “PRC” and “China” are to the People’s Republic of China; (ii) “U.S. dollar,” “$” and “US$” are to United States dollars; and (iii) “RMB”, “Yuan” and “Renminbi” are to the currency of the PRC or China.

Overview

We manufacture specialty cables in northeastern China for sale to industries, including, ship building, nuclear power plants, mining and petrochemical. Our cable products consist of (i) traditional electric power system cable and (ii) an assortment of specialty cable, including marine cable, mining specialty cable, petrochemical cable. We have recently begun to develop carbon fiber composite cable products. We also have developed the capability to produce other types of special cables such as submarine cable and certain “new energy” cable, including cable for wind and solar energy. Our switch application business mainly includes high and low voltage distribution cabinet switches and crane electronic control switches, which products compliment our cable product offerings.

OEM Agreements

We conduct substantially all of our operations through, and generate substantially all of our revenues from Dalian Befut, pursuant to an Original Equipment Manufacturer Agreement, an Intellectual Property Rights License Agreement and a Non-competition Agreement (collectively, the “OEM Agreements”). We have no direct ownership interest in Dalian Befut nor do we have voting control of any shares of Dalian Befut. As a result, these OEM Agreements may not be as effective in providing us with control over Dalian Befut as direct ownership of Dalian Befut would be. For example, Dalian Befut may breach the OEM Agreements by deciding not to manufacture products for WFOE, and consequently the Company. In the event of any such breach, we would have to rely on legal remedies under PRC law, which may not always be available or effective to enforce our rights, particularly in light of uncertainties in the PRC legal system. To mitigate such a risk, WFOE has the exclusive right under the OEM Agreements, exercisable in its sole discretion, to purchase all or part of the assets and/or equity of Dalian Befut.

All cash flows generated under the OEM Agreements are maintained in the custody of Dalian Befut instead of in the custody of the Company. There are no prohibitions under applicable PRC law on the transfer of cash from Dalian Befut to WFOE . Accordingly, except for the relevant PRC laws, regulations and government policies on capital outflow, as disclosed under Item 1A - Risk Factors of our Annual Report on Form 10-K, as amended, no risks exist as to the movement of cash balances from the Company’s PRC operating subsidiaries or Dalian Befut up to the Company. Transfer of cash may be made from Dalian Befut to WFOE and up to the Company, when necessary to meet the Company’s cash requirements, including, for example, to satisfy any debt obligations or make cash dividends. Such transfers must be made in compliance with applicable PRC laws regarding, among other things, currency controls, tax and payment of dividends.

Results of Operations

Three and Six Months Ended December 31, 2011 Compared to the Three and Six Months Ended December 31, 2010

Item	Three- months ended December 31, 2010			Three- months ended December 31, 2009			% Change			Six months ended December 31, 2010			Six months ended December 31, 2009			% Change
Sales	$	14,871,164		$	7,126,044			109	%	$	30,801,975		$	12,609,703			144	%
Cost of sales	$	10,954,272		$	5,235,323			109	%	$	22,625,032		$	9,098,097			149	%
Gross profit	$	3,916,892		$	1,890,721			107	%	$	8,176,943		$	3,511,606			133	%
Total operating expenses	$	1,181,902		$	457,092			159	%	$	2,232,129		$	1,067,250			109	%
Total other income/(expenses)	$	(206,211	)	$	(103,629	)		(99	)%	$	(425,001	)	$	(180,287	)		(136	)%
Net income	$	1,913,884		$	993,181			93	%	$	4,097,783		$	1,678,346			144	%
Gross profit margin		26.34	%		26.53	%		(0.19	)%		26.55	%		27.85	%		(1.30	)%
Basic earnings per share	$	0.07		$	0.03			133	%	$	0.14		$	0.06			133	%
Diluted earnings per share		0.07			0.03			133	%		0.14			0.06			133	%
Weighted average number of common shares outstanding:
Basic		29,715,640			29,511,277			0.69	%		29,715,640			29,511,277			0.69	%
Diluted		29,786,677			30,280,532			-1.63	%		29,771,813			30,280,532			-1.68	%

Three Months Ended December 31, 2010 as Compared to Three Months Ended December 31, 2009

Sales

Our sales for the three months ended December 31, 2010 were $14,871,164, representing an increase of $7,745,120, or 109%, as compared to $7,126,044 in the three months ended December 31, 2009. This increase was primarily due to two factors: (i) significantly increased demand for our traditional cables, specialty cables and switch products from new and existing customers, and (ii) increased production capacity as a result of the relocation of our production facilities at the end of 2009 to our Phase I Changxing facility in Dalian’s Changxing Island Harbor Industrial Zone.

In terms of our product mix, for the three months ended December 31, 2010, approximately 42.2% of our revenues were generated from sales of traditional cable, approximately 49.4 % of revenues were generated from sales of specialty cable and approximately 8.4% of revenues were generated from our switch application business, as compared to 34.5%, 57.6% and 7.9%, respectively, in the three months ended December 31, 2009.

Cost of Sales

Cost of sales is primarily comprised of the cost of raw materials used in the production of our cable products, direct labor and manufacturing overhead expenses. Our cost of sales for the three months ended December 31, 2010 was $10,954,272, representing an increase of $5,718,949, or 109%, as compared to $5,235,323 in the three months ended December 31, 2009. The increase in our cost of sales was in line with the increase in our sales.

Gross Profit

Gross profit for the quarter ended December 31, 2010 was $3,916,892, representing an increase of $2,026,171, or 107%, as compared to the three months ended December 31, 2009. Gross profit as a percentage of sales was 26.34% for the three months ended December 31, 2010, which was not materially different from gross profit percentage at December 31, 2009.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses consist primarily of salaries and bonuses for sales personnel, advertising and promotion expenses, freight charges, related compensation and professional fees and amortization expenses. Selling expenses were $149,643 in the three months ended December 31, 2010, as compared to $14,828 in the three months ended December 31, 2009, representing an increase of $134,815, or 909.19%. General and administrative expenses were $1,032,259 for the three months ended December 31, 2010, representing an increase of $589,995, or 133.40%, as compared to $442,264 in the three months ended December 31, 2009. The increase of general and administrative expenses was mainly due to the increase in expenses from salary, depreciation and expenses from Dalian Yuansheng and WFOE.

Income from Operations

Our operating income was $2,734,990 for the three months ended December 31, 2010, representing an increase of $1,301,361, or 90.77%, as compared to $1,433,629 for the three months ended December 31, 2009. This increase was a result of a significant increase in the gross profit of our overall business of wire and cable manufacturing, partially offset by an increase of selling, general and administrative expenses.

Government Subsidy

In the three months ended December 31, 2010, we received subsidies from various PRC governmental bureaus in the aggregate amount of $180,155, as compared to subsidies of $304,704 received in the quarter ended December 31, 2009. The subsidies we received in the three months ended December 31, 2010 consisted of (i) approximately $150,000 from the Appropriation of Technology Innovation Fund of the Department of Finance of Dalian City and (ii) approximately $30,000 from the Appropriation of Technology Innovation Fund of the Department of Finance of Liaoning Province.

Interest Expense

Interest expense was $494,852 for the three months ended December 31, 2010, representing an increase of $485,929, or 5,445.80 %, as compared to $8,923 for the three months ended December 31, 2009. This increase was due to the increase of our total bank loans, proceeds of which were used for working capital and our Phase I Changxing facility.

Income Taxes

In the three months ended December 31, 2010, our business operations were conducted solely by WFOE, Dalian Befut and its subsidiaries and, as such, we were governed by the PRC Enterprise Income Tax Laws (the “EIT Law”). China enterprise income tax is calculated based on taxable income determined under Chinese generally accepted accounting principles. In accordance with the EIT Law, a Chinese domestic company is subject to taxes, including but not limited to: (i) an enterprise income tax rate of 25% and (ii) a value added tax of 17% on the goods sold.

Provision for income taxes was $614,895 for the three months ended December 31, 2010, an increase of $278,076, or 82.56%, compared to $336,819 for the three months ended December 31, 2009.

Net Income

Net income for the three months ended December 31, 2010 was $1,913,884, representing an increase of $920,703, or 92.70%, as compared to net income of $993,181 for the three months ended December 31, 2009. The increase was mainly attributable to the increase of $2,026,171 in gross profit and the increase of $510,162 in other income, which was partially offset by an increase in selling, general and administrative expenses of $724,810, an increase in interest expense of $488,195 and an increase in income tax provision of $278,076.

Six Months Ended December 31, 2010 as Compared to Six Months Ended December 31, 2009

Sales

Our sales for the six months ended December 31, 2010 were $30,801,975, representing an increase of $18,192,272, or 144.27%, as compared to $12,609,703 in the six months ended December 31, 2009. The increase was primarily due to three factors: (i) significantly increased demand for our traditional cables, specialty cables and switch products from new and existing customers, (ii) our increased production capacity as a result of the relocation of our production facilities to our Phase I Changxing facility in Dalian’s Changxing Island Harbor Industrial Zone at the end of 2009, and (iii) increased prices of many of our cable products due to an increase in the average price of copper, our primary raw material, in the six months ended December 31, 2010, most of which we passed on to our customers.

In terms of our product mix, for the six months ended December 31, 2010, approximately 48.0% of our revenues were generated from sales of traditional cable, approximately 47.4% of revenues were generated from sales of specialty cable and approximately 4.6% of revenues were generated from our switch application business, as compared to 37.5%, 58.0% and 4.5%, respectively, in the six months ended December 31, 2009.

Cost of Sales

Cost of sales is primarily comprised of the cost of raw materials used in the production of our cable products, direct labor and manufacturing overhead expenses. Our cost of sales for the six months ended December 31, 2010 was $22,625,032, representing an increase of $13,526,935, or 148.68%, as compared to $9,098,097 in the six months ended December 31, 2009. Our cost of sales increased at a higher rate than our sales because we produced a lower percentage of specialty cable, which typically has higher gross margins, than in the prior period.

Gross Profit

Gross profit for the six months ended December 31, 2010 was $8,176,943, representing an increase of $4,665,337, or 132.85%, as compared to $3,511,606 in the six months ended December 31, 2009. Gross profit as a percentage of sales was 26.55% for the six months ended December 31, 2010, representing a decrease of 1.30%, as compared to 7.85% in the six months ended December 31, 2009. The decrease of gross profit rate was primarily due to that we produced a lower percentage of specialty cable products, as compared to the six months ended December 31, 2009.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses consist primarily of salaries and bonuses for sales personnel, advertising and promotion expenses, freight charges, related compensation and professional fees, and amortization expenses. Selling expenses were $188,250 in the six months ended December 31, 2010, as compared to $36,701 in the six months ended December 31, 2009, representing an increase of $151,549, or 412.93%. General and administrative expenses were $2,043,879 for the six months ended December 31, 2010, representing an increase of $1,013,330, or 98.33%, as compared to $1,030,549 in the six months ended December 31, 2009. The increase of general and administrative expenses was mainly due to the increase in expenses, including for salary, depreciation and entertainment, from Dalian Yuansheng, Befut Zhong Xing and WFOE.

Income from Operations

Our operating income was $5,944,814 for the six months ended December 31, 2010, an increase of $3,500,458, or 143.21%, as compared to $2,444,356 for the six months ended December 31, 2009. This increase was a result of a significant increase in the gross profit of our overall business of wire and cable manufacturing, partially offset by an increase of selling, general and administrative expenses.

Government Subsidy

In the six months ended December 31, 2010, we received subsidies from various PRC governmental bureaus in the aggregate amount of $316,642, as compared to subsidies of $354,658 received in the six months ended December 31, 2009. The subsidies received by the Company in the six months ended December 31, 2010 consisted of: (i) approximately $74,000 received from the Finance Bureau of Dalian and the Economic and Information Commission of Dalian recognizing the Company as a Newly Identified Municipal Technical Center, (ii) approximately $30,000 received from the Appropriation of Technology Innovation Fund of the Department of Finance of Liaoning Province, and (iii) approximately $178,000 received from the Appropriation of Technology Innovation Fund of the Department of Finance of Dalian City and (iv) a refund of $27,000 for value added taxes we paid at the end of 2009.

Interest Expenses

Interest expense was $889,754 for the six months ended December 31, 2010, an increase of $748,422, or 529.9 %, as compared to $141,232 for the six months ended December 31, 2009. This increase is due to the increase in borrowings under our bank loans.

Income Taxes

In the six months ended December 31, 2010, our business operations were conducted solely by WFOE, Dalian Befut and its subsidiaries and, as such, we were governed by the PRC Enterprise Income Tax Laws (the “EIT Law”). China enterprise income tax is calculated based on taxable income determined under Chinese generally accepted accounting principles. In accordance with the EIT Law, a Chinese domestic company is subject to taxes, including but not limited to: (i) an enterprise income tax rate of 25% and (ii) a value added tax of 17% on the goods sold.

Provision for income taxes was $1,422,030 for the six months ended December 31, 2010, an increase of $836,307, or 142.78%, compared to $585,723 for the six months ended December 31, 2009.

Net Income

Net income for the six months ended December 31, 2010 was $4,097,783 an increase of $2,419,437, or 144.16%, as compared to net income of $1,678,346 for the six months ended December 31, 2009. The increase was mainly attributable to the increase of $4,665,337 in gross profit and the increase of $535,586 in other income, which was partially offset by an increase in selling, general and administrative expenses of $1,164,879, an increase in interest expense of $724,284 and an increase in income tax provision of $836,307.

Liquidity and Capital Resources

Selected Measures of Liquidity and Capital Resources

The following table sets forth certain relevant measures regarding our liquidity and capital resources:

(dollars in thousands, except ratios)	December 31, 2010		June 30, 2010

Cash and cash equivalents and restricted cash	$	4,256	$	2,500

Working capital	$	9,175	$	4,833

Ratio of current assets to current liabilities	1.4:1		1.4 :1

Our approximately $4.4 million increase in working capital from June 30, 2010 to December 31, 2010 was primarily due to the increase of $14.7 million of current assets and the increase of $10.4 million of current liabilities. The increase of current assets mainly includes the increase of $1.8 million of cash, cash equivalents and restricted cash, the increase of $8.0 million of account receivables and the increase of $2.7 million of inventory. The increase of current liabilities mainly includes the increase of $3 million of trade notes payable, the increase of $3 million of short term bank loans, the increase of $1.8 million of loans from unrelated parties, and the increase of $1.5 million of income tax payable.

Cash Flows

We had a net decrease of $557,713 in cash and cash equivalents from June 30, 2010 to December 31, 2010, as compared to a net increase of $5,175,592 from June 30, 2009 to December 31, 2009, respectively. The following table summarizes such changes:

	For the six months ended
(dollars in thousands)	December 31, 2010			December 31, 2009
Net cash provided by (used in) operating activities	$	(3,669	)	$	1,678
Net cash used in investing activities	$	(1,217	)	$	(10,530	)
Net cash provided by financing activities	$	4,398		$	14,032
Net increase (decrease) in cash, cash equivalents	$	(558	)	$	5,176

Our management believes that we have sufficient cash, along with projected cash to be generated from operations, and access to short-term bank loans to support our current operations for the next twelve months. We believe our cash position is strong and sufficient to meet our anticipated working capital needs. However, if events or circumstances occur and we do not meet our budgeted operating plan, we may be required to seek additional capital and/or reduce certain discretionary spending, which could have a material adverse effect on our ability to achieve our business objectives. Notwithstanding the foregoing, we may seek additional financing, which may include debt and/or equity financing. There can be no assurance that any additional financing will be available on acceptable terms, if at all. Any equity financing may result in dilution to existing stockholders and any debt financing may include restrictive covenants.

Operating Activities

During the six months ended December 31, 2010, net cash used in operating activities was $3,668,743, a decrease of $5,346,262, or 318.7%, as compared to net cash of $1,677,519 provided by operating activities during the six months ended December 31, 2009. The decrease in net cash of approximately $2.5 million was mainly due to the increase of net income of $2.4 million, the increase of account receivables of $7.8 million, the increase in inventory of $1.6 million and the increase of trade notes payable of $4.2 million.

Investing Activities

During the six months ended December 31, 2010, we used net cash in investing activities of $1,216,513, a decrease of $9,313,251, or 88.45%, as compared to net cash of $10,529,764 used in investing activities for the six months ended December 31, 2009. We had significantly less investment activities following the completion of our Phase I Changxing Island facility in December, 2009.

Financing Activities

During the six months ended December 31, 2010, net cash provided by financing activities was $4,398,291, representing a decrease of $9,633,915, or 68.66%, as compared to net cash of $14,032,206 provided by financing activities during the six months ended December 31, 2009. We significantly reduced our financing activities with the completion of our Phase I Changxing Island facility.

Financial Obligations

As of December 31, 2010, our outstanding loans were as follows:

Creditors	Loan Amount		Interest Rate		Term	Maturity Date

Harbin Bank	$	3,034,000	7.55	% *	1 year	09/13/11

Bank of Dalian	$	3,034,000	7.55	% *	1 year	11/22/11

Dalian Economic Zone Xinhui Town Bank	$	1,501,830	8.72	% +	1 year	10/20/11

Bank of East Asia	$	1,517,000	7.55	% *	6 months	06/30/11

PRC Development Bank Joint Equity Corporation	$	14,866,600	6.72	% #	7 years	11/01/16

* Variable interest rate equal to 30% per annum above the floating base rate issued by the People’s Bank of China.

+ Variable interest rate equal to 50% per annum above the floating base rate issued by the People’s Bank of China.

# Variable interest rate equal to 5% per annum above the floating base rate issued by the People’s Bank of China.

Accounts Receivable

The balance of our accounts receivable was $17,292,392, net of allowance for doubtful accounts of $85,783, as of December 31, 2010, as compared to $9,292,310, net of allowance for doubtful accounts of $83,295, as of June 30, 2010. The average age of receivables for the last twelve months ended December 31, 2010 was 94 days, compared to 103 days for the fiscal year ended June 30, 2010. The Company’s sales strategy has shifted to large customers since the Company moved its manufacturing operations to its Changxing Island facility. As a result, the credit terms are longer for large customers, such as China National Petroleum Corporation. As at December 31, 2010, the balance for accounts receivable with the aging of more than one year was approximately $80,480. The Company believes the allowance for doubtful accounts was adequate.

Inventories

Inventories consisted of the following as of December 31, 2010 and June 30, 2010, respectively:

	December 31, 2010		June 30, 2010
Category
Raw materials	$	2,339,670	$	1,093,193
Work-in-process		365,680		323,275
Finished goods		2,528,887		1,127,321
Total inventories	$	5,234,237	$	2,543,789

We had total inventory of $5,234,237 as of December 31, 2010, an increase of $2,690,448, or 105.77%, as compared to inventory of $2,543,789 as of June 30, 2010. The average number of days of inventory for the last twelve months ended December 31, 2010 was 66 days, compared to 40 days for the fiscal year ended June 30, 2010. This increase was primarily due to the significant increases in our production in last two quarters.

Off-Balance Sheet Arrangements

At December 30, 2010, we did not have any off-balance sheet arrangements.

Critical Accounting Policies and Use of 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 United States generally accepted accounting principles (“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 2 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:

Use of Estimates and Assumption

The preparation of consolidated financial statements in accordance 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include allowance for doubtful accounts and income taxes. Actual results could differ from those estimates.

Revenue Recognition

We derives our revenues primarily from the design, manufacture and sale of industrial wires and cables in the PRC. In accordance with the provisions of ASC Topic 605, revenue is recognized when products are shipped, title and risk of loss is passed to the customers and collection is reasonably assured. Payments received before the above criteria are satisfied are recorded as advance from customers.

Cost of Sales

Cost of sales includes the expenses incurred to produce inventory for sale, including raw materials, direct labor, depreciation of manufacturing facilities and machinery, overheads, amortization of land use right as well as changes in reserves for shrinkage and inventory obsolescence.

Cash and Cash Equivalents

In accordance with FASB ASC Topic 230, "Statement of Cash Flows", we consider all highly liquid instruments with original maturities of three months or less to be cash equivalents.

Accounts Receivable

Accounts receivable are recorded net of allowance for doubtful accounts. We provide an allowance for doubtful accounts equal to the estimated uncollectible amounts. Periodically, management assesses customer credit history and relationships as well as performs accounts receivable aging analysis. Based on the results, management determines whether certain balances are deemed uncollectible at the end of a certain fixed period. Using its past collection experience, we reserve 0.3% of accounts receivable balances that have been outstanding for less than one year, 3% of accounts receivable balances that have been outstanding for more than one year but less than two years, and 10% of accounts receivable balances that have been outstanding for more than two years. The Company generally provides customers with credit terms of three to four months. However, we provide our “large” customers, those with average annual specialty cable orders of over $7 million, with credit terms of five to six months. We generally do not conduct further business with customers that have significant unpaid accounts receivable balances beyond 12 months, unless we receive advance payments from such customers.

Consolidation

Pursuant to ASC 810-10-15-14, an entity is deemed to be a variable interest entity, or VIE, and thus to be consolidated by its primary beneficiary, if, by intention, any one of the following conditions is present:

The total equity investment at risk in the legal entity to be consolidated is insufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, including equity holders; or

As a group, holders of the equity investment at risk lack any one of the following characteristics of a controlling financial interest:

The power, through voting rights or similar rights to direct the activities of an entity that most significantly impact that entity’s economic performance.

The obligation to absorb the expected losses of the legal entity. Such an obligation does not exist if the shareholders/investors are directly or indirectly protected from losses or are guaranteed a return on their investment by the legal entity itself or by other parties involved with the legal entity.

The right to receive expected residual returns of the legal entity. Such right is not considered to be present if the residual returns are capped by the legal entity's governing documents or by other arrangements with other variable interest holders or the legal entity itself.

On February 16, 2009, WFOE entered into an Original Manufacturer Agreement (the "Manufacturing Agreement") with Dalian Befut, pursuant to which (i) Dalian Befut is the exclusive manufacturer of cable and wire products for WFOE, and may not manufacture products for any other third party without the written consent of WFOE; (ii) WFOE provides all the raw materials and advance related costs to Dalian Befut, as well as provide the design requirements of the products to be manufactured; and (iii) in no event may Dalian Befut use the arrangements under the Manufacturing Agreement for commercial or noncommercial marketing or promotional activities in any form. In addition, on February 16, 2009, WFOE and Dalian Befut entered into (i) an Intellectual Property Rights License Agreement, pursuant to which WFOE shall be permitted to use the intellectual property rights such as trademark, patents and knowhow for the marketing and sale of the products (the “IP Agreement”); and (ii) a Non-competition Agreement, pursuant to which Dalian Befut shall not compete against WFOE (the “Noncompete Agreement”, together with the IP Agreement and Manufacturing Agreement, collectively, the “OEM Agreements”). Under the OEM Agreements, Dalian Befut can only manufacture products for WFOE and cannot compete with WFOE in the same or similar lines of business. Dalian Befut is a captive manufacturer with the sole business purpose of providing manufacturing services to WFOE and is solely dependent on the business provided by WFOE, its primary beneficiary. As WFOE controls all of the potential and future risks and benefits of Dalian Befut, WFOE has the power to significantly impact the economic performance of Dalian Befut. Furthermore, while Messrs. Hongbo Cao and Tingmin Li are the two controlling shareholders of Dalian Befut, collectively owning an aggregate of 90% of the equity interests in Dalian Befut, the Company believes that, due to the OEM Agreements, WFOE, instead of Messrs. Cao and Li, has the power to direct the activities of Dalian Befut to significantly impact the economic performance of Dalian Befut. Based on the aforementioned assessment, Dalian Befut is a VIE of the Company under ASC 810-10-15-14-B.1. above, and as such, is consolidated into the Company. Although the Company is only required to meet one criteria under ASC 810-10-15-14 in order to consolidate Dalian Befut, the Company believes that facts and circumstances exist that would allow it to meet certain other qualifying criteria set forth in ASC 810-10-15-14.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we are not required to provide this information.

Item 4.

Controls and Procedures

Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer reviewed and evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based on their evaluation, in our Quarterly Report on Form 10-Q for the quarter ended December 31, 2010 as originally filed with the SEC on February 14, 2011, our Chief Executive Officer and Chief Financial Officer each concluded that, as of December 31, 2010, our disclosure controls and procedures were effective.

However, in connection with the preparation of our responses to comments received from the SEC, we identified certain reporting errors and omissions in our previously issued financial statements. We subsequently determined that a restatement was required for our consolidated financial statements for the quarter ended December 31, 2010. As a result of the foregoing, management determined that a material weakness existed with respect to our financial reporting. This weakness was a result of our insufficient disclosure of certain required information by inexperienced staff, which required the restatement of our consolidated financial statements as of and for the quarter ended December 31, 2010.

As a result of the material weakness identified with respect to our financial reporting, our Chief Executive Officer and Chief Financial Officer have reevaluated our disclosure controls and procedures and have concluded that our disclosure controls and procedures were not effective as of December 31, 2010. As of the date of this amended report on Form 10-Q/A, we are undertaking steps to correct the aforementioned material weakness by:

•

Establishing policies and procedures of transaction level and type to improve our internal control environment;

•

Implementing a financial closing process check list including major book closure steps to perform consolidation and reviews; and

•

Recruiting qualified accounting professionals with sufficient US GAAP knowledge to enhance the quality of our financial reporting preparation.

Changes in Internal Control Over Financial Reporting

In our Annual Report on Form 10-K for the fiscal year ended June 30, 2010, our Chief Executive Officer and Chief Financial Officer concluded that under the framework set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, our internal control over financial reporting was effective. However, due to the restatement of our financial statements for the year ended June 30, 2010, for the quarter ended September 30, 2010 and for the quarter ended December 31, 2010, as described above, our Chief Executive Officer and Chief Financial Officer reassessed that conclusion and determined that there existed a material weakness in our internal controls over financial reporting as of December 31, 2010. Management has determined that the design and operation of internal control over financial reporting that we had in place at December 31, 2010 was not effective to allow our management, employees and consultants, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely and reasonable basis. That material weakness was due to our short staffing of accounting professionals with sufficient knowledge of US GAAP and relevant disclosure requirements.

Because we were not aware of this material weakness until after the quarter ended March 31, 2011, there was no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. As of the date of this amended report on Form 10-Q/A, we are undertaking the aforementioned steps to remediate the weakness in our internal controls over financial reporting,

PART II OTHER INFORMATION

Item 6.

Exhibits

The exhibits required by this item are set forth in the Exhibit Index attached hereto.

SIGNATURES

Pursuant to the requirements of 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.

	BEFUT INTERNATIONAL CO., LTD.

Date: September 16, 2011	By:	/s/ Hongbo Cao
	Name: Hongbo Cao
	Title: President and Chief Executive Officer
	(principal executive officer)

Date: September 16, 2011	By:	/s/ Mei Yu
	Name: Mei Yu
	Title: Chief Financial Officer
	(principal financial officer and principal accounting officer)

EXHIBIT INDEX

No.		Description

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

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

32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Attached files

BEFUT International Co., Ltd. Reports

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