SMSA Treemont Acquisition Corp 10-Q

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2011


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: 0-54096

SMSA Treemont Acquisition Corp.

(Exact name of registrant as specified in charter)



Nevada		27-2969090

(State of incorporation)		(IRS Employer Identification No.)

Ruixing Industry Park
Dongping County
Shandong Province, 271509
People’s Republic of China
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: 86-538-241-7858

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 þ 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 þ NO o

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


Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ

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

State the number of shares outstanding of each of the issuer’s classes of common equity as of the latest practicable date: September 30, 2011: 13,294,500

Transitional Small Business Disclosure Format (check one): YES o NO þ

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	ITEM 1. INDEPENDENT AUDITORS’ REPORT
		CONDENSED CONSOLIDATED BALANCE SHEET
		CONDENSED CONSOLIDATED INCOME STATEMENT
		CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
		CONDENSED CONSOLIDATED CASH FLOW STATEMENT
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 3. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 4. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 5. CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	ITEM 4. (REMOVED AND RESERVED)
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS
		SIGNATURES
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION


ITEM 1.		INDEPENDENT AUDITORS’ REPORT

INDEPENDENT AUDITORS’ REPORT

Board of Directors and Shareholders of
SMSA TREEMONT ACQUISITION CORP.

We have reviewed the accompanying consolidated balance sheet of SMSA Treemont Acquisition Corp. (the “Company”) and its subsidiaries (the “Group”) as of 30 September 2011 and the related consolidated income statement and cash flow statement for the nine-month period then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these consolidated financial statements is the representation of the management of the Group.

A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements in order for them to be in conformity with generally accepted accounting principles.

BDO China Shu Lun Pan Certified Public Accountants LLP
Shanghai, China
14 October 2011

SMSA TREEMONT ACQUISITION CORP.

CONDENSED CONSOLIDATED BALANCE SHEET

(UNAUDITED)


		30 SEPTEMBER		31 DECEMBER
	Notes	2011		2010
		US$		US$
ASSETS

Current Assets
Cash			745,631		6,634,012
Restricted Cash			3,933,972		226,494
Notes receivable	3		2,502,006		2,236,468
Accounts receivable, net	3		1,070,313		255,870
Inventories, net			4,149,579		1,954,879
Advances to third party suppliers			2,713,068		907,796
Other receivables			271,986		104,681
VAT taxes refundable			464,604		—
Deferred tax assets	7		276,432		265,254


Total Current Assets			16,127,591		12,585,454


Non-current Assets
Property, plant and equipment, net	4		12,664,150		2,973,276
Land use rights, net	5		2,499,584		2,542,749


Total Non-current Assets			15,163,734		5,516,025


TOTAL ASSETS			31,291,325		18,101,479

The accompanying notes are integral part of the financial statements.

SMSA TREEMONT ACQUISITION CORP.
CONDENSED CONSOLIDATED BALANCE SHEET (continued)
(UNAUDITED)


		30 SEPTEMBER			31 DECEMBER
	Notes	2011			2010
		US$			US$
LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities
Short-term bank borrowings	6		11,565,878			8,078,276
Accounts payable to third parties			2,413,681			827,993
Notes payable			6,294,355			—
Advance from third party customers			623,850			167,704
Payroll and welfare payable			35,262			19,305
Accrued expenses			213,897			106,179
Amounts due to related parties	11		215,337			2,249,526
Income tax payable	7		478,769			150,218
VAT tax payable			—			859,128
Miscellaneous taxes payable	8		30,130			88,937
Other payables to third parties	9		100,688			205,481


Total Current Liabilities			21,971,847			12,752,747


Non-current liabilities
Deferred tax liabilities	7		99,563			172,363


Total Non-current Liabilities			99,563			172,363


Total Liabilities			22,071,410			12,925,110


Shareholders’ Equity
Common stock, $.0001 par value, 13,294,500 shares authorized, issued and outstanding			13,295			12,895
Additional paid-in capital			2,440,323			2,416,446
Statutory reserves	10		1,189,484			522,591
Accumulated other comprehensive income			(571,692	)		(427,019	)
Retained earnings			6,148,505			2,651,456


Total Shareholders’ Equity			9,219,915			5,176,369


TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY			31,291,325			18,101,479

The accompanying notes are integral part of the financial statements.

SMSA TREEMONT ACQUISITION CORP.

CONDENSED CONSOLIDATED INCOME STATEMENT
(UNAUDITED)


		THREE MONTHS ENDED						NINE MONTHS ENDED
		30 SEPTEMBER						30 SEPTEMBER
	Notes	2011			2010			2011		2010
		US$			US$			US$		US$
Revenues
Cornstarch			17,709,011			8,204,538			47,432,809		23,619,326
Glucose			3,577,417			2,706,725			9,395,846		6,965,949
Others			88,164			25,982			177,010		78,376

Total Revenues			21,374,592			10,937,245			57,005,665		30,663,651

Cost of Sales
Cornstarch			15,913,714			7,668,105			41,785,639		21,152,713
Glucose			2,912,832			2,286,621			7,312,627		5,877,754
Others			2,672			2,511			91,964		46,402

Total Cost of Sales			18,829,218			9,957,237			49,190,230		27,076,869


Gross Profit			2,545,374			980,008			7,815,435		3,586,782


Operating expenses
Selling and distribution			415,074			244,703			956,457		751,519
General and administrative			132,200			42,021			620,214		160,724


Total Operating Expenses			547,274			286,724			1,576,671		912,243


Interest income			2,668			14,707			5,012		22,036
Interest expenses			270,504			133,828			669,023		273,483
Other expenses, net			(100,255	)		(147,547	)		21,449		(133,910	)


Income Before Income Tax Expenses	7		1,830,519			721,710			5,553,304		2,557,002


Income tax expenses	7		438,058			154,012			1,389,362		635,622


NET INCOME			1,392,461			567,698			4,163,942		1,921,380


Basic and diluted weighted average shares outstanding			13,294,500			12,814,500			13,904,500		12,894,500
Basic net earnings per share			0.1			0.04			0.3		0.15

The accompanying notes are integral part of the financial statements.

SMSA TREEMONT ACQUISITION CORP.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(UNAUDITED)


										Accumulated
										other			Total
	Common		Additional		Statutory		Retained			comprehensive			shareholders’
	Stock		Paid-incapital		reserves		earnings			loss			equity
	US$		US$		US$		US$			US$			US$
	(Note 1)

Balance at 31 December 2010		12,895		2,416,446		522,591		2,651,456			(427,019	)		5,176,369

Net income		—		—		—		4,163,942			—			4,163,942
Foreign currency translation adjustment		—		—		—		—			(144,673	)		(144,673	)

Total comprehensive income		—		—		—		4,163,942			(144,673	)		4,019,269

New shares issued		400		—		—		—			—			400
Appropriation of statutory reserve		—		—		666,893		(666,893	)		—			—
Contribution from shareholders				23,877		—		—			—			23,877


Balance at 30 September 2011		13,295		2,440,323		1,189,484		6,148,505			(571,692	)		9,219,915

The accompanying notes are integral part of the financial statements.

SMSA TREEMONT ACQUISITION CORP.

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

(UNAUDITED)


	NINE MONTHS ENDED
	30 SEPTEMBER
	2011			2010
	US$			US$
CASH FLOWS FROM OPERATING ACTIVITIES

Net income		4,163,942			1,921,380

Adjustment to reconcile net income to net cash provided by operating activities

Depreciation of property, plant and equipment		463,674			559,615
Amortization of land use rights		43,165			46,308
Gain from disposals of fixed assets and other		3,504

Changes in operating assets and liabilities

Accounts receivable to third parties		(814,443	)		(3,010,274	)
Notes receivable		(265,539	)		110,224
Advances to third party suppliers, net		(1,805,272	)		31,838
Other receivables		(167,305	)		(1,486,313	)
Amounts due from related parties		—			(1,585,985	)
Inventories		(2,194,700	)		221,948
Accounts payable to third parties		1,585,688			(551,673	)
Notes payable		6,294,355			(2,196,772	)
Income tax payable		328,551			818,374
VAT tax payable		(1,323,732	)		996,635
Miscellaneous taxes payable		(58,807	)		14,364
Advances from third party customers		456,146			130,149
Payroll and welfare payable		15,957			—
Other payables to third parties		(104,793	)		326,412
Amounts due to related parties		(2,034,189	)		(129,174	)
Accrued expenses		107,718			93,713
Deferred tax assets		(11,178	)		9,402
Deferred tax liabilities		(72,800	)		(44,188	)


Net cash provided by /(used in) operating activities		4,609,942			(3,724,017	)

The accompanying notes are integral part of the financial statements.

SMSA TREEMONT ACQUISITION CORP.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT (continued)
(UNAUDITED)


	NINE MONTHS ENDED
	30 SEPTEMBER
	2011			2010
	US$			US$
CASH FLOWS FROM INVESTING ACTIVITIES

Release of restricted cash		(3,707,478	)		2,416,449
Purchases of property and equipment		(10,158,052	)		(352,905	)


Net cash provided by investing activities		(13,865,530	)		2,063,544


CASH FLOWS FROM FINANCING ACTIVITIES

Bank loan repaid		—			(5,855,018	)
Proceeds from additional paid-in capital		23,877			—
Proceeds from short-term bank borrowings		3,487,602			7,863,022


Net cash provided by financing activities		3,511,479			2,008,004


Effect of foreign exchange rate changes		(144,272	)		45,642


Net increase/(decrease) in cash		(5,888,381	)		393,173


Cash, beginning of year		6,634,012			881,229


Cash, end of year		745,631			1,274,402


Supplementary disclosure of cash flow information:
Interest expense paid		669,023			244,166
Income taxes paid		1,144,789			732,116

The accompanying notes are integral part of the financial statements.

SMSA TREEMONT ACQUISITION CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

CORPORATE INFORMATION AND BASIS OF PRESENTATION

Corporate information

SMSA Treemont Acquisition Corp. (the “Company”) was originally incorporated in the State of Nevada on 3 May 2010 to effect the reincorporation of Treemont Management Services, Inc., a Texas corporation, mandated by the plan of reorganization as discussed below.

On 17 January 2007, Treemont Management Services, Inc. and its affiliated companies (collectively “SMS Companies”), filed a petition for reorganization under Chapter 11 of the United States Bankruptcy Code. On 1 August 2007, the bankruptcy court confirmed the First Amended, Modified Chapter 11 Plan (the “Plan”), as presented by SMS Companies and their creditors. The effective date of the Plan was 10 August 2007.

Xiangrui Pharmaceutical International Limited (“Xiangrui”) was incorporated in the British Virgin Islands on 29 November 2010. Tai’an Yisheng Management & Consulting Co., Ltd (“WFOE”) was incorporated by Xiangrui on 6 May 2011 as a wholly foreign owned enterprise in China. Xiangrui is a holding company that has no operations or assets other than its ownership of all of the capital stock of the WFOE.

On 9 May 2011, the WFOE entered into a series of variable interest entity contractual agreements (the “VIE Agreements”) with Shandong Xiangrui Pharmacy Co., Ltd., (“Shandong Xiangrui”), a PRC company and its shareholders. The VIE Agreements are comprised of a series of agreements, including an Exclusive Technical and Consulting Service Agreement, Management Fee Payment Agreement, Equity Interest Pledge Agreement, Exclusive Equity Interest Purchase Agreement, Operating Agreement and Proxy Agreement, through which the WFOE has the right to advise, consult, manage and operate the Company for an annual consulting services fee in the amount of the Company’s yearly net income before tax. In order to further reinforce the WFOE’s rights to control and operate the Company, the Company’s shareholders have entrusted their shareholder’s rights in the Company to a person designated by the WFOE.

As a result of entering the abovementioned agreements, the WFOE deems to control Shandong Xiangrui as a Variable Interest Entity as required by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810-10 Consolidated of Variable Interest Entities.

On May 12, 2011, the Company issued to New Fortress Group, Ltd., 400,000 restricted shares of common stock at a price of US$0.001 per share in consideration for in country due diligence services provided to the Company in connection with the evaluation of merits of the exchange transaction with Xiangrui. On 13 May 2011, the Company entered into the Share Exchange Agreement with Xiangrui and its sole shareholder, Mr. Xu. Pursuant to the Share Exchange Agreement the Company issued 12,363,885 newly created shares to Mr. Xu, and became the sole shareholder of Xiangrui. The shares the Company issued to Mr. Xu constitute 93% of our issued and outstanding capital stock on a fully-diluted basis as of and immediately after the consummation of the transactions contemplated by the Share.

SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

CORPORATE INFORMATION AND BASIS OF PRESENTATION (CONTINUED)

Following table illustrates the equity transactions of the Company during the nine months period ended 30 September 2011:


	Common Stock
	Shares		Amount(US$)

Shares issued as of 31 December 2010		530,615		531
New shares issued		400,000		400
Recapitalization for reverse acquisition		12,363,885		12,364

Balance as of 30 September 2011		13,294,500		13,295

This transaction has been accounted as a reverse acquisition and recapitalization of the Company whereby Xiangrui is deemed to be the accounting acquirer (legal acquiree) and the Company the accounting acquiree (legal acquirer). The historical financial statements for periods prior to 13 May 2011 are those of consolidated results of Xiangrui and the Company.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the financial statements of the Company, Xiangrui, WFOE and Shandong Xiangrui (the “Group”)

All significant inter-company accounts and transactions have been eliminated in consolidation.

The Group has adopted FIN 46R which requires 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.

Basis of preparation

In the opinion of management, the unaudited condensed financial statements have been prepared and presented in accordance with the accounting principles generally accepted in the United States of America (US GAAP) for interim financial information and with the instruction to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by US GAAP. However, the information included in these interim financial statements reflects all adjustments (consisting solely normal recurring adjustments) which are, in the opinion of management, necessary for the fair presentation of financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for the full year.

SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions reflected in the financial statements include, but are not limited to, revenue recognition, allowance for doubtful accounts, provision for inventories, useful lives of property and equipment and intangible assets, income tax and tax related valuation allowance, and contingencies. Actual results could differ significantly from those estimates.

Foreign currency

The functional currency of Shandong Xiangrui is Chinese Renminbi (RMB), as determined based on the criteria of FASB ASC 830 Foreign Currency Matters. The Group uses the U.S. dollar for financial reporting purpose.

Shandong Xiangrui translates assets and liabilities into U.S. dollars using the applicable exchange rate quoted by the People’s Bank of China at the balance sheet date. The income and expenses items are translated using average rates during the reporting period. Adjustments resulting from the translation of financial statements from RMB into U.S. dollars are recorded in shareholders’ equity as part of accumulated other comprehensive income — translation adjustments. The exchange rates used for the translation are listed below.


	Period end exchange rate	Year end exchange rate
	US$:RMB	US$:RMB

September 30, 2011	6.3549	N/A
December 31,2010	N/A	6.6227


	Three months average	Nine months average
	US$:RMB	US$:RMB

Third quarter of 2011	6.3953	N/A
Nine months of 2011	N/A	6.4984
Third quarter of 2010	6.7622	N/A
Nine months of 2010	N/A	6.7538

SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fair value of financial instruments

The Group adopted ASC 820 Fair Value Measurements and Disclosures. ASC 820 defines fair value, establishes a framework for measuring fair value, and requires disclosures to be provided on fair value measurement.

ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

	•		Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

	•		Level 2 — Include other inputs that are directly or indirectly observable in the marketplace; and

	•		Level 3 — Unobservable inputs which are supported by little or no market activity, therefore requiring an entity to develop its own assumptions.

The carrying values of cash and cash equivalents, accounts receivable, other current assets, accounts payable, other current liabilities, and amounts due to employees approximate their fair value due to their short-term maturities.

Cash

The Group considers all cash on hand and demand deposits as cash.

Restricted cash

Restricted cash represents amounts held by banks, which are not available for the Group use, as secure for issuance of letters of credit.

Notes and accounts receivable

Notes receivable represent bank notes which are paid by third party commercial banks upon due thus are believed to have low credit risk. Provisions are made against notes and accounts receivable for estimated losses resulting from the inability of collecting payments from our customers. The Group periodically assesses notes and accounts receivable balances to determine whether an allowance for doubtful accounts should be made based upon historical bad debt analysis, specific customer creditworthiness, and current economic trends. Notes and accounts receivable in the balance sheets are stated net of such provision, if any.

SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)

Inventories

Inventories are stated at the lower of cost or net realizable value at balance sheet date. Cost of inventories is determined using the weighted average method. Provisions are made for excessive, slow moving and obsolete inventories as well as inventories whose carrying value exceeds their net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs and expenses and related taxes necessary to make the sale. Provision for inventories is determined on an individual item basis. Raw material costs are based on purchase costs while work-in-progress and finished goods comprise direct materials, direct labor and an allocation of manufacturing overhead costs.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and are depreciated on a straight-line basis over the estimated useful lives detailed as follows:


Estimated	Estimated				Annual
Category	useful life	residual value			depreciation rate

Buildings	20 years		5	%		4.75	%
Machinery	5-10 years		5	%		9.5%-19	%
Office equipments	5-10 years		5	%		9.5%-19	%
Vehicles	10 years		5	%		9.5	%

Expenditures for major additions or improvement that extend the useful lives of property and equipment are capitalized as additions to the related assets. Expenditure for minor replacements, maintenance and repairs that do not improve or extend the lives of the assets are charged to expense when incurred. Retirement, sales and disposals of assets are recorded by removing the cost and accumulated depreciation, with any resulting gain or loss reflected in the statements of income.

All direct and indirect costs that are related to the construction of property and equipment and incurred before the assets are ready for their intended use are capitalized as construction in progress. Construction in progress is transferred to specific property and equipment accounts and commences depreciation when these assets are ready for their intended use. Interest costs are capitalized if they are incurred during the acquisition, construction or production of a qualifying asset and such costs could have been avoided if expenditures for the assets have not been made. Capitalization of interest costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Interest costs are capitalized until the assets are ready for their intended use. Capitalization of interest costs is suspended during extended periods in which activities related to the acquisition or construction of the qualifying assets are interrupted.

SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Land use rights

Prepayments for land use rights represent amounts paid for the right to use land in China and are recorded at cost less accumulated amortization. Amortization is recorded on a straight-line basis over the terms of the respective land use rights agreements, which are 50 years.

Revenue recognition

The Group recognizes revenue pursuant to ASC 605 Revenue Recognition, where persuasive evidence of an arrangement exists (demonstrated via contract with purchasers), delivery has occurred, the seller’s price is fixed or determinable and collectability is reasonably assured. This generally occurs when the customer receives the product or at the time title passes to the customer. Customers generally do not have the right to return product unless damaged or defective. The Group does not provide discount for early payments or any other allowances on sales.

Shipping and handling costs

Shipping and handling costs are included in selling expenses. The shipping and handling costs for the nine-month period ended September 30, 2011 and 2010 were US$510,981 and US$367,541, respectively.

Cost of goods sold

Cost of goods sold consists primarily of purchase costs of raw material, direct labor costs and overhead expenses attributable to production and machine depreciation.

Advertising expenditures

Advertising expenditures are expensed as incurred. There were no advertising costs incurred in the reporting period.

Comprehensive income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, ASC 220 Comprehensive Income requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Group has chosen to report comprehensive income in the Statements of Stockholders’ Equity. The Group’s other comprehensive income represents foreign currency translation adjustments.

SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income taxes

The Group uses the accrual method of accounting to determine income taxes for the year. The Group has implemented Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Income tax liabilities computed according to the United States and People’s Republic of China (PRC) tax laws are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to accumulated depreciation, allowance for doubtful accounts as well as the potential impact of any net operating loss carry forwards and their potential utilization. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will be either taxable or deductible when the assets and liabilities are recovered or settled. A valuation allowance is created to evaluate deferred tax assets if it is more likely than not that these items will either expire before the Group is able to realize that tax benefit, or that future realization is uncertain.

The Group’s operation in U.S. files income tax returns in the United States of America and various states, as appropriate and applicable. As a result of the Company’s bankruptcy action, the Company’s operation in U.S. is no longer subject to U.S. federal, state and local, as applicable, income tax examinations by regulatory taxing authorities for any period prior to 1 August 2008. The Company does not anticipate any examinations of returns filed for periods ending after 1 August 2008.

All of Shandong Xiangrui’s operations are in China. According to relevant laws and regulation, the Company is subject a statutory tax rate of 25 percent.

Value-added tax (VAT)

In accordance with the relevant tax laws of China, value-added taxes (VAT) are levied on the invoiced value of sales and are payable by the purchaser. The Company is required to remit the VAT it collects to the tax authority, but can deduct the VAT it has paid on eligible purchases. The difference between the amounts collected and paid is presented as VAT recoverable or payable balance on the balance sheets.

Employee benefits

Full-time employees of Shandong Xiangrui participate in a government-mandated multi-employee defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require Shandong Xiangrui make contributions to the government for these benefits based on a specific percentage of the employees’ salaries up to a maximum of three times the average annual salary for the city in which Shandong Xiangrui operates for the prior year. Shandong Xiangrui has no legal obligation for the benefits beyond the contributions made.

SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Impairment of long-lived assets

The Group evaluates its long-lived assets, including property and equipment for impairment whenever events or changes in circumstances, such as a significant adverse change to market conditions that will impact the future use of the assets, indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360 Property, Plant and Equipment. When these events occur, the Group assesses the recoverability of long-lived assets by comparing the carrying amount of the assets to the expected future undiscounted cash flows resulting from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Group recognizes an impairment loss based on the excess of the carrying amount of the assets over their fair value. Fair value is generally determined by discounting the cash flows expected to be generated by the assets, when the market prices are not readily available. No impairment of long-lived assets was recognized for any of the years presented.

Government grants

We receive grants from the government. The grants received from government are recorded in the financial statements in accordance with the purpose and the nature of the grant, either as other income, a reduction of expenses, or a reduction of the cost of the capital investment. The benefit of grants is recorded when performance is complete and all conditions as specified in the agreement are fulfilled. Any refundable grant is accounted for as a liability.

Income (Loss) per share

Basic earnings (loss) per share is computed by dividing the net income (loss) available to common stockholders by the weighted-average number of common shares outstanding during the respective period presented in our accompanying financial statements.

Fully diluted earnings (loss) per share is computed similar to basic income (loss) per share except that the denominator is increased to include the number of common stock equivalents (primarily outstanding options and warrants).

Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method, at either the beginning of the respective period presented or the date of issuance, whichever is later, and only if the common stock equivalents are considered dilutive based upon the Group’s net income (loss) position at the calculation date.

As of 30 September 2011, the Group had no outstanding stock warrants, options or convertible securities which could be considered as dilutive for purposes of the loss per share calculation.

SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recently issued accounting pronouncements

In July 2010, the FASB issued ASU 2010-20 an accounting update to provide guidance to enhance disclosures related to the credit quality of a company’s financing receivables portfolio and the associated allowance for credit losses (“FASB ASC Topic 310”). Pursuant to this accounting update, a company is required to provide a greater level of disaggregated information about its allowance for credit loss with the objective of facilitating users’ evaluation of the nature of credit risk inherent in the Group’s portfolio of financing receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses, and the changes and reasons for those changes in the allowance for credit losses. The revised disclosures as of the end of the reporting period are effective for the Group beginning in the second quarter of fiscal 2011, and the revised discourses related to activities during the reporting period are effective for the Group beginning in the third quarter of fiscal 2011. The adoption of such standard did not have a material impact on the Group’s consolidated financial statements and disclosures.

In December 2010, the FASB issued ASU 2010-28 an accounting pronouncement related to intangibles — goodwill and other (“FASB ASC Topic 350”), which requires a company to consider whether there are any adverse qualitative factors indicating that an impairment may exist in performing step 2 of the impairment test for reporting units with zero or negative carrying amounts. The provisions for this pronouncement are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010, with no early adoption. We will adopt this pronouncement for our fiscal year beginning July 1, 2011. The adoption of this pronouncement is not expected to have a material impact on our consolidated financial statements.

In December 2010, the FASB issued ASU 2010-29 an accounting pronouncement related to business combinations (“FASB ASC Topic 815”), which specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. It also expands the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this Update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The adoption of this pronouncement is not expected to have a material impact on our consolidated financial statements.

In January 2011, the FASB issued ASU 2011-01 an accounting pronouncement related to receivables (“FASB ASC Topic 310”). The amendments in this update temporarily delay the effective date of the disclosures about troubled debt restructurings in ASU 2010-20 for public entities. The delay is intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. Currently, that guidance is anticipated to be effective for interim and annual periods ending after 15 June 2011. The adoption of this pronouncement is not expected to have a material impact on our consolidated financial statements.

SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

NOTES AND ACCOUNTS RECEIVABLE, NET

Accounts receivable is stated at net value. As of 30 September 2011, the allowance for doubtful accounts recorded by the Group amounted to US$953,869.

Notes receivable represent bank drafts that are non-interest bearing and due within six months. Such bank drafts have been arranged with third party financial institutions by certain customers to settle their purchases from us. The carrying amount of notes receivable approximate their fair values due to their short maturities.

PROPERTY, PLANT AND EQUIPMENT, NET


	30 SEPTEMBER			31 DECEMBER
	2011			2010
	US$			US$
Buildings		2,518,482			2,368,933
Machinery		14,186,684			6,934,521
Office equipment		22,253			18,911
Motor vehicles		59,260			59,098

Total		16,786,679			9,381,463
Less: Accumulated depreciation		(6,911,936	)		(6,484,434	)

Subtotal		9,874,743			2,897,029
Construction in progress		2,789,407			76,247

Property, plant and equipment, net		12,664,150			2,973,276

As of 30 September 2011, Shandong Xiangrui pledged its building with net book value of US$1,851,035 to Citibank (China) Co., Ltd., Shanghai Branch to secure a long term bank loan provided by the bank to Shandong Runyin Bio-Chemical Co., Ltd., a related party (Note 11).

Depreciation expenses for the three months ended 30 September 2011 and 2010 were US$80,583 and US$178,398 and for the nine months ended 30 September 2011 and 2010 were US$463,674 and US$559,615, respectively.

LAND USE RIGHTS, NET

As of 30 September 2011, Shandong Xiangrui pledged its land use rights with net book value of US$643,855 to Citibank (China) Co., Ltd., Shanghai Branch to secure a long term bank loan provided by the bank to Shandong Runyin Bio-Chemical Co., Ltd, a related party.

Land use rights are summarized as follows:


	30 SEPTEMBER			31 DECEMBER
	2011			2010
	US$			US$
Land use rights, cost		2,766,860			2,766,860
Less: accumulated amortization		(267,276	)		(224,111	)

Land use rights, net		2,499,584			2,542,749

SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

BANK BORROWINGS

The Group had the following outstanding short-term loans with banks:


	30 SEPTEMBER		31 DECEMBER
	2011		2010
	US$		US$
Rural Cooperative Bank of Dongping, Shandong		4,484,728		2,793,422
China Merchant Bank		1,573,589		—
Agricultural Develop Bank		4,720,767		4,529,875
Bank of Communications		786,794		754,979

Total		11,565,878		8,078,276

The Group’s bank borrowings are RMB denominated loans with fixed interest rates ranging from 4.86% to 7.02%. Interest expense on bank borrowings for the three months ended 30 September 2011 and 2010 was US$270,504 and US$119,169 and for nine months ended 30 September 2011 and 2010 was US$669,023 and US$244,166, respectively. All bank loans are due within one year from balance sheet date or the period end.

INCOME TAXES

On 13 May 2011, income from the Company’s foreign subsidiaries became subject to U.S. income tax liability; however, this tax is deferred until foreign source income is repatriated to the Company from earnings and profits after foreign income taxes, which has not yet occurred.

All of Shandong Xiangrui’s operations are in the PRC, and in accordance with the relevant tax laws and regulations of PRC, the corporate income tax rate is 25%.

Income before taxes and the provision for taxes consists of the following:


	THREE MONTHS ENDED 30 SEPTEMBER
	2011		2010
	US$		US$
Income before taxes:
US Federal		—		—
US State		—		—
BVI		—		—
PRC		1,830,519		721,710

Total income before taxes		1,830,519		721,710

SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

INCOME TAXES (CONTINUED)


	THREE MONTHS ENDED 30 SEPTEMBER
	2011			2010
	US$			US$
Provision for income taxes:
Current:
US Federal		—			—
US State		—			—
BVI		—			—
PRC		508,089			181,586

Current income taxes		508,089			181,586


Deferred:
US Federal		—			—
US State		—			—
BVI		—			—
PRC		(70,031	)		(27,574	)

Deferred income taxes		(70,031	)		(27,574	)


Total provision for income taxes		438,058			154,012


	NINE MONTHS ENDED 30 SEPTEMBER
	2011			2010
	US$			US$
Income (loss) before taxes:
US Federal		—			—
US State		(3,877	)		(6,095	)
BVI		—			—
PRC		5,557,181			2,563,097

Total income (loss) before taxes		5,553,304			2,557,002

SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

7. INCOME TAXES (CONTINUED)


	NINE MONTHS ENDED 30 SEPTEMBER
	2011			2010
	US$			US$
Provision for income taxes:
Current:
US Federal		—			—
US State		—			—
BVI		—			—
PRC		1,473,340			670,408

Current income taxes		1,473,340			670,408


Deferred:
US Federal		—			—
US State		—			—
BVI		—			—
PRC		(83,978	)		(34,786	)

Deferred income taxes		(83,978	)		(34,786	)


Total provision for income taxes		1,389,362			635,622

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


	THREE MONTHS ENDED 30 SEPTEMBER
	2011			2010
	US$			US$
Profit before income tax		1,830,519			721,710
Corporate income tax rate		25	%		25	%
Computed tax at statutory rate		457,630			180,428
Income exempted from taxation		(19,572	)		(26,416	)
Expenses not deductible for tax purposes		—			—

Provision for income taxes		438,058			154,012


	NINE MONTHS ENDED 30 SEPTEMBER
	2011			2010
	US$			US$
Profit before income tax		5,553,304			2,557,002
Corporate income tax rate		25	%		25	%
Computed tax at statutory rate		1,388,326			639,251
Income exempted from taxation		—			(3,629	)
Expenses not deductible for tax purposes		1,036			—

Provision for income taxes		1,389,362			635,622

SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

INCOME TAXES (CONTINUED)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Components of the Group’s deferred tax assets and liabilities are as follows:


	30 SEPTEMBER		31 DECEMBER
	2011		2010
	US$		US$
Deferred tax assets
Allowance for doubtful accounts		276,432		265,254

Total deferred tax assets		276,432		265,254


Deferred tax liabilities
Depreciation of property, plant and equipments		99,563		172,363

Total deferred tax liabilities		99,563		172,363

Deferred assets are current assets while deferred liabilities are non-current liabilities. No valuation allowance was provided for deferred tax assets in the periods presented.

MISCELLANEOUS TAXES PAYABLE

Miscellaneous tax payables mainly comprise local supplementary taxes that levied as a percentage of the total income tax and VAT tax paid. Details of miscellaneous taxes payable are set forth in the following table:


	30 SEPTEMBER		31 DECEMBER
	2011		2010
	US$		US$
Urban construction tax		7,530		46,064
Education tax		4,518		25,837
Local supplementary tax		4,517		8,613
Land use tax		4,083		3,918
Real estate tax		2,958		2,838
Stamp duty		2,926		—
Personal income tax payable on behalf of staffs		3,598		1,667


Total		30,130		88,937

SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

OTHER PAYABLE TO THIRD PARTIES

Other payables to third parties consist of the following:


	30 SEPTEMBER		31 DECEMBER
	2011		2010
	US$		US$
Purchases of property and equipment		100,688		111,535
Others		—		93,946


Total		100,688		205,481

10.

STATUTORY RESERVES

In accordance with the Company Law of the People’s Republic of China, Shandong Xiangrui should make appropriations from after-tax profit to non-distributable reserve funds. These reserve funds include (i) a general reserve and (ii) a discretionary fund. Shandong Xiangrui adds an annual statutory common reserve of at least 10% of its annual after-tax profit until such reserve has reached 50% of its respective registered capital based on the enterprise’s statutory accounts. The appropriations to discretionary fund are at Shandong Xiangrui’s discretion. These reserve funds can only be used for specific purposes of enterprises expansion and not distributable as cash dividends. Shandong Xiangrui provided 10% of statutory reserve and 6% of discretionary reserve upon distributable profit. Details of those reserves are presented as follows:


	30 SEPTEMBER		31 DECEMBER
	2011		2010
	US$		US$

Statutory reserve		737,480		326,619
Discretionary reserve		452,004		195,972

Total		1,189,484		522,591

11.

RELATED PARTY TRANSACTIONS

The principal related parties with which the Group had transactions are listed as follows:


Name		Relationship
Shandong Runyin Bio-chemical Co., Ltd.		Affiliates under common control
Ruixing Group Co., Ltd.		Affiliates under common control
Shandong Xinrui Chemical Devices Co., Ltd.		Affiliates under common control

SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

11.

RELATED PARTY TRANSACTIONS (CONTINUED)

For the nine months ended 30 September 2011, and 2010, the Group engaged in the following significant related party transactions:

(a)

Utility (steam and electricity) supply

Steam supply received from

Electricity supply received from

Electricity supplied to

(b)

Raw materials purchased from


	NINE MONTHS ENDED 30 SEPTEMBER
	2011		2010
	US$		US$
Shandong Runyin Bio-chemical Co., Ltd.		2,173,537		598,639

(c)

Plant facility lease from


		NINE MONTHS ENDED 30 SEPTEMBER
		2011		2010
		US$		US$
Shandong Runyin Bio-chemical Co., Ltd.	(ii)		7,050		6,861


(i)		In January 2009, the Company entered into a non-cancelable contract with Shandong Runyin Bio-chemical Co., Ltd. to secure the steam and electricity supply for the Company’s cornstarch and glucose production. The non-cancelable utility supply contract with the Shandong Runyin Bio-chemical Co., Ltd. expires in December 2014 whose price was determined by reference to market price.

(ii)		In December 2008, the Company entered into a rental contract with the Shandong Runyin Bio-chemical Co., Ltd. for leasing two plants. The lease contract was renewed on annual basis with yearly payment of US$9,000, which was determined by reference to market price.

SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

11.

RELATED PARTY TRANSACTIONS (CONTINUED)

As of 30 September 2011 and 31 December 2010, the Group had following balances with related parties:

(d)

Amounts due to related parties


	30 SEPTEMBER		DECEMBER 31
	2011		2010
	US$		US$
Ruixing Group Co., Ltd.		8,812		297,285
Shandong Runyin Bio-chemical Co., Ltd.		206,525		1,952,241

Total		215,337		2,249,526

Amounts due from and due to related parties are unsecured, interest-free and repayable on demand.

12.

COMMITMENTS AND CONTINGENCIES

(a)

Supply Commitment

In January 2009, Shandong Xiangrui entered into a non-cancelable contract with Shandong Runyin Bio-chemical Co., Ltd. to secure the steam and electricity supply for Shandong Xiangrui’s cornstarch and glucose production. The non-cancelable utility supply contract with the Shandong Runyin Bio-chemical Co., Ltd. expires in December 2014 with a price that approximates market price. Total amount of the contract per year would be determined by the actual quantity of utilities consumed by Shandong Xiangrui. Please refer to Note 11 for the actual value of supply consumed by Shandong Xiangrui in nine months ended 30 September 2011 and 2010 respectively.

(b)

Loan Guarantee

		As of 30 September 2011, Shandong Xiangrui pledged its land use rights with net book value of US$643,855 to Citibank (China) Co., Ltd., Shanghai Branch to secure a long term bank loan provided by the bank to Shandong Runyin Bio-Chemical Co., Ltd, a related party (Note 11).

(c)		Capital Purchase Commitment

		As of 30 September 2011, Shandong Xiangrui entered into non-cancellable contracts with some constructor and machinery suppliers for purchase of plant and machinery with amount of US$2,318,428.

(d)		Contingencies

The Group had no material contingent events during the reporting period.

SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

13.

SEGMENT AND GEOGRAPHIC INFORMATION

Business segments

The main products of the Company are cornstarch and glucose, which have almost the same production process. Both are produced from corn as raw materials while the only minor difference is that glucose is further processed from cornstarch by simply mixing up a few auxiliaries. The two products are sold to same type of customers with same distribution method.

While the cost base being similar for the two products, the selling prices are independently determined by reference to their respective market price, which resulted in different trend of gross profit margin of the two products as shown in the following table. The economics of scale also contributed to the overall rise of gross profit margin.


	NINE MONTHS ENDED 30 SEPTEMBER
	2011			2010
	US$			US$
Revenues
Cornstarch		47,432,809			23,619,326
Glucose		9,395,846			6,965,949

Cost of sales
Cornstarch		41,785,639			21,152,713
Glucose		7,312,627			5,877,754

GPM
Cornstarch		11.9	%		10.4	%
Glucose		22.2	%		15.6	%

The deviating of the gross profit margin of the two products as determined by market prices is believed to continue in the future.

With similar production process and raw materials and same type of customers and distribution method, the cornstarch and glucose production are not individually assessed when the Company’s chief operating decision maker reviews the operation results and make resources allocation. Therefore, it is not practical to separate out for the two products the assets information and other profit and loss information which are believed to have no relevance to the decision-making of the Company’s economic activities.

Geographical segments

All the revenue is attributed to the revenue from China.

14.

SUBSEQUENT EVENTS

In the opinion of the management, the Group had no significant subsequent events.


ITEM 3.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of our operations should be read in conjunction with our financial statements and related notes included elsewhere in this quarterly report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those expressed or implied by those forward-looking statements.

(1)

Overview

We are a corn processor in Shandong Province, China. We manufacture and distribute cornstarch, glucose, and other by-products through our direct and indirect subsidiaries in China. Our products are important ingredients for a wide range of industries, including food and beverages, animal nutrition, pharmaceuticals, textile and other industrial manufacturing industries.

Our customers are located primarily in mainland China. Approximately 83% of our products are comprised of corn starch or its by-products and approximately 17% of our products are comprised of glucose and its by-products. We sell products constituting approximately 90% of our revenues through our direct sales force, with the remaining 10% sold to distributors. Our principal customers purchase corn starch and glucose products for use in food and beverages as well as the pharmaceutical industries, which together constituted approximately 64% of our revenue for the nine month period ended September 30, 2011. Our other corn-refined products are principally sold to the animal feed industry, which accounted for approximately 18% of our revenue for the nine months ended September 30, 2011. Sales of our products to the industrial manufacturing sector accounted for approximately 18% of our revenue for the nine months ended September 30, 2011.

As of September 30, 2011, we had an annual production capacity of 140,000 tonnes of cornstarch. We have invested about US$9.7 million in new equipments and a new building to install a new product line and expect to invest an additional US$2.3 million into this project by the end of 2011. The new production line was initially planned to be ready by October 2011, however, due to a long and heavy rain season this year during August and September, the construction is behind schedule. We expect the new production line will be for use in December 2011 and we expect to increase our annual capacity to 240,000 tonnes at such time.

(2)

Results of Operations

The information provided below relates to the combined enterprises after the acquisition of Xiangrui Pharmaceutical International Limited, a British Virgin Islands company and its direct and indirect subsidiaries (“Xiangrui”) pursuant to a share exchange agreement (the “Share Exchange Agreement”) dated as of May 13, 2011, among us, Xiangrui, and Mr. Chongxin Xu, the sole shareholder of Xiangrui, except that information relating to periods prior to May 13, 2011, the date of the reverse acquisition, only relate to Xiangrui unless otherwise specifically indicated.

Results of operations for the three months ended September 30, 2011 as compared with the three months ended September 30, 2010.


	Three months Ended
	September 30,
	(unaudited)
	2011		2010		$ Change		% Change
	(In thousands, except percentages)

Statement of operations data
Revenues	$	21,374		10,937		10,437		95	%
Cost of sales		18,829		9,957		8,872		89	%

Gross profit		2,545		980		1,565		160	%

Operating expenses
Selling and distribution expenses		415		245		170		69	%
General and administrative expenses		132		42		90		214	%


Total operating expenses		547		287		260		91	%


Income from operations		1,998		693		1,305		188	%
Interest income		2		15		13		87	%
Interest expenses		270		134		136		101	%
Other expenses, net		-100		-148		48		-32	%


Income before income tax expenses		1,830		722		1,108		153	%

Income taxes expenses		438		154		284		184	%


Net income attributable to ordinary shareholders		1,392		568		824		145	%

Revenues

Revenues increased by US$10.4 million, or 95%, to US$21.4 million in the three months ended September 30, 2011, from US$10.9 million for the same period in 2010. The increase was primarily due to an increase in sales volume and an increase in average selling prices. Sales volumes increased to 53,800 tonnes in the three months ended September 30, 2011, at an increase of 19,810 tonnes from 33,989 tonnes in the same period in 2010. The increase in sales volumes is mainly attributable to high market demand for corn starch and glucose and increase in the production utilization rate. The average selling price of our products increased 16.6% to US$401 per tonne in the three months ended September 30, 2011, from US$344 per tonne in the same period in 2010. The increase of the average selling price of our products is attributable to strong demand for corn starch and glucose, which is driven by the higher standard of living in China which creates a higher demand for goods made from our two main products.

Cost of Sales

Our cost of sales increased by US$8.8 million, or 89%, to US$18.8 million in the three months ended September 30, 2011, from US$9.9 million for the same period in 2010. This increase was mainly due to an increase in the cost of raw materials, which is in line with the increase in our sales revenues and, in part, due to an increase in the average purchase price of raw materials. The increase in the cost of corn kernels can be attributable to the seasonal shortage in the third quarter, since the market reserves of corn kernels continued to decrease while new supplies of corn kernels had not been available in the market. We anticipate that the market price for corn kernels will decrease slightly in October and November this year due to an increased supply of newly harvested corn kernels. We expect a steady increase in the market price for corn kernels towards the end of this year and early next year, which is parallel to the increase of the consumer price index in China. The improved standard of living in China has resulted in a higher demand for poultry and meat, which results in a higher demand for animal feed. Corn is a major type of animal feed. According to our past experience, we were able to pass through the increased costs of corn kernels to our customers. Our profits and operating cash flows will be negatively impacted if the price of corn kernels increases and we are unable to increase the price of corn starch and glucose. The cost of corn kernels represents approximately 90% of our total cost of sales; therefore the price fluctuation of corn kernels will have a significant impact on our cost of sales and margins.

Gross Profits

Our gross profits increased by US$1.6 million, or 160%, to US$2.5 million during the three months ended September 30, 2011, from US$1 million for the same period in 2010. Gross profits from cornstarch increased by US$1.3 million, or 235%, to approximately US$1.8 million in the three months ended September 30, 2011, from US$0.6 million for the same period in 2010. Gross profits from glucose increased by US$0.2 million, or 58%, to approximately US$0.6 million in the three months ended September 30, 2011, from US$0.4 million for the same period in 2010. The increase in gross profits was due to both the increase in our sales volumes and the increase of gross margins. Gross profits as a percentage of revenues increased by 2.9% to 11.9% during the three months ended September 30, 2011, as compared to 9.0% for the same period in 2010. The increase is mainly due to the selling price of our products increasing at a faster rate than our cost of goods sold.

Selling and Distribution Expenses

Selling and distribution expenses include freight, salaries and benefits for sales and marketing personnel, travelling and advertising expenses. Our selling and distribution expenses increased by US$0.17 million, or 69%, to US$0.42 million during the three months ended September 30, 2011, from US$0.25 million for the same period in 2010. The increase is mainly due to the increase of our sales staff on September 20, 2011 to 33 personnel from 28 personnel for the same period in 2010.

General and Administrative Expenses

General and administrative expenses are comprised of salary and benefits for administrative personnel, depreciation and amortization of non-production equipments and miscellaneous expenses unrelated to production. Our general and administrative expenses increased by US$0.09 million, or 214%, to US$0.13 million during the three months ended September 30, 2011, from US$0.04 million for the same period in 2010. The increase was mainly attributable to professional fees incurred in connection with the compliance requirements associated with being a public company.

Interest Expenses

Interest expenses are related to our bank borrowings, which are Renminbi denominated loans with fixed interest rates ranging from 5.85% to 11.62%. Our interest expenses increased by US$0.129 million to US$0.27 million during the three months ended September 30, 2011, from US$0.14 million for the same period in 2010. The increase is mainly due to approximately US$5.5 million more in borrowings during the third quarter of 2011.

Income Before Income Tax Expenses

Income before income tax expenses increased by US$1.1 million, or 153%, to US$1.8 million in the three months ended September 30, 2011, from US$0.7 million for the same period in 2010. This increase is mainly attributable to increased sales and gross margins.

Income Tax Expenses

Our income tax expenses increased by US$0.28 million to US$0.44 million during the three months ended September 30, 2011 as compared to the same period in 2010. The increase in income tax expenses was mainly attributable to the increase in income before income tax expenses in the three months ended September 30, 2011 as compared to the same period in 2010.

Net Income Attributable to Ordinary Shareholders

Our net income attributable to ordinary shareholders increased by US$0.8 million, or 145%, to US$1.39 million in the three months ended September 30, 2011 from US$0.6 million in the same period of 2010 as result of the above factors.

Results of operations for the nine months ended September 30, 2011 as compared with the nine months ended September 30, 2010.


	Nine Months Ended
	September 30,
	(unaudited)
	2011		2010		$ Change		% Change
	(In thousands, except percentages)

Statement of operations data
Revenues	$	57,005		30,664		26,341		86	%
Cost of sales		49,190		27,077		22,113		82	%

Gross profit		7,815		3,587		4,228		118	%

Operating expenses
Selling and distribution expenses		957		752		205		27	%
General and administrative expenses		620		160		460		288	%


Total operating expenses		1,577		912		665		73	%


Income from operations		6,238		2,675		3,563		133	%
Interest income		5		22		-17		-77	%
Interest expenses		669		274		395		144	%
Other expenses, net		21		-134		155		-116	%


Income before income tax expenses		5,553		2,557		2,996		117	%

Income taxes		1389		636		753		118	%


Net income attributable to ordinary shareholders		4,164		1,921		2,243		117	%

Revenues

Revenues increased by US$26.3 million, or 86%, to US$57.0 million in the nine months ended September 30, 2011, from US$30.6 million for the same period in 2010. The increase was primarily due to an increase in sales volumes and an increase in average selling prices. Sales volumes increased to 150,149 tonnes in the nine months ended September 30, 2011, at an increase of 53,533 tonnes, from 96,616 tonnes in the same period in 2010. The increase in sales volumes is mainly attributable to high market demand and increase in the production utilization rate. The average selling price of our products increased by 20% to US$383.58 per tonne in the nine months ended September 30, 2011, from US$319.61 per tonne in the same period in 2010.

The increase in selling prices was mainly due to the increase of the average purchase price of raw materials, which increased by approximately 16% in the nine months ended September 30, 2011, as compared to the same period in 2010. The increase in the cost of corn kernels can be attributable to strong demand in China for cornstarch and glucose products. We anticipate that the market price for corn kernels will continue to increase in the future as the supplies will likely lag behind the increases in demand. The improved standard of living in China has resulted in a higher demand for poultry and meat, which has resulted in a higher demand for animal feed. Corn is a major type of animal feed.

Cost of Sales

Our cost of sales increased by US$22.1 million, or 82%, to US$49.2 million in the nine months ended September 30, 2011, from US$27.1 million for the same period in 2010. This increase was mainly due to an increase in the cost of raw materials, which was in line with the increase in our sales revenues, and partly due to an increase in the average purchase price of raw materials.

Gross Profits

Our gross profits increased by US$4.2 million, or 118%, to US$7.8 million during the nine months ended September 30, 2011, from US$3.6 million for the same period in 2010. Gross profits from cornstarch increased by US$3.2 million, or 129%, to approximately US$5.6 million in the nine months ended September 30, 2011, from US$2.5 million for the same period in 2010. Gross profits from glucose increased by US$1.0 million, or 92%, to approximately US$2.1 million in the nine months ended September 30, 2011, from US$1.1 million for the same period in 2010. This increase in gross profits was mainly due to the increase in our sales volumes. Gross profits as a percentage of revenues increased to 13.7% during the nine months ended September 30, 2011, as compared to 11.7% for the same period in 2010. The gross profit margin increase was mainly due to our ability to increase the unit selling price of our products higher than the purchase price of corn kernels. The total supply of cornstarch and glucose did not increase as fast as the increase in market demand. This was mainly because the Chinese government shut down small factories which were operating without the required waste water treatment systems. The Chinese government also halted approval of new corn-refinery projects, due to the government’s commitment to environmental protection. The improvement in gross profit margins is also attributable to the economies of scale we achieved with expanded production volume.

Selling and Distribution Expenses

Our selling and distribution expenses increased by US$0.21, or 27%, to US$0.96 million during the nine months ended September 30, 2011, from US$0.75 million for the same period in 2010. The increase is mainly due to the increase of our sales staff on September 20, 2011 to 33 personnel from 28 personnel for the same period in 2010.

General and Administrative Expenses

Our general and administrative expenses increased by US$0.46 million, or 288%, to US$0.62 million during the nine months ended September 30, 2011, from US$0.16 million for the same period in 2010. This increase was mainly attributable to professional fees incurred in connection with the compliance requirements associated with being a public company.

Interest Expenses

Our interest expenses increased by US$0.40 million to US$0.67 million during the nine months ended September 30, 2011, from US$0.27 million for the same period in 2010. This increase is mainly due to increased borrowings during 2011 and the increases in interest rates.

Income Before Income Tax Expenses

Income before income tax expenses increased by US$3.0 million, or 117%, to US$5.6 million in the nine months ended September 30, 2011, from US$2.6 million for the same period in 2010. This increase was mainly attributable to higher sales volumes.

Income Tax Expenses

Our income tax expenses increased to US$1.4 million from US$0.64 million during the nine months ended September 30, 2011, as compared to the same period of 2010. This increase in income tax expenses was mainly attributable to the increase in income before income tax expenses in the nine months ended September 30, 2011, as compared to the same period in 2010.

Net Income Attributable to Ordinary Shareholders

Our net income attributable to ordinary shareholders increased by US$2.2 million, or 117%, to US$4.2 million in the nine months ended September 30, 2011, from US$1.9 million for the same period in 2010 as result of the above factors.

(3) Liquidity and Capital Resources

Operating Activities

Net cash provided by operating activities for the nine months ended September 30, 2011 was US$4.6 million, at an increase of US$8.3 million from US$3.7 million used in operating activities for the same period in 2010. The increase in cash provided by operating activities is mainly attributable to higher net income and increased notes payable and accounts payable as a result of longer payment terms offered by our suppliers for larger purchases.

Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2011 was US$13.9 million, at an increase of US$15.9 million from US$2 million provided by investing activities for the same period in 2010. The increase in cash used in investing activities is mainly due to more expenditures for purchases of property and equipments and construction in progress of approximately US$10 million, while the remainder of the US$5.9 million increase in restricted cash is attributable to the requirements of certain local banks which require the company to keep 50% of borrowings as bank deposits according to the respective borrowing agreements.

Financing Activities

Net cash provided in financing activities for the nine months ended September 30, 2011 was US$3.5 million, as compared to US$2.0 million provided by financing activities for the same period in 2010. The increase in cash provided in financing activities is mainly due to fewer bank loan payoffs in the nine months ended September 30, 2011, as compared to the same period in 2010.

Loans

We have financed our operations primarily through bank loans and operating income. We have a total of US$11.6 million short-term loans outstanding as of September 30, 2011. The terms of each of these respective short-term loans are one year. As of the date of this quarterly report, we have not defaulted on any of these loans.

Guarantees

We have guaranteed certain borrowings of related parties including short-term bank loans. The total guaranteed amount was approximately US$2.5 million as of September 30, 2011.

Future Cash Commitments and Needs

We may require additional operating capital to run our new production line to expand our production capacity. The exact amount will be determined based on both the market demand for our products and the period of time required for these facilities to run at full capacity. We will carefully review our financial conditions and consider various financing options including internally generated cash, bank loans and additional equity financing. We expect that the proceeds from our operating cash flows and cash balances, together with credit lines available under bank loans, will be sufficient to meet our anticipated liquidity needs for the next twelve months.

(4) Critical Accounting Policies and Estimates

The preparation of our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates are based on historical information, information that is currently available to us and on various other assumptions that management believes to be reasonable under the circumstances. Actual results could vary from those estimates and we may change our estimates and assumptions in future evaluations. Changes in these estimates and assumptions may have a material effect on our financial condition and results of operations. We believe that these critical accounting policies affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements. For a discussion of our significant accounting policies and estimates, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” presented in our Current Report on Form 8-K/A filed on November 3, 2011.

(5) Recently Issued Accounting Pronouncements

See related disclosure at “Item 2 — Financial Statements — Notes to Condensed Consolidated Financial Statements — Note 2 Summary of Significant Accounting Policies — Recently issued accounting pronouncements.”

(6) Special Note Regarding Forward-Looking Statements

This document contains forward-looking statements, which reflect our views with respect to future events and financial performance. These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from such statements. These forward-looking statements are identified by, among other things, the words “anticipates,” “believes,” “estimates,” “expects,” “plans,” “projects,” “targets” and similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


ITEM 4.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Inflation

Since our inception, inflation in China has not materially impacted our results of operations. According to the National Bureau of Statistics of China, the change in the consumer price index in China was 3.3% in 2010. Although we have not in the past been materially affected by inflation, we can provide no assurance that we will not be affected in the future by higher rates of inflation in China.

Foreign Currency Exchange Risk

Substantially all of our revenues and expenses are denominated in Renminbi. We do not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments to hedge our exposure to such risk. Although in general, our exposure to foreign exchange risks should be limited, the value of your investment in our shares will be affected by the exchange rate between the U.S. dollar and the Renminbi because the value of our business is effectively denominated in Renminbi, while our shares will be traded in U.S. dollars.

The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. The conversion of Renminbi into foreign currencies, including U.S. dollars, has been based on rates set by the People’s Bank of China. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar. Under the revised policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy resulted in a more than 20% appreciation of the Renminbi against the U.S. dollar in the following three years. Since July 2008, however, the Renminbi has traded within a narrow range against the U.S. dollar. As a consequence, the Renminbi has fluctuated significantly since July 2008 against other freely traded currencies, in tandem with the U.S. dollar. On September 20, 2010, the People’s Bank of China announced that the PRC government would further reform the Renminbi exchange rate regime and increase the flexibility of the exchange rate. It is difficult to predict how this policy may impact the Renminbi exchange rate. To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we receive from the conversion. Conversely, if we decide to convert the Renminbi into U.S. dollars for the purpose of making payments for dividends on our common shares or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amounts available to us.

Interest Rate Risk

We are exposed to interest rate risk primarily with respect to our short-term bank loans. Although the interest rates, which are based on the banks’ prime rates with respect to our short-term loans, are fixed for the terms of the loans, the terms are typically three to twelve months for short-term bank loans and interest rates are subject to change upon renewal. There were no material changes in the interest rates for our short-term bank loans renewed during the nine months ended September 30, 2011.

Management monitors the banks’ prime rates in conjunction with our cash requirements to determine the appropriate level of debt balances relative to other sources of funds. We have not entered into any hedging transactions in an effort to reduce our exposure to interest rate risk.

We are also exposed to interest rate risk relating to the interest income generated by excess cash, which is mostly held in interest-bearing bank deposits. We have not used derivative financial instruments in our investment portfolio. Interest earning instruments carry a degree of interest rate risk. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in market interest rates. However, our future interest income may fall short of expectations due to changes in market interest rates.


ITEM 5.		CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer (each a “Certifying Officer”), has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15 promulgated under the Securities Exchange Act 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Quarterly Report. Disclosure controls and procedures are controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and include controls and procedures designed to ensure that information we are required to disclose in such reports is accumulated and communicated to management, including our Certifying Officers, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, our Certifying Officers concluded that as of such date, our disclosure controls and procedures were not effective to ensure that the information required to be disclosed by us in our reports is recorded, processed, summarized and reported within the time periods specified by the SEC due to an inherent weakness in our internal controls over financial reporting. However, our Certifying Officers believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the respective periods presented.

Changes in Internal Controls

There were no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the quarter ended September 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION


ITEM 1.		LEGAL PROCEEDINGS

None.


ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.


ITEM 3.		DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4.		(REMOVED AND RESERVED)


ITEM 5.		OTHER INFORMATION

None.


ITEM 6.		EXHIBITS


Exhibit No.			Description

	10.1		Loan Agreement, dated August 23, 2011, between Shandong Xiangrui and Bank of Communications Tai’an Branch for RMB 5 million. [Incorporated by reference to Exhibit 10.45 to the Company’s Current Report on Form 8-K/A filed on September 6, 2011]

	10.2		Guaranty Contract, dated August 23, 2011, between Runyin Bio-chemical and Bank of Communications, Tai’an Branch, for a RMB 5 million loan. [Incorporated by reference to Exhibit 10.46 to the Company’s Current Report on Form 8-K/A filed on September 6, 2011]

	10.3		Guaranty Contract, dated August 23, 2011, between Mr. Xuchun Wang and Bank of Communications Tai’an Branch, for a RMB 5 million loan. [Incorporated by reference to Exhibit 10.47 to the Company’s Current Report on Form 8-K/A filed on September 6, 2011]

	10.4		Loan Agreement, dated August 3, 2011, between Shandong Xiangrui and Agriculture Development Bank of China, Dongping Branch, for RMB 30 million. [Incorporated by reference to Exhibit 10.48 to the Company’s Current Report on Form 8-K/A filed on September 6, 2011]

	10.5		Guarantee Contract, dated August 3, 2011, between Ruixing Group and Agriculture Development Bank of China, Dongping Branch, for a RMB 30 million loan. [Incorporated by reference to Exhibit 10.49 to the Company’s Current Report on Form 8-K/A filed on September 6, 2011]

	10.6		Guarantee Contract, dated August 3, 2011, between Mr. Lingfa Huang (and his wife Ma Hong) and Agriculture Development Bank of China, Dongping Branch, for a RMB 30 million loan. [Incorporated by reference to Exhibit 10.50 to the Company’s Current Report on Form 8-K/A filed on September 6, 2011]

	31.1	*	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

	31.2	*	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

	32.1	*	Section 1350 Certification of Chief Executive Officer

	32.2	*	Section 1350 Certification of Chief Financial Officer

	101		The following materials from the Company’s Form 10-Q for the quarter ended September 30, 2011, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Statements of Operations, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Cash Flows, and (iv) Notes to Consolidated Financial Statements.

101.INS			XBRL Instance Document

101.SCH			XBRL Taxonomy Extension Schema Document

101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB			XBRL Taxonomy Extension Label Linkbase Document

101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document


*		Filed herein

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	SMSA Treemont Acquisition Corp.
Dated: November 14, 2011	By:	/s/ Guo Wang
		Guo Wang
		Chief Executive Officer

Dated: November 14, 2011	By:	/s/ Wencai Pan
		Wencai Pan
		Chief Financial Officer

NINE MONTHS ENDED 30 SEPTEMBER

Shandong Runyin Bio-chemical Co., Ltd.