f10k2011_orientaldrag.htm

a decrease in accounts receivable of $5,112,699 due to collections,

a decrease in inventories of $2,282,001 attributable to the seasonality factors described above,

a decrease in prepaid and other current assets of $996,118,

an increase in accrued expenses of $1,120,405, and

an increase in income taxes payable of $2,446,481

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2011
or
o	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: 000-52133

ORIENTAL DRAGON CORPORATION

(Exact name of registrant as specified in its charter)

Cayman Islands		N/A
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

No. 48 South Qingshui Road

Laiyang City, Shandong 265200

People’s Republic of China

(Address of principal executive offices)

+86 (535) 729-6152

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Ordinary Share, Par Value $0.001 Per Share

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

Indicate by check 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 o

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 x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

Large accelerated filer	o	Accelerated filer	o

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

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

As of the last business day of the registrant’s most recently completed second fiscal quarter, there was no public trading market for our ordinary shares.

As of March 25, 2012, there are 27,509,171 ordinary shares issued and outstanding.

Documents Incorporated by Reference: None.

TABLE OF CONTENTS

Item Number and Caption		Page

PART I

Item 1.	Business.	1

Item 1A.	Risk Factors.	19

Item 2.	Properties.	33

Item 3.	Legal Proceedings.	34

Item 4.	Mine Safety Disclosures.	34

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	34

Item 6.	Selected Financial Data.	35

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	36

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	52

Item 8.	Financial Statements and Supplementary Data.	F-1

Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.	53

Item 9A.	Controls and Procedures.	53

Item 9B.	Other Information.	54

PART III

Item 10.	Directors, Executive Officers and Corporate Governance.	54

Item 11.	Executive Compensation.	56

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	57

Item 13.	Certain Relationships and Related Transactions, and Director Independence.	59

Item 14.	Principal Accountant Fees and Services.	60

PART IV		60

Item 15.	Exhibits, Financial Statement Schedules.	63

SIGNATURES		55

PART I

ITEM 1.BUSINESS.

Oriental Dragon Corporation (“we” or the “Company”) is the producer and supplier of Laiyang Pear juice concentrate. As compared to other pear juice concentrate products made in the People’s Republic of China, which we refer to as China or the PRC, our product holds a special distinction not shared by the others—the reputation of the Laiyang Pear. This distinction has its roots in a long, historical public perception in China that pears produced in the Laiyang region are a premium product due to their nutritional and medical benefits, including under the tenets of Traditional Chinese Medicine (“TCM”).

Our products are mainly used as the functional ingredient in many pharmaceutical and health supplement products, representing a combined 89% and 89% of sales for the years ended December 31, 2011 and 2010, respectively. The State Science and Technology Commission of China has certified that Laiyang Pear contains 46 kinds of nutritional benefits including organic acids, nicotinic acid, heteropolysaccharides, protocatechuic acid, polyphenols, carotene, vitamin B1, vitamin B2, vitamin C and varied minerals such as calcium, phosphorus and iron. Some of the popular applications of our pear concentrate by pharmaceutical and health supplement companies include Laiyang Pear linctus, Laiyang Pear cough lozenge, Laiyang Pear cough syrup, Laiyang Pear soup and Laiyang Pear paste. Our products are sold primarily in Shandong, Guangdong, Liaoning and Jiangsu provinces via seven key distributors with the requisite transportation and cold-storage logistics ability. We (through our subsidiaries Shandong Longkang Juice Co., Ltd., a PRC limited liability company (“Longkang”) and Shandong MeKeFuBang Food Limited (the “WFOE” or “MeKeFuBang”)) are also the licensee of the “Laiyang Pear” trademark. The Laiyang Pear trademark is owned by an entity affiliated with the Laiyang city government in Shandong province, China.

In addition to the production and sale of Laiyang pear juice concentrate, we produce and supply strawberry juice concentrate, strawberry puree and bio animal feed.

Our Corporate History and Structure

We were incorporated with limited liability under the laws of Cayman Islands on March 10, 2006. We are a holding company and conduct our operations through a contractually-controlled entity in the PRC named Longkang. Longkang was incorporated in Shandong province on November 22, 2004 and is owned by Zhide Jiang, our President, Chief Executive Officer and Chairman of the Board, and four other shareholders. When Longkang was incorporated, it had a registered capital of RMB 10 million and its name was Laiyang Tianfu Fruit Juice Co. (“Laiyang Tianfu Fruit Juice). In 2000, Shandong Tianfu Group, a state owned entity in China, formed a company named Laiyang Tianfu Guozhi Co. (“Tianfu Guozhi”). We understand that the purpose of Tianfu Guozhi was to acquire Tianbao Beverage Co., Ltd. (“Tianbao Beverage”). In 2000, Shandong Tianfu Group ceased negotiations with Tianbao Beverage because the parties had material disagreements regarding the assumption of liabilities and termination of employees. In 2004, Mr. Jiang resigned as legal representative of Shandong Tianfu Group, which he had served since 2000 (Mr. Jiang served as legal representative of Shandong Tianfu Group only on behalf of the government and had no equity ownership interest in Shandong Tianfu Group). Mr. Jiang and four other shareholders then formed Laiyang Tianfu Fruit Juice (now Longkang). In December 2004, after negotiations Longkang purchased all of the assets and properties and assumed all the liabilities of Tianbao Beverage for RMB 100 million, or $12.5 million in cash. Prior to the acquisition, Longkang did not have any property or business operations. Longkang changed its name to its current name on January 14, 2008.

On May 31, 2006, we completed a private placement offering by selling 177,500 ordinary shares to 355 offshore private investors for $35,500. On July 18, 2006, we sold an additional 54,000 shares to 108 offshore private investors for $10,800. On October 22, 2009, we acquired Merit Times International Limited (“Merit Times”) in a reverse acquisition transaction, which involved a financing transaction and a share exchange transaction which are more fully described below.

We own all of the issued and outstanding capital stock of Merit Times, which in turn owns 100% of the outstanding capital stock of MeKeFuBang. On June 10, 2009, MeKeFuBang entered into a series of contractual agreements with Longkang, and its five shareholders, in which MeKeFuBang effectively assumed management of the business activities of Longkang and has the right to appoint all executives and senior management and the members of the board of directors of Longkang. The contractual arrangements are comprised of a series of agreements, including a Consulting Services Agreement, Operating Agreement, Proxy Agreement, and VIE Option Agreement, through which MeKeFuBang has the right to advise, consult, manage and operate Longkang for an annual fee in the amount of Longkang’s yearly net profits after tax. Additionally, Longkang’s shareholders have pledged their rights, titles and equity interest in Longkang as security for MeKeFuBang to collect consulting and services fees provided to Longkang through an Equity Pledge Agreement. In order to further reinforce MeKeFuBang’s rights to control and operate Longkang, Longkang’s shareholders have granted MeKeFuBang the exclusive right and option to acquire all of their equity interests in Longkang through the VIE Option Agreement. The contractual agreements were subsequently amended on December 20, 2010 to restrict Longkang’s ability to terminate such agreements.

On June 10, 2009, the Chairman of Longkang, Mr. Zhide Jiang, as a PRC citizen, entered into a call option agreement, which we refer to as the Original Option Agreement, with Mr. Chee Fung Tang, a Hong Kong passport holder and the Merit Times shareholders. Under the Original Option Agreement, Mr. Jiang shall serve as CEO, director or other officer of Merit Times for a certain period of time; and in anticipation of Mr. Jiang’s continued contributions to the companies including Merit Times and Longkang, if the companies meet certain thresholds of the revenue conditions, Mr. Jiang shall have the right to be transferred the shares of Merit Times at a nominal price. In addition, the Original Option Agreement also provides that Mr. Tang shall not dispose of any of the shares of Merit Times without Mr. Jiang’s consent.

On August 5, 2009, Mr. Chee Fung Tang, a Hong Kong resident and the sole shareholder of Proud Glory Limited (a British Virgin Islands company, which became the major shareholder of Merit Times after Merit Times recapitalized), entered into a new Incentive Option Agreement, which we refer to as the Proud Glory Option Agreement, with Mr. Jiang. Pursuant to Proud Glory Option Agreement, the Original Option Agreement was terminated on the effective date of Proud Glory Option Agreement. The effective date of Proud Glory Option Agreement is October 22, 2009.

Under the Proud Glory Option Agreement, Mr. Jiang shall serve as managing director or other officer of Merit Times for at least 3 years; and in anticipation of Mr. Jiang’s continued contributions to the group including Merit Times, MeKeFuBang and Longkang, if the group meets certain thresholds of the revenue conditions set forth therein, Mr. Jiang shall have rights and options to be transferred up to 100% shares of Proud Glory Limited at a nominal price within the next three years (the “Option”). In addition, the Proud Glory Option Agreement also provides that Mr. Tang shall not dispose any of the shares of Proud Glory Limited without Mr. Jiang’s consent.

Mr. Chee Fung Tang owns 10,000 shares, which represent 100% of the issued and outstanding shares of Proud Glory Limited (the “Option Shares”). Under the terms of the Proud Glory Option Agreement, the Option vested and became exercisable and Mr. Zhide Jiang has the right to receive the Option Shares upon exercise of the Option which were subject to the fulfillment of the following conditions which have been met:

34% of the Option Shares subject to the Option shall vest and become exercisable on the date of fulfillment of the 2009 revenue of a minimum of ¥6,000,000 RMB (equal to approximately $879,018);

33% of the Option Shares subject to the Option shall vest and become exercisable on the date of fulfillment of the 2010 revenue of a minimum of ¥20,000,000 RMB (equal to approximately $2,930,060); and

33% of the Option Shares subject to the Option shall vest and become exercisable on the date of fulfillment of the 2011 revenue of a minimum of ¥30,000,000 RMB (equal to approximately $4,395,090).

The Option is exercisable at an exercise price of $0.10 per share for a period of five years from the date of the Option. If Mr. Jiang exercises all his rights to acquire all equity interest of Proud Glory Limited from Mr. Tang, Mr. Jiang will indirectly hold 11,306,666 shares or 41.11% ownership interest of the Company through Proud Glory Limited assuming the total outstanding shares of our company remains unchanged.

The following chart reflects our organizational structure as of the date of this report.

(1) Mr. Zhide Jiang is the Executive Director of Proud Glory Limited, which is our majority shareholder. Pursuant to the Proud Glory Option Agreement between Mr. Zhide Jiang and Mr. Chee Fung Tang, the record owner of Proud Glory Limited, Mr. Zhide Jiang has the right and opportunity to acquire up to 100% equity interest of Proud Glory Limited subject to certain contingencies as set forth therein within three years starting from October 22, 2009. If Mr. Jiang exercises all his rights to acquire all equity interest of Proud Glory Limited from Mr. Tang, Mr. Jiang will indirectly hold 11,306,666 shares or 41.11% ownership interest of the Company through Proud Glory Limited, assuming the total outstanding shares of our company is unchanged.

(2) The “other” shareholders were shareholders of Merit Times who received shares of Oriental Dragon Corp. pursuant to the share exchange agreement. Each “other” shareholder received their respective shares in Merit Times for a cash contribution $1.00 per share for an aggregate amount of $23,500. All of the “other” shareholders are listed below.

SUI Zhengang, WEI Detao, WU Peng, YU Zhimin, LI Fengjun, FU Wei, AI Yunian, JU Hongying were various business associates of Mr. Jiang in matters unrelated to Longkang. In addition to their cash contribution, GEP Capital Group, LLC, Grandview Capital, Inc. and Cawston Enterprises Ltd., Li Ping and Ju Hongping received shares in Merit Times as consideration for business advisory or financial advisory services to the Company in connection with the recapitalization.

Contractual Arrangements between MeKeFuBang, Longkang Juice and its stockholders

As described in the section above, our relationships with Longkang and its stockholders are governed by a series of contractual arrangements between MeKeFuBang, and Longkang, which is our operating company in the PRC. Under PRC laws, Longkang is an independent legal person and is not exposed to liabilities incurred by the other parties. On June 10, 2010, MeKeFuBang entered into a series of contractual agreements with Longkang and its five shareholders, in which MeKeFuBang effectively assumed management of the business activities of Longkang and has the right to appoint all executives and senior management and the members of the board of directors of Longkang. The contractual agreements were subsequently amended on December 20, 2010 to restrict Longkang’s ability to terminate such agreements.

Details of these amended and restated contractual arrangements are as follows:

(1) Consulting Services Agreement. Pursuant to the exclusive consulting services agreement between MeKeFuBang and Longkang, MeKeFuBang has the exclusive right to provide to Longkang general business operation services, including advice and strategic planning, as well as consulting services related to the technological research and development of the Longkang’s products (the “Services”). Under this agreement, MeKeFuBang owns the intellectual property rights developed or discovered through research and development, in the course of providing the Services, or derived from the provision of the Services. Longkang shall pay a quarterly consulting service fees in Renminbi (“RMB”) to MeKeFuBang that is equal to all of Longkang’s profits for such quarter. This agreement shall remain in full force and effect for the maximum period of time permitted by law unless being terminated by MeKeFuBang by giving a thirty day prior written notice. In no circumstances, however, Longkang can terminate this agreement during the terms of this agreement.

(2) Operating Agreement. Pursuant to the operating agreement among MeKeFuBang, Longkang and all shareholders of Longkang, MeKeFuBang provides guidance and instructions on Longkang’s daily operations, financial management and employment issues. Longkang shareholders must designate the candidates recommended by MeKeFuBang as their representatives on the boards of directors of Longkang. MeKeFuBang has the right to appoint senior executives of Longkang. In addition, MeKeFuBang agrees to guarantee Longkang’s performance under any agreements or arrangements relating to Longkang’s business arrangements with any third party. Longkang, in return, agrees to pledge their accounts receivable and all of their assets to MeKeFuBang. Moreover, Longkang agrees that without the prior consent of MeKeFuBang, Longkang will not engage in any transactions that could materially affect its assets, liabilities, rights or operations, including, without limitation, incurrence or assumption of any indebtedness, sale or purchase of any assets or rights, incurrence of any encumbrance on any of its assets or intellectual property rights in favor of a third party or transfer of any agreements relating to its business operation to any third party. The term of this agreement shall commence from the effective and shall last for the maximum period of time permitted by law unless terminated by MeKeFuBang by giving a thirty day prior written notice. In no circumstances, however, Longkang can terminate this agreement during the terms of this agreement.

(3) Equity Pledge Agreement. Under the equity pledge agreement between Longkang’s shareholders and MeKeFuBang, Longkang’s shareholders pledged all of their equity interests in Longkang to MeKeFuBang to guarantee Longkang’s performance of its obligations under the consulting services agreement. If Longkang or its shareholders breaches their respective contractual obligations, MeKeFuBang, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. Longkang’s shareholders also agreed that upon occurrence of any event of default, MeKeFuBang shall be granted an exclusive, irrevocable power of attorney to take actions in the place and stead of the Longkang’s shareholders to carry out the security provisions of the equity pledge agreement and take any action and execute any instrument that MeKeFuBang may deem necessary or advisable to accomplish the purposes of the equity pledge agreement. Longkang’s shareholders agreed not to dispose of the pledged equity interests or take any actions that would prejudice MeKeFuBang’s interest. The equity pledge agreement will expire two (2) years after Longkang’s obligations under the consulting services agreements have been fulfilled. The equity pledge under such agreement was registered with the Laiyang Administration of Industry and Commerce on June 17, 2009 and has been effective under the PRC laws.

(4) VIE Option Agreement. Under the option agreement between Longkang’s shareholders and MeKeFuBang, Longkang’s shareholders irrevocably granted MeKeFuBang or its designated person an exclusive option to purchase, to the extent permitted under PRC law, all or part of the equity interests in Longkang for the cost of the initial contributions to the registered capital or the minimum amount of consideration permitted by applicable PRC law. MeKeFuBang or its designated person has sole discretion to decide when to exercise the option, whether in part or in full. The term of this agreement shall last for the maximum period of time permitted by law unless terminated by MeKeFuBang by giving a thirty day prior written notice. In no circumstances, however, the Longkang shareholders can terminate this agreement during the terms of this agreement. As disclosed in the Risk Factors section on page 15, the acquisition of equity interests in Longkang by us may be deemed as direct or indirect acquisition of a PRC domestic company by an offshore company controlled by a PRC natural person, therefore the approval of PRC Ministry of Commerce is required during the period when Mr. Zhide Jiang has substantial interest in our company. To date, Mr. Zhide Jiang has not obtained relevant approval or registration from the PRC government.

(5) Proxy Agreement. Pursuant to the proxy agreement between the Longkang’s shareholders and MeKeFuBang, the Longkang shareholders agreed to irrevocably grant a person to be designated by MeKeFuBang with the right to exercise the Longkang shareholders’ voting rights and their other rights, including the attendance at and the voting of Longkang’s shareholders’ shares at shareholders’ meetings (or by written consent in lieu of such meetings) in accordance with applicable laws and its articles of association, including but not limited to the rights to sell or transfer all or any of his equity interests of Longkang, and appoint and vote for the directors and chairman as the authorized representative of the shareholders of Longkang. The proxy agreement shall remain in full force and effect for the maximum period of time permitted by law unless terminated by MeKeFuBang by giving a thirty day prior written notice. In no circumstances, however, the Longkang shareholders can terminate this agreement during the terms of this agreement.

On August 8, 2006, the MOFCOM, joined by the China Securities Regulatory Commission (“CSRC”), the State Administration of Foreign Exchange (“SAFE”) as well as other government agencies, released a Provisions for Foreign Investors to Merge with or Acquire Domestic Enterprises (the “M&A Regulation”), which took effect on September 8, 2006. These new rules significantly revised China’s regulatory framework governing onshore-to-offshore restructurings and foreign acquisitions of domestic enterprises. These new rules signify greater PRC government attention to cross-border merger, acquisition and other investment activities, by confirming MOFCOM as a key regulator for issues related to mergers and acquisitions in China and requiring MOFCOM approval of a broad range of merger, acquisition and investment transactions. According to the new M&A Regulation, a related-party acquisition in which an offshore company owned or controlled by a PRC resident acquires a domestic company controlled by the same PRC resident shall be subject to the approval of MOFCOM.

Among other things, the M&A Regulation also included new provisions to require that the overseas listing of an offshore company which is directly or indirectly controlled by a PRC resident for the purpose of overseas listing of such PRC resident’s interests in a domestic company, known as a “special purpose company”, must obtain the approval of CSRC prior to the listing.

The option granted to Mr. Jiang under the Proud Glory Option Agreement works to cut off the link of related-party acquisition and prevent the application of the new M&A Regulation to our situation, since Proud Glory Limited is 100% owned by a non-PRC natural person while Mr. Jiang, as a PRC resident, does not own any equity in the off-shore company. Further, our current VIE structure avoids the acquisition transaction which is directly the target under scrutiny of the M&A Regulation, including the requirement of CSRC approval. Thus, we believe that, in its current practice, the M&A Regulation does not apply to our situation.

However, the application of this M&A Regulation remains uncertain since neither MOFCOM nor CSRC has approved any Chinese company’s foreign listing. There is no consensus currently existing among the leading PRC law firms regarding the scope and applicability of the MOFCOM or CSRC approval requirements. If the MOFCOM, CSRC or other PRC regulatory body subsequently determines that the new M&A Regulation applies to our situation and CSRC’s approval was required for our public offering, we may face sanctions by the MOFCOM, CSRC or other PRC regulatory agencies. In such event, these regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds from our public offering into the PRC, or take other administrative actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our securities.

Currently, there have been no findings by the PRC authorities that we or our shareholders have violated applicable laws or regulations with respect to this agreement, our organizational structure and other related agreements. However, the exercise of the option by Mr. Jiang under the Proud Glory Option Agreement will subject him to the registration requirement by SAFE, and there can be no assurance that such approval will be granted, as disclosed in the risk factor.

Acquisition of Merit Times and Related Financing

On October 22, 2009, we acquired Merit Times in a reverse acquisition transaction, which involved a financing transaction and a share exchange transaction. In accordance with a Share Exchange Agreement dated October 22, 2009, which we refer to as the Exchange Agreement, by and among us, Merit Times, and the shareholders of Merit Times (the “Merit Times Shareholders”), we acquired 100% of the issued and outstanding shares of Merit Times in exchange for 21,333,332 shares or 97.77% of our ordinary shares issued and outstanding after the closing of the share exchange transaction, thereby making Merit Times our wholly owned subsidiary. Pursuant to the terms of the Exchange Agreement, Access America Fund, LP (“Access America”), the principal shareholder of the Company, cancelled a total of 794,000 ordinary shares of the Company. Further, the prior officers and directors of the Company resigned and Mr. Zhide Jiang was appointed as the President, Chief Executive Officer and Chairman of the Board of Directors of the Company.

In the related financing transaction, on October 22, 2009, and November 2, 2009, we completed a private placement of investment units (the “Units”) for a total of $17,011,014, each Unit consisting of fifty thousand (50,000) ordinary shares and five-year warrants to purchase twenty five thousand (25,000) ordinary shares of the Company, at an exercise price of $6.00 per share (the “Investor Warrants”). In the aggregate, we issued 5,670,339 ordinary shares and Investor Warrants to purchase a total of 2,835,177 ordinary shares in this financing. Grandview Capital, Inc. (“Grandview”), the lead placement agent, and Rodman & Renshaw, LLC (“Rodman”), the co-placement agent, were our placement agents (the “Placement Agents”) in connection with the financing transaction. For the placement agent services, we paid a cash commission equal to 7% of the aggregate gross proceeds of the Units sold and issued five-year warrants to purchase 567,035 ordinary shares (“Agent Warrants”, together with the “Investor Warrants,” collectively refer to as the “Warrants”), which equal 10% of the number of ordinary shares sold in the above financing transaction, exercisable at any time at a price equal to $6.00 per share.

In connection with the financing, Proud Glory Limited and the Company entered into an escrow agreement with the investors in which Proud Glory Limited agreed to a “make good” obligation and to place into escrow a total of 4,600,000 ordinary shares of the Company. The escrowed shares were subject to disbursement to Proud Glory Limited or to the private placement investors based upon our financial performance in the fiscal years ended 2009 and 2010.

Under the “make good” arrangement, minimum net income thresholds of $14,000,000 and $18,000,000 with a 10% allowable variation were established for the 2009 and 2010 fiscal years, respectively. If, in a given fiscal year, the applicable minimum net income threshold was not met, escrowed shares, on a pro-rata basis, in an amount equal to the percentage of variation from the net income threshold times the total number of escrow shares, were required to be disbursed to the private placement investors. If any escrow shares were distributed to investors resulting from the Company not attaining the 2009 net income thresholds, Proud Glory Limited would have placed an additional amount of shares into escrow so that the escrow shares totaled 4,600,000. Net income equaled or exceeded $12,600,000 in 2009 and $16,200,000 million in 2010, and the applicable thresholds were met and all escrow shares were disbursed to Proud Glory Limited.

Notwithstanding the above, Mr. Zhide Jiang is the beneficial owner of the shares held by Proud Glory Limited. As described above under the corporate structure, on August 5, 2009, Mr. Zhide Jiang entered into the Proud Glory Option Agreement with Mr. Chee Fung Tang, the record stockholder of Proud Glory Limited, pursuant to which Mr. Zhide Jiang shall have rights and options to acquire up to 100% shares of Proud Glory Limited at nominal price within the next three years if he continues serving as chief executives of our affiliated companies for no less than three year period of time and if such companies meet certain thresholds of the revenue conditions.

Additionally, our majority shareholder, Proud Glory Limited, of which Mr. Zhide Jiang is the managing director (the “Lock-Up Shareholder”), entered into a Lock-Up Agreement with us whereby the Lock-Up Shareholder agreed it will not, offer, pledge, sell or otherwise dispose of any ordinary shares or any securities convertible into or exercisable or exchangeable for ordinary shares during the period beginning on and including the date of the final closing of the aforementioned financing transaction for a period of eighteen (18) months.

Business Overview

Primarily, we are a producer and supplier of Laiyang Pear juice concentrate. As compared to other pear juice concentrate products made in China, our product holds a special distinction not shared by the others—the reputation of the Laiyang Pear. This distinction has its roots in a long, historical public perception in China that pears produced in the Laiyang region are a premium product due to their exceptional taste and deemed nutritional and medical benefits, including under the tenets of Traditional Chinese Medicine (TCM).

Our Laiyang Pear juice products are mainly used as the functional ingredient in many pharmaceutical and health supplement products, representing a combined 89%, 89% and 82.1% of sales for the years ended December 31, 2011, 2010 and 2009, respectively. The State Science and Technology Commission of China has certified that Laiyang Pear contains 46 kinds of nutritional benefits including organic acids, nicotinic acid, heteropolysaccharides, protocatechuic acid, polyphenols, carotene, vitamin B1, vitamin B2, vitamin C and varied minerals such as calcium, phosphorus and iron. Our products are sold primarily in Shandong, Guangdong, Liaoning and Jiangsu provinces via seven key distributors with the requisite transportation and cold-storage logistics ability. We (through our subsidiaries Longkang and MeKeFuBang) are also the licensee of the “Laiyang Pear” trademark, owned by an entity affiliated with the Laiyang city government in Shandong province, China.

On a limited basis, we also produce and supply strawberry juice concentrate and strawberry puree and since October 2010, we began to produce and supply bio animal feed.

We generate revenues mostly from the sale of Laiyang Pear juice concentrate. In 2011 and 2010, we also generated revenues from the sale of strawberry juice concentrate, strawberry juice puree and from the sale of our bio animal feed product. Our revenue for the year ended December 31, 2011 were $137.0 million, representing an increase of 29.8% from the year ended December 31, 2010 with revenues of $105.5 million. Our net income for the year ended December 31, 2011 was $37.7 million, representing an increase of 33.7% compared with our net income of $25.2 million for the year ended December 31, 2010. Our revenue for the year ended December 31, 2010 were $105.5 million, representing an increase of 27.7% from the year ended December 31, 2009 with revenues of $82.6 million. Our net income for the year ended December 31, 2010 was $25.2 million, representing an increase of 67.4% compared with our net income of $15.1 million for the year ended December 31, 2009.

On May 6, 2010, our Board of Directors approved the change of Emerald Acquisition Corporation’s name to Oriental Dragon Corporation to better reflect our current business, and the filing of an amendment to the Articles of Association of the Company to reduce the required quorum to one-third of the shares entitled to vote for future shareholder meetings. A special shareholder meeting was held on June 7, 2010 and both actions were approved. The name change was filed with the Registrar of Companies of the Cayman Islands and became effective on August 27, 2010.

Industry Overview

The market demand for Laiyang Pear juice concentrate to be used in pharmaceutical and health supplement industries is continuing to grow. In early 2010, the Forecasting and Analysis Report of the Market and Investment Opportunities of China Fruit Juice Industry, issued by China Economy Research Associates (the “CERA” report), provided that during recent years, in China, people’s immune system functions have been substantially affected adversely and respiratory disease incidence has been increasing year by year as a result of increasing pollution and continuous deterioration of the global living environment. According the statistics published by the Ministry of Health of the PRC (“MOH”), nearly 300 million people infected respiratory diseases each year, among which over 50 million people are cough patients. According to China National Center of Health Statistics, for every 10 Chinese children one child has the cough illness and the elderly people are more prone to seasonal cough in winters. A stubborn cough could easily lead to high blood pressure, cerebral hypoxia, pulmonary heart disease and other complications. Thus cough products have a large consumer population and a broad market prospect.

Our concentrate is used in the manufacture of various kinds of products, including Laiyang Pear cough syrup, Laiyang Pear concentrated decoction and Laiyang Pear cough granule products. According to the CERA report, current alternatives using Laiyang Pear juice concentrate include herbal mixes and some western medicines, such as Codeine, which are addictive and have adverse side effects to health. The herbal mixes deployed as alternatives usually are comprised of lotus leaves, semen sterculiae lychnophorae, honeysuckle and lily, which cost 2-3 times as Laiyang Pear juice concentrate and can be purchased from open market or herbal wholesalers. The Industry Analysis Report was published by Beijing Zongheng Economy Research Institute, a private organization specializing in providing market and industrial research services to government, international organizations, colleges and universities, scientific academies and institutes and mid-to-large sized enterprises.

Additionally, according to a report on China’s fruit processing industry issued by Beijing Business & Intelligence Consulting Co. Ltd. (“BBIC,” and such report is hereinafter referred to as the “BBIC Report”), an independent market research firm, China’s fruit processing industry has grown significantly in the past several years. The total output of fruit processed products in China grew from $16.8 billion in 2005 to $35.8 billion in 2009, representing a compound annual growth rate (“CAGR”) of 20.8%. The sales of fruit processed products in China grew from $16.0 billion in 2005 to $32.9 billion in 2009, representing a CAGR of 19.7%.

BBIC projected that the total sales and net income of fruit processed products in China will reach $37.2 billion and $2.5 billion in 2010, or a growth of 42.52% and 66.67%, respectively, during the four-year period from 2007 to 2010. The table below sets forth the sales and net income of fruit processing industry in China from 2005 to 2010 and projected sales and net income of fruit processing industry in China from 2008 to 2010.

Sales and Projected Sales and Net Income of Fruit Processing Industry in China, 2005-2010

(in Billions of U.S. $)	2005		2006		2007		2008		2009		2010
Sales		16.0		21.0		26.1		28.5		32.9		37.2
Net Income		0.9		1.2		1.5		1.8		2.2		2.5

Source: 2006-2008 Fruit processing industry research report, Beijing Business & Intelligence Consulting Co. Ltd.

China’s economy has grown significantly in recent years. According to the National Bureau of Statistics of China (the “NBS”), China’s gross domestic product (the “GDP”) has increased from RMB12.0 trillion ($1.6 trillion) in 2002 to RMB34.0 trillion ($5.0 trillion) in 2009. The International Monetary Fund also estimated that China’s real GDP should grow at an annual growth rate of 9.2% in 2011. China’s economic growth has resulted in a significant increase in household disposable income in China. According to the NBS, between 2002 and 2009, urban household disposable income per capita increased from RMB7,703 ($1,055) to RMB17,175 ($2,526), or a CAGR of 10.5%, and rural household disposable income per capita increased from RMB2,476 ($339) to RMB5,153 ($758), or a CAGR of 9.6%. We believe that as GDP and disposable income increase, fruit processed products will become more affordable and consumers will generally spend an increasing portion of their disposable income on healthy nutritional products, such as our premium specialty fruit based products.

With approximately one quarter of the world’s population, China represents a key growth driver for the global fruit food market. According to Euromonitor, an independent research firm, although China is the largest producer of apples, third largest producer of oranges, and one of the top producers of pears and peaches in the world, per capita fruit juice consumption in China is currently well below that of major developed countries.

Due to low labor costs and an abundant supply of fruit, most notably apples, pears, and kiwifruit, China is a large fruit juice concentrate producer and the largest apple juice concentrate producer in the world. The export of fruit products is also a growing aspect of the fruit processing industry in China. With improvements in the quality and quantity of the production, marketing, and transportation technologies, China has strengthened its position in the world market. According to the BBIC Report, processed fruit export sales are expected to reach $10.9 billion in 2010, representing a 42.72% growth over that in 2007. Although we do not presently export any of our products, we may wish to do so in the future.

We believe that improved living standards and growing household disposable income have led to greater health awareness among the population. As people become more affluent, we believe that their spending on quality healthy and nutritional products, like our products, will increase.

Therefore, we anticipate that China’s fruit concentrate industry will continue to grow.

Products

We currently produce two types of fruit juice concentrate: Laiyang Pear and strawberry, with Laiyang Pear juice concentrate accounting for substantially all the overall sales volume and 82.1%, 88.8%, and 88.9% of total revenue for 2011, 2010 and 2009, respectively. Prior to 2010, we also produced apple juice concentrate. Additionally, in 2011, we produced and sold strawberry puree to one customer. We are the only producer of Laiyang Pear juice concentrate, which is known for its exceptional taste, nutritional and medical benefits; and applications in health supplement and pharmaceutical products and is mainly used in pharmaceutical and health supplement industries. Laiyang Pears enjoy a reputation in China rooted in long history for their exceptional taste and deemed nutritional benefits, including under the tenets of TCM. Laiyang Pears have been described in publications going back as long as the Compendium of Materia Medica, the first comprehensive pharmacopoeia of China, written 400 years ago. Due to the climate and environmental benefits in Laiyang city, the Laiyang Pear only grows in Laiyang City, Shandong Province, and has been doing so for over 1,600 years. We currently have three production lines for Laiyang Pear juice concentrate and puree with a combined production capacity of 48,000 MT, with a utilization rate of 90% during peak seasons and 70% on an annual average. The production season of Laiyang Pear juice concentrate is from September to next February each year.

In November 2009, Longkang submitted its proprietary technologies for developing Laiyang Pear juice concentrate to relevant authorities for the official certification: Scientific and Technological Achievement Certificate (STAC) — Technology Research and Applications of Laiyang Pear Juice Concentrate’s Effective Health and Medical Functions. As analyzed, judged and unanimously approved by appraisal authorities and the national experts in China’s juice processing industry, it was found that Laiyang Pear contains 46 kinds of nutritional benefits including organic acids, vitamin B1, B2, vitamin C, nicotinic acid, protocatechuic acid, polyphenols, a wide variety of polysaccharides, polyphenols, carotene, and minerals such as calcium, phosphorus and iron. The Laiyang Pear’s features include both a low sodium and high potassium content.

The two STAC reports are approved by China authorized agencies. Such STAC reports are prepared by parties that have no relationships with us and are approved by governmental agencies of China. This is a mandatory certification process.

Additionally, we have one production line that produces bio animal feed with a production capacity of 52,000 MT. We began selling bio animal feed in the fourth quarter of 2010, which is a byproduct of pear juice concentrate. For the years ended December 31, 2011 and 2010, revenues from the sale of bio animal feed amounted to $10.5 million and $5.4 million representing 7.6% and 5.1% of our net revenues, respectively.

Current product portfolio

Laiyang Pear and other juice concentrate

Laiyang Pear juice concentrate is the most significant source of our revenue. During the fiscal year of 2011, 2010 and 2009, Laiyang Pear juice concentrate represented 82.1%, 88.8%, and 88.9% of our net revenues and substantially all juice concentrate revenue volume, respectively. In comparison, strawberry juice concentrate and/or strawberry puree contributed 10.2%, 6.1% and 2.9% of revenues, respectively.

Currently, strawberry juice concentrate and strawberry puree is primarily produced during the off-season for Laiyang Pear production. Prior to 2010, we also produced apple juice concentrate during the off-season for Laiyang pear juice concentrate. We did not produce any apple juice concentrate during 2011 or 2010 and do not plan on producing it in the future.

Laiyang Pear juice concentrate uses Laiyang Pear as its main raw material. We have imported equipment from United States and Europe to produce Laiyang Pear juice concentrate. The product maintains Laiyang Pear’s nutritional and medical benefits. Our products are mainly sold to health supplement, pharmaceutical and Chinese medicine, food and food/beverage industries. In 2011, the percentages of our products sold to such industries are 54%, 35%, 7% and 4%, respectively. In 2010, the percentages of our products sold to such industries are 56%, 34%, 8% and 2%, respectively. Due to the climate and environmental benefits in Laiyang city, the Laiyang Pear only grows in Laiyang City, Shandong Province in China and has been doing so for over 1600 years.

Laiyang Pear contains 46 kinds of nutritional benefits including, organic acids, vitamin B1, B2, vitamin C, nicotinic acid, protocatechuic acid, polyphenols, a wide variety of polysaccharides, polyphenols, carotene, and minerals such as calcium, phosphorus and iron. The fruit is both low in sodium and high in potassium.

We have been working with colleges and institutions to study Laiyang Pear producing technology, and we have developed applications through new technology that reduces browning of the produce and that helps to maintain Laiyang Pear’s nutritional and medical benefits by storing the concentrate at a low temperature. We have also developed a filtration process through which we are able to achieve higher quality juice concentrate by separating various sediment substances from the crude juice. After the undesirable sediments are removed, a clarified crude juice of increased quality and shelf-life is obtained and turned into juice concentrate. Although our production facilities are running at full capacity, there is an increasingly high demand for Laiyang Pear juice extract.

Bio Animal Feed

During 2010, we completed the construction of one production line that produces bio animal feed with a production capacity of 52,000 MT. We began selling bio animal feed in the fourth quarter of 2010. For the years ended December 31, 2011 and 2010, revenues from the sale of bio animal feed amounted to $10.5 million and $5.4 million representing 7.6% and 5.1% of our net revenues, respectively.

We began receiving increased interest for high-quality bio feed after the 2008 scandals with tainted milk products in China. The major customers in bio animal feed are livestock and poultry companies. In connection with the production of our bio animal feed product, minimal additional raw materials will be required for us as we can use the residue from our juice concentrate processing. There is a total of 500,000 MT of fruit and vegetable waste in the Laiyang area.

Through our research with China Agriculture University, Laiyang Pear waste, as the main raw material for bio animal feed described above, consists of Laiyang Pear pulp, Laiyang Pear seeds, and Laiyang Pear stalks, which account for 96.2%, 3.1% and 0.7%, respectively. They contain various nutritional compositions such as crude protein, crude fiber, crude fat, non-nitrogen extract, calcium, digestible energy, metabolizable energy, phosphorus, potassium, iron, manganese, sulfur and many other mineral substances and trace elements, of which the iron content in Laiyang Pear wastes is 4.9 times that of corn; lysine, methionine and arginine content is 1.7 times, 1.2 times and 2.75 times that of corn; vitamin B2 is 3.5 times that of corn, and more than 15% total sugar in nitrogen-free extract. Other fruit and vegetable wastes, which are rich in sugar, vitamin C and starch, can also be used as raw materials for bio feed. However, such other raw materials are required to be fresh, clean and free of debris or sediment.

We use fermenter, inoculated cans, vacuum pumps, fermentation tanks, stainless steel pumps, ozone machines, laboratories, and laboratory equipment to produce bio animal feed in accordance with the quality standard “China Feedstuff Sanitation Standard” and “Chinese Feedstuff Quality Control New Technology Standard.” The shelf life of the bio animal feed product is 12 months.

The bio-feed, which we produce through fermenting fruit and vegetable wastes, utilizes microorganisms and complex enzymes as zymophytes so as to convert the raw materials into the bio-fermented feed comprised of mycoproteins, bioactive amino acids of small- peptides, micro-bio-active probiotics and complex enzymes. The four-strain high-protein bacteria applied for bio animal feed production can effectively transform the carbohydrates in the fruit wastes, such as organic acids, tartaric acids and hemicelluloses into various proteins and accordingly enhance the overall protein content in fruit wastes. Our bio feed product is also featured with rich content of nutritional components, various probiotics, over 20 kinds of amino acids, a wide variety of vitamins as well as microelements. It also contains varied organic acids including oligose, citric acid, tartaric acid and more.

Modern medical experts worldwide have proved through scientific research efforts that amino acids, vitamins, microelements and oligose are all indispensable nutrients for all animal lives, i.e., protein. Protein is the foundation of life and amino acids can maintain normal operation of physiological function, antibody and metabolism of animals. A shortage of protein will result in deteriorating physique, slower development, weakened immunity, anemia and hypodynamia, up to edema or fatal threat to life. Vitamins play an important regulatory role in substance metabolism and help improve the metabolism; microelements can regulate the homeostasis of animals, benefit metabolism of blood fat and prevent arteriosclerosis. Oligose is a natural immunopotentiator, whose active constituents are B-1.3/1.6 glycogen-accumulating organisms and mannitose and helpful to reproductive assimilation of beneficial bacterium in animal bodies.

Therefore, we believe that the bio animal feed we produce has higher protein content and nutrient content than other average feeds. As such, long-term use of bio animal feed will improve dairy cattle’s immune system and disease resistance.

In connection with the technology used to produce bio animal feed, we are under application of a patent with the State Intellectual Property Office of P.R. China to protect our technology. The application number is 200910015442.2. Such technology and production method is owned by Zhide Jiang, the Chief Executive Officer of Longkang. The application was accepted by the State Intellectual Property Office authority on May 25, 2009 and was verbally approved in 2011 and we are current waiting for the official certificate which has not been received yet. The approval process can take as long as two years. Mr. Jiang has agreed to transfer such patent application to Longkang for free.

Features of animal feed products:

We believe the main features of animal feed product are:

Low cost: While the normal feed price is approximately 2500RMB/MT, the price at which we estimate we can sell our bio-animal feed is approximately 1600RMB/MT. In our production, we can utilize residue from Laiyang Pear juice concentrate production, therefore there is no incremental raw material cost for production.

High milk production: The protein content of our product will be 15% which is 5% higher than normal animal feed. Our research shows that the dairy cattle have higher milk production after taking the bio-feed product.

Reduced waste: The residue from production has historically needed to be disposed of as waste. By utilizing the waste to produce bio-feed, waste shall be reduced.

Improves dairy cattle’s immune system and disease resistance: Bio-feed can be used as feed attractant before and after weaning calves in order to support their immune system.

Expanding Product Mix

We intend to maintain our leadership in the production of Laiyang Pear juice concentrate, and at the same time, diversify into other agricultural products to mitigate risk. Specifically, we intend to increase our investment in high margin products. For example, on average, berry concentrates’ gross margin is approximately 40%. As a result, we plan to expand our juice concentrate products to include fruits such as blueberries, raspberries, blackberries, apricots and yellow peaches. Recently, we added one new production line for Laiyang Pear juice concentrate and fruit puree, and one new production line for bio animal feed. The production line for Laiyang Pear juice concentrate and fruit puree was imported from Italy in June 2010. The production line for bio animal feed was purchased from a Chinese manufacturer in June 2010. Both production lines were installed, tested and adjusted in September 2010 and became fully operational in October 2010. We started to distribute the Laiyang Pear juice concentrate and bio animal feed products, by using the new production lines in October 2010 and November 2010, respectively.

We intend to enter into new markets as follows:

Puree Products: Puree consumption is growing 10% per annum in China. In addition, about half of all fruit puree consumed in Japan is imported from China. The major customers in puree products are fruit distributors and baked goods companies. The gross margin for pear puree, apple puree and strawberry puree are 30%, 25% and 40% respectively. In 2011, we produced and sold strawberry puree to one customer. We intend to produce and sell more puree products in the future according to the needs to the customers.

Production

Production facility

Our primary production facilities are located in Laiyang city, Shandong province in the PRC. We currently have three production lines for Laiyang Pear juice concentrate and puree with a combined production capacity of 48,000 MT and one production line for bio feed with a production capacity of 52,000 MT. We also have cold storage facilities, and occupy approximately 5,772 acres of plantation fields. The three Laiyang Pear juice concentrate and fruit puree production lines include one APV UK production line with a capacity of 20 MT per hour, one SIG Italy production line with a capacity of 60 MT per hour and one Catelli Italy production line with a capacity of 30 MT per hour. The supporting facilities of plate heat exchanger and tubular sterilization machine are from Shanghai Beverage Machinery Factory with capacity of 20 MT per hour, and we are also equipped with a vertical filter from Nanjing Gaoyou filter factory.

Production process & technology

When we produce fruit juice concentrate, we usually crush and beat fresh fruits into mashes, and press fruit mashes until fruit juice comes out. We then mix raw fruit juice with proper amount of compound enzyme to remove pectin and starch. Finally, we filter concentrated fruit juice in concentrators to achieve the target content of soluble solids, acidity and other quality standards. We have recently adopted a number of new technologies for our production processes. One example is that we have been introducing a secondary precipitation process which gives us 10% more juice concentrate from the same input by separating various sediment substances from the crude juice. After the undesirable sediments are removed, a clarified crude juice of increased quality and shelf-life is obtained and turned into juice concentrate. We estimate that this will reduce costs in the amount of approximately 416 RMB per ton, or approximately $60 per ton. In addition, we have developed technology that reduces browning of the produce and that helps to maintain Laiyang Pear’s nutritional and medical benefits by storing the concentrate at a low temperature.

Quality Control

We place primary importance on the quality of our products. Our production facility has ISO 9001 and HACCP series qualifications. We have established a quality control and food safety management system for the purchase of raw materials, fruit processing, packaging, storage and distribution. We have also adopted internal quality standards that we believe are stricter than the standards mandated by the PRC government.

Specifically, our requirements for the light transmittance, turbidity, sourness and hygienic criteria of Laiyang Pear juice concentrate are all higher than the national standard in PRC. As juice has a high turbidity and low light transmittance, the acidophilic heat-resistant bacteria in the juice are more likely to reproduce and metabolize when the juice concentrate is diluted to commodity juice, producing chemical compound, bromophenesic acid, which worsens the flavor of juice or even results in white sediment on the bottom of inner package. Our Laiyang Pear juice concentrate product is free of this problem because it is produced following the quality requirements higher than the national standard. In addition, the higher the sourness, the higher the content of vitamin C and other nutrients would be, which is beneficial to the human body. By implementing quality criteria higher than the national standard, we make our products more competitive in the market.

High quality raw materials are crucial to the production of quality fruit products. Therefore, we rigorously examine and test fresh fruits arriving at our plant. Any fruits that fail to meet our quality standard are rejected. We perform routine product inspections and sample testing at our production facility and adhere to strict hygiene standards. All of our products undergo inspection at each stage of the production process, as well as post production inspections and final checking before distribution for sales. Products in storage or in the course of distribution are also subject to regular quality testing.

Raw Materials and Suppliers

Laiyang Pear, iron drums and coal are our major raw materials.

Our headquarters and manufacturing facilities are strategically located in close proximity to the Laiyang Pear orchards on the Jiaodong Peninsula, providing easy access to the only supply of Laiyang Pear in the world. We maintain effective costs through cooperative agreements with local farmers and through receiving government support.

We are a party to two kinds of cooperative agreements: (i) a five year cooperative agreement with local farmers pursuant to which Longkang sends technical managers to these local farmers for technical guidance and follow-up service during the production process and (ii) a five year cooperative agreement with local farmers pursuant to which Longkang subcontracts the orchards to these farmers for 1,200 RMB or 1,500 RMB per mu (equal to approximately $1,055 per acre) each year. With respect to the first type of cooperative agreement, Longkang shall purchase all the qualified Laiyang Pear from contract farmers at the higher of (a) the minimum guarantee price of 750 RMB per ton (equal to approximately $110 per ton) or (b) the market price. If Longkang and the contract farmers have cooperated for more than 5 years, the unit price of the qualified raw fruits will increase approximately $34 per ton. In connection with the minimum guaranteed price paid to farmer at the time of the purchase, we do not have any other price guarantees to adjust the price of previously purchased pears. In addition, the Laiyang government exempted agriculture and forestry specialty tax on us of 260 RMB per mu (equal to approximately $228 per acre). This is conditioned on that we shall implement our development plan, as describe below, to develop an additional 3,295 acres of Laiyang Pear plantation per year. By doing so, we will actively help to increase the income of local farmers and boost the development of the Laiyang Pear industry.

We have also secured our supply of Laiyang Pear by acquiring land use rights to 500 acres of Laiyang Pear orchards in 2007 and 511 acres of Laiyang Pear orchards in 2011 with plans to acquire additional land use rights in the future to develop green-certified products. These supply arrangements provide us with advantages in terms of product quality, and stability and reliability of delivery.

Green certified products in China refer to a specific mode of production, identified by the specialized agencies, licensing the use of clean green food logo safety trademark on high-quality and nutritious food. Green certified products have two standards: AA-and A grade. AA grade refers to the process of food production that does not use any harmful synthetic substances; A-grade refers to the production process that allows limited use of qualified synthetic substances. In short, green certified products are safe, healthy and nutritious.

The Laiyang Pear has a history of nearly 1,600 years of known production. The oldest Laiyang Pear tree is still producing the pears is more than 400 years old. The fields for growing Laiyang Pear total approximately 85,000 acres, and result in total production of approximately 1.6 million tons of Laiyang Pear. As of December 31, 2011, through cooperative agreements, we have the exclusive use of 12,872 acres of Laiyang pear plantations of and we plan on developing an additional 3,295 acres each year pursuant to cooperative agreements with contract farmers. Longkang currently uses approximately 500,000 tons of Laiyang Pear which is approximately 31% of the total Laiyang Pear production. In 2009, the China Agriculture Ministry decided to develop 164,745 acres of Laiyang Pear plantations which will be managed for the Laiyang city government. The Laiyang city government will implement such order by developing 16,475 acres of Laiyang Pear plantation each year, among which Longkang will develop our own plantations amounting to approximately 3,295 acres each year, so as to ensure enough raw materials to increase capacity. Additionally, we acquired land use rights for Laiyang pear plantation of 1011.3 acres. We are confident that there will be enough raw materials to meet the increased capacity for our company.

Other main suppliers are Laiyang Yuandong Drum Co., Ltd, Laiyang Dali Co., Ltd., Yingwei Yu, Zuwei Jiang, and Lijun Wang.

Laiyang Yuandong Drum Co., Ltd is located at Laiyang Economic Development Zone. It produces 300,000 iron drums every year, of which we need about 175,000 drums to package the juice concentrate products. The iron drums are produced in accordance with international standards and we have had no quality or supply problems with this company in the last few years.

Laiyang Dali Co., Ltd. is located in Laiyang city and it supplies coal throughout the year. We signed a long term contract with Laiyang Dali Co., Ltd. for approximately 25,000 tons of coal per year. There have been no quality problems with this company in the last few years.

Yingwei Yu, Zuwei Jiang and Lijun Wang have been working in the fruit buying and transportation business for many years. They have many branch stations which allow us to harvest a high volume of pears during harvest season. They have specialists and equipment required to test the quality of our pears.

Research & Development

Our research and development activities are driven by changing consumer tastes and preferences, the need to develop high margin product segments, adapting to healthy lifestyle demands, utilizing all components of the raw materials, and growing demand for green products.

There are 40 skilled food specialists employed by us who guarantee the product quality. These food specialists also assist us with new product development. We also work with outside institutions to get their support. For instance, in 2005, through the efforts of the experts from South Korea, Italy and the Chinese Research Institute of Fruit, as well as our food specialists, issues such as the difficulty of storing the Laiyang Pear; the fact that the Laiyang Pear easily turns brown and that Laiyang Pears were difficult to transport were all resolved, making for a successful production of Laiyang Pear juice concentrate.

We continue to work with third party institutions and research institutes for technical support and cooperation. We have established long-term relationships with the China Agricultural University, Laiyang Agricultural College, Shandong Institute of Light Industry and China Research Institute of Fruit, so that we can timely update and achieve better understanding in technology, information and human resource for the China and international markets.

We also invested in advanced laboratory equipment, including chromatography, precision scales, spectrophotometer, high-speed centrifuges, small tube sterilization machine, membrane filter and relevant equipment of fruit juice production testing, as well as the sterile laboratories that can be used for precise analysis in comprehensive study.

Below are the summaries of our prior and current research projects:

We cooperated with Laiyang Agricultural College commencing from January 2005 to work on a research project regarding Laiyang Pear juice concentrate decolorization to develop natural honey. The project was completed in December 2009 and the total cost of the project was $1,025,055.

In 2006, we entered into an agreement with China Agriculture College called the Project of High Tech Bio Feed Stuff from Fruit and Vegetable Waste. The research being conducted pursuant to this agreement began in January 2006 and was completed in December 2009. The project cost $879,000. Under the terms of this agreement, anything produced in connection with this research project will belong to us.

In connection with the technology used to produce bio animal feed, we have applied for a patent with the State Intellectual Property Office of the PRC. The application number is 200910015442.2. Such technology and production method is owned by Zhide Jiang, the Chief Executive Officer of Longkang. Mr. Jiang has agreed to grant the right to use such technology to Longkang for free.

In addition, beginning in January 2005, we cooperated with Fruit Research Institute of China to work on a research project regarding abstract preservatives and oil from seeds and waste from after juice concentrate production for use in cosmetic skin care products and natural preservatives. The project was completed in December 2009 and the total cost of the project was $585,745.

Commencing in January 2005 and ending in December 2009, together with Fruit Research Institute of China, we also worked on a research project regarding secondary precipitation to increase production of Laiyang Pear juice concentrate. The total cost of the project was $585,745.

On March 1, 2010, we entered into a cooperative research and development contract with the Preclinical Medicine Research Laboratory of Shandong Medicine Academy to study the effects of Laiyang Pear juice concentrate. This project was completed in December 2011 at a total cost of the project of approximately $732,500.

Currently, we are not conducting any research and development activities.

Marketing, Sales & Distribution

Currently, our products are only sold in the PRC, and we mainly utilize distributors for the sale of our products. We have a total of fourteen customers of which eight are distributors. Our distributors and customers pick up the products from our factory directly using refrigerated trucks.

We started direct sales in January 2010. Currently we only have three direct customers as end user of our products. We plan to sell more of our products through direct sales to pharmaceuticals and health supplement manufacturers in 2012. In our direct marketing efforts, we have collected information lists about potential end users who are mainly in the pharmaceutical or healthcare industry. We have contacted these potential end users to introduce our products, and send free samples upon request. Once we negotiate purchase terms and execute a contract with the customer, our factories will begin producing the product to the customer specifications. We intend to visit our major customers periodically to make sure that they are satisfied with our products and services.

Customer Concentration

Our customers are in the health supplement, pharmaceutical, fruit juice, and other food product industries in Shandong, Guangdong, Liaoning and Jiangsu provinces in the PRC. Below is a chart indicates the geographic distribution in 2011 and 2010:

Currently, we have 14 customers. Our customers and sales for fiscal 2011, 2010 and 2009 are as follows:

Customers	2011 (US)		2010 (US)		2009 (US)		Applied Market
Shandong Zhanhua Haohua Fruit Juice Co., Ltd.	$	14.702.906	$	12,576,065	$	10,887,161	This customer uses juice concentrate as an ingredient in their own beverage products and also sells to pharmaceutical and health supplement producers.
Qingdao Dongxu Xinshen Trading Co.		16.695.706		16,330,722		14,121,668	This customer sells juice concentrate to Chinese medicine and juice beverage suppliers.
Yantai Jinyuan Food Co., Ltd.		15,156,314		13,235,970		11,504,347	This customer sells juice concentrate to pharmaceutical and healthy supplement manufacturers and also uses juice concentrate as a sweetener for their export products.
Xintai Hengxin Trading Co.		14,776,712		13,380,663		11,775,909	This customer sells juice concentrate to pharmaceutical and healthy supplement manufacturers, and to bakery, candy, fruit juice and other producers.
Guangzhou Huaqing Trading Co., Ltd.		12,592,822		12,934,415		10,584,740	This customer sells juice concentrate to pharmaceutical and healthy supplement manufacturers and to food additive, fruit juice and export companies.
Dandong Jinwang Trading Liminted		13,642,224		12,555,781		10,757,553	This customer distributes juice concentrate to pharmaceutical and health supplement manufacturers.
Dongtai Hongda Company		14,216,558		14,358,350		12,928,518	This customer distributes juice concentrate to pharmaceutical and health supplement manufacturers.
Shandong Changli Pharmaceutical Co., Ltd.		6.321.937		4,895,199		-	This customer uses our product to produce cough syrup.
Beijing Yufulong Trading Co., Ltd		6,257,413		-		-	This customer sells our product to pharmaceutical and health supplement producers.
Bohai Pharmaceutical Group Co Ltd.		660,904		-		-	This customer uses our product to produce traditional Chinese medicine
Shandong Yipintang Co., Ltd		4,803,849		-		-	This customer uses our product to health supplement producers.
Yantan Sanchuan Food Co., Ltd		6,716,971		-		-	This customer purchased strawberry puree
Laiyang Liuhe Animal Feed Co., Ltd.		5,272,633		2,566,616		-	This customer purchased our bio animal feed.
Qingdao Nestle Co., Ltd.	$	5,201,165	$	2,693,614	$	-	This customer purchased our bio animal feed.

Overall, in 2011, 54% of our products are sold to health supplement companies, 35% to Chinese medicine companies, 7% to fruit juice producers and 4% to food producers. In 2010, the percentages of our products sold to such industries are 56%, 34%, 8% and 2%, respectively.

Pursuant to our sales contracts with the above customers, in 2011 and 2010, our Laiyang Pear juice concentrate was sold at approximately 16,667 RMB per metric ton in 2011 and 2010 (approximately $2,578 to $2,458 per metric ton based on respective year average foreign currency exchange rate) and primarily, we receive a payment when the products are delivered to the customers.

Growth Strategy

We are committed to enhancing profitability and cash flows through the following strategies:

Increase production capacity to meet market demands. Our existing production lines have been running close to full capacity while the market demand for our existing products has increased. We have an abundant supply of source fruits to support the expansion of our business. In September 2010, we added one new production line for the production of Laiyang Pear juice concentrate, one new production line for the production of bio animal feed (leftover material from production of concentrate that may be re-processed into low-cost, nutritious animal food). In the near future, we plan on adding two additional production lines: one for the production of Laiyang Pear juice concentrate and one for the production of bio animal feed.

Further develop exclusively operated orchards to secure raw material supply. We believe that a secure supply of principal raw materials is crucial to our future success. Hence, we intend to further strengthen our existing cooperative relationship with existing local farmers and contract growers. In addition, we have exclusive land leases from the Laiyang city government and have started growing our own orchards, to maintain the quality of the Laiyang Pear and to reduce raw material costs.

Further expand our distribution network to increase the prevalence of our products nationwide. Our current sales depend heavily on our regional distributors and their network. We are undertaking direct sales for customers with annual assumption of 500 metric tons or above of our products. To support our rapid sales growth, we plan to expand our distribution network by adding new distributors in the next few years. In addition, we also plan to expand our customer base by developing new relationships with end users in markets we have not yet penetrated.

Enhance the integrated utilization of production resources. In September 2010, we substantially completed two new production lines: one for juice concentrate and puree and one for bio animal feed. We have started the production of test and sample batches of bio animal feed in September 2010 and began to distribute such products to the market in November 2010. Bio animal feed utilizes proprietary cutting-edge fermentation technology and the waste residues from Laiyang Pear juice concentrate production to produce low-cost, nutritious animal food, which not only resolves issues of pollution from waste of the production process, but also increases our revenues.

Enhance market awareness and establish brand equity. We believe that as we continue our expansion efforts we will be able to increase brand awareness among consumers and among the pharmaceutical and medical community. In addition, as Laiyang Pear has been registered as a trademark by the Laiyang government and we have been authorized as the exclusive producer of Laiyang Pear juice concentrate in the Laiyang City until January 2039, we plan to work with pharmaceutical and health supplement customers to present the “Laiyang Pear” trademark on their products. We will also consider developing and promoting our own brand name through focused R&D programs, cooperation with health-supplement and pharmaceutical manufacturers.

Competition

As compared to other pear juice concentrate products made in China, our product holds a special distinction not shared by the others—the reputation of the Laiyang Pear. This distinction has its roots in a long, historical public perception in China that pears produced in the Laiyang region are a premium product due to their exceptional taste and deemed nutritional and medical benefits, including under the tenets of Traditional Chinese Medicine (TCM). Our main product is Laiyang Pear juice concentrate and we face little direct competition due to the following reasons: (i) the fact that we are currently the only producer of Laiyang Pear juice concentrate ; (ii) Laiyang Pear only grows on both sides of Five Dragon River in Laiyang city due to unique climate and environmental factors; (iii) the Laiyang Pear trademark is a registered trademark of an entity affiliated with the Laiyang city government, and we (through our subsidiaries Longkang and MeKeFuBang) have been granted a license to use this trademark through 2038. In January 2008, the Laiyang government issued a government letter, which indicated that we can enjoy the status as the sole producer of Laiyang Pear juice concentrate for a period of 30 years; and (iv) no other producer can use the trademark or enter into the Laiyang Pear juice concentrate business until the exclusive rights held by the Company have expired. The “Laiyang Pear” trademark was registered with the Trademark Office of the State Administration of Industry and Commerce of the PRC on October 28, 1998 (Registration No.#1219975. Registrant: Laiyang Fruit Cultivation Technology and Instructing Station) and was approved as Famous Geographical Mark Product on September 23, 2009. Additionally, we are authorized under a trademark license agreement with the trademark owner to use the “Laiyang Pear” trademark. The risks associated with the Laiyang Pear trademark and our status as the sole producer of Laiyang Pear juice concentrate are disclosed under the risk factor section “If our land use rights or license of intellectual property is revoked, we would have no operational capabilities or ability to conduct our business.”

While there are no other producers of Laiyang Pear juice concentrate permitted to manufacture Laiyang Pear juice concentrate within the territory of Laiyang city, there are, however, third parties are able to produce Laiyang Pear juice concentrate beyond the city limits as well as use the Laiyang Pear trademark. In addition, a number of well-established companies produce other kinds of fruit concentrate that compete directly with our product offerings, and some of those competitors have significantly more financial and other resources than we possess. We anticipate that our competitors will continue to improve their products and to introduce new products with competitive price and performance characteristics. Accordingly, we plan to enter into the puree market and expand our bio animal feed production to diversify the market risk to our current products.

Competitive Advantages

We believe that our success to date and potential for future growth can be attributed to a combination of our strengths, including the following:

Natural health benefits of Laiyang Pears. Laiyang Pears enjoy a reputation in China rooted in long history for their deemed nutritional benefits, including under the tenets of TCM, and are used in many health-supplement products. Laiyang Pears have been described in publications going back as long as the Compendium of Materia Medica, the first comprehensive pharmacopoeia of China, written 400 years ago. TCM is still widely respected and followed in China, as well as in other parts of the world. Laiyang Pear has high content of composite heteropolysaccharides, protocatechuic acid and polyphenols. Laiyang Pear juice concentrate contains 46 kinds of organic acids, vitamin B1, vitamin B2, vitamin C, nicotinic acid, heteropolysaccharides, protocatechuic acid, polyphenols, carotene, and varied minerals such as calcium, phosphorus and iron. Laiyang Pear’s value has been recognized and applied in TCM for hundreds of years.

Unique and established raw-material sourcing network. We are located in the temperate zone which has had the ideal climate condition for Laiyang Pear farming during the past 1,600 years. Laiyang Pears can only be grown along the sides of Five-dragon River in Laiyang due to the unique soil and water quality. Laiyang is also an ideal location for transporting to other parts of China, as well as for exporting overseas. It has traditionally been a major fruit production area and the key fruit farming and processing base for Chinese as well as international companies. We are strategically located nearby the Laiyang Pear plantation area. We have contractual interests in a pear plantation of 12,872 acres with annual production of 500,000 thousand tons of pears and additional acres to be developed each year pursuant to cooperative agreements with contract farmers. We expect that our available acreage for plantation will increase to 22,000 acres within the next three to five years. In return for managing the plantations and deploying our technology pursuant to the cooperative agreements, we obtain the exclusive rights to purchase the products, thus allowing greater control over quality and price stability. We have traditionally secured approximately one-third of our supply needs through cooperative agreements with contract farmers and two-thirds through purchases in the open market. In addition, we have rural land use rights agreements with the local villagers’ collective economic organizations in the Laiyang area and have started growing our own orchards with plans to expand in the future to develop green-certified products. These land use rights contracts all have thirty year terms and were executed in 2007, 2008 and 2011 for a price range from 1,121 RMB to 1,500 RMB per mu (equal to approximately $985 to $1,318 per acre). These supply chain arrangements provide us with advantages in terms of product quality, and stability and reliability of delivery. See “Our Business” for the details of the exclusive license and land leases from the Laiyang city government.

Stringent quality control and state-of-the-art facilities. We emphasize quality and safety and have quality control and food safety management systems for all stages of our business, including sourcing of raw materials, production, packaging and storage of our products. We apply and adhere to internal quality standards that are stricter than the PRC national standards. Our processing facilities are ISO9001 certified and have HACCP (Hazard Analysis & Critical Control Point) series qualifications. Our manufacturing equipment is imported from the U.S., Italy, Germany, Switzerland, and the U.K. and is among the most advanced in the world. We currently have three production lines for Laiyang Pear juice concentrate and puree with a combined production capacity of 48,000 MT, and one production line for bio feed with a production capacity of 52,000 MT. We utilize an ultra-low temperature concentration technique to maintain its flavor and nutrients without any loss. We have developed the emzymolysis method accompanying with 3-second instantaneous and secondary sterilization procedure to innovatively resolve browning problem and secondary sedimentation problem during the processing or storage procedures as well as to realize the minerals/vitamins of the Laiyang Pear well-preserved in the concentrate form. All of our processing and storage procedures/practices are under strict and precise technical controls, and the related technologies are proprietarily owned by Longkang.

Exclusive Laiyang Pear juice concentrate producer within Laiyang City. We are currently the exclusive producer of Laiyang Pear juice concentrate in Laiyang City, and we enjoy a strong geographic advantage due to our proximity to the Laiyang Pear orchards. However, other producers of Laiyang Pear juice concentrate are able to produce the products beyond Laiyang City limits. We are not able to control and regulate the trademark’s use by any end customers and end users. The use of premium quality raw materials provides products made with our concentrate with the nutritional benefits of the Laiyang Pear. “Laiyang Pear” is a trademark that has been registered by an entity affiliated with the Laiyang city government, and we (through our subsidiaries Longkang and MeKeFuBang) have been granted a license to use this trademark through 2038. The “Laiyang Pear” trademark was registered with the Trademark Office of the State Administration of Industry and Commerce of the PRC on October 28, 1998 (Registration No. #1219975. Registrant: Laiyang Fruit Cultivation Technology and Instructing Station) and was approved as Famous Geographical Mark Product on September 23, 2009. In January 2008, the Laiyang government issued a government letter, which indicated that we can enjoy the status as the sole producer of Laiyang Pear juice concentrate within Laiyang City for a period of 30 years. Pursuant to this government letter, during this period no other producer will be permitted to enter into the Laiyang Pear juice concentrate business within Laiyang City. The risks associated with the Laiyang Pear trademark and our status as the sole producer of Laiyang Pear juice concentrate are disclosed on page 8 under the risk factor “If our land use rights or license of intellectual property is revoked, we would have no operational capabilities or ability to conduct our business.”

Intellectual Property

To date, we do not have any registered trademarks for our technologies. However, we rely on trade secret protection and confidentiality agreements to protect our proprietary information and know-how and have entered into non-disclosure agreements with certain of our key employees and executives to protect our trade secrets. In connection with the technology used to produce bio animal feed, we have acquired from Mr. Jiang Zhide a patent application with the State Intellectual Property Office of the PRC to protect our technology. The application number is 200910015442.2. The patent application has not been approved yet. The application was accepted by the State Intellectual Property Office authority on May 25, 2009 and was verbally approved in 2011. We are currently waiting for the official certificate. The approval process can take as long as two years. Such technology and production method is originally owned by Zhide Jiang, the Chief Executive Officer of Longkang. Mr. Jiang has agreed to transfer the patent application to Longkang for free.

The “Laiyang Pear” trademark is owned by the Laiyang Fruit Cultivation Technology and Instructing Station, an affiliate of the Laiyang city government. The “Laiyang Pear” trademark was registered with the China State Administration of Industry and Commerce on October 28, 1998 (Registration No. #1219975) and was approved as Famous Geographical Mark Product on September 23, 2009. In January 2008, we (through our subsidiaries Longkang and MeKeFuBang) were granted a license to use this trademark for a period of 30 years through 2038. However, the license only applies the production of Laiyang Pear juice concentrate within the Laiyang City limits. Third parties are able to produce Laiyang Pear juice concentrate beyond the city limits as well as use the Laiyang Pear trademark other than the production of Laiyang Pear juice concentrate. We are not able to control and regulate the trademark’s use by any end customers and end users.

Regulation

The food industry, of which fruit based products forms a part, is subject to extensive regulation in China. The following discussion summarizes the most significant PRC regulations governing our business in China.

Food Hygiene and Safety Laws and Regulations

As a producer of food products in China, we are subject to a number of PRC laws and regulations governing food safety and hygiene, including:

the PRC Food Safety Law;

the PRC Product Quality Law;

the PRC Food Hygiene Law;

the Implementation Rules for the PRC Food Safety Law;

the Implementation Rules on the Administration and Supervision of Quality and Safety in Food Producing and Processing Enterprises (trail implementation);

the Regulation on the Administration of Production Licenses for Industrial Products;

the General Measure on Food Quality Safety Market Access Examination;

the General Standards for the Labeling of Prepackaged Foods;

the Standardization Law;

the Regulation on Hygiene Administration of Food Additive;

the Regulation on Administration of Bar Code of Merchandise; and

the PRC Metrology Law.

These laws and regulations set out safety and hygiene standards and requirements for various aspects of food production, such as the use of additives, production, packaging, handling, labeling and storage, as well as facilities and equipment. Failure to comply with these laws and regulations may result in confiscation of our products and proceeds from the sales of non-compliant products, destruction of our products and inventory, fines, suspension of production and operation, product recalls, revocation of licenses, and, in extreme cases, criminal liability.

Environmental Regulations

We are subject to various governmental regulations related to environmental protection. The major environmental regulations applicable to us include:

the Environmental Protection Law of the PRC;

the Law of PRC on the Prevention and Control of Water Pollution;

Implementation Rules of the Law of PRC on the Prevention and Control of Water Pollution;

the Law of PRC on the Prevention and Control of Air Pollution;

Implementation Rules of the Law of PRC on the Prevention and Control of Air Pollution;

the Law of PRC on the Prevention and Control of Solid Waste Pollution; and

the Law of PRC on the Prevention and Control of Noise Pollution.

We have obtained all permits and licenses required for production of our products and believe we are in material compliance with all applicable laws and regulations.

Environment Protection

Our manufacturing facilities are subject to various pollution control regulations with respect to noise, water and air pollution and the disposal of waste and hazardous materials. We are also subject to periodic inspections by local environmental protection authorities. We have sewage treatment equipment used for biological treatment. The Laiyang Environmental Protection Agency samples our waste water discharge on a regular basis to make sure the waste water satisfies all environmental requirements. To date, we have not been advised of any violations of any environmental regulations. We are not currently subject to any pending actions alleging any violations of applicable PRC environmental laws.

Employees

As of the date hereof, we have approximately 310 employees consisting of approximately 63 full time staff and 247 seasonal employees. During our peak harvesting and processing season which is from September to next March, we will hire as many as 247 seasonal employees. Our employees are not represented by any collective bargaining agreement, and we have never experienced a work stoppage. We believe we have good relations with both our full time and seasonal employees.

Insurance

We have property insurance for our facility located in Laiyang city. We believe our insurance coverage is customary and standard for companies of comparable size in comparable industries in China.

We do not have any business liability, interruption or litigation insurance coverage for our operations in China. Insurance companies in China offer limited business insurance products. While business interruption insurance is available to a limited extent in China, we have determined that the risks of interruption, cost of such insurance and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. Therefore, we are subject to business and product liability exposure. See “Risk Factors – We do not presently maintain product liability insurance, and our property and equipment insurance does not cover the full value of our property and equipment, which leaves us with exposure in the event of loss or damage to our properties or claims filed against us.”

Litigation

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

ITEM 1A. RISK FACTORS.

You should carefully consider the risks described below together with all of the other information included in this Form 10-K before making an investment decision with regard to our securities. The statements contained in or incorporated herein that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, you may lose all or part of your investment.

Risks Relating to Our Business

THE CHINESE GOVERNMENT EXERTS SUBSTANTIAL INFLUENCE OVER THE MANNER IN WHICH WE MUST CONDUCT OUR BUSINESS ACTIVITIES.

We are dependent on our relationship with the local government in the province in which we operate our business. We are currently the only licensee of the Laiyang Pear trademark for the production of Laiyang Pear juice concentrate within Laiyang City until 2038, and we were issued a government letter by the Laiyang city government indicating that we can enjoy the status as the sole producer of Laiyang Pear juice concentrate within Laiyang City for a period of 30 years beginning January 2008. If the government rescinds our sole producer’s status, or it is determined that the Laiyang city government has exceeded its authority in connection with issuing the government letter described above, we may face increasing competition and are unlikely to have any remedy against the Laiyang city government. In addition, we are required to comply with certain food hygiene and safety laws and regulations and environmental regulations in China. Although we currently are in compliance with the above laws, we cannot provide assurance if we can meet the standard if these laws and regulations become stricter in the future.

The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations, land use rights, property and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Any actions taken by either the central or local governments in China could materially and adversely affect our ability to produce Laiyang Pear juice concentrate, would materially and adversely affect our financial condition and results of operations.

IF OUR LAND USE RIGHTS OR LICENSE OF INTELLECTUAL PROPERTY IS REVOKED, WE WOULD HAVE NO OPERATIONAL CAPABILITIES OR ABILITY TO CONDUCT OUR BUSINESS.

Under Chinese law, land is owned by state or rural collective economic organizations. The state issues tenants the rights to use property. Rights to use property can be revoked and tenants can be forced to vacate at any time when redevelopment of the land is in the public interest. The public interest rationale is interpreted broadly and the process of land appropriation may be less than transparent. Each of our operating subsidiaries rely on these land use rights as the cornerstone of their operations, and the loss of such rights would have a material adverse effect on our company.

While the Laiyang city government issued a governmental letter granting us the status of the sole producer of Laiyang Pear juice concentrate for a period of 30 years, the owner of the “Laiyang Pear” trademark as stated in its certificate is the “Laiyang Fruit Cultivation Technology and Instructing Station”, which is under the Laiyang Agriculture Bureau, an affiliate of the Laiyang city government. Although Laiyang municipal government is the leader of the Agriculture Bureau, and of the Laiyang Fruit Cultivation Technology and Instructing Station, it is doubtful whether the government may directly issue such a government letter as if it is the owner of the trademark. Accordingly, we may be subject to challenge regarding our status as the sole producer of the “Laiyang Pear” juice concentrate. In addition, the trademark held by the Laiyang Fruit Cultivation Technology and Instructing Station is currently effective only until 2018, which will require the trademark owner to renew the trademark upon its expiration in order to continue the benefits of Longkang under the trademark license agreement, and each renewal is effective for only another ten years. While such renewals are generally granted, there can be no assurance that the trademark owner will apply for such renewals or that they will be granted on a timely basis or at all. Any difficulties or delays regarding these matters could materially and adversely affect our ability to continue our current business and our financial position and results of operation.

BECAUSE WE DO NOT OWN ALL OF THE PLANTATIONS FROM WHICH WE OBTAIN LAIYANG PEARS TO MAKE OUR PEAR JUICE CONCENTRATE, WE WILL BE SUBJECT TO MARKET FLUCTUATIONS AND MAY BE FORCED TO PAY HIGHER PRICES TO OBTAIN LAIYANG PEARS.

We obtain a portion of the Laiyang Pears that we use to produce our pear juice concentrate through cooperative agreements with local farmers. Through these contractual agreements, we have priority in purchasing the Laiyang Pears from the local farmers. However, such purchases will be subject to supply and demand and market fluctuations in the prices of Laiyang Pears and as a result we may pay higher prices for such pears than if we owned all of our own orchards. The increases in price of Laiyang Pear purchased from local farmers may increase our cost to produce Laiyang Pear juice concentrate and may have a material adverse effect on our sales and results of operations.

WE DEPEND ON A CONCENTRATION OF CUSTOMERS, THE LOSS OF ONE OR MORE OF WHICH COULD MATERIALLY ADVERSELY AFFECT OUR OPERATIONS AND REVENUES.

Our revenue is dependent, in large part, on significant orders from a limited number of customers. In 2011, we depended on 12 primary customers to purchase our juice concentrate products and two customers to purchase our bio animal feed product. In 2010, we depended on eight primary customers to purchase our juice concentrate products and two customers to purchase our bio animal feed product. In 2011, 2010 and 2009, 6, 7 and 7 customers accounted for more than 10% of our total net revenues, respectively. Customer demand depends on a variety of factors including, but not limited to, our customers’ financial condition and general economic conditions. If our sales to any of our customers are reduced for any reason, such reduction may have a material adverse effect on our business, financial condition and results of operations.

WEATHER AND OTHER ENVIRONMENTAL FACTORS AFFECT OUR RAW MATERIAL SUPPLY AND A REDUCTION IN THE QUALITY OR QUANTITY OF OUR FRESH FRUIT SUPPLIES MAY HAVE MATERIAL ADVERSE CONSEQUENCES ON OUR FINANCIAL RESULTS.

Our business may be adversely affected by weather and environmental factors beyond our control, such as adverse weather conditions during the squeezing season. Reports from Southwest China in the beginning of this year indicate that areas of China are undergoing the most severe drought experienced in the past 100 years. We have no control over such forces of nature and cannot assure you that the necessary raw materials will continue to be available to us in quantities and at prices currently in effect or acceptable to us. The prices for, and availability of, these raw materials have varied significantly and may affect the quantity and profitability of our products. A significant reduction in the quantity or quality of fresh fruits harvested resulting from adverse weather conditions, disease to the crops or other factors could result in increased per unit processing costs and decreased production, with adverse financial consequences to the Company.

CONCERNS OVER FOOD SAFETY AND PUBLIC HEALTH MAY AFFECT OUR OPERATIONS BY INCREASING OUR COSTS AND NEGATIVELY IMPACTING DEMAND FOR OUR PRODUCTS.

We could be adversely affected by diminishing confidence in the safety and quality of certain food products or ingredients, even if our practices and procedures are not implicated. As a result, we may also elect or be required to incur additional costs aimed at increasing consumer confidence in the safety of our products. For example, a crisis in China over melamine-contaminated milk in 2008 adversely impacted overall Chinese food exports since October 2008, as reported by the Chinese General Administration of Customs, even though most foods exported from China were not implicated by the melamine-contaminated milk. We believe that the contaminated milk crisis also had a negative effect on sales of our concentrated juices in fiscal year 2008. Our success depends on our ability to maintain the quality of our existing products and new products. Product quality issues, real or imagined, or allegations of product contamination, even if false or unfounded, could tarnish our image and may cause consumers to choose other products.

OUR PLANS TO EXPAND OUR PRODUCTION AND TO IMPROVE AND UPGRADE OUR INTERNAL CONTROL AND MANAGEMENT SYSTEM WILL REQUIRE CAPITAL EXPENDITURES IN 2012 AND BEYOND.

Our plans to expand our production required capital expenditures in 2012 or 2013. Our existing production lines have been running at close to full capacity while the market demand for our existing products has increased. We currently have three production lines for Laiyang Pear juice concentrate and puree with a combined production capacity of 48,000 MT, with a utilization rate of 95% during peak seasons and 70% on an annual average, and one production line for bio feed with a production capacity of 52,000 MT. We entered into a construction contract for the construction of a new manufacturing facility and office space at the end of 2009. The production lines were completed and tested in September 2010, and became fully operational in October 2010. In additional to these two new production lines, we are planning to add one additional production line for the fruit juice concentrate and puree and one additional production line for bio animal feed using proceeds from operations and/or from proceeds of future financings.

We may also need further funding to improve and upgrade our internal control and management system and for working capital, investments, potential acquisitions and joint ventures and other corporate requirements. Cash generated from our operations may not be sufficient to fund these development plans, and our actual capital expenditures and investments may significantly exceed our current planned amounts. If either of these conditions arises, we may have to seek external financing to satisfy our capital needs. We may not be able to obtain external financing at reasonable costs. Failure to obtain sufficient external funds for our development plans could adversely affect our plan to expand our production and to improve an upgrade our internal control and management system.

BECAUSE WE EXPERIENCE SEASONAL FLUCTUATIONS IN OUR SALES, OUR QUARTERLY RESULTS WILL FLUCTUATE AND OUR ANNUAL PERFORMANCE WILL DEPEND LARGELY ON RESULTS FROM THREE QUARTERS.

WE DO NOT PRESENTLY MAINTAIN PRODUCT LIABILITY INSURANCE, AND OUR PROPERTY AND EQUIPMENT INSURANCE DOES NOT COVER THE FULL VALUE OF OUR PROPERTY AND EQUIPMENT, WHICH LEAVES US WITH FINANCIAL EXPOSURE IN THE EVENT OF LOSS OR DAMAGE TO OUR PROPERTIES OR CLAIMS FILED AGAINST US.

We currently do not carry any product liability or other similar insurance. Unlike the United States and many other countries, product liability claims and lawsuits in the PRC are rare. However, we cannot guaranty that we would not face liability in the event of the failure of any of our products. Furthermore, we cannot guaranty that product liability exposures and litigation will not become more commonplace in the PRC or that we will not face product liability exposure or actual liability as we expand our sales into international markets, like the United States, where product liability claims are more prevalent.

We may be required from time to time to recall products entirely or from specific co-packers, markets or batches. Product recalls could adversely affect our profitability and our brand image. We do not maintain product recall insurance.

While we have not experienced any credible product liability litigation to date, there is no guaranty that we will not experience such litigation in the future. In the event we do experience product liability claims or a product recall, our financial condition and business operations could be materially adversely affected.

GOVERNMENTAL REGULATIONS AFFECTING THE IMPORT OR EXPORT OF OUR PRODUCTS COULD NEGATIVELY AFFECT OUR REVENUES.

The United States and various foreign governments have imposed controls, export license requirements, and restrictions on the export of some of our products. We do not currently export our concentrated fruit juice concentrate directly or indirectly out of the PRC. However, if we were to begin exporting our products in the future, governmental regulation of exports, or our failure to obtain required export approval for our products, could harm our international and domestic sales and adversely affect our revenues. In addition, failure to comply with such regulations could result in penalties, costs, and restrictions on export privileges.

WE MAY EXPERIENCE MAJOR ACCIDENTS IN THE COURSE OF OUR OPERATIONS, WHICH MAY CAUSE SIGNIFICANT PROPERTY DAMAGE AND PERSONAL INJURIES.

We may experience major accidents in the course of our operations, which may cause significant property damage and personal injuries. Significant industry-related accidents and natural disasters may cause interruptions to various parts of our operations, or could result in property or environmental damage, increase in operating expenses or loss of revenue. The occurrence of such accidents and the resulting consequences may not be covered adequately, or at all, by the insurance policies we carry. In accordance with customary practice in China, we do not carry any business interruption insurance or third party liability insurance for personal injury or environmental damage arising from accidents on our property or relating to our operations other than our automobiles. Losses or payments incurred may have a material adverse effect on our operating performance if such losses or payments are not fully insured.

OUR PLANNED EXPANSION AND TECHNICAL IMPROVEMENT PROJECTS COULD BE DELAYED OR ADVERSELY AFFECTED BY, AMONG OTHER THINGS, DIFFICULTIES IN OBTAINING SUFFICIENT FINANCING, TECHNICAL DIFFICULTIES, OR HUMAN OR OTHER RESOURCE CONSTRAINTS.

Our planned expansion and technical improvement projects could be delayed or adversely affected by, among other things, difficulties in obtaining sufficient financing, technical difficulties, or human or other resource constraints. Moreover, the costs involved in these projects may exceed those originally contemplated. Costs savings and other economic benefits expected from these projects may not materialize as a result of any such project delays, cost overruns or changes in market circumstances. Failure to obtain intended economic benefits from these projects could adversely affect our business, financial condition and results of operations.

WE WILL ENCOUNTER SUBSTANTIAL COMPETITION IN OUR BUSINESS AND ANY FAILURE TO COMPETE EFFECTIVELY COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

Although there are no other producers of Laiyang Pear juice concentrate, there are currently a number of well-established companies producing other kinds of fruit concentrate that compete directly with our products, and some of those competitors have significantly greater financial and other resources than us. We anticipate that our competitors will continue to improve their products and to introduce new products with competitive prices and performance characteristics. Aggressive marketing or pricing by our competitors or the entrance of new competitors into our markets could have a material adverse effect on our business, results of operations and financial condition.

Currently, we are the only producer of Laiyang Pear juice concentrate and pursuant to an agreement entered into with the government of Laiyang City, we will continue to be the only producer of Laiyang Pear juice concentrate until January 2038. However, if the Laiyang city government rescinds our right as the exclusive producer of Laiyang Pear juice concentrate, we could face increasing competition although we have certain technological advantages and an existing sales network which produces and sells Laiyang Pear juice concentrate.

OUR LIMITED OPERATING HISTORY MAY NOT SERVE AS AN ADEQUATE BASIS TO JUDGE OUR FUTURE PROSPECTS AND RESULTS OF OPERATIONS.

Our limited operating history in the fruit product industry may not provide a meaningful basis for evaluating our business. Longkang entered into the fruit product industry in November 2004. Although our revenues have grown rapidly since our inception, we cannot guaranty that we will maintain profitability or that we will not incur net losses in the future. We will continue to encounter risks and difficulties that companies at a similar stage of development frequently experience, including the potential failure to:

obtain sufficient working capital to support our expansion;

maintain or protect our intellectual property;

maintain our proprietary technology;

expand our product offerings and maintain the high quality of our products;

manage our expanding operations and continue to fill customers’ orders on time;

maintain adequate control of our expenses allowing us to realize anticipated revenue growth;

implement our product development, marketing, sales, and acquisition strategies and adapt and modify them as needed;

successfully integrate any future acquisitions; and

anticipate and adapt to changing conditions in the fruit product industry resulting from changes in government regulations, mergers and acquisitions involving our competitors, technological developments and other significant competitive and market dynamics.

If we are not successful in addressing any or all of the foregoing risks, our business may be materially and adversely affected.

WE NEED TO MANAGE GROWTH OF OUR OPERATIONS TO MAXIMIZE OUR POTENTIAL GROWTH AND ACHIEVE OUR EXPECTED REVENUES AND OUR FAILURE TO MANAGE SUCH GROWTH WILL CAUSE A DISRUPTION OF OUR OPERATIONS RESULTING IN THE FAILURE TO GENERATE REVENUES AT LEVELS WE EXPECT.

In order to maximize our potential growth in our current and potential markets, we believe that we must expand our product and marketing operations. This expansion will place a significant strain on our management and our operational, accounting, and information systems. We expect that we will need to continue to improve our financial controls, operating procedures, and management information systems. We will also need to effectively train, motivate, and manage our employees. Our failure to manage our growth could disrupt our operations and ultimately prevent us from generating the revenues we expect.

WE CANNOT ASSURE YOU THAT OUR ORGANIC GROWTH STRATEGY WILL BE SUCCESSFUL WHICH MAY RESULT IN A NEGATIVE IMPACT ON OUR GROWTH, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND CASH FLOW.

One of our strategies is to grow organically by constructing additional production facilities and increasing the distribution and sales of our products by penetrating existing markets in the PRC and entering new geographic markets in the PRC. However, many obstacles to entering such markets exist, including, but not limited to, established companies in such existing markets in the PRC. We cannot, therefore, assure you that we will be able to successfully overcome such obstacles and establish our products in any additional markets. Our inability to implement this organic growth strategy successfully may have a negative impact on our growth, future financial condition, results of operations or cash flows.

WE MAY NOT BE ABLE TO SUCCESSFULLY INTRODUCE NEW PRODUCTS, WHICH COULD DECREASE OUR PROFITABILITY.

Our future business and financial performance depends, in part, on our ability to successfully respond to consumer preference by introducing new products and improving existing products. We incur significant development and marketing costs in connection with the introduction of new products. Successfully launching and selling new products puts pressure on our sales and marketing resources, and we may fail to invest sufficient funds in order to market and sell a new product effectively. If we are not successful in marketing and selling new products, our results of operations could be materially adversely affected.

WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT CAPITAL TO FUND OUR GROWING OPERATIONS AND WE MAY BE FORCED TO LIMIT THE SCOPE OF OUR OPERATIONS.

If adequate additional financing is not available on reasonable terms, we may not be able to undertake plant expansion, purchase additional machinery or purchase equipment for our operations and we would have to modify our business plans accordingly. There is no assurance that additional financing will be available to us on reasonable terms, or at all.

In connection with our growth strategies, we may experience increased capital needs and accordingly, we may not have sufficient capital to fund our future operations without additional capital investments. Our capital needs will depend on numerous factors, including (i) our profitability; (ii) the release of competitive products by our competition; (iii) the level of our investment in research and development; and (iv) the amount of our capital expenditures, including for acquisitions. We cannot assure you that we will be able to obtain sufficient capital in the future to meet our needs.

In recent years, the securities markets in the United States have experienced a high level of price and volume volatility, and the market price of securities of many companies have experienced wide fluctuations that have not necessarily been related to the operations, performance, underlying asset values or prospects of such companies. For these reasons, our ordinary shares can also be expected to be subject to volatility resulting from purely market forces over which we have no control. If we need additional funding we will, most likely, seek such funding in the United States (although we may be able to obtain funding in the PRC) and the market fluctuations affecting our stock price could limit our ability to obtain such funding.

If we cannot obtain additional funding, we may be required to: (i) limit our plant expansion; (ii) limit our marketing efforts; and/or (iii) decrease or eliminate capital expenditures.

Such reductions could materially adversely affect our business and our ability to compete.

Even if we do find a source of additional funding, we may not be able to negotiate terms and conditions for receiving additional funding that are favorable to us. Any future capital investments could dilute or otherwise materially and adversely affect the holdings or rights of our existing shareholders. In addition, new equity or convertible debt securities issued by us to obtain financing could have rights, preferences and privileges senior to our ordinary shares.

WE RELY ON HIGHLY QUALIFIED PERSONNEL AND IF WE ARE UNABLE TO RETAIN OR MOTIVATE KEY PERSONNEL OR HIRE QUALIFIED PERSONNEL, WE MAY NOT BE ABLE TO GROW EFFECTIVELY.

The Company’s future success also depends upon its continuing ability to attract and retain highly qualified personnel. Expansion of the Company’s business and the management and operation of the Company will require additional managers and employees with industry experience, and the success of the Company will be highly dependent on the Company’s ability to attract and retain skilled management personnel and other employees. There can be no assurance that the Company will be able to attract or retain highly qualified personnel. Competition for skilled personnel in our industry is significant. This competition may make it more difficult and expensive to attract, hire and retain qualified managers and employees.

THE LOSS OF THE SERVICES OF OUR KEY EMPLOYEES, PARTICULARLY THE SERVICES RENDERED BY ZHIDE JIANG, OUR CHIEF EXECUTIVE OFFICER AND DIRECTOR, COULD HARM OUR BUSINESS.

Our success depends to a significant degree on the services rendered to us by our key employees. If we fail to attract, train and retain sufficient numbers of these qualified people, our prospects, business, financial condition and results of operations will be materially and adversely affected. In particular, we are heavily dependent on the continued services of Zhide Jiang, our Chief Executive Officer and Director. We do not have employment agreement with Mr. Jiang, who may voluntarily terminate his employment with us at any time. Following any termination of employment, he would not be subject to any non-competition covenants. The loss of any key employee, including members of our senior management team, and our inability to attract highly skilled personnel with sufficient experience in our industry could harm our business.

WE MAY INCUR SIGNIFICANT COSTS TO ENSURE COMPLIANCE WITH UNITED STATES CORPORATE GOVERNANCE AND ACCOUNTING REQUIREMENTS.

We may incur significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly. We also expect that these applicable rules and regulations will make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these newly applicable rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

WE MAY NOT BE ABLE TO MEET THE INTERNAL CONTROL REPORTING REQUIREMENTS IMPOSED BY THE SEC RESULTING IN A POSSIBLE DECLINE IN THE PRICE OF OUR ORDINARY SHARES AND OUR INABILITY TO OBTAIN FUTURE FINANCING.

As directed by Section 404 of the Sarbanes-Oxley Act, the SEC adopted rules requiring each public company to include a report of management on the company’s internal controls over financial reporting in its annual reports. Although the Dodd-Frank Wall Street Reform and Consumer Protection Act exempts companies with a public float of less than $75 million from the requirement that our independent registered public accounting firm attest to our financial controls, this exemption does not affect the requirement that we include a report of management on our internal control over financial reporting and does not affect the requirement to include the independent registered public accounting firm’s attestation if our public float exceeds $75 million.

While we expect to expend significant resources in developing the necessary documentation and testing procedures required by Section 404 of the Sarbanes-Oxley Act, there is a risk that we may not be able to comply timely with all of the requirements imposed by this rule. Regardless of whether we are required to receive a positive attestation from our independent registered public accounting firm with respect to our internal controls, if we are unable to do so, investors and others may lose confidence in the reliability of our financial statements and our stock price and ability to obtain equity or debt financing as needed could suffer.

In addition, in the event that our independent registered public accounting firm is unable to rely on our internal controls in connection with its audit of our financial statements, and in the further event that it is unable to devise alternative procedures in order to satisfy itself as to the material accuracy of our financial statements and related disclosures, it is possible that we would be unable to file our Annual Report on Form 10-K with the SEC, which could also adversely affect the market for and the market price of our ordinary shares and our ability to secure additional financing as needed.

OUR PRINCIPAL SHAREHOLDER IS ABLE TO CONTROL SUBSTANTIALLY ALL MATTERS REQUIRING A VOTE OF OUR SHAREHOLDERS AND HIS INTERESTS MAY DIFFER FROM THE INTERESTS OF OUR OTHER SHAREHOLDERS.

Zhide Jiang, our President, Chief Executive Officer and Chairman of the Board of Directors, beneficially owns approximately 41.13% of our issued and outstanding ordinary shares. On June 7, 2010, our shareholders approved the proposal of our board of directors to reduce the required quorum to one-third of the shares entitled to vote for future shareholder meetings. Therefore, Mr. Jiang is able to individually establish a quorum at any shareholder meeting and to control substantially all matters requiring approval by our shareholders, including the election of our directors and officers. This concentration of ownership may also have the effect of discouraging, delaying or preventing a future change of control, which could deprive our stockholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price of our shares.

MR. ZHIDE JIANG, OUR PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD OF DIRECTORS, HAS A CONTROLLING INFLUENCE IN US, OUR SUBSIDIARIES AND LONGKANG, WHICH ENABLES HIM TO DETERMINE THE OUTCOME OF ANY CORPORATE TRANSACTION OR OTHER MATTERS SUBMITTED TO OUR SHAREHOLDERS FOR APPROVAL. WE CANNOT ASSURE YOU THAT MR. ZHIDE JIANG WILL ALWAYS ACT IN OUR BEST INTEREST OR IN THE BEST INTEREST OF OUR SHAREHOLDERS.

Mr. Zhide Jiang is currently the President, Chief Executive Officer and Chairman of the Board of Directors of the Company. Mr. Jiang is also the Executive Director of Merit Times and the Executive Director of MeKeFuBang. Mr. Jiang is the 60% shareholder and the Executive Director of Longkang. In addition, Mr. Jiang is the Executive Director of Proud Glory Limited, which is our majority shareholder and therefore exercises voting and dispositive control over the shares owned by Proud Glory. Pursuant to the Proud Glory Option Agreement between Mr. Jiang and Mr. Chee Fung Tang, the record owner of Proud Glory Limited, for a period of three years commencing on October 22, 2009, Mr. Jiang has the right to acquire up to 100% of the equity interests of Proud Glory Limited held by Mr. Tang, subject to certain contingencies as set forth therein. Therefore, Mr. Jiang has a controlling influence in determining the outcome of any corporate transaction or other matters submitted to our shareholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of directors, and other significant corporate actions. Mr. Jiang may also have the power to prevent or cause a change in control. In addition, without the consent of Mr. Jiang, we could be prevented from entering into transactions that could be beneficial to us. Therefore we cannot assure you that Mr. Jiang will always act in the best interest of the Company or its shareholders.

ADAM WASSERMAN, OUR CHIEF FINANCIAL OFFICER, DOES NOT DEDICATE 100% OF HIS TIME ON OUR BUSINESS.

Adam Wasserman, our Chief Financial Officer, provides services to us under an employment agreement, which permits him to provide services to other companies. Mr. Wasserman is chief executive officer of CFO Oncall, Inc. and CFO Oncall Asia, Inc. (collectively “CFO Oncall”), where he owns 80% and 60% of such businesses, respectively. All compensation paid to Mr. Wasserman is paid to CFO Oncall Asia, Inc. CFO Oncall provides chief financial officer services to various companies. Mr. Wasserman also serves as chief financial officer of Apps Genius Corp since January 2010, Westergaard.com, Inc. since May 2011, and Pershing Gold Corporation (formerly Sagebrush Gold Ltd.) since September 2010. He is also a director of CD International Enterprises, Inc. Mr. Wasserman dedicates approximately 35% of his business time to our Company. In addition to Mr. Wasserman’s time, CFO Oncall has full-time dedicated, bilingual, professional employees that also assist Mr. Wasserman with our Company’s financial matters and communication needs. Mr. Wasserman’s other projects may detract from the time he can spend on our business.

OUR ABILITY TO COMPETE COULD BE JEOPARDIZED IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS OR IF WE ARE SUED FOR INTELLECTUAL PROPERTY INFRINGEMENT.

We own the patent in connection with the technology used to produce bio animal feed. We believe that such patent and other proprietary rights are important to our success and our competitive position. We consider our patent to be among our most valuable assets. While we vigorously protect our patent against infringement, we cannot provide assurance that we will be able to secure patents protection for our intellectual property in the future or that protection will be adequate for future products. Further, we may be sued for patent infringement and cannot be sure that our activities do not and will not infringe on the intellectual property rights of others. If we are compelled to prosecute infringing parties, defend our intellectual property or defend ourselves from intellectual property claims made by others, we may face significant expenses and liability as well as the diversion of management’s attention from our business, each of which could negatively impact our business or financial condition.

Risks Relating to Our Corporate Structure

THE CONTRACTUAL AGREEMENTS THROUGH WHICH WE HAVE ESTABLISHED CONTROL OF LONGKANG MAY NOT BE AS EFFECTIVE IN PROVIDING OPERATIONAL CONTROL OVER LONGKANG AS DIRECT OWNERSHIP. BECAUSE WE RELY ON LONGKANG FOR OUR REVENUE, ANY TERMINATION OF, OR DISRUPTION TO, THESE CONTRACTUAL ARRANGEMENTS COULD DETRIMENTALLY AFFECT OUR BUSINESS.

Presently all of our business operations are carried out by Longkang. We do not own any equity interests in Longkang, but control and receive the economic benefits of its business operations through various contractual arrangements. The contractual arrangements are between Longkang, its owners, and MeKeFuBang, our wholly-owned subsidiary in the PRC. The contractual arrangements are comprised of a series of agreements, including: (1) a Consulting Services Agreement, (2) an Operating Agreement, (3) a Proxy Agreement, (4) a VIE Option Agreement, and (5) an Equity Pledge Agreement, the pledge under which has been registered with competent authority and has been effective under the PRC laws. Through these contractual arrangements, we have the ability to substantially influence the daily operations and financial affairs of Longkang, as we are able to appoint its senior executives and approve all matters requiring shareholder approval. Accordingly, we consolidate Longkang’s results, assets and liabilities in our financial statements.

However, these contractual agreements may be terminated by MeKeFuBang. In addition, these agreements are governed by the PRC laws and regulations. PRC laws and regulations concerning the validity of the contractual arrangements are uncertain, as many of these laws and regulations are relatively new and may be subject to change, and their official interpretation and enforcement by the PRC government may involve substantial uncertainty. Further, our contractual arrangements are governed by PRC laws and provide for the resolution of disputes through arbitration proceedings pursuant to PRC laws. If Longkang or its stockholders fail to perform their obligations under the contractual arrangements, we may have to rely on legal remedies under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, and there is a risk that we may be unable to obtain these remedies. Therefore our contractual arrangements may not be as effective in providing control over Longkang as direct ownership. Because we rely on Longkang for our revenue, any termination of or disruption to these contractual arrangements could detrimentally affect our business.

Risks Relating to the People's Republic of China

SUBSTANTIALLY ALL OF OUR BUSINESS, ASSETS AND OPERATIONS ARE LOCATED IN THE PRC.

Substantially all of our business, assets and operations are located in the PRC. The economy of the PRC differs from the economies of most developed countries in many respects. The economy of the PRC has been transitioning from a planned economy to a market-oriented economy. However, all the lands in the PRC are still owned by the PRC government. In addition, the PRC government continues to play a significant role in regulating industry by imposing industrial policies. It also exercises significant control over the PRC’s economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Some of these measures may have a negative effect on us.

CERTAIN POLITICAL AND ECONOMIC CONSIDERATIONS RELATING TO THE PRC COULD ADVERSELY AFFECT OUR COMPANY.

The PRC is transitioning from a planned economy to a market economy. While the PRC government has pursued economic reforms since its adoption of the open-door policy in 1978, a large portion of the PRC economy is still operating under five-year plans and annual state plans. Through these plans and other economic measures, such as control on foreign exchange, taxation and restrictions on foreign participation in the domestic market of various industries, the PRC government exerts considerable direct and indirect influence on the economy. Many of the economic reforms carried out by the PRC government are unprecedented or experimental, and are expected to be refined and improved. Other political, economic and social factors can also lead to further readjustment of such reforms. This refining and readjustment process may not necessarily have a positive effect on our operations or future business development. Our operating results may be adversely affected by changes in the PRC’s economic and social conditions as well as by changes in the policies of the PRC government, such as changes in laws and regulations (or the official interpretation thereof), measures which may be introduced to control inflation, changes in the interest rate or method of taxation, and the imposition of restrictions on currency conversion in addition to those described below.

THE RECENT NATURE AND UNCERTAIN APPLICATION OF MANY PRC LAWS APPLICABLE TO US CREATE AN UNCERTAIN ENVIRONMENT FOR BUSINESS OPERATIONS AND THEY COULD HAVE A NEGATIVE EFFECT ON US.

The PRC legal system is a civil law system. Unlike the common law system, the civil law system is based on written statutes in which decided legal cases have little value as precedents. In 1979, the PRC began to promulgate a comprehensive system of laws and has since introduced many laws and regulations to provide general guidance on economic and business practices in the PRC and to regulate foreign investment. Progress has been made in the promulgation of laws and regulations dealing with economic matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. The promulgation of new laws, changes of existing laws and the abrogation of local regulations by national laws could have a negative impact on our business and business prospects.

For example, Chinese laws and regulations concerning the validity of the contractual arrangements are uncertain, as many of these laws and regulations are relatively new and may be subject to change, and their official interpretation and enforcement by the Chinese government may involve substantial uncertainty. Additionally, our contractual arrangements are governed by Chinese laws and provide for the resolution of disputes through arbitration proceedings pursuant to Chinese laws. If Longkang or its stockholders fail to perform the obligations under the contractual arrangements, we may have to rely on legal remedies under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, and there is a risk that we may be unable to obtain these remedies. The legal environment in China is not as developed as in other jurisdictions. As a result, uncertainties in the legal system could limit our ability to enforce the contractual arrangements. Therefore our contractual arrangements may not be as effective in providing control over Longkang as direct ownership. Due to such uncertainty, we may have to take such additional steps in the future as may be permitted by the then applicable law and regulations in China to further strengthen our control over or toward actual ownership of Longkang or its assets. Because we rely on Longkang for our revenue, any termination of or disruption to these contractual arrangements could detrimentally affect our business.

CURRENCY CONVERSION COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.

The PRC government imposes control over the conversion of Renminbi into foreign currencies. Under the current unified floating exchange rate system, the People’s Bank of China publishes an exchange rate, which we refer to as the PBOC exchange rate, based on the previous day's dealings in the inter-bank foreign exchange market. Financial institutions authorized to deal in foreign currency may enter into foreign exchange transactions at exchange rates within an authorized range above or below the PBOC exchange rate according to market conditions.

Pursuant to the Foreign Exchange Control Regulations of the PRC issued by the State Council which came into effect on April 1, 1996, and the Regulations on the Administration of Foreign Exchange Settlement, Sale and Payment of the PRC which came into effect on July 1, 1996, regarding foreign exchange control, conversion of Renminbi into foreign exchange by Foreign Investment Enterprises, or FIEs, for use on current account items, including the distribution of dividends and profits to foreign investors, is permissible. FIEs are permitted to convert their after-tax dividends and profits to foreign exchange and remit such foreign exchange to their foreign exchange bank accounts in the PRC. Conversion of Renminbi into foreign currencies for capital account items, including direct investment, loans, and security investment, is still under certain restrictions. On January 14, 1997, the State Council amended the Foreign Exchange Control Regulations and added, among other things, an important provision, which provides that the PRC government shall not impose restrictions on recurring international payments and transfers under current account items.

Enterprises in the PRC (including FIEs) which require foreign exchange for transactions relating to current account items, may, without approval of the State Administration of Foreign Exchange, or SAFE, effect payment from their foreign exchange account or convert and pay at the designated foreign exchange banks by providing valid receipts and proofs.

Convertibility of foreign exchange in respect of capital account items, such as direct investment and capital contribution, is still subject to certain restrictions, and prior approval from the SAFE or its relevant branches must be sought.

Furthermore, the Renminbi is not freely convertible into foreign currencies nor can it be freely remitted abroad. Under the PRC’s Foreign Exchange Control Regulations and the Administration of Settlement, Sales and Payment of Foreign Exchange Regulations, Foreign Invested Enterprises are permitted either to repatriate or distribute its profits or dividends in foreign currencies out of its foreign exchange accounts, or exchange Renminbi for foreign currencies through banks authorized to conduct foreign exchange business. The conversion of Renminbi into foreign exchange by Foreign Invested Enterprises for recurring items, including the distribution of dividends to foreign investors, is permissible. The conversion of Renminbi into foreign currencies for capital items, such as direct investment, loans and security investment, is subject, however, to more stringent controls.

Our operating company is a FIE to which the Foreign Exchange Control Regulations are applicable. Accordingly, we will have to maintain sufficient foreign exchange to pay dividends and/or satisfy other foreign exchange requirements.

EXCHANGE RATE VOLATILITY COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.

Since 1994, the exchange rate for Renminbi against the United States dollar has remained relatively stable, most of the time in the region of approximately RMB 8.28 to $1.00. However, in 2005, the Chinese government announced that it would begin pegging the exchange rate of the Chinese Renminbi against a number of currencies, rather than just the U.S. dollar and, the exchange rate for the Renminbi against the U.S. dollar became RMB 8.02 to $1.00. Provisions on Administration of Foreign Exchange, as amended in August 2008, further changed China’s exchange regime to a managed floating exchange rate regime based on market supply and demand. Since reaching a high against the U.S. dollar in July 2008, however, the Renminbi has traded within a narrow band against the U.S. dollar, remaining within 1.0% of its July 2008 high but never exceeding it. As a consequence, the Renminbi has fluctuated sharply since July 2008 against other freely traded currencies, in tandem with the U.S. dollar. It is difficult to predict how long the current situation may last and when and how it may change again, particularly in view of recent statements by Chinese government officials in June 2010.

If we decide to convert Chinese Renminbi into United States dollars for other business purposes and the United States dollar appreciates against this currency, the United States dollar equivalent of the Chinese Renminbi we convert would be reduced. There can be no assurance that future movements in the exchange rate of Renminbi and other currencies will not have an adverse effect on our financial condition.

SINCE MOST OF OUR ASSETS ARE LOCATED IN PRC, ANY DIVIDENDS OF PROCEEDS FROM LIQUIDATION IS SUBJECT TO THE APPROVAL OF THE RELEVANT CHINESE GOVERNMENT AGENCIES.

Our assets are predominantly located inside the PRC. Under the laws governing Foreign Invested Enterprises in PRC, dividend distribution and liquidation are allowed but subject to special procedures under the relevant laws and rules. Any dividend payment will be subject to the decision of the board of directors and subject to foreign exchange rules governing such repatriation. Any liquidation is subject to the relevant government agency’s approval and supervision as well as the foreign exchange control. This may generate additional risk for our investors in case of dividend payment and liquidation.

IT MAY BE DIFFICULT TO AFFECT SERVICE OF PROCESS AND ENFORCEMENT OF LEGAL JUDGMENTS UPON OUR COMPANY AND OUR OFFICERS AND DIRECTORS BECAUSE THEY RESIDE OUTSIDE THE UNITED STATES.

As our operations are presently based in the PRC and certain of our directors and officers reside in the PRC, service of process on our company and such directors and officers may be difficult to effect within the United States. Also, our main assets are located in the PRC and any judgment obtained in the United States against us may not be enforceable outside the United States.

AN OUTBREAK OF AVIAN INFLUENZA, THE H1N1 “SWINE-FLU” VIRUS, A REOCCURRENCE OF SEVERE ACUTE RESPIRATORY SYNDROME (“SARS”), OR ANOTHER WIDESPREAD PUBLIC HEALTH PROBLEM, COULD ADVERSELY AFFECT OUR OPERATIONS.

A more widespread outbreak of the H1N1 virus, avian influenza or a renewed outbreak of SARS or any other widespread public health problem in the PRC, where all of our operations are conducted, could have an adverse effect on our operations. If such an outbreak were to occur, our operations may be impacted by a number of health-related factors, including quarantines or closures of some of our offices, that would adversely disrupt our operations.

WE DERIVE SUBSTANTIALLY ALL OF OUR REVENUES FROM SALES IN THE PRC AND ANY DOWNTURN IN THE CHINESE ECONOMY COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND FINANCIAL CONDITION.

Substantially all of our revenues are generated from sales in the PRC. We anticipate that revenues from sales of our products in the PRC will continue to represent the substantial portion of our total revenues in the near future. Our sales and earnings can also be affected by changes in the general economy since purchases of juice products are generally discretionary for consumers. Our success is influenced by a number of economic factors which affect disposable consumer income, such as employment levels, business conditions, interest rates, oil and gas prices and taxation rates. Adverse changes in these economic factors, among others, may restrict consumer spending, thereby negatively affecting our sales and profitability.

UNDER THE ENTERPRISE INCOME TAX LAW, WE MAY BE CLASSIFIED AS A “RESIDENT ENTERPRISE” OF CHINA. SUCH CLASSIFICATION WILL LIKELY RESULT IN UNFAVORABLE TAX CONSEQUENCES TO US AND OUR NON-PRC STOCKHOLDERS.

China passed a new Enterprise Income Tax Law, or the EIT Law, and its implementing rules, both of which became effective on January 1, 2008. Under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. The implementing rules of the EIT Law define de facto management as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise.

On April 22, 2009, the State Administration of Taxation issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the Notice, further interpreting the application of the EIT Law and its implementation to offshore entities controlled by a Chinese enterprise or group. Pursuant to the Notice, an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be classified as a “non-domestically incorporated resident enterprise” if (i) its senior management in charge of daily operations reside or perform their duties mainly in China; (ii) its financial or personnel decisions are made or approved by bodies or persons in China; (iii) its substantial assets and properties, accounting books, corporate chops, board and stockholder minutes are kept in China; and (iv) at least half of its directors with voting rights or senior management often resident in China. A resident enterprise would be subject to an enterprise income tax rate of 25% on its worldwide income and must pay a withholding tax at a rate of 10% when paying dividends to its non-PRC stockholders. However, it remains unclear as to whether the Notice is applicable to an offshore enterprise controlled by a Chinese natural person. Nor are detailed measures on imposition of tax from non-domestically incorporated resident enterprises are available. Therefore, it is unclear how tax authorities will determine tax residency based on the facts of each case.

Mr. Chee Fung Tang, the beneficial owner of approximately 41.13% of our ordinary shares through his interests in Proud Glory Limited has granted to Mr. Zhide Jiang, a PRC resident, an option to acquire Mr. Tang’s interests in Proud Glory. We may be deemed to be a resident enterprise by Chinese tax authorities if Mr. Jiang chooses to exercise his right under the option agreement to acquire Mr. Tang’s interest in Proud Glory Limited in the future and gains control over Proud Glory Limited. If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations. In our case, this would mean that income such as non-China source income would be subject to PRC enterprise income tax at a rate of 25%. Currently, we do not have any non-China source income. Second, although under the EIT Law and its implementing rules dividends paid to us from our PRC subsidiaries would qualify as “tax-exempt income,” we cannot guarantee that such dividends will not be subject to a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes. Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification could result in a situation in which a 10% withholding tax is imposed on dividends we pay to our non-PRC stockholders and with respect to gains derived by our non-PRC stockholders from transferring our shares. We are actively monitoring the possibility of “resident enterprise” treatment for the 2009 tax year and are evaluating appropriate organizational changes to avoid this treatment, to the extent possible.

If we were treated as a “resident enterprise” by PRC tax authorities, we would be subject to taxation in both the U.S. and China, and our PRC tax may not be creditable against our U.S. tax.

PRC REGULATIONS REGARDING OFFSHORE FINANCING ACTIVITIES BY PRC RESIDENTS HAVE UNDERTAKEN CONTINUOUS CHANGES WHICH MAY INCREASE THE ADMINISTRATIVE BURDEN WE FACE AND CREATE REGULATORY UNCERTAINTIES THAT COULD ADVERSELY AFFECT OUR BUSINESS.

On August 8, 2006, the PRC Ministry of Commerce (“MOFCOM”), joined by the China Securities Regulatory Commission (“CSRC”), the State Administration of Foreign Exchange (“SAFE”) as well as other government agencies, released a Provisions for Foreign Investors to Merge with or Acquire Domestic Enterprises (“M&A Regulation”), which took effect September 8, 2006 and was amended in 2009. These new rules significantly revised China’s regulatory framework governing onshore-to-offshore restructurings and foreign acquisitions of domestic enterprises. These new rules signify greater PRC government attention to cross-border merger, acquisition and other investment activities, by confirming MOFCOM as a key regulator for issues related to mergers and acquisitions in China and requiring MOFCOM approval of a broad range of merger, acquisition and investment transactions. According to the new M&A Regulation, a related-party acquisition in which an offshore company owned or controlled by a PRC resident acquires a domestic company controlled by the same PRC resident shall be subject to the approval of MOFCOM.

The option granted to Mr. Jiang under the Proud Glory Option Agreement works to cut off the link of related-party acquisition and prevent the application of the new M&A Regulation to our situation, since Proud Glory Limited is 100% owned by a non-PRC natural person while Mr. Jiang, as a PRC resident, does not own any equity in the offshore company. Further, our current VIE structure avoids the acquisition transaction which is directly the target under scrutiny of the M&A Regulation, including the requirement of CSRC approval. Thus, we believe that, in its current practice, the M&A Regulation does not apply to our situation.

RECENT PRC REGULATIONS RELATING TO ACQUISITIONS OF PRC COMPANIES BY FOREIGN ENTITIES MAY CREATE REGULATORY UNCERTAINTIES THAT COULD RESTRICT OR LIMIT OUR ABILITY TO OPERATE, INCLUDING OUR ABILITY TO PAY DIVIDENDS. OUR FAILURE TO OBTAIN THE PRIOR APPROVAL OF THE CHINA SECURITIES REGULATORY COMMISSION, OR THE CSRC, FOR ANY OFFERING AND THE LISTING AND TRADING OF OUR ORDINARY SHARES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, OPERATING RESULTS, REPUTATION AND TRADING PRICE OF OUR ORDINARY SHARES.

The SAFE issued a public notice in November 2005, known as Circular 75, concerning the use of offshore holding companies in mergers and acquisitions in China. The public notice provides that if an offshore company controlled by PRC residents intends to acquire a PRC company, such acquisition will be subject to registration with the relevant foreign exchange authorities. The public notice also suggests that registration with the relevant foreign exchange authorities is required for any sale or transfer by the PRC residents of shares in an offshore holding company that owns an onshore company. The PRC residents must each submit a registration form to the local SAFE branch with respect to their ownership interests in the offshore company, and must also file an amendment to such registration if the offshore company experiences material events, such as changes in the share capital, share transfer, mergers and acquisitions, spin-off transactions or use of assets in China to guarantee offshore obligations. If any PRC resident stockholder of an offshore holding company fails to make the required SAFE registration and amended registration, the onshore PRC subsidiaries of that offshore company may be prohibited from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation to the offshore entity. Failure to comply with the SAFE registration and amendment requirements described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions. Because of uncertainty in how the SAFE notice will be interpreted and enforced, we cannot be sure how it will affect our business operations or future plans. For example, WFOE’s ability to conduct foreign exchange activities, such as the remittance of dividends and foreign currency-denominated borrowings, may be subject to compliance with the SAFE notice by our PRC resident beneficial holders. Failure by our PRC resident beneficial holders could subject these PRC resident beneficial holders to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit Longkang’s ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.

On August 8, 2006, the PRC Ministry of Commerce (“MOFCOM”), joined by the State-owned Assets Supervision and Administration Commission of the State Council, the State Administration of Taxation, the State Administration for Industry and Commerce, the China Securities Regulatory Commission and the SAFE, released a substantially amended version of the Provisions for Foreign Investors to Merge with or Acquire Domestic Enterprises (the “Revised M&A Regulations”), which took effect September 8, 2006. These new rules significantly revised China’s regulatory framework governing onshore-to-offshore restructurings and foreign acquisitions of domestic enterprises. These new rules signify greater PRC government attention to cross-border merger, acquisition and other investment activities, by confirming MOFCOM as a key regulator for issues related to mergers and acquisitions in China and requiring MOFCOM approval of a broad range of merger, acquisition and investment transactions. Further, the new rules establish reporting requirements for acquisition of control by foreigners of companies in key industries, and reinforce the ability of the Chinese government to monitor and prohibit foreign control transactions in key industries.

Among other things, the revised M&A Regulations include new provisions that purport to require that an offshore special purpose vehicle, or SPV, formed for listing purposes and controlled directly or indirectly by PRC companies or individuals must obtain the approval of the CSRC prior to the listing and trading of such SPV’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published on its official website procedures specifying documents and materials required to be submitted to it by SPVs seeking CSRC approval of their overseas listings. However, the application of this PRC regulation remains unclear with no consensus currently existing among the leading PRC law firms regarding the scope and applicability of the CSRC approval requirement. If the CSRC or another PRC regulatory agency subsequently determines that CSRC approval was required, we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds from an offering of securities into the PRC, or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ordinary shares. The CSRC or other PRC regulatory agencies also may take actions requiring us, or making it advisable for us, to halt any offering before settlement and delivery of the securities offered. Consequently, if investors engage in market trading or other activities in anticipation of and prior to settlement and delivery, they do so at the risk that settlement and delivery may not occur. Also, if later the CSRC requires that we obtain its approval, we may be unable to obtain a waiver of the CSRC approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties and/or negative publicity regarding this CSRC approval requirement could have a material adverse effect on the trading price of our ordinary shares. Furthermore, published news reports in China recently indicated that the CSRC may have curtailed or suspended overseas listings for Chinese private companies. These news reports have created further uncertainty regarding the approach that the CSRC and other PRC regulators may take with respect to us.

It is uncertain how our business operations or future strategy will be affected by the interpretations and implementation of Circular 75 and the Revised M&A Regulations. It is anticipated that application of the new rules will be subject to significant administrative interpretation, and we will need to closely monitor how MOFCOM and other ministries apply the rules to ensure that our domestic and offshore activities continue to comply with PRC law. Given the uncertainties regarding interpretation and application of the new rules, we may need to expend significant time and resources to maintain compliance.

THE PRC LAWS MAY LIMIT OUR ABILITY TO TRANSFER THE PROCEEDS FROM OUR PUBLIC OFFERING TO LONGKANG WHICH COULD ADVERSELY AFFECT OUR BUSINESS.

We intend to transfer the proceeds from our public offering to MeKeFuBang, a WFOE and our wholly-owned subsidiary in the PRC, to expand our manufacturing capability. Currently, there is no PRC law which restricts us from transferring the proceeds from our public offering to a WFOE company. However, if the amount to be transferred to MeKeFuBang exceeds its current total registered investment amount approved by the PRC government, MeKeFuBang will need approval from the PRC government to increase its total registered investment amount before such transfer. Currently, MeKeFuBang’s total registered investment amount has been increased from $18 million to $49.5 million. We will be able to transfer all proceeds from our public offering as well as from our previous private placement to Longkang. However, if we need to raise more funds in the future, we might be required by PRC laws to apply to increase MeKeFuBang’s total registered investment amount before such transfer, and we would be unable to transfer such funds to our operating entity Longkang. Although we believe we will be able to increase our total registered investment amount because the PRC government support and encourage the investment of foreign enterprises to be transferred into China, we cannot assure you that the PRC government will grant us such approval since the PRC government has board discretion on foreign investment and we cannot assure you that such approval will be granted in a certain time.

DUE TO VARIOUS RESTRICTIONS UNDER PRC LAWS ON THE DISTRIBUTION OF DIVIDENDS BY OUR PRC OPERATING COMPANIES, WE MAY NOT BE ABLE TO PAY DIVIDENDS TO OUR SHAREHOLDERS.

The Wholly-Foreign Owned Enterprise Law (1986), as amended and The Wholly-Foreign Owned Enterprise Law Implementing Rules (1990), as amended and the Company Law of the PRC (2006) contain the principal regulations governing dividend distributions by wholly foreign owned enterprises. Under these regulations, wholly foreign owned enterprises may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. Additionally, such companies are required to set aside a certain amount of their accumulated profits each year, if any, to fund certain reserve funds. These reserves are not distributable as cash dividends except in the event of liquidation and cannot be used for working capital purposes. The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. We may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from the Company’s profits.

Furthermore, if our subsidiaries or affiliates in China incur debt on their own in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all of the revenues from our operations through these contractual or dividend arrangements, we may be unable to pay dividends on our ordinary shares.

Risks Associated with Our Securities

IN ORDER TO RAISE SUFFICIENT FUNDS TO ENHANCE OPERATIONS, WE MAY HAVE TO ISSUE ADDITIONAL SECURITIES AT PRICES WHICH MAY RESULT IN SUBSTANTIAL DILUTION TO OUR SHAREHOLDERS.

If we raise additional funds through the sale of equity or convertible debt, our current stockholders’ percentage ownership will be reduced. In addition, these transactions may dilute the value of ordinary shares outstanding. We may have to issue securities that may have rights, preferences and privileges senior to our ordinary shares. We cannot provide assurance that we will be able to raise additional funds on terms acceptable to us, if at all. If future financing is not available or is not available on acceptable terms, we may not be able to fund our future needs, which would have a material adverse effect on our business plans, prospects, results of operations and financial condition.

THERE HAS BEEN NO PUBLIC MARKET FOR OUR ORDINARY SHARES. THEREFORE, YOU MAY BE UNABLE TO LIQUIDATE YOUR INVESTMENT IN OUR STOCK.

There has been no public market for our ordinary shares. Our shares have not been listed or quoted on any exchange or quotation system. In the absence of a trading market, an investor may be unable to liquidate their investment.

WE ARE NOT LIKELY TO PAY CASH DIVIDENDS IN THE FORESEEABLE FUTURE.

We currently intend to retain any future earnings for use in the operation and expansion of our business. Accordingly, we do not expect to pay any cash dividends in the foreseeable future, but will review this policy as circumstances dictate. Should we determine to pay dividends in the future, our ability to do so will depend upon the receipt of dividends or other payments from Merit Times. Merit Times may, from time to time, be subject to restrictions on its ability to make distributions to us, including restrictions on the conversion of RMB into U.S. dollars or other hard currency and other regulatory restrictions.

YOUR ABILITY TO PROTECT YOUR RIGHTS THROUGH THE UNITED STATES COURTS MAY BE LIMITED, BECAUSE WE ARE INCORPORATED UNDER CAYMAN ISLANDS LAW, CONDUCT SUBSTANTIALLY ALL OF OUR OPERATIONS IN CHINA AND A MAJORITY OF OUR DIRECTORS AND EXECUTIVE OFFICERS RESIDE OUTSIDE THE UNITED STATES.

We are incorporated in the Cayman Islands, and conduct substantially all of our operations in China through our subsidiaries in China. A majority of our directors and executive officers reside outside the United States and a substantial portion of their assets are located outside of the United States. As a result, it may be difficult or impossible for you to effect service of process within the United States upon us or these directors and officers in the event that you believe that your rights have been violated under U.S. securities laws or otherwise. Even if you are successful in effecting service of process and bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will in certain circumstances recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. While there is no binding authority on this point, this is likely to include, in certain circumstances, a non-penal judgment of a United States court imposing a monetary award based on the civil liability provisions of the U.S. federal securities laws. The Grand Court of the Cayman Islands may stay proceedings if concurrent proceedings are being brought elsewhere. Moreover, the PRC does not have treaties with the United States or many other countries providing for the reciprocal recognition and enforcement of judgment of courts.

YOU MAY FACE DIFFICULTIES IN PROTECTING YOUR INTERESTS AS A SHAREHOLDER, AS CAYMAN ISLANDS LAW PROVIDES SUBSTANTIALLY LESS PROTECTION WHEN COMPARED TO THE LAWS OF THE UNITED STATES.

Our corporate affairs are governed by our memorandum and articles of association and by the Companies Law (2010 Revision) and common law of the Cayman Islands. The rights of shareholders to take legal action against our directors and us, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law. Decisions of the Privy Council (which is the final court of appeal for British overseas territories such as the Cayman Islands) are binding on a court in the Cayman Islands. Decisions of the English courts, and particularly the Supreme Court of the United Kingdom and the Court of Appeal are generally of persuasive authority but are not binding on the courts of the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in the United States. In particular, the Cayman Islands has a less developed body of securities laws as compared to the United States, and provide significantly less protection to investors. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action before the United States federal courts. The Cayman Islands courts are also unlikely to impose liabilities against us in original actions brought in the Cayman Islands, based on certain civil liability provisions of United States securities laws.

As a result of all of the above, our shareholders may have more difficulty in protecting their interests through actions against us or our officers, directors or major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.

ITEM 2.PROPERTIES.

Our corporate office is located at No. 48 South Qingshui Road, Laiyang City, Shandong 265200 People’s Republic of China. Under PRC law, a private entity may not own land in China. Land is owned by the PRC government and the PRC government grants land use rights for specified periods of time. In 2007 and 2008, the local government has granted us land use rights which consist of approximately 500 acres of pear orchards and land for our production facilities and offices, with terms that expire in December 2037 through December 2054. We acquired the land use rights of these 500 acres of land in Laiyang through six (6) rural land contracts with the local villagers’ collective economic organizations in the Laiyang area. Each of the rural land contracts entered into with the local villagers’ collective economic organizations have a thirty year term and were executed in either 2007 or 2008 with annual rents ranging from 1,121 RMB to 1,206 RMB per mu (equal to approximately $985 to $1,060 per acre).

In addition to the land use rights that we have been granted by the local villagers’ collective economic organizations, we have entered into several cooperative agreements with local contract farmers, pursuant to which we manage 5,272 acres of cooperative plantations, which represents approximately 6.4% of the total acreage on which Laiyang Pears are currently grown in Laiyang city. These cooperative agreements with local farmers allow us to have the exclusive management and Laiyang Pear purchase rights of the plantation but without land use rights. Such contract pear plantation’s construction and growing cost are invested by local farmers. However, we are responsible to provide the management and technical instructions and in return, we have the priority rights to purchase Laiyang pears harvested from our contract plantations. Consequently we have saved substantial capital expenditures, and need to pay higher prices and face the potential influences from market price fluctuations as compared with using the Laiyang pears of the 500 acres of self-owned plantation.

We currently have three production lines for Laiyang Pear juice concentrate and puree with a combined production capacity of 48,000 MT, and one production line for bio feed with a production capacity of 52,000 MT.

In June 2011, we paid approximately $21,300,000 for the rights to use two Laiyang pear orchards with an area of approximately 511 acres for a period of 30 years which began in April 2011.

ITEM 3. LEGAL PROCEEDINGS.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

PART II

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market information

Our ordinary shares have not been listed for trading on any stock exchange and therefore there is no public trading market for our ordinary shares.

Holders

As the date hereof, there are 27,509,171 ordinary shares issued and outstanding. There are approximately 511 shareholders of our ordinary shares.

Transfer Agent and Registrant

Our transfer agent is Continental Stock Transfer & Trust Co., at the address of 17 Battery Place 8th floor, New York, NY 10004. Its telephone number is (212) 509-4000.

Dividend Policy

Since inception we have not paid any dividends on our ordinary shares. We currently do not anticipate paying any cash dividends in the foreseeable future on our ordinary shares. Although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board of Directors will have the discretion to declare and pay dividends in the future. Payment of dividends in the future will depend upon our earnings, capital requirements, and other factors, which our Board of Directors may deem relevant.

In addition, due to various restrictions under PRC laws on the distribution of dividends by our PRC operating companies, we may not be able to pay dividends to our shareholders. The Wholly-Foreign Owned Enterprise Law (1986), as amended and The Wholly-Foreign Owned Enterprise Law Implementing Rules (1990), as amended and the Company Law of the PRC (2006) contain the principal regulations governing dividend distributions by wholly foreign owned enterprises. Under these regulations, wholly foreign owned enterprises may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. Additionally, such companies are required to set aside a certain amount of their accumulated profits each year, if any, to fund certain reserve funds. These reserves are not distributable as cash dividends except in the event of liquidation and cannot be used for working capital purposes. The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from the Company’s profits. Furthermore, if our subsidiaries and affiliates in China incur debt on their own in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments. If we or our subsidiaries and affiliates are unable to receive all of the revenues from our operations through the current contractual arrangements, we may be unable to pay dividends on our ordinary shares.

Securities Authorized for Issuance Under Equity Compensation Plans

We presently do not have any equity based or other long-term incentive programs. In the future, we may adopt and establish an equity-based or other long-term incentive plan if it is in the best interest of the Company and our stockholders to do so.

ITEM 6.SELECTED FINANCIAL DATA.

The following selected consolidated financial and other data should be read in conjunction with, and are qualified by reference to, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our audited consolidated financial statements and the accompanying notes included elsewhere in this report. The consolidated statements of income and balance sheet data for the years ended December 31, 2008 to 2007 and the consolidated balance sheet data as of December 31, 2009, 2008 and 2007 were derived from our audited consolidated financial statements not included in this report. The consolidated statements of income data for the years ended December 31, 2011, 2010 and 2009 and the consolidated balance sheet data as of December 31, 2011 and 2010 were derived from our audited consolidated financial statements included in this report. The historical results presented below are not necessarily indicative of financial results to be achieved in future periods.

	For the Year ended December 31,
	2011		2010		2009		2008		2007
	(in thousands, except for per share data)
Statement of Operations Data:
Revenues	$	136,989	$	105,544	$	82,627	$	74,232	$	65,038
Income from operations		44,861		33,722		19,266		16,681		13,351
Net income		33,727		25,231		15,071		11,558		7,980
Net income per common share	$	1.23	$	0.92	$	0.67	$	0.54	$	0.37

Balance sheet data:
Total cash	$	54,287	$	47,671	$	26,574	$	2,029	$	9,171
Total property and equipment, net		19,191		19,586		7,398		7,465		7,878
Total land use rights, net		47,233		15,751		15,780		16,288		5,036
Total assets		136,266		101,269		66,663		47,901		44,878
Total current liabilities		10,902		13,686		6,784		18,319		16,174
Total long-term debt		0		0		0		0		11,985
Total liabilities		10,902		13,686		6,784		18,319		28,159
Cash dividends paid	$	0	$	0	$	0	$	0	$	0

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

The following discussion and analysis of the results of operations and financial condition of Oriental Dragon Corporation for the fiscal years ended December 31, 2011, 2010 and 2009 should be read in conjunction with the Oriental Dragon Corporation financial statements. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Special Note Regarding Forward-Looking Statements and Business sections in this Form 10-K. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

COMPANY OVERVIEW

Primarily, we engage in the processing, producing and distributing of Laiyang Pear fruit juice concentrate. In September 2010, we began producing and distributing bio animal feed using the waste produced by our juice concentrate business. During the third quarter of 2011, we started to produce and sell strawberry puree. Our subsidiary, Merit Times, owns 100% of the issued and outstanding capital stock of MeKeFuBang, a wholly foreign owned enterprise incorporated under the laws of the PRC. On December 20, 2010, MeKeFuBang entered into a series of contractual agreements (which replaced similar agreements dated June 10, 2009) with Longkang, a company incorporated under the laws of the PRC, and its five shareholders, in which MeKeFuBang effectively assumed management of the business activities of Longkang and has the right to appoint all executives and senior management and the members of the board of directors of Longkang. The contractual arrangements are comprised of a series of agreements, including a Consulting Services Agreement, Operating Agreement, Proxy Agreement, and Option Agreement, through which MeKeFuBang has the right to advise, consult, manage and operate Longkang for an annual fee in the amount of Longkang’s yearly net profits after tax. Additionally, Longkang’s Shareholders have pledged their rights, titles and equity interest in Longkang as security for MeKeFuBang to collect consulting and services fees provided to Longkang through an Equity Pledge Agreement. In order to further reinforce MeKeFuBang’s rights to control and operate Longkang, Longkang’s shareholders have granted MeKeFuBang the exclusive right and option to acquire all of their equity interests in Longkang through an Option Agreement. As all of the companies are under common control, this has been accounted for as a reorganization of entities and the financial statements have been prepared as if the reorganization had occurred retroactively. We have consolidated Longkang’s operating results, assets and liabilities within our financial statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

While our significant accounting policies are more fully described in Note 1 to our consolidated financial statements for the year ended December 31, 2011, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis.

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts, inventories, recovery of long-lived assets, income taxes, and the valuation of equity transactions. We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements.

Variable Interest Entities

Pursuant to Financial Accounting Standards Board accounting standards, we are required to include in our consolidated financial statements the financial statements of variable interest entities (“VIEs”). The accounting standards require a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in which we, through contractual arrangements, bear the risk of, and enjoy the rewards normally associated with ownership of the entity, and therefore we are the primary beneficiary of the entity.

Longkang is considered a VIE, and we are the primary beneficiary. We conduct a portion of our operations in China through our PRC operating company Longkang. On June 10, 2009, we entered into agreements with Longkang pursuant to which we shall receive 100% of Longkang’s net income. In accordance with these agreements, Longkang shall pay consulting fees equal to 100% of its net income to our wholly-owned subsidiary, MeKeFuBang. MeKeFuBang shall supply the technology and administrative services needed to service Longkang. The agreements were amended on December 20, 2010 to restrict Longkang’s ability to terminate such agreements.

The accounts of Longkang are consolidated in the accompanying financial statements. As a VIE, Longkang sales are included in our total sales, its income from operations is consolidated with ours, and our net income includes all of Longkang’s net income, and its assets and liabilities are included in our consolidated balance sheets. The VIE does not have any non-controlling interest and accordingly, did not subtract any net income in calculating the net income attributable to us. Because of the contractual arrangements, we have pecuniary interest in Longkang that requires consolidation of Longkang’s financial statements with our financial statements.

Accounts receivable

We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We periodically review our accounts receivable and other receivables to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

As a basis for accurately estimating the likelihood of collection has been established, we consider a number of factors when determining reserves for uncollectable accounts. We believe that we use a reasonably reliable methodology to estimate the collectability of our accounts receivable. We review our allowances for doubtful accounts on at least a quarterly basis. We also consider whether the historical economic conditions are comparable to current economic conditions. If the financial condition of our customers or other parties that we have business relations with were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Inventories

Inventories, consisting of raw materials and finished goods related to our products are stated at the lower of cost or market utilizing the weighted average method. An allowance is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, we will record additional reserves for the difference between the cost and the market value. These reserves are recorded based on estimates. We review inventory quantities on hand and on order and record, on a quarterly basis, a provision for excess and obsolete inventory, if necessary. If the results of the review determine that a write-down is necessary, we recognize a loss in the period in which the loss is identified, whether or not the inventory is retained. Our inventory reserves establish a new cost basis for inventory and are not reversed until we sell or dispose of the related inventory. Such provisions are established based on historical usage, adjusted for known changes in demands for such products, or the estimated forecast of product demand and production requirements.

Property and equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using straight-line method (after taking into account their respective estimated residual value) over the estimated useful lives of the assets. The estimated useful lives of the assets are as follows:

	Useful Life
Building and building improvements	10-20	Years
Manufacturing equipment	10	Years
Office equipment and furniture	10	Years
Vehicle	10	Years

The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition.

We examine the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. We recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.

Included in property and equipment is construction-in-progress which consists of a deposit on machinery pending installation and includes the costs of the machinery and equipment, and any interest charges arising from borrowings used to finance these assets during the period of installation. No provision for depreciation is made on construction-in-progress until such time as the relevant assets are completed and ready for their intended use.

Land use rights

There is no private ownership of land in China. Land is owned by the government and the government grants land use rights for specified terms. Land use rights contain our factory, warehouse, and offices and certain land contains Laiyang Pear plantations which will or is being used to supply Laiyang Pear to us for production. Our land use rights have terms that expire in December 2037 through September 2060. We amortize these land use rights over the term of the respective land use right. The lease agreements do not have any renewal option and the Company has no further obligations to the lessor. The following summarizes land use rights acquired by the Company.

	Description	Useful life	Acquisition date	Expiration date	Area
Parcel A	Factory, warehouse and offices	50	12/2004	12/2054	67,854 square meters
Parcels B to G	Laiyang pear orchard	30	12/2007	12/2037	500.5 acres
Parcel H	Laiyang pear orchard	30	04/2011	03/2041	214.2 acres
Parcel I	Laiyang pear orchard	30	04/2011	03/2041	296.6 acres
Parcel J	Factory, warehouse and offices	50	04/2011	09/2060	87,569 square meters

Prior to the time that the Company uses Laiyang pears from its orchards in the production process, the Company includes the amortization of the respective land use rights in general and administrative expenses. Upon the use of pears from the orchards in the production process, the Company reflects the amortization of these land use rights in cost of sales. For the years ended December 31, 2011, 2010 and 2009, amortization of land use rights amounted to $1,390,157, $552,771 and $547,750, respectively.

Revenue recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and collectability is reasonably assured. The Company recognizes revenues from the sale of juice concentrate and bio animal feed upon shipment and transfer of title.

Research and development

Research and development costs are expensed as incurred. These costs primarily consist of fees paid to third parties and cost of material used and salaries paid for the development of our products.

Income taxes

We account for income taxes pursuant to the accounting standards that requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax losses and tax credit carry forwards. Additionally, the accounting standards require the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Realization of deferred tax assets, including those related to the temporary difference from the deduction of imputed interest and related depreciation expenses for income tax purposes as compared to financial statement purposes, are dependent upon future earnings. Accordingly, prior to October 2009, the net deferred tax asset related to temporary differences was fully offset by a valuation allowance. The Company’s operating affiliate is governed by the Income Tax Law of the People’s Republic of China. The Company and our wholly-owned subsidiary, Merit Times were incorporated in the Cayman Islands and British Virgin Islands (“BVI”), respectively. Under the current laws of the Cayman Islands and BVI, the two entities are not subject to income taxes. Accordingly, we have not established a provision for current or deferred taxes for these jurisdictions.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Prior to 2009, we had recognized a valuation allowance for those deferred tax assets for which it is more likely than not that realization will not occur. The Company’s deferred tax asset relates to the temporary difference from the amortization of imputed interest expense on a loan payable for financial statement purposes as compared the depreciation of the related equipment for tax purposes. In 2008, the deferred tax asset had been fully reserved with a valuation allowance as management of the Company had not determined if realization of these assets would occur in the future. Prior to 2009, management believed that the realization of income tax benefits from a temporary difference arising from the amortization of imputed interest expense on a loan payable for financial statement purposes over the loan period from 2004 to 2009 as compared to the depreciation of the related asset over 20 years for income tax purposes appeared not more than likely due to the Company’s limited operating history, the fact that prior to 2007, the Company had no cooperative agreements for the acquisition of raw materials, and the Company had a limited number of customers.

Accordingly, we had provided a 100% valuation allowance on the deferred tax asset benefit to reduce the asset to zero. In 2009, after analysis, management concluded that the realization of the deferred tax asset is probable and accordingly, reversed the valuation allowance and will reflect a deferred tax asset. Our decision was based on the fact that 1) we have several years of operating history with increasing net income; 2) In 2007, we signed cooperative agreements with farmers for the supply of raw materials. In 2008, we acquired additional land use rights for the production of Laiyang Pears, our main raw material; 3) In October 2009, we entered into a financing agreement for the sale of our ordinary shares for net proceeds of approximately $15,100,000; and 4) we have begun our plans to diversify its product line to include the sale of bio animal feed products.

Foreign currency translation

The reporting currency of the Company is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s operating subsidiaries and affiliates is the Chinese Renminbi (“RMB”). For the subsidiaries and affiliates whose functional currencies are the RMB, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. All of the Company’s revenue transactions are transacted in the functional currency. The Company does not enter any material transaction in foreign currencies and accordingly, transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

Asset and liability accounts at December 31, 2011 and 2010 were translated at 6.3585 RMB to $1.00 and at 6.6118 RMB to $1.00, respectively. Equity accounts were stated at their historical rate. The average translation rates applied to the statements of income for the years ended December 31, 2011, 2010 and 2009were 6.464 RMB, 6.77875 RMB and 6,84088 RMB to $1.00, respectively. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.

Accumulated other comprehensive income

Comprehensive income is comprised of net income and all changes to the statements of stockholders' equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive income for the years ended December 31, 2011, 2010 and 2009 included net income and unrealized gains from foreign currency translation adjustments.

Recent accounting pronouncements

Accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, or disclosures.

RESULTS OF OPERATIONS

The following tables set forth key components of our results of operations for the years indicated, in dollars, and key components of our revenue for the years indicated, in dollars. The discussions following the table are based on these results.

	For the Years Ended December 31,
	2011			2010			2009
NET REVENUES	$	136,989,496		$	105,543,798		$	82,627,335
COST OF SALES		87,219,925			68,250,883			59,566,445
GROSS PROFIT		49,769,571			37,292,915			23,060,890
OPERATING EXPENSES:
Selling		538,427			497,056			456,024
Research and development		618,812			147,520			1,408,501
General and administrative		3,751,196			2,926,450			1,929,938
Total Operating Expenses		4,908,435			3,571,026			3,794,463
INCOME FROM OPERATIONS		44,861,136			33,721,889			19,266,427
OTHER INCOME (EXPENSE):
Interest income		246,024			134,440			62,512
Interest expense		-			(22,515	)		(335,560	)
Loss from foreign currency		(4,829	)		(45,497	)		-
Total Other Income (Expense)		241,195			66,428			(273,048	)
INCOME BEFORE INCOME TAXES		45,102,331			33,788,317			18,993,379
PROVISION FOR INCOME TAXES
Current		(11,311,945	)		(8,497,140	)		(4,817,299	)
Deferred		(63,131	)		(60,199	)		894,789
TOTAL PROVISION FOR INCOME TAXES		(11,375,076	)		(8,557,339	)		(3,922,510	)
NET INCOME	$	33,727,255		$	25,230,978		$	15,070,869
COMPREHENSIVE INCOME:
NET INCOME	$	33,727,255		$	25,230,978		$	15,070,869
OTHER COMPREHENSIVE INCOME:
Unrealized foreign currency translation gain		4,023,014			2,449,940			75,088

COMPREHENSIVE INCOME	$	37,750,269		$	27,680,918		$	15,145,957

Results of Operations for the Year ended December 31, 2011 Compared to the Year ended December 31, 2010

Revenues. For the year ended December 31, 2011, we had net revenues of $136,989,496, as compared to net revenues of $105,543,798 for the year ended December 31, 2010, an increase of 29.8%. Revenue and changes for each product line is summarized as follows:

	2011		2010		Increase (Decrease)			Percentage Change
Laiyang pear juice concentrate (1)	$	112,526,412	$	93,765,028	$	18,761,384			20.0	%
Strawberry juice concentrate/puree (2)		13,989,333		6,398,333		7,591,000			118.6	%
Bio animal feed (3)		10,473,751		5,364,172		5,109,579			95.3	%
Other		-		16,265		(16,265	)		(100.0	)%
Total net revenues	$	136,989,496	$	105,543,798	$	31,445,698			29.8	%

NW = Not meaningful

(1) During the year ended December 31, 2011, we continued to see strong demand for our Laiyang Pear juice concentrate products. Laiyang Pear as a trademark has been registered by an entity affiliated with the Laiyang city government, and we have been granted a license to use this trademark through 2038. In January 2008, the Laiyang government issued a government letter, which indicated that we can enjoy the status as the sole producer of Laiyang Pear juice concentrate for a period of 30 years. Pursuant to this government letter, during this period, no other producer will be permitted to enter into the Laiyang Pear juice concentrate business.

During the year ended December 31, 2011, our revenues from Laiyang Pear juice concentrate increased by 20.0% as compared to the year ended December 31, 2010 with the Laiyang Pear juice concentrate increased revenue attributable to an increase in volume with no change in our selling price. During the year ended December 31, 2011, we sold 43,642 metric tons (“MT”) of Laiyang pear juice concentrate as compared to 38,161 MT in the year ended December 31, 2010.

Overall, we increased sales of our Laiyang Pear juice concentrate products due to increasing market demands from the use of Laiyang Pear juice concentrate in pharmaceutical and health supplement products in which Laiyang Pear juice concentrate is used for its nutritional content and our ability to increase production capacity due to the addition of a juice concentrate production line in September 2010. Our business is highly seasonal, reflecting the harvest season of our primary source fruits, the Laiyang Pear, during the months from September through the following February. We produce fruit juice concentrate and store it in cold storage until it is sold. Typically, a substantial portion of our revenues are earned during our first, third and fourth quarters. We generally experience lower revenues during our second quarter. Our inventory levels increase during the third and fourth quarter of the year and decrease substantially in the first quarter of the year. Generally we sell the remaining inventory balances during the first or second quarter of the year. We have not experienced a shortfall in working capital during our production period and we have sufficient working capital on hand to secure our raw materials. If we experience a bad harvest season due to weather or other situation that we cannot control, we would have a shortage of primary raw material and we would experience a substantial decrease in our revenues. Currently, there are no known trends or uncertainties that may have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations.

(2) For the year ended December 31, 2011, we had an increase in revenues from the sale of strawberry juice concentrate and strawberry puree of $7,591,000. The increase was attributable to the sale of strawberry puree of approximately $6,717,000 to one customer. During the third quarter of 2011, we produced and sold our first order of strawberry puree using equipment installed in 2010. Additionally, we had a strong harvest of strawberries in the 2011 period and we sold all of the strawberry juice concentrate produced to our customers. Although we expect future orders for our puree products, currently we do not have any orders and the timing of such orders is not known.

(3) The increase in revenues from the sale of bio animal feed was attributable to the completion of our bio animal feed production line in October 2010. We began to produce and sell bio animal feed in the fourth quarter of 2010.

The production of strawberry and any other juice concentrates that we may produce is dependent upon the season and production requirements of our Laiyang Pear juice concentrate and may vary depending on the capacity of our limited production lines. Generally, we only produce and sell strawberry and any other juice concentrates when we are not producing Laiyang Pear juice concentrate.

Cost of revenues. Cost of revenues increased by $18,969,042, or 27.8%, from $68,250,883 for the year ended December 31, 2010 to $87,219,925 for the year ended December 31, 2011 and was primarily attributable to the increase in our net revenue.

Gross profit and gross margin. Our gross profit was $49,769,571 for year ended December 31, 2011 as compared to $37,292,915 for the year ended December 31, 2010 representing gross margins of 36.3% and 35.3%, respectively.

Gross margin percentages by product line are as follows:

	For the Year ended December 31, 2011			For the Year ended December 31, 2010
Laiyang Pear juice concentrate		32.7	%		32.6	%
Strawberry juice concentrate and puree		32.3	%		36.2	%
Bio animal feed		80.1	%		83.2	%
Other		-			100.0	%
Overall gross profit %		36.3	%		35.3	%

For the year ended December 31, 2011, the increase in gross margin percentages related to Laiyang Pear juice concentrate was not material and attributed to a slight reduction in raw materials costs. In the fourth quarter of 2010, we began to use Laiyang pears from our orchards and spent less on pears.

Gross margin percentages related to the sale of bio animal feed was ranged from 83.2% to 80.1% for the periods presented. We began producing and selling bio animal feed in the fourth quarter of 2010. We are able to recognize a high gross margin from the sale of bio animal feed. We use waste from the production of Laiyang Pear juice concentrate as our main raw material in the production of the bio animal feed. The production of bio animal feed is dependent on the production of waste from the production of Laiyang Pear juice concentrate.

Gross margin percentages related to strawberry juice concentrate and strawberry puree was 32.3% for the year ended December 31, 2011. In 2010, we did not sell Strawberry juice puree and our gross margin percentage of 36.2% is related to only strawberry juice concentrate for the year ended December 31, 2010. In 2011, gross margin percentages related to strawberry juice concentrate and strawberry puree was 28.4% as compared to 35.9% for the sale of strawberry juice concentrate.

Gross margin percentages can vary from period to period based on the price of raw materials such as Laiyang pears and strawberries and can also fluctuate based on market conditions such as demand and purchase price. We expect gross margins to improve as we continue to harvest Laiyang Pears from our existing pear orchards and our new pear orchards that we acquired in March 2011.

Selling expenses. Selling expenses were $538,427 for the year ended December 31, 2011 as compared to $497,056 for the year ended December 31, 2010, an increase of $41,371 or 8.3%. Selling expenses consisted of the following:

	2011		2010
Compensation and related benefits	$	463,596	$	419,053
Shipping and handling		74,831		63,251
Advertising		-		14,752

Total	$	538,427	$	497,056

·	For the year 2011, compensation and related benefits increased by approximately 10.6% as compared to the year 2010 primarily due to an increase in commissions paid on increased revenues. We expect commission to increase proportionally when sales increase.

·	For the year 2011, we had slight increase in shipping and handling expenses as compared to the year 2010. In year 2011 and year 2010, shipping and handling expenses were substantially paid by our customers.

·	For the year 2011, advertising expense decreased as compared to the year 2010. We did not incur advertising expenses in year 2011.

Research and development expenses. For the year ended December 31, 2011, research and development expenses amounted to $618,812 as compared to $147,520 for the year ended December 31, 2010. The change was primarily attributable to the timing of services performed pursuant to research and development contracts. On March 1, 2010, we entered into a cooperative R&D contract with the Preclinical Medicine Research Laboratory of Shandong Medicine Academy to develop the applications of immunoregulation and antitumor effects of Laiyang Pear juice concentrate. This R&D project was completed in December 2011. In future periods, we expect research and development expenses to fluctuate depending on the nature, timing and costs of third party research and development contracts.

General and administrative expenses. General and administrative expenses amounted to $3,751,196 for the year ended December 31, 2011, as compared to $2,926,450 for the year ended December 31, 2010, an increase of $824,746 or 28.2%. General and administrative expenses consisted of the following:

	2011		2010
Compensation and related benefits	$	1,430,289	$	1,310,379
Professional fees		287,185		378,118
Depreciation		250,024		217,648
Amortization of land use rights		845,691		422,974
Other		938,007		597,331

Total	$	3,751,196	$	2,926,450

For year 2011, compensation and related benefits increase by $119,910 or 9.2% as compared to year 2010. During year 2011, we hired additional administrative staff to manage our manufacturing facility that was completed in October 2010 as well as other professional staff and a director in connection with becoming a public company. Additionally, annual bonus compensation paid to employees increase in 2011 by $32,252 as compared to the 2010 period.

For year 2011 and year 2010, professional fees consisting of legal fees, accounting fees, internal control consulting services and other fees associated with being a public company. For year 2011, professional fees decrease by $90,933 or 24.0% as compared to year 2010 and was attributable to an decrease in fees incurred in connection with internal control procedures approximately $40,700, a decrease of $4,956 in accounting fees, a decrease in legal fees of approximately $25,552, a decrease in investor relations fees of $31,577 and a decrease in other professional fees of approximately $38,000 offset by an increase in due diligence fees of $50,000.

·	For year 2011, depreciation expense increased by $32,376 or 14.9% as compared to year 2010. The increase was related to the depreciation of property and equipment recently placed in service in September 2010.

During year 2011, amortization of land use rights increased by $422,717 as compared to year 2010 which was attributable to the amortization of land use rights acquired in June 2011 relating to new Laiyang Pear orchards. Prior to the time that the Company uses Laiyang pears from its orchards in the production process, the Company includes the amortization of the respective land use rights in general and administrative expenses. Upon the use of pears from the orchards in the production process, the Company reflects the amortization of these land use rights in cost of sales.

For year 2011, other general and administrative expenses which consist of entertainment, utilities, office maintenance, travel expenses, pension, miscellaneous taxes, office supplies, filing fees and telephone increased by $340,676 or 57.0% as compared with year 2010. The increase was primarily attributable to an increase in utilities and land use taxes related to our new facility of $162,769, an increase in travel, local accommodation fees, meals and entertainment related to meetings, local hotel and meal expenses incurred in connection with visiting professionals of $94,351.

Income from operations. For the year ended December 31, 2011, income from operations was $44,861,136, as compared to $33,721,889 for the year ended December 31, 2010, an increase of $11,139,247 or 33.0%.

Other income (expenses). For the year ended December 31, 2011, other income amounted to $241,195 as compared to $66,428 for the year ended December 31, 2010, an increase of $174,767 or 263.0%. The increase was attributable to the following

	·	For year 2011, interest income increased by $111,584 or 83.0% as compared to 2010, and related to an increase in funds in interest bearing accounts.
	·	For year 2011, loss from foreign currency transaction decreased by $40,668 or 89.4%. In the 2010, we purchased equipment from vendors in Europe and we incurred foreign currency transaction losses.

Income tax expense. Income tax expense increased by $2,817,737, or 32.9%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010 which was primarily attributed to an increase in taxable income.

Net income. As a result of the factors described above, our net income for the year ended December 31, 2011 was $33,727,255, or $1.23 per ordinary share (basic and diluted). For the year ended December 31, 2010, we had net income of $25,230,978, or $0.92 per ordinary share (basic and diluted).

Foreign currency translation gain. The functional currency of our subsidiaries operating in the PRC is the Chinese Yuan or Renminbi (“RMB”). The financial statements of our subsidiaries are translated to U.S. dollars using period end rates of exchange for assets and liabilities, and average rates of exchange (for the period) for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations. As a result of these translations, which are a non-cash adjustment, we reported a foreign currency translation gain of $4,023,014 for the year ended December 31, 2011 as compared to $2,449,940 for the year ended December 31, 2010. These non-cash gains had the effect of increasing our reported comprehensive income.

Comprehensive income. For the year ended December 31, 2011, comprehensive income of $37,750,269 is derived from the sum of our net income of $33,727,255 plus foreign currency translation gains of $4,023,014. For the year ended December 31, 2010, comprehensive income of $27,680,918 is derived from the sum of our net income of $25,230,978 plus foreign currency translation gains of $2,449,940.

Results of Operations for the Year ended December 31, 2010 Compared to the Year ended December 31, 2009

Revenues. For the year ended December 31, 2010, we had net revenues of $105,543,798, as compared to net revenues of $82,627,335 for the year ended December 31, 2009, an increase of 27.7%. Revenue and changes for each product line is summarized as follows:

	2010		2009		Increase (Decrease)			Percentage Change
Laiyang pear juice concentrate	$	93,765,028	$	73,369,847	$	20,395,181			27.8	%
Apple juice concentrate		—		6,800,563		(6,800,563	)		(100.0	)%
Strawberry juice concentrate		6,398,333		2,389,486		4,008,847			167.8	%
Bio animal feed		5,364,172		—		5,364,172			N/A
Other		16,265		67,439		(51,174	)		(75.9	)%

Total net revenues	$	105,543,798	$	82,627,335	$	22,916,463			27.7	%

During the year of 2010, we continued to see strong demand for our Laiyang Pear juice concentrate products. Laiyang Pear is a trademark that has been registered by an entity affiliated with the Laiyang city government, and we (through our subsidiaries Longkang and MeKeFuBang) have been granted a license to use this trademark through 2038. In January 2008, the Laiyang government issued a government letter, which indicated that we can enjoy the status as the sole producer of Laiyang Pear juice concentrate for a period of 30 years. Pursuant to this government letter, during this period, no other producer will be permitted to enter into the Laiyang Pear juice concentrate business. During the year of 2010, our revenues from Laiyang Pear juice concentrate increased by 27.8% with approximately 65% of the Laiyang Pear juice concentrate increased revenue attributable to an increase in volume and 35% attributable to an increase in sales price subject to market conditions. Revenues from Laiyang Pear juice concentrate have increased due to increasing market demands from the pharmaceutical and health supplement products in which Laiyang Pear juice concentrate is used for its nutritional content. Our business is highly seasonal, reflecting the harvest season of our primary source fruits, the Laiyang Pear, during the months from September through the following February. We produce fruit juice concentrate and store it in cold storage until it is sold. Typically, a substantial portion of our revenues are earned during our first, third and fourth quarters. We generally experience lower revenues during our second quarter. Our inventory levels increase during the third and fourth quarter of the year and decrease substantially in the first quarter of the year. Generally we sell the remaining inventory balances during the first quarter of the year and experience a significant decrease in inventory during this quarter. We have not experienced a shortfall in working capital during our production period and we have sufficient working capital on hand to secure our raw materials. If we experience a bad harvest season due to weather or other situation that we cannot control, we would have a shortage of primary raw material and we would experience a substantial decrease in our revenues. Currently, there are no known trends or uncertainties that may have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations.

	·	The decrease in revenues from the sale of apple juice concentrate of 100.0% was attributable to a decrease in production of apple juice concentrate. In connection with the sale of apple juice concentrate, we had a sales contract we signed with an infant food company. This contract was entered into in 2007 and ended in 2009. We did not produce and sell apple juice concentrate in 2010 and we do not anticipate renewing the apple juice concentrate sales contract.
	·	The increase in revenues from the sale of strawberry juice concentrate in 2010 as compared to 2009 of $4,008,847 was attributable to the bumper harvest of strawberries in the 2010 period and increased customer demands. Since we sold out our strawberry juice concentrate inventories in the second quarter of 2010, we did not produce and sell strawberry juice concentrate for the remainder of 2010.

The production of apple, strawberry and any other juice concentrates that we may produce is dependent upon the season and production requirements of our Laiyang Pear juice concentrate and may vary depending on the capacity of our limited production lines. Generally, we only produce apple and strawberry juice concentrate when we are not producing Laiyang Pear juice concentrate.

Cost of revenues. Cost of revenues increased by $8,684,438, or 14.6%, from $59,566,445 for the year ended December 31, 2009 to $68,250,883 for the year ended December 31, 2010 and was attributable to the increase in our net revenue.

Gross profit and gross margin. Our gross profit was $37,292,915 for year ended December 31, 2010 as compared to $23,060,890 for the year ended December 31, 2009 representing gross margins of 35.3% and 27.9%, respectively.

Gross margin percentages by product line are as follows:

	For the Year ended December 31, 2010			For the Year ended December 31, 2009
Laiyang Pear juice concentrate		32.6	%		26.2	%
Apple juice concentrate		—			46.3	%
Strawberry juice concentrate		36.2	%		26.1	%
Bio animal feed		83.2	%		—
Other		100.0	%		100.0	%
Overall gross profit %		35.3	%		27.9	%

For the year of 2010, the increase in gross margin percentages related to Laiyang Pear juice concentrate was from 26.2% in the 2009 period to 32.6% in the 2010 and was mainly attributed to an increase in sales price of approximately $191 per metric ton.

Revenues from the sale of apple juice concentrate decreased to $0 for the year ended December 31, 2010 as compared to the revenues from the sale of apple juice concentrate of $6,800,563 in the 2009 comparable period. In connection with the sale of apple juice concentrate, we had a sales contract we signed with an infant food company. This contract was entered into in 2007 and ended in 2009. This infant food customer is a relatively small company and not likely to buy big volume of our apple products in 2010. Since the infant food company will not become our long-term strategic customer, in 2009, we reasonably increased the sales price compared with the other apple juice concentrate customers and accordingly, we were able to recognize a gross profit percentage of 46.3%.

Gross margin percentages related to strawberry juice concentrate was 36.2% for the year of 2010 as compared to 26.1% in the comparable 2009 period. The increase in gross margin was due to a favorably lower of costs paid for strawberries in the 2010 period as compared to 2009 period.

Gross margin percentages related to the sale of bio animal feed was 83.2% for the year of 2010. We began producing and selling bio animal feed in the fourth quarter of 2010. We did not sell bio animal feed in 2009. We are able to recognize a high gross margin from the sale of bio animal feed since we use waste from the production of Laiyang Pear juice concentrate as our main raw material in the production of the bio animal feed.

Gross margin percentages can vary from period to period based on the price of raw materials such as Laiyang pears, apples and strawberries and can also fluctuate based on market conditions such as demand and selling price. We expect gross margins to improve as we become more efficient and since we have begun using Laiyang Pears produced on our pear orchards that we have rights to use for a period of 30 years.

Selling expenses. Selling expenses were $497,056 for the year ended December 31, 2010 as compared to $456,024 for the year ended December 31, 2009, an increase of $41,032 or 9.0%. Selling expenses consisted of the following:

	2010		2009
Compensation and related benefits	$	419,053	$	185,076
Shipping and handling		63,251		151,486
Advertising		14,752		99,622
Other		—		19,840

Total	$	497,056	$	456,024

For the year ended December 31, 2010, compensation and related benefits increased by $233,977 or 126.4% as compared to the 2009 comparable period due to an increase in salaries and related benefits of $58,008 paid to sales staff and an increase in commissions of approximately $175,969 paid on increased revenues. We did not pay commissions in the 2009 period. We expect commission to increase proportionally when sales increase.

	·	For the year ended December 31, 2010, shipping and handling decreased by $88,235 or 58.2%as compared to the 2009 comparable period. Shipping and handling expenses were substantially paid by our customers in the 2010 period and were paid by us in the 2009 period.
	·	For the year ended December 31, 2010, advertising expense decreased by $84,870 or 85.2% as compared to the 2009 comparable period. During the 2009 period, we spent more on advertising and promotions such as additional juice products conferences in order to enhance our visibility during the financial crisis. We had less corresponding expenses in the 2010 period. Accordingly, advertising expenses decreased.

For the year ended December 31, 2010, other expense decreased by $19,840 or 100% as compared to the 2009 comparable period. During the 2010 period, we did not allocate any travel or postage expense to selling expense.

Research and development expenses. For the year ended December 31, 2010, research and development expenses amounted to $147,520 as compared to $1,408,501 for the year ended December 31, 2009, a decrease of $1,260,981 or 89.5%. The decrease was primarily attributable to the timing of services performed pursuant to research and development contracts. On March 1, 2010, we entered into a cooperative R&D contract with the Preclinical Medicine Research Laboratory of Shandong Medicine Academy to develop the applications of immunoregulation and antitumor effects of Laiyang Pear juice concentrate. This R&D project is expected to be completed by early 2012 and the total cost of the project is $732,500 of which we have spent $147,520. In future periods, we expect research and development expenses to fluctuate depending on the nature, timing and costs of third party research and development contracts.

General and administrative expenses. General and administrative expenses amounted to $2,926,450 for the year ended December 31, 2010, as compared to $1,929,938 for the year ended December 31, 2009, an increase of $996,512 or 51.6%. General and administrative expenses consisted of the following:

	2010		2009
Compensation and related benefits	$	1,310,379	$	528,785
Professional fees		378,118		178,784
Depreciation		217,648		209,532
Amortization of land use rights		422,974		547,750
Other		597,331		465,087

Total	$	2,926,450	$	1,929,938

For the year ended December 31, 2010, compensation and related benefits increased by $781,594 or 147.8% as compared to the year ended December 31, 2009. In the 2010 period, we hired our chief financial officer, other administrative and professional staff, and our directors in connection with becoming a public company. Additionally, based on our performance, in 2010, we paid or accrued a discretionary bonus to employees of $662,364 as compared to $381,530 in the 2009 period, an increase of $280,834 or 73.6%.

For the year ended December 31, 2010 and 2009, professional fees consisting of legal fees, accounting fees, internal control consulting services and other fees associated with being a public company, increase by $199,334 or 111.5%. We became public in the fourth quarter of 2009. In 2010, our professional fees increased due to our full year status as a publicly traded company.

For the year ended December 31, 2010, depreciation expense increased by $8,116 or 3.9% as compared to the year ended December 31, 2009.

For the year ended December 31, 2010, amortization of land use rights decreased by $124,776 or 22.8% as compared to the year ended December 31, 2009. Through September 30, 2010, the pear orchards on this land did not produce any pears. Accordingly, for the nine months ended September 30, 2010 and for the year ended December 31, 2009, we included the amortization of the respective land use rights in general and administrative expenses. Effective on October 1, 2010, upon the use of pears from the orchards in the production process, we reflected a portion of amortization of these land use rights in cost of revenues. In 2011, substantially all of the amortization of land use rights related to the pear orchards will be reflected in cost of revenues.

Other general and administrative expenses which consist of entertainment, utilities, office maintenance, travel expenses, pension, miscellaneous taxes, office supplies, filing fees and telephone increased by $132,244 or 28.4% for the year ended December 31, 2010 as compared with the same period in 2009. The increase was primarily attributable to an increase in travel, local accommodation fees, meals and entertainment of $62,388 related to investor road shows, meetings, local hotel and meal expenses incurred in connection with visiting professionals and an increase in fees and related expenses paid in connection with the filing of an application with a senior exchange and other filing fees of approximately $40,000.

Income from operations. For the year ended December 31, 2010, income from operations was $33,721,889, as compared to $19,266,427 for the year ended December 31, 2009, an increase of $14,455,462 or 75.0%.

Other income (expenses). For the year ended December 31, 2010, other income amounted to $66,428 as compared to other expenses of $273,048 for the year ended December 31, 2009. For the years ended December 31, 2010 and 2009, other income (expense) included:

For the year ended December 31, 2010, interest income increased by $71,928 or 115.0%, and related to an increase in funds in interest bearing accounts.

	·	For the year ended December 31, 2010, interest expense decreased by $313,045 or 93.3%. In connection with the acquisition of the net assets of the Company, which occurred in 2004, we assumed a loan payable to a third party related to the original construction of our factory. The loan was non-interest bearing. Since the agreement did not have a stated interest rate, we used an imputed interest rate of interest of 6.12% based on PRC central bank five year and up loan rate effective October 2004. The loan we repaid in full prior to December 31, 2009, and accordingly, we incurred minimal interest expense in the 2010 period.

	·	For the year ended December 31, 2010, loss from foreign currency increased by $45,497, and related to the recording of certain purchases of equipment acquired in foreign currencies.

Income tax expense. Income tax expense increased by $4,634,829, or 118.2%, for the year ended December 31, 2010 as compared to the year ended December 31, 2009 which was primarily attributed to an increase in the current provision for income taxes of $3,679,841 related to an increase in taxable net income generated by our operating entities offset by a decrease in a deferred income tax benefit of $954,988. Prior to 2009, we had recognized, a valuation allowance for those deferred tax assets for which it is more likely than not that realization will not occur. Our deferred tax asset relates to the timing difference from the amortization of imputed interest for financial statement purposes as compared the amortization of the related equipment for tax purposes. Prior to 2009, management believed that the realization of income tax benefits from a timing difference arising from the amortization of imputed interest for financial statement purposes over the period from 2004 to 2009 as compared to the these amortization of the related asset over 20 years for income tax purposes appeared not more than likely due to the Company’s limited operating history, the fact that prior to 2007, the Company had no cooperative agreements for the acquisition of raw materials, and the Company had a limited number of customers. Accordingly, we had provided a 100% valuation allowance on the deferred tax asset benefit to reduce the asset to zero. In 2009, after analysis, management concluded that the realization of the deferred tax asset is probable and accordingly, reversed the valuation allowance and recorded a net deferred income tax benefit of approximately $895,000.

Net income. As a result of the factors described above, our net income for the year ended December 31, 2010 was $25,230,978, or $0.92 per ordinary share (basic and diluted). For the year ended December 31, 2009, we had net income of $15,070,869, or $0.67 per ordinary share (basic and diluted).

Foreign currency translation gain. The functional currency of our subsidiaries operating in the PRC is the Chinese Yuan or Renminbi (“RMB”). The financial statements of our subsidiaries are translated to U.S. dollars using period end rates of exchange for assets and liabilities, and average rates of exchange (for the period) for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations. As a result of these translations, which are a non-cash adjustment, we reported a foreign currency translation gain of $2,449,940 for the year ended December 31, 2010 as compared to $75,088 for the year of 2009. This non-cash gain had the effect of increasing our reported comprehensive income.

Comprehensive income. For the year ended December 31, 2010, comprehensive income of $27,680,918 is derived from the sum of our net income of $25,230,978 plus foreign currency translation gains of $2,449,940.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2011, our balance of cash and cash equivalents was $54,287,373, comparing to $47,670,666 as of December 31, 2010. These funds were located in financial institutions located in China.

Our primary uses of cash have been for the construction of our new factory and warehouse facility, for the purchase of equipment for the new productions lines as discussed below, and for the acquisition of land use rights underlying our new production and office facility and for Laiyang pear orchards. Additionally, we use cash for employee compensation, new product development and working capital. All funds received have been expended in the furtherance of growing the business and establishing brand portfolios. The following trends are reasonably likely to result in a decrease in our liquidity over the near to long term:

An increase in working capital requirements to finance higher level of inventories,

Addition of administrative and sales personnel as the business grows,

Increases in advertising, public relations and sales promotions for existing and new brands as the company expands within existing markets or enters new markets,

Development of new products in the bio-animal feed industry to complement our current products,

The cost of being a public company and the continued increase in costs due to governmental compliance activities, and

Capital expenditures to add production lines and cold storage facilities and for the acquisition of additional land use rights to harvest Laiyang pears.

In September 2010, we added two new production lines: one for the processing of juice concentrate and puree products and one for the processing of bio animal feed as a byproduct of Laiyang Pear juice concentrate and fruit puree products to further diversify our product mix and increase our revenues. We incurred approximately $10,700,000 in costs in connection with the addition of these two production lines. We began using both of these new production lines - one for the processing of juice concentrate and puree products and one for the processing of bio animal feed in September 2010 to produce test and sample batches of product. We began generating revenues from the new production lines in the fourth quarter of 2010. The offering proceeds from the November 2009 private placement, along with the proceeds from operations, were used to fund the above production lines expansion. We currently plan on using net cash provided by operating activities to fund our internal growth and fund an expansion of our distribution channels. In addition to the new productions lines discussed above, we intend to add two additional production lines: one for the processing of juice concentrate and puree products and one for the processing of bio animal feed. We estimated that these two new production lines will cost approximately $20,000,000 and will be paid for from working capital funds and/or from funds from future financing. There are no assurances that we will be able to raise additional funds in the near future.

In connection with the 2010 construction of our new production and storage facility, we obtained certain land use certificates to use the underlying land. In connection with the use of this land use right, in April 2011, we paid approximately $10,100,000 to obtain the respective land use right certificate for a period of 50 years. Additionally, in June 2011, we paid approximately $21,300,000 for the rights to use two Laiyang pear orchards with an area of approximately 511 acres for a period of 30 years.

Cash flows 2011 compared to 2010

Changes in our working capital position for 2011 compared to 2010 are summarized as follows:

	December 31,
	2011		2010			Increase
Current assets	$	69,071,509	$	65,129,410		$	3,942,099
Current liabilities		10,902,144		(13,685,566	)		2,783,422
Working capital	$	58,169,365	$	51,443,844		$	6,725,251

Our working capital increased by $6,725,251 to $58,169,365 at December 31, 2011 from working capital of $51,443,844 at December 31, 2010. This increase in working capital is primarily attributable to:

·	a net increase in cash and restricted cash of approximately $6,616,700 primarily attributable to net cash provided by operating activities of approximately $36,863,000 as described below offset by the use of cash of approximately $32,609,000 to acquire land use rights offset by net cash provided by operating activities of approximately $25,400,000 as described below,
·	a decrease in income taxes payable of approximately $3,355,000.
	Offset by:

·	a decrease in inventories of approximately $1,835,000 from the timing of sales of Laiyang pear inventory,

Our business is highly seasonal, reflecting the harvest season of our primary source fruits during the months from September through February of the following year. Typically, a substantial portion of our revenues are earned during our first, third and fourth quarters. We generally experience lower revenues during our second quarter. Our inventory levels increase during the third and fourth quarter of the year and decrease substantially in the first quarter of the year. Generally, we pay our suppliers during the third and fourth quarters. The impact from the use of cash to secure raw materials and for production during these quarters is lessened by the receipt of cash upon delivery of our products during the production period. Generally we sell the remaining inventory balances during the first quarter on the year and experience a significant decrease in inventory during this quarter. We have not experienced a shortfall in working capital during our production period and we have sufficient working capital on hand to secure our raw materials.

Generally, we receive payment from our customers immediately upon delivery of our products. We have been able to collect our accounts receivable balances at or near the time of delivery. Accordingly, as of December 31, 2011 and 2010, we had no accounts receivable. In the future, we expect to continue to collect payments in advance of delivery.

Cash flows from the Company's operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.

The following summarizes the key components of the Company’s cash flows for the years ended December 31, 2011 and 2010:

	Years Ended December 31,
	2011			2010
Net cash provided by operating activities	$	36,862,854		$	27,746,864
Cash flows used in investing activities	$	(32,609,417	)	$	(9,789,839	)
Cash flows provided by financing activities	$	397,165		$	1,912,260
Effect of exchange rate on cash	$	1,966,105		$	1,227,043
Net increase in cash and cash equivalents	$	6,616,707		$	21,096,328

Net cash flow provided by operating activities was $36,862,854 for year 2011 as compared to $27,746,864 for year 2010, an increase of $9,115,990.

·	Net cash flow provided by operating activities for the year ended December 31, 2011 was mainly due to:

·	net income of $33,727,255 adjusted for the add back of non-cash items such as depreciation of $2,024,401, the amortization of land use rights of $1,390,157, stock-based compensation of $24,000, and deferred income taxes of $63,131, and

·	Changes in operating assets and liabilities consisting primarily of:

§	a decrease in inventories of $2,441,274 attributable to the seasonality factors described above,

§	a decrease in prepaid VAT on purchases of $456,890, and

§	an increase in other taxes payable of $685,069

offset by

§	a decrease in accounts payable of $429,644, and

§	a decrease in income taxes payable of $3,633,861 due to the payment of 2010 and 2011 incomes taxes due.

·	Net cash flow provided by operating activities for the year ended December 31, 2010 was mainly due to:

·	net income of $25,230,978 adjusted for the add back of non-cash items such as depreciation of $1,123,207, the amortization of land use rights of $552,771, stock-based compensation of $24,000, and deferred income taxes of $60,199, and

·	Changes in operating assets and liabilities consisting primarily of:

§	a decrease in inventories of $2,379,039 attributable to the seasonality factors described above,

§	an increase in income taxes payable due to an increase in taxable net income.

Net cash flow used in investing activities was $32,609,417 for year 2011 as compared to $9,789,839 for the year 2010. During year 2011, we used cash of $31,741,453 for the acquisition of land use rights related to our new facility and for Laiyang pear orchards. During year 2010, we used cash of $9,789,839 towards the construction of our new manufacturing facility and for the purchase of property and equipment for our new production lines.

Net cash flow provided by financing activities was $397,165 for year 2011 as compared to $1,912,260 for year 2010. During year 2011, we received operating cash from our restricted cash held in escrow of $397,165. During year 2010, we received operating cash from our restricted cash held in escrow of $1,912,260.

Cash flows 2010 compared to 2009

Changes in our working capital position for 2010 compared to 2009 are summarized as follows:

	December 31,						Increase
	2010			2009			(Decrease)
Current assets	$	65,129,410		$	42,649,780		$	22,479,630
Current liabilities		(13,685,566	)		(6,784,193	)		(6,901,373)
Working capital	$	51,443,844		$	35,865,587		$	15,578,257

Our working capital increased $15,578,257 to $51,443,844 at December 31, 2010 from working capital of $35,865,587 at December 31, 2009. This increase in working capital is primarily attributable to an increase in cash and restricted cash of $19,184,068 generated from operations, an increase in inventories of $2,894,066 attributable to the timing of production and sale of our products and an increase in prepaid VAT on purchases of $364,347 related to VAT paid on equipment purchases that can be used to offset future VAT due offset by an increase in accounts payable of $3,509,900 primarily related to an increase in amounts due to vendors for the purchase of equipment of approximately $2,976,000 and an increase in income taxes payable of approximately $3,689,417.

Our business is highly seasonal, reflecting the harvest season of our primary source fruits during the months from June through February of the following year. Typically, a substantial portion of our revenues are earned during our first, third and fourth quarters. We generally experience lower revenues during our second quarter. Our inventory levels increase during the third and fourth quarter of the year and decrease substantially in the first quarter of the year. Generally, we pay our suppliers during the third and fourth quarters. The impact from the use of cash to secure raw materials and for production during these quarters is lessened by the receipt of cash upon delivery of our products during the production period. Generally we sell the remaining inventory balances during the first quarter on the year and experience a significant decrease in inventory during this quarter. We have not experienced a shortfall in working capital during our production period and we have sufficient working capital on hand to secure our raw materials.

During 2010, we received payment upon delivery of our products. We have been able to collect our accounts receivable balances in advance of the delivery. Accordingly, as of December 31, 2010 and 2009, we had no accounts receivable. In the future, we expect to continue to collect payments in advance of delivery.

The following summarizes the key components of the Company’s cash flows for the years ended December 31, 2010 and 2009:

	Years Ended December 31,
	2010			2009
Net cash provided by operating activities	$	27,746,863		$	27,500,838
Cash flows used in investing activities	$	(9,789,839	)	$	(863,047	)
Cash flows provided by (used in) financing activities	$	1,912,260		$	(2,097,174	)
Effect of exchange rate on cash	$	1,227,044		$	4,863
Net increase (decrease) in cash and cash equivalents	$	21,096,328		$	24,545,480

Net cash flow provided by operating activities was $27,746,863 for the year ended December 31, 2010 as compared to net cash flow provided by operating activities of $27,500,838 for the year ended December 31, 2009, an increase of $246,025.

Net cash flow provided by operating activities for the year ended December 31, 2010 was mainly due to:

net income of $25,230,978 adjusted for the add back of non-cash items such as depreciation of $1,123,207, the amortization of land use rights of $552,771, stock-based compensation of $24,000, and deferred income taxes of $60,199, and

Changes in operating assets and liabilities consisting primarily of:

			§	a decrease in inventories of $2,379,039 attributable to the seasonality factors described above,
			§	an increase in income taxes payable due to an increase in taxable net income.

Net cash flow provided by operating activities for the year ended December 31, 2009 was mainly due to:

net income of $15,070,869 adjusted for the add back (deduction) of non-cash items such as depreciation of $948,579, the amortization of land use rights of $547,750 and deferred income taxes of $(894,789),

Changes in operating assets and liabilities consisting primarily of:

offset by

a decrease in accounts payable of $512,258.

Net cash flow used in investing activities was $9,789,839 for the year ended December 31, 2010 as compared to net cash used in investing activities of $863,047 for the year ended December 31, 2009. During the year ended December 31, 2010 and 2009, we used cash of $9,789,839 and $863,047 towards the construction of our new manufacturing facility and for the purchase of property and equipment for our new production lines.

Net cash flow provided by financing activities was $1,912,260 for the year ended December 31, 2010 as compared to net cash flow used in financing activities of $2,097,174 for the year ended December 31, 2009. During the year ended December 31, 2010, we received operating cash from our restricted cash held in escrow of $1,912,260. During the year ended December 31, 2009, we received gross proceeds from the sale of ordinary shares of $17,011,014 and proceeds from subscription receivable of $50,000 and we used cash to increase restricted cash balance by $2,587,917, we used cash for the repayment of loans of $13,808,178, the payment of offering costs of $1,909,936 and the payment of acquisition payables of $852,157.

We currently generate cash flow from our operating activities which we believe will be sufficient to sustain current level of operations for at least the next twelve months.

Contractual Obligations

The following tables summarize our contractual obligations as of December 31, 2011 and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

	Payments Due by Period
	Total		Less Than 1 Year		1-3 Years		3-5 Years		5 Years +
Contractual Obligations:
Equipment purchase payments due (1)	$	2,945,000	$	2,945,000	$	-	$	-	$	-
Total Contractual Obligations:	$	2,945,000	$	2,945,000	$	-	$	-	$	-

(1)	Represents amounts due for equipment acquired and installed at September 30, 2011 which is included in accounts payable.

OFF-BALANCE SHEET ARRANGEMENTS

There are no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rate Risk

Changes in interest rates may affect the interest paid (or earned) and therefore affect our cash flows and results of operations. However, we do not believe that this interest rate change risk is significant.

Inflation

Inflation in China has not materially impacted our results of operations. According to the National Bureau of Statistics of China, the consumer price index in China rose 4.8% and 5.9% in 2007 and 2008, decreased by 0.7% in 2009, and increased by 3.3% in 2010. In 2011, the consumer price index increased by 4.1% as compared to 2010. Although we have not in the past been materially affected by inflation, we may be affected in the future by higher rates of inflation in China. For example, certain operating costs and expenses, such as personnel expenses, travel expenses and office operating expenses may increase as a result of higher inflation. Additionally, because a substantial portion of our assets consists of cash and cash equivalents, high inflation could significantly reduce the value and purchasing power of these assets. Inflation has not had a material impact on the Company’s business for the Company’s three most recent fiscal years.

Currency Exchange Fluctuations

All of the Company’s revenues are denominated in Chinese Renminbi, while its expenses are denominated primarily in Chinese Renminbi (“RMB”). The value of the RMB-to-U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. Since 1994, the conversion of Renminbi into foreign currencies, including U.S. dollars, has been based on rates set by the People’s Bank of China (“PBOC”), which are set daily based on the previous day’s inter-bank foreign exchange market rates and current exchange rates on the world financial markets. Since 1994, the official exchange rate for the conversion of Renminbi to U.S. dollars had generally been stable and the Renminbi had appreciated slightly against the U.S. dollar. However, on July 21, 2005, the Chinese government changed its policy of pegging the value of Chinese Renminbi to the U.S. dollar. Under the new policy, Chinese Renminbi may fluctuate within a narrow and managed band against a basket of certain foreign currencies. Recently there has been increased political pressure on the Chinese government to decouple the Renminbi from the United States dollar. At the recent quarterly regular meeting of PBOC, its Currency Policy Committee affirmed the effects of the reform on Chinese Renminbi exchange rate. Since February 2006, the new currency rate system has been operated; the currency rate of Renminbi has become more flexible while basically maintaining stable and the expectation for a larger appreciation range is shrinking. The Company has never engaged in currency hedging operations and has no present intention to do so.

Country Risk

A substantial portion of our assets and operations are located and conducted in China. While the PRC economy has experienced significant growth in the past twenty years, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall economy of China, but may also have a negative effect on us. For example, our operating results and financial condition may be adversely affected by government control over capital investments or changes in tax regulations applicable to us. If there are any changes in any policies by the Chinese government and our business is negatively affected as a result, then our financial results, including our ability to generate revenue and profits, will also be negatively affected.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Report of Independent Registered Public Accounting Firm		F-2

Consolidated Financial Statements:

Consolidated Balance Sheets – As of December 31, 2011 and 2010		F-3

Consolidated Statements of Income and Comprehensive Income – For the Years ended December 31, 2011, 2010 and 2009		F-4

Consolidated Statements of Changes in Shareholders’ Equity – For the Years Ended December 31, 2011, 2010 and 2009		F-5

Consolidated Statements of Cash Flows – For the Years ended December 31, 2011, 2010 and 2009		F-6

Notes to Consolidated Financial Statements	F-7 to F-22

	December 31,
	2011		2010

ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	54,287,373	$	47,670,666
Cash - restricted		278,491		675,656
Inventories, net of reserve for obsolete inventory		14,404,724		16,239,577
Prepaid VAT on purchases		-		446,677
Prepaid expenses and other		36,743		35,115
Deferred income taxes		64,178		61,719

Total Current Assets		69,071,509		65,129,410

PROPERTY AND EQUIPMENT, net		19,190,976		19,586,350

OTHER ASSETS:
Land use rights, net		47,233,084		15,750,747
Deferred income taxes - net of current portion		770,137		802,352
Total Assets	$	136,265,706	$	101,268,859

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable	$	3,766,785	$	4,050,730
Accrued expenses		1,212,067		1,055,593
Income taxes payable		5,154,135		8,509,308
VAT and other taxes payable		769,157		69,935
Total Current Liabilities		10,902,144		13,685,566

COMMITMENT

SHAREHOLDERS' EQUITY:
Preference shares ($0.001 par value; 1,000,000 shares authorized,
none issued and outstanding at December 31, 2011 and 2010)		-		-
Ordinary shares ($0.001 par value; 50,000,000 shares authorized, 27,509,171 and 27,499,171
shares issued and outstanding at December 31, 2011 and 2010, respectively)		27,509		27,499
Additional paid-in capital		16,385,297		16,355,307
Retained earnings		94,250,679		62,385,882
Statutory and non-statutory reserves		5,738,192		3,875,734
Accumulated other comprehensive income - cumulative foreign currency translation adjustment		8,961,885		4,938,871
Total Shareholders' Equity		125,363,562		87,583,293
Total Liabilities and Shareholders' Equity	$	136,265,706	$	101,268,859

	Ordinary Shares				Additional									Statutory and		Accumulated Other		Total
	Number of				Paid-in			Subscription			Retained			Non-Statutory		Comprehensive		Shareholders'
	Shares		Amount		Capital			Receivable			Earnings			Reserves		Income		Equity

Balance, December 31, 2008		21,333,332	$	21,333	$	1,236,396		$	(50,000	)	$	23,009,955		$	2,949,814	$	2,413,843	$	29,581,341

Reorganization of Company		487,500		488		(488	)		50,000			-			-		-		50,000

Sale of ordinary shares		5,670,339		5,671		17,005,343			-			-			-		-		17,011,014

Offering costs		-		-		(1,909,936	)		-			-			-		-		(1,909,936	)

Comprehensive income:
Net income for the year		-		-		-			-			15,070,869			-		-		15,070,869

Foreign currency translation adjustment		-		-		-			-			-			-		75,088		75,088

Total comprehensive income		-		-		-			-			-			-		-		15,145,957

Balance, December 31, 2009		27,491,171		27,492		16,331,315			-			38,080,824			2,949,814		2,488,931		59,878,376

Common stock issued for services		8,000		7		23,992			-			-			-		-		23,999

Adjustment to statutory and non-statutory reserves		-		-		-			-			(925,920	)		925,920		-		-

Comprehensive income:
Net income for the year		-		-		-			-			25,230,978			-		-		25,230,978

Foreign currency translation adjustment		-		-		-			-			-			-		2,449,940		2,449,940

Total comprehensive income		-		-		-			-			-			-		-		27,680,918

Balance, December 31, 2010		27,499,171		27,499		16,355,307			-			62,385,882			3,875,734		4,938,871		87,583,293

Common stock issued for services		10,000		10		29,990			-			-			-		-		30,000

Adjustment to statutory and non-statutory reserves		-		-		-			-			(1,862,458	)		1,862,458		-		-

Comprehensive income:
Net income for the year		-		-		-			-			33,727,255			-		-		33,727,255

Foreign currency translation adjustment		-		-		-			-			-			-		4,023,014		4,023,014

Total comprehensive income		-		-		-			-			-			-		-		37,750,269

Balance, December 31, 2011		27,509,171	$	27,509	$	16,385,297		$	-		$	94,250,679		$	5,738,192	$	8,961,885	$	125,363,562

	2011		2010		2009
Warrants		3,402,212		3,402,212		3,402,212
Total		3,402,212		3,402,212		3,402,212

	2011			2010
Raw materials	$	112,285		$	108,930
Finished goods		14,392,031			16,226,424
		14,504,316			16,335,354
Less: reserve for obsolete inventory		(99,592	)		(95,777	)
	$	14,404,724		$	16,239,577

	For the Years Ended December 31,
	2011			2010			2009

NET REVENUES	$	136,989,496		$	105,543,798		$	82,627,335

COST OF SALES		87,219,925			68,250,883			59,566,445

GROSS PROFIT		49,769,571			37,292,915			23,060,890

OPERATING EXPENSES:
Selling		538,427			497,056			456,024
Research and development		618,812			147,520			1,408,501
General and administrative		3,751,196			2,926,450			1,929,938

Total Operating Expenses		4,908,435			3,571,026			3,794,463

INCOME FROM OPERATIONS		44,861,136			33,721,889			19,266,427

OTHER INCOME (EXPENSE):
Interest income		246,024			134,440			62,512
Interest expense		-			(22,515	)		(335,560	)
Loss from foreign currency		(4,829	)		(45,497	)		-

Total Other Income (Expense)		241,195			66,428			(273,048	)

INCOME BEFORE PROVISION FOR INCOME TAXES		45,102,331			33,788,317			18,993,379

PROVISION FOR FROM INCOME TAXES:
Current		(11,311,945	)		(8,497,140	)		(4,817,299	)
Deferred		(63,131	)		(60,199	)		894,789

Total Provision for Income Taxes		(11,375,076	)		(8,557,339	)		(3,922,510	)

NET INCOME	$	33,727,255		$	25,230,978		$	15,070,869

COMPREHENSIVE INCOME:
NET INCOME	$	33,727,255		$	25,230,978		$	15,070,869

OTHER COMPREHENSIVE INCOME:
Unrealized foreign currency translation gain		4,023,014			2,449,940			75,088

COMPREHENSIVE INCOME	$	37,750,269		$	27,680,918		$	15,145,957

NET INCOME PER ORDINARY SHARE:
Basic	$	1.23		$	0.92		$	0.67
Diluted	$	1.23		$	0.92		$	0.67

WEIGHTED AVERAGE ORDINARY SHARES OUTSTANDING:
Basic		27,504,544			27,496,519			22,495,050
Diluted		27,504,544			27,496,519			22,495,050

	December 31, 2011				December 31, 2010
Country:
China	$	54,287,373	100.0	%	$	47,670,666	100.0	%
Total cash and cash equivalents	$	54,287,373	100.0	%	$	47,670,666	100.0	%

	Useful Life (Years)		2011			2010
Office equipment and furniture		10	$	135,117		$	126,235
Manufacturing equipment		10		16,358,911			15,662,571
Vehicles		10		144,830			139,281
Construction in progress		-		806,890			90,274
Building and building improvements		10-20		10,077,467			9,601,870
				27,523,215			25,620,231
Less: accumulated depreciation				(8,332,239	)		(6,033,881	)
			$	19,190,976		$	19,586,350

Years ending December 31:
2012	$	1,527,189
2013		1,527,189
2014		1,527,189
2015		1,527,189
2016		1,527,189
Thereafter		39,597,139
	$	47,233,084

	2011		2010
Accrued payroll and employees benefit	$	1,094,414	$	924,459
Other		117,653		131,134
	$	1,212,067	$	1,055,593

	Year Ended December 31, 2011				Year Ended December 31, 2010				Year Ended December 31, 2009
	Number of Warrants		Weighted Average Exercise Price		Number of Warrants		Weighted Average Exercise Price		Number of Warrants		Weighted Average Exercise Price
Balance at beginning of year		3,402,212	$	6.00		3,402,212	$	6.00		-		-
Granted		-		-		-		-		3,402,212		6.00
Exercised		-		-		-		-		-		-
Forfeited		-		-		-		-		-		-
Balance at end of year		3,402,212	$	6.00		3,402,212	$	6.00		3,402,212		6.00

Warrants exercisable at end of year		3,402,212	$	6.00		3,402,212	$	6.00		3,402,212		6.00

		Warrants Outstanding						Warrants Exercisable
	Range of Exercise Price	Number Outstanding at December 31, 2011		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable at December 31, 2011		Weighted Average Exercise Price
$	6.00		3,402,212		2.82	$	6.00		3,402,212	$	6.00

	Percentage of total revenues
Customer	2011			2010			2009
1		10.0	%		11.9	%		13.0	%
2		10.4	%		13.6	%		15.7	%
3		9.2	%		12.3	%		12.8	%
4		12.2	%		15.5	%		17.0	%
5		10.7	%		11.9	%		13.2	%
6		10.8	%		12.7	%		14.2	%
7		11.1	%		12.5	%		13.9	%

	Statutory		Non-Statutory		Total
Balance – December 31, 2008	$	622,823	$	2,326,991	$	2,949,814
Addition to reserves		-		-		-
Balance – December 31, 2009		622,823	$	2,326,991		2,949,814
Addition to reserves		617,279		308,641		925,920
Balance – December 31, 2010		1,240,102		2,635,632		3,875,734
Addition to reserves		1,241,639		620,819		1,862,458
Balance – December 31, 2011	$	2,481,741	$	3,256,451	$	5,738,192

ORIENTAL DRAGON CORPORATION CONSOLIDATED PARENT COMPANY BALANCE SHEETS

	As of December 31,
	2011		2010
ASSETS
Cash and cash equivalents	$	95,410	$	996,143
Cash – restricted		278,491		675,656
Prepaid expenses and other		2,000		5,000
Total Current Assets		375,901		1,676,799
Investments in subsidiaries at equity		125,080,687		86,032,447
Total Assets	$	125,456,588	$	87,709,246

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	93,026	$	125,953
Total Current Liabilities		93,026		125,953

Shareholders' equity:
Ordinary shares ($0.001 par value; 50,000,000 shares authorized, 27,509,171 and 27,499,171 shares issued and outstanding at December 31, 2011 and 2010, respectively)		27,509		27,499
Additional paid-in capital		16,385,297		16,355,307
Statutory reserve		5,738,192		3,875,734
Retained earnings		94,250,679		62,385,882
Accumulated other comprehensive income		8,961,885		4,938,871
Total Shareholders' Equity		125,363,562		87,583,293
Total Liabilities and Shareholders' Equity	$	125,456,588	$	87,709,246

ORIENTAL DRAGON CORPORATION
CONSOLIDATED PARENT COMPANY STATEMENTS OF INCOME

	For the Years Ended December 31,
	2011			2010			2009
REVENUES	$	-		$	-		$	-

OPERATING EXPENSES:
General and administrative		397,971			445,370			178,861
Total Operating Expenses		397,971			445,370			178,861

LOSS FROM OPERATIONS		(397,971	)		(445,370	)		(178,861	)

LOSS ATTRIBUTABLE TO PARENT ONLY		(397,971	)		(445,370	)		(445,370	)

EQUITY INCOME EARNINGS OF SUBSIDIARIES		34,125,226			25,676,348			15,249,730

NET INCOME	$	33,727,255		$	25,230,978		$	15,070,869

NAME	AGE	POSITION	Date of Appointment
Zhide Jiang	53	President, Chief Executive Officer and Chairman of the Board of Directors	October 22, 2009
Adam Wasserman	47	Chief Financial Officer	June 22, 2010
Lili Jiang	33	Director	May 28, 2010

Name and Principal Position	Year Ended December 31	Salary ($)		Bonus ($)		Stock Awards ($)		Option Awards ($)		Non-Equity Incentive Plan Compensation Earnings ($)		Non- Qualified Deferred Compensation Earnings ($)		All Other Compensation ($)		Total ($)
Zhide Jiang,
President, CEO and	2009		4,768		0		0		0		0		0		0		4,768
Director (1)	2010		166,950		0		0		0		0		0		0		166,950
	2011		185,390		0		0		0		0		0		0		185,390

Adam Wasserman, CFO (2)	2009		0		0		12,000		0		0		0		6,000		18,000
	2010		30,600		0		18,000		0		0		0		18,000		66,600
	2011		60,000		0		24,000		0		0		0		0		84,000

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
Barry Shapiro (1)	20,000	-	-	-	20,000
Chengrong Wang (1)	11,250	-	-	-	11,250
Maosen Sui (1)	7,500	-	-	-	7,500
Lili Jiang	-	-	-	-	-

Name and Address of Beneficial Owner (1)(2)	Title	Shares of Common Stock Beneficially Owned			Percent of Class Beneficially Owned (3)

Directors and Executive Officers
Zhide Jiang (4) No. 48 South Qingshui Road Laiyang City, Shandong 265200 People’s Republic of China	President, Chief Executive Officer and Chairman of the Board of Directors		11,306,666			41.1	%

Adam Wasserman (7) 1643 Royal Grove Way Weston, FL 33327	Chief Financial Officer		20,500			*

Lili Jiang No. 48 South Qingshui Road Laiyang City, Shandong 265200 People’s Republic of China	Director		-			-

Officers and Directors as a Group (a total of 3 persons)			11,327,166			41.1	%

5% Owners
Access America Fund LP (5) 11200 Westheimer #508 Houston TX 77042			2,114,004			7.68	%

Chen Han Qing (6) 40 Hao Tai Hu Hong Qiao Hua Yuan Wuxi City, Jiangsu Province, 241000, PRC			1,500,000	(4)		5.45	%

	(A)	Any of our directors or officers;

	(B)	Any proposed nominee for election as our director;

	(C)	Any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to our ordinary shares; or

	(D)	Any relative or spouse of any of the foregoing persons, or any relative of such spouse, who has the same house as such person or who is a director or officer of any parent or subsidiary of our company.

Report of Independent Registered Public Accounting Firm— Sherb & Co., LLP		F-2
Consolidated Balance Sheets		F-3
Consolidated Statements of Income and Comprehensive Income		F-4
Consolidated Statements of Shareholders' Equity		F-5
Consolidated Statements of Cash Flows		F-6
Notes to Consolidated Financial Statements		F-7 to F-22

Exhibit No.		Description
2.1		Share Exchange Agreement by and between the Company and Merit Times International Limited, dated October 22, 2009 (2)
3.1		Memorandum of Association (1)
3.2		Amended and Restated Memorandum of Association (1)
3.3		Articles of Association (1)
3.4		Certificate of Incorporation on Change of Name (9)
4.1		Form of Warrant (2)
10.1		Consulting Services Agreement, dated December 20, 2010 (12)
10.2		Operating Agreement, dated December 20, 2010 (12)
10.3		Proxy Agreement, dated December 20, 2010 (12)
10.4		Option Agreement, dated December 20, 2010 (12)
10.5		Option Agreement, dated August 5, 2009 (2)

10.6		Equity Pledge Agreement, dated December 20, 2010 (12)
10.7		Fund Escrow Agreement, amongst the Company, Grandview Capital, Inc., Access America Fund, LP and American Stock Transfer & Trust Company as escrow agent, dated October 22, 2009 (2)
10.8		Investor Relations Escrow Agreement, amongst the Company, Grandview Capital, Inc., Access America Fund, LP and Anslow & Jaclin, LLP as escrow agent, dated October 22, 2009 (2)
10.9		Holdback Escrow Agreement, amongst the Company, Grandview Capital, Inc., Access America Fund, LP and Anslow & Jaclin, LLP as escrow agent, dated October 22, 2009 (2)
10.10		Going Public Escrow Agreement, amongst the Company, Grandview Capital, Inc., Access America Fund, LP and Anslow & Jaclin, LLP as escrow agent, dated October 22, 2009 (4)
10.11		Make Good Escrow Agreement, amongst the Company, Make Good Shareholder, Access America Fund, LP and Anslow & Jaclin, LLP as escrow agent, dated October 22, 2009 (4)
10.12		Lock-Up Agreement, by and between the Company and Lockup Stockholder, dated October 22, 2009 (2)
10.13		Translation of Land Lease with Yejiabo Village, Zhaowangzhuang Town of Laiyang City (4)
10.14		Translation of Land Lease with Dongwulong Village, Zhaowangzhuang Town of Laiyang City (4)
10.15		Translation of Land Lease with JiadianVillage, Bolinzhuang Town of Laiyang City (4)
10.16		Translation of Land Lease with Beixiaoping Village, Bolinzhuang Town of Laiyang City (4)
10.17		Translation of Land Lease with Zhaojiabuzi Village, Heluo Town of Laiyang City (4)
10.18		Translation of Land Lease with Luergang Village, Zhaowangzhuang Town of Laiyang City (4)
10.19		Translation of sales agreement with Shandong Zhanhua Haohua Fruit Juice Co., Ltd. (4)
10.20		Translation of sales agreement with Qingdao Dongxu Xinshen Trading Co. (4)
10.21		Translation of sales agreement with Yantai Jinyuan Food Co., Ltd. (4)
10.22		Translation of Cooperative Agreement – Contract of Orchard Contracting and Management (4)
10.23		Translation of Cooperative Agreement (4)
10.24		Employment Agreement between the Company and Larry X. Chin (5)
10.25		Construction contract dated December 25, 2009 (6)
10.26		Employment Agreement with Adam Wasserman (7)
10.27		Patent Licensing Agreement with Zhide Jiang (7)
10.28		Director Agreement with Mr. Barry Shapiro (8)
10.29		Director Agreement with Mr. Chengrong Wang (8)
10.30		Director Agreement with Mr. Maosen Cui (8)
10.31		Orchard contracting and transferring contract – Zhaojiabuzi village (13)
10.32		Orchard contracting and transferring contract – Beixiaooing village (13)
10.33		Land use rights transfer contract (13)
14.1		Code of Business Conduct and Ethics (12)
21.1		List of subsidiaries of the Registrant (3)
31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
32.1		Certification of Principal Executive Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **
32.2		Certification of Principal Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **
99.1		Translation of Exclusive producer license from Laiyang city government (4)
99.2		Translation of 2006 – 2008 China’s Fruit Processing Industry Report issued by Beijing Business & Intelligence Consulting Co. Ltd. (“BBIC report”) (11)
99.3		Translation of Scientific and Technological Achievement Certificate - Technology Research and Applications of Laiyang Pear Juice Concentrate’s Effective Health and Medical Functions (10)
99.4		Translation of Scientific and Technological Achievement Certificate - Production of Bio Animal Feed from Fermented Fruit and Vegetable Wastes (10)
99.5		Translation of Industry Analysis Report of China Laiyang Pear Related Products issued by Beijing Zongheng Economy Research Institute (“Industry Analysis Report”) (10)
99.6		Translation of The Forecasting and Analysis Report of the Market and Investment Opportunities of China Fruit Juice Industry issued by China Economy Research Associates (“CERA report”) (10)
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Schema
101.CAL		XBRL Taxonomy Calculation Linkbase
101.DEF		XBRL Taxonomy Definition Linkbase
101.LAB		XBRL Taxonomy Label Linkbase
101.PRE		XBRL Taxonomy Presentation Linkbase

	(1)	Incorporated herein by reference to the Form 10 Registration Statement filed on July 14, 2006.
	(2)	Incorporated herein by reference to the current report on Form 8-K filed on October 27, 2009.
	(3)	Incorporated herein by reference to the registration statement on Form S-1 filed on November 20, 2009.
	(4)	Incorporated herein by reference to the registration statement on Form S-1/A filed on January 20, 2010.
	(5)	Incorporated herein by reference to the current report on Form 8-K filed on January 28, 2010.
	(6)	Incorporated herein by reference to the annual report on Form 10-K filed on March 31, 2010.
	(7)	Incorporated herein by reference to the registration statement on Form S-1/A filed on July 7, 2010.
	(8)	Incorporated herein by reference to the current report on Form 8-K filed on August 5, 2010
	(9)	Incorporated herein by reference to the current report on Form 8-K filed on September 8, 2010
	(10)	Incorporated herein by reference to the registration statement on Form S-1/A filed on September 24, 2010.
	(11)	Incorporated herein by reference to the registration statement on Form S-1/A filed on November 2, 2010.
	(12)	Incorporated herein by reference to the annual report on 10-K filed on March 31, 2011.
	(13)	Incorporated herein by reference to the quarterly report on Form 10-Q filed on August 15, 2011.
	*	Filed herein.
	**	Furnished herewith (in accordance with SEC Release 33-8238, this exhibit is being furnished and not filed).

	ORIENTAL DRAGON CORPORATION

Date: March 30, 2012	By:	/s/ Zhide Jiang
		Zhide Jiang
		President and Chief Executive Officer (Duly Authorized Officer and Principal Executive Officer)

Date: March 30, 2012	By:	/s/ Adam Wasserman
		Adam Wasserman
		Chief Financial Officer
		(Duly Authorized Officer and Principal Financial Officer)

Name	Title	Date

/s/ Zhide Jiang	President, Chief Executive Officer and	March 30, 2012
Zhide Jiang	Chairman of the Board of Directors (Principal Executive Officer)

/s/ Adam Wasserman	Chief Financial Officer and	March 30, 2012
Adam Wasserman	Principal Accounting Officer (Principal Financial Officer)

/s/ Lili Jiang	Director	March 30, 2012
Lili Jiang