UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2012

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

No. 48 South Qingshui Road Laiyang City, Shandong People’s Republic of China		265200
(Address of principal executive offices)		(Zip Code)

(86) (535) 729-6152

(Registrant’s telephone number, including area code)

Not Applicable

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer (Do not check if 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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 27,509,171 ordinary shares are issued and outstanding as of November 9, 2012.

ORIENTAL DRAGON CORPORATION

FORM 10-Q

September 30, 2012

TABLE OF CONTENTS

		Page No.

PART I. - FINANCIAL INFORMATION

Item 1.	Financial Statements.

	Consolidated Balance Sheets as of September 30, 2012 (Unaudited) and December 31, 2011	3

	Consolidated Statements of Income and Comprehensive Income - For the Three and Nine Months Ended September 30, 2012 and 2011 (unaudited)	4

	Consolidated Statements of Cash Flows - For the Nine Months Ended September 30, 2012 and 2011 (unaudited)	5

	Notes to Unaudited Consolidated Financial Statements.	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	30

Item 4.	Controls and Procedures.	30

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings.	31

Item 1A.	Risk Factors.	31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	31

Item 3.	Defaults Upon Senior Securities.	31

Item 4.	Mine Safety Disclosures.	31

Item 5.	Other Information.	31

Item 6.	Exhibits.	31

PART 1 - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ORIENTAL DRAGON CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	September 30,		December 31,
	2012		2011
	(Unaudited)
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	67,567,272	$	54,287,373
Cash - restricted		54,307		278,491
Accounts receivable, net		55,071		-
Inventories, net of reserve for obsolete inventory		4,497,859		14,404,724
Prepaid expenses and other		38,468		36,743
Deferred income taxes		64,503		64,178

Total Current Assets		72,277,480		69,071,509

PROPERTY AND EQUIPMENT, net		17,779,765		19,190,976

OTHER ASSETS:
Land use rights, net		67,653,694		47,233,084
Deferred income taxes - net of current portion		725,655		770,137

Total Assets	$	158,436,594	$	136,265,706

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable	$	530,433	$	3,766,785
Accrued expenses		468,388		1,212,067
Income taxes payable		2,980,245		5,154,135
VAT and other taxes payable		1,082,552		769,157

Total Current Liabilities		5,061,618		10,902,144

COMMITMENT

SHAREHOLDERS' EQUITY:
Preference shares ($0.001 par value; 1,000,000 shares authorized,
none issued and outstanding at September 30, 2012 and December 31, 2011)		-		-
Ordinary shares ($0.001 par value; 50,000,000 shares authorized, 27,509,171 and 27,509,171
shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively)		27,509		27,509
Additional paid-in capital		16,385,297		16,385,297
Retained earnings		120,300,433		94,250,679
Statutory and non-statutory reserves		7,104,272		5,738,192
Accumulated other comprehensive income - cumulative foreign currency translation adjustment		9,557,465		8,961,885

Total Shareholders' Equity		153,374,976		125,363,562

Total Liabilities and Shareholders' Equity	$	158,436,594	$	136,265,706

See notes to unaudited consolidated financial statements

ORIENTAL DRAGON CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2012			2011			2012			2011

NET REVENUES	$	33,601,283		$	16,638,556		$	107,160,000		$	79,000,305

COST OF REVENUES		20,068,000			11,445,769			67,671,264			52,278,410

GROSS PROFIT		13,533,283			5,192,787			39,488,736			26,721,895

OPERATING EXPENSES:
Selling		130,828			101,322			376,607			345,951
Research and development		-			231,873			-			384,781
General and administrative		895,816			760,401			2,709,799			1,988,128

Total Operating Expenses		1,026,644			1,093,596			3,086,406			2,718,860

INCOME FROM OPERATIONS		12,506,639			4,099,191			36,402,330			24,003,035

OTHER INCOME (EXPENSE):
Interest income		49,120			52,501			217,119			183,441
Loss from foreign currency		-			(33	)		-			(4,803	)

Total Other Income (Expense)		49,120			52,468			217,119			178,638

INCOME BEFORE PROVISION FOR INCOME TAXES		12,555,759			4,151,659			36,619,449			24,181,673

PROVISION FOR INCOME TAXES:
		(3,123,164	)		(1,036,027	)		(9,155,173	)		(6,049,473	)
Deferred		(16,127	)		(15,907	)		(48,442	)		(47,106	)

Total Provision for Income Taxes		(3,139,291	)		(1,051,934	)		(9,203,615	)		(6,096,579	)

NET INCOME	$	9,416,468		$	3,099,725		$	27,415,834		$	18,085,094

COMPREHENSIVE INCOME:
NET INCOME	$	9,416,468		$	3,099,725		$	27,415,834		$	18,085,094

OTHER COMPREHENSIVE INCOME:
Unrealized foreign currency translation gain (loss)		(279,407	)		1,062,490			595,580			3,229,805

COMPREHENSIVE INCOME	$	9,137,061		$	4,162,215		$	28,011,414		$	21,314,899

NET INCOME PER ORDINARY SHARE:
Basic	$	0.34		$	0.11		$	1.00		$	0.66
Diluted	$	0.34		$	0.11		$	1.00		$	0.66

WEIGHTED AVERAGE ORDINARY SHARES OUTSTANDING:
Basic		27,509,171			27,505,171			27,509,171			27,503,003
Diluted		27,509,171			27,505,171			27,509,171			27,503,003

See notes to unaudited consolidated financial statements

ORIENTAL DRAGON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	For the Nine Months Ended September 30,
	2012			2011

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	27,415,834		$	18,085,094
Adjustments to reconcile net income from operations to net cash
provided by operating activities:
Depreciation		1,552,347			1,511,109
Amortization of land use rights		1,514,794			830,483
Stock-based compensation		-			18,000
Deferred income taxes		48,442			47,106
Inventory reserve		(49,858	)		-
Changes in assets and liabilities:
Accounts receivable		(55,146	)		-
Inventories		10,043,009			12,629,967
Prepaid and other current assets		(1,551	)		(179,712	)
Prepaid VAT on purchases		-			454,556
Accounts payable		(3,259,267	)		(501,760	)
Accrued expenses		(750,816	)		(292,320	)
Other taxes payable		309,921			554,471
Income taxes payable		(2,202,919	)		(7,714,403	)

NET CASH PROVIDED BY OPERATING ACTIVITIES		34,564,790			25,442,591

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of land use rights		(21,723,647	)		(31,579,257	)
Purchase of property and equipment		(42,038	)		(118,523	)

NET CASH USED IN INVESTING ACTIVITIES		(21,765,685	)		(31,697,780	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in cash - restricted		224,184			336,653

NET CASH PROVIDED BY FINANCING ACTIVITIES		224,184			336,653

EFFECT OF EXCHANGE RATE ON CASH		256,610			1,510,686

NET INCREASE (DECREASE) IN CASH		13,279,899			(4,407,850	)

CASH - beginning of year		54,287,373			47,670,666

CASH - end of period	$	67,567,272		$	43,262,816

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	-		$	-
Income taxes	$	11,358,092		$	13,763,876

See notes to unaudited consolidated financial statements.

ORIENTAL DRAGON CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Oriental Dragon Corporation (the “Company”) was formed under the laws of the Cayman Islands on March 10, 2006 under the name of Emerald Acquisition Corporation. Effective on August 27, 2010, the Company’s corporate name was changed to Oriental Dragon Corporation. On October 22, 2009, the Company acquired Merit Times International Limited (“Merit Times”) in a reverse acquisition transaction. Merit Times was established on February 8, 2008, under the laws of British Virgin Islands. Pursuant to a share exchange agreement in this reverse acquisition transaction, the Company issued an aggregate of 21,333,332 ordinary shares to the shareholders of Merit Times, their designees or assigns in exchange for all of the issued and outstanding capital stock of Merit Times. On October 22, 2009, the Share Exchange closed and Merit Times became the Company’s wholly-owned subsidiary. Merit Times owns 100% of the outstanding capital stock of Shandong MeKeFuBang Food Limited (“MeKeFuBang”), a wholly foreign owned enterprise incorporated on June 9, 2009 under the laws of the People’s Republic of China (PRC).

Prior to the Exchange Agreement, there were 1,281,500 Ordinary Shares issued and outstanding. Pursuant to the terms of the Exchange Agreement, a shareholder of the Company cancelled a total of 794,000 Ordinary Shares of the Company. Following the combination prior to the Offering, there are 21,820,832 Ordinary Shares of the Company issued and outstanding.

Presently all of the Company’s business operations are carried out through MeKeFuBang and through Shandong Longkang Juice Co., Ltd., a limited liability company under the laws of China (“Longkang”). Longkang was incorporated in Shandong province on November 22, 2004 with registered capital of RMB 10 million.

On June 10, 2009, MeKeFuBang entered into a series of contractual agreements (the “Contractual Arrangements”) with Longkang, and its five shareholders. The Company does not own any equity interests in Longkang, but control and receive the economic benefits of its Longkang business operations through the Contractual Arrangements. The Contractual Arrangements are comprised of (1) a Consulting Services Agreement, through which the MeKeFuBang has the right to advise, consult, manage and operate Longkang, and collect and own all of the net profits of Longkang; (2) an Operating Agreement, through which MeKeFuBang has the right to recommend director candidates and appoint the senior executives of Longkang, approve any transactions that may materially affect the assets, liabilities, rights or operations of Longkang, and guarantee the contractual performance by Longkang of any agreements with third parties, in exchange for a pledge by Longkang of its accounts receivable and assets; (3) a Proxy Agreement, under which the five owners of Longkang have vested their collective voting control over the Operating Entity to MeKeFuBang and will only transfer their respective equity interests in Longkang to MeKeFuBang or its designee(s); (4) a VIE Option Agreement, under which the owners of Longkang have granted MeKeFuBang the irrevocable right and option to acquire all of their equity interests in Longkang; and (5) an Equity Pledge Agreement, under which the owners of Longkang have pledged all of their rights, titles and interests in Longkang to MeKeFuBang to guarantee Longkang’s performance of its obligations under the Consulting Services Agreement. As a result of these Contractual Arrangements, which enables the Company to control Longkang and to receive, through its subsidiaries, all of its profits, the Company is considered the primary beneficiary of Longkang, which is deemed its variable interest entity (“VIE”). Accordingly, the Company consolidates Longkang’s results, assets and liabilities in its financial statements. The Contractual Agreements were amended on December 20, 2010 to restrict Longkang’s ability to terminate such agreements.

The Company, through its subsidiaries and variable interest entity, engages in the production of fruit juice concentrate in the PRC, specializing in processing, producing and distributing Laiyang Pear fruit juice concentrate. The Company is the only producer of Laiyang Pear fruit juice concentrate, which contains 46 kinds of mineral substances such as Organic Acid, Vitamin B1, B2, Vitamin C, Nicotinic Acid, Protocatechuic Acid, Carotene and mineral substances such as Calcium, Phosphorus and Iron, etc., and therefore is known for its taste, nutritional and medical benefits, and application in health supplements, pharmaceuticals, and the food and beverage industries. The Company also produces and sells strawberry juice concentrate and puree. Additionally, the Company produces and distributes bio animal feed using the waste produced by its juice concentrate business.

ORIENTAL DRAGON CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Basis of presentation

Management acknowledges its responsibility for the preparation of the accompanying financial statements which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of its financial position and the results of its operations for the periods presented. The accompanying unaudited condensed consolidated financial statements for Oriental Dragon Corporation, its subsidiaries and variable interest entities, have been prepared in accordance with accounting principles generally accepted in the United States of America (the “U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. This basis differs from that used in the statutory accounts of our subsidiaries in China, which were prepared in accordance with the accounting principles and relevant financial regulations applicable to enterprises in the PRC. All necessary adjustments have been made to present the financial statements in accordance with U.S. GAAP.

These consolidated financial statements should be read in conjunction with the summary of significant accounting policies and notes to consolidated financial statements included in the Company’s Form 10-K annual report for the year ended December 31, 2011.

The Company’s consolidated financial statements include the financial statements of its wholly-owned subsidiary, Merit Times International Limited and MeKeFuBang, as well as the financial statements of Longkang. All significant intercompany accounts and transactions have been eliminated in consolidation.

Longkang is considered a variable interest entity (“VIE”), and the Company is the primary beneficiary. The Company’s relationships with Longkang and its shareholders are governed by a series of contractual arrangements between MeKeFuBang, the Company’s wholly foreign-owned enterprise in the PRC, and Longkang, which is the operating company of the Company in the PRC. Under PRC laws, each of MeKeFuBang and Longkang is an independent legal entity and none of them are exposed to liabilities incurred by the other party. The contractual arrangements constitute valid and binding obligations of the parties of such agreements. Each of the contractual arrangements and the rights and obligations of the parties thereto are enforceable and valid in accordance with the laws of the PRC. On June 10, 2009, the Company entered into the following contractual arrangements with Longkang, which were amended on December 20, 2010 to restrict Longkang’s ability to terminate such agreements.

Operating Agreement - Pursuant to the operating agreement among MeKeFuBang, Longkang and all shareholders of Longkang (the “Longkang Shareholders”), 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 terms of 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.

ORIENTAL DRAGON CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

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 Longkang’s 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.

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.

Proxy Agreement – Under the proxy agreement, the five owners of Longkang have vested their collective voting control over the Operating Entity to MeKeFuBang and will only transfer their respective equity interests in Longkang to MeKeFuBang or its designee(s). 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.

The accounts of Longkang are consolidated in the accompanying consolidated financial statements pursuant to Financial Accounting Codification Standards Topic 810-10-05 and related subtopics related to the consolidation of Variable Interest Entities As a VIE, Longkang’s sales are included in the Company’s total sales, its income from operations is consolidated with the Company’s, and the Company’s net income includes all of Longkang’s net income. The Company does not have any non-controlling interest and accordingly, did not subtract any net income in calculating the net income attributable to the Company. Because of the contractual arrangements, the Company had a pecuniary interest in Longkang that require consolidation of the Company’s and Longkang financial statements.

Use of estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the consolidated financial statements and during the reporting period. Actual results could materially differ from these estimates. Significant estimates for the nine months ended September 30, 2012 and 2011 include the allowance for obsolete inventory, the useful life of property and equipment and intangible assets, assumptions used in assessing impairment of long-term assets, and the valuation of stock-based compensation.

ORIENTAL DRAGON CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair value of financial instruments

The Company adopted the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The carrying amounts reported in the balance sheets for cash, accounts payable and accrued expenses approximate their fair market value based on the short-term maturity of these instruments. The Company did not identify any assets or liabilities that are required to be presented on the balance sheets at fair value in accordance with the accounting guidance.

ASC 825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.

Cash and cash equivalents

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company maintains cash and cash equivalents with various financial institutions mainly in the PRC. Balances in banks in the PRC are uninsured.

Cash – restricted

At September 30, 2012 and December 31, 2011, restricted cash consisted of cash deposits held with Company counsel.

Concentrations of credit risk

The Company's operations are carried out in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC's economy. The Company's operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company's results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

ORIENTAL DRAGON CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Concentrations of credit risk (continued)

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. Substantially all of the Company’s cash is maintained with state-owned banks within the PRC, and no deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts. A significant portion of the Company's sales are collected immediately upon the delivery of the product to the customer since the demand for our products exceeds our current supply.

At September 30, 2012 and December 31, 2011, the Company’s cash balances by geographic area were as follows:

	September 30, 2012				December 31, 2011
Country:
China	$	67,567,272	100.0	%	$	54,287,373	100.0	%
Total cash and cash equivalents	$	67,567,272	100.0	%	$	54,287,373	100.0	%

Accounts receivable

At September 30, 2012, outstanding accounts receivables amounted to $55,071 and $0 at December 31, 2011, there were no outstanding accounts receivable. The Company, when necessary, maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. A significant portion of the Company's sales are collected immediately upon the delivery of the product to the customer since the demand for its products exceeds its current supply.

Inventories

Inventories, consisting of raw materials, work in process and finished goods related to the Company’s 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, the Company will record reserves for the difference between the cost and the market value. These reserves are recorded based on estimates. The Company recorded an inventory reserve of $50,305 and $99,592 at September 30, 2012 and December 31, 2011, respectively. Cost of sales represents all direct and indirect costs associated with the production of products for sale to customers. These costs include cost of raw materials, direct and indirect labor and benefit costs, freight in, depreciation, and storage fees.

Property and equipment

Property and equipment are carried at cost and are depreciated on a straight-line basis (after taking into account their respective estimated residual value) over the estimated useful lives of the assets. 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. The Company examines 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. Included in property and equipment is construction-in-progress which consisted of costs for a factory under construction and machinery pending installation and includes the costs of construction, machinery and equipment, and any interest charges arising from borrowings used to finance these assets during the period of construction or 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.

ORIENTAL DRAGON CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impairment of long-lived assets

In accordance with ASC Topic 360, the Company reviews, long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes 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. The Company did not record any impairment charges for the nine months ended September 30, 2012 and 2011.

Income taxes

The Company is governed by the Income Tax Law of the People’s Republic of China. The Company accounts for income taxes using the liability method prescribed by ASC 740 “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.

The Company applied the provisions of ASC 740-10-50, “Accounting for Uncertainty in Income Taxes”, which provides clarification related to the process associated with accounting for uncertain tax positions recognized in our financial statements. Audit periods remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of September 30, 2012 and December 31, 2011, the Company had no uncertain tax positions, and will continue to evaluate for uncertain positions in the future.

Revenue recognition

Pursuant to the guidance of ASC Topic 605 and ASC Topic 360, 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 animal bio feed upon shipment and transfer of title.

Shipping costs

Shipping costs are included in selling expenses and totaled $51,858 and $36,521 for the nine months ended September 30, 2012 and 2011, respectively.

Employee benefits

The Company’s operations and employees are all located in the PRC. The Company makes mandatory contributions to the PRC government’s health, retirement benefit and unemployment funds in accordance with the relevant Chinese social security laws. For the nine months ended September 30, 2012 and 2011, the costs of these payments are charged to general and administrative expenses in the same period as the related salary costs and amounted to $158,262 and $126,498, respectively.

Advertising

Advertising is expensed as incurred and is included in selling expenses on the accompanying statements of income. For the nine months ended September 30, 2012 and 2011, the Company did not incur advertising expense.

ORIENTAL DRAGON CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Research and development

Research and development costs are expensed as incurred. For the nine months ended September 30, 2012 and 2011, research and development costs amounted to $0 and $384,781, respectively.

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 September 30, 2012 and December 31, 2011 were translated at 6.3265 RMB to $1.00 and at 6.3585 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 nine months ended September 30, 2012 and 2011 were 6.318 RMB and 6.4972 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. Comprehensive income for the nine months ended September 30, 2012 and 2011 included net income and unrealized gains from foreign currency translation adjustments.

Related parties

Parties are considered to be related to the Company if the parties that, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company shall disclose all related party transactions. All transactions shall be recorded at fair value of the goods or services exchanged.

ORIENTAL DRAGON CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income per share of ordinary stock

ASC 260 “Earnings Per Share”, requires dual presentation of basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Basic net income per ordinary share is computed by dividing net income available to ordinary shareholders by the weighted average number of shares of ordinary shares outstanding during the period. Diluted income per ordinary share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. Potentially dilutive ordinary shares consist of common stock warrants (using the treasury stock method). The following table presents a reconciliation of basic and diluted net income per ordinary share:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Net income available to ordinary shareholders for basic and diluted net income per ordinary share	$	9,416,468	$	3,099,725	$	27,415,834	$	18,085,094

Weighted average ordinary shares outstanding – basic		27,509,171		27,505,171		27,509,171		27,503,003
Effect of dilutive securities:
Warrants		-		-		-		-
Weighted average ordinary shares outstanding – diluted		27,509,171		27,505,171		27,509,171		27,503,003
Net income per ordinary share - basic	$	0.34	$	0.11	$	1.00	$	0.66
Net income per ordinary share - diluted	$	0.34	$	0.11	$	1.00	$	0.66

The Company's aggregate common stock equivalents at September 30, 2012 and December 31, 2011 include the following:

	September 30, 2012		December 31, 2011
Warrants		3,402,212		3,402,212
Total		3,402,212		3,402,212

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.

ORIENTAL DRAGON CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

NOTE 2 - INVENTORIES

At September 30, 2012 and December 31, inventories consisted of the following:

	September 30, 2012			December 31, 2011
Raw materials	$	541,760		$	112,285
Work in process		187,751			-
Finished goods		3,818,653			14,392,031
		4,548,164			14,504,316
Less: reserve for obsolete inventory		(50,305	)		(99,592	)
	$	4,497,859		$	14,404,724

NOTE 3 - PROPERTY AND EQUIPMENT

At September 30, 2012 and December 31, 2011, property and equipment consisted of the following:

	Useful Life		September 30, 2012			December 31, 2011
Office equipment and furniture	10 Years		$	144,465		$	135,117
Manufacturing equipment	10 Years			16,446,521			16,358,911
Vehicles	10 Years			145,562			144,830
Construction in progress		-		839,423			806,890
Building and building improvements	10-20 Years			10,128,439			10,077,467
				27,704,410			27,523,215
Less: accumulated depreciation				(9,924,645	)		(8,332,239	)
			$	17,779,765		$	19,190,976

For the nine months ended September 30, 2012 and 2011, depreciation expense amounted to $1,552,347 and $1,511,109, of which $1,359,521 and $1,324,673 is included in inventories and cost of revenues, and $192,826 and $186,436 is included in general and administrative expenses, respectively.

NOTE 4 – 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. 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 orchards	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	05/2011	05/2061	87,569 square meters
Parcel K	Laiyang pear orchards	30	04/2012	03/2042	502.5 acres

Land containing Laiyang Pear orchards will be used to supply pears to the Company for production. The Company amortizes 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. 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 revenues. For the nine months ended September 30, 2012 and 2011, amortization of land use rights amounted to $1,514,794 and $830,483, of which $417,785 and $406,262 is included in inventories and cost of revenues, and $1,097,009 and $424,221 is included in general and administrative expenses, respectively.

ORIENTAL DRAGON CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

NOTE 4 – LAND USE RIGHTS (continued)

At September 30, 2012 and December 31, 2011, land use rights consisted of the following:

	Useful Life	September 30, 2012			December 31, 2011
Land use rights	30 - 50 years	$	72,614,071		$	50,663,351
Less: accumulated amortization			(4,960,377	)		(3,430,267	)
		$	67,653,694		$	47,233,084

Amortization of land use rights attributable to future periods is as follows:

Twelve-month periods ending September 30:
2013	$	2,258,062
2014		2,258,062
2015		2,258,062
2016		2,258,062
2017		2,258,062
Thereafter		56,363,384
	$	67,653,694

NOTE 5 – ACCRUED EXPENSES

At September 30, 2012 and December 31, 2011, accrued expenses consisted of the following:

	September 30, 2012		December 31, 2011
Accrued payroll and employees benefit	$	350,427	$	1,094,414
Other		117,961		117,653
	$	468,388	$	1,212,067

NOTE 6 – SHAREHOLDERS’ EQUITY

Warrants

Warrant activity for the nine months ended September 30, 2012 is summarized as follows:

	Number of Warrants		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Balance at December 31, 2011		3,402,212	$	6.00
Granted		-		-
Exercised		-		-
Balance at September 30, 2012		3,402,212	$	6.00		2.07		-
Warrants exercisable at September 30, 2012		3,402,212	$	6.00		2.07		-

ORIENTAL DRAGON CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

NOTE 7 – MAJOR CUSTOMERS

For the nine months ended September 30, 2012 and 2011, 16 and 14 customers accounted for 100.0% of the Company’s revenues, respectively. The following represents identifiable concentrations for any arrangement where revenue exceeded 10% of the total revenues for the nine months ended September 30, 2012 and 2011 as follows:

	Percentage of total revenues
Customer	2012	2011
1	13.7%	17.6%
2	8.4%	10.0%
3	8.3%	10.3%
4	9.5%	10.4%
5	13.4%	-

NOTE 8 – STATUTORY AND NON-STATUTORY RESERVES

The Company is required to make appropriations to reserve funds, comprising the statutory surplus reserve, statutory public welfare fund and discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (the “PRC GAAP”). Appropriation to the statutory surplus reserve should be at least 10% of the after tax net income determined in accordance with the PRC GAAP until the reserve is equal to 50% of the entities’ registered capital or members’ equity. Appropriations to the statutory public welfare fund are at a minimum of 5% of the after tax net income determined in accordance with PRC GAAP. Commencing on January 1, 2006, the new PRC regulations waived the requirement for appropriating retained earnings to a welfare fund. For the nine months ended September 30, 2012, statutory reserve activity is as follows:

	Statutory		Non-Statutory		Total
Balance – December 31, 2011	$	2,481,741	$	3,256,451	$	5,738,192
Addition to reserves		1,366,080		-		1,366,080
Balance – September 30, 2012	$	3,847,821	$	3,256,451	$	7,104,272

NOTE 9 – RESTRICTED NET ASSETS

Schedule I of Article 5-04 of Regulation S-X requires the condensed financial information of registrant shall be filed when the restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. For purposes of the above test, restricted net assets of consolidated subsidiaries shall mean that amount of the registrant's proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company by subsidiaries in the form of loans, advances or cash dividends without the consent of a third party (i.e., lender, regulatory agency, foreign government, etc.).

The condensed parent company financial statements have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X as the restricted net assets of the Company’s China-based operating VIE’s and subsidiary exceed 25% of the consolidated net assets of Oriental Dragon Corporation. The ability of our Chinese operating affiliates to pay dividends may be restricted due to the foreign exchange control policies and availability of cash balances of the Chinese operating subsidiaries. Because a significant portion of our operations and revenues are conducted and generated in China, all of our revenues being earned and currency received are denominated in Renminbi (RMB). RMB is subject to the exchange control regulation in China, and, as a result, we may be unable to distribute any dividends outside of China due to PRC exchange control regulations that restrict our ability to convert RMB into US Dollars.

ORIENTAL DRAGON CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

NOTE 9 – RESTRICTED NET ASSETS (Continued)

The condensed parent company financial statements have been prepared using the same accounting principles and policies described in the notes to the consolidated financial statements, with the only exception being that the parent company accounts for its subsidiaries using the equity method. Refer to the consolidated financial statements and notes presented above for additional information and disclosures with respect to these financial statements.

ORIENTAL DRAGON CORPORATION CONSOLIDATED PARENT COMPANY BALANCE SHEETS

	As of
	September 30, 2012		December 31, 2011
ASSETS
Cash and cash equivalents	$	94,881	$	95,410
Cash – restricted		54,307		278,491
Prepaid expenses and other		2,000		2,000
Total Current Assets		151,188		375,901
Investments in subsidiaries at equity		153,281,053		125,080,687
Total Assets	$	153,432,241	$	125,456,588

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	57,265	$	93,026
Total Current Liabilities		57,265		93,026

Shareholders' equity:
Ordinary shares ($0.001 par value; 50,000,000 shares authorized, 27,509,171 and 27,509,171 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively)		27,509		27,509
Additional paid-in capital		16,385,297		16,385,297
Statutory reserve		7,104,272		5,738,192
Retained earnings		120,300,433		94,250,679
Accumulated other comprehensive income		9,557,465		8,961,885
Total Shareholders' Equity		153,374,976		125,363,562
Total Liabilities and Shareholders' Equity	$	153,432,241	$	125,456,588

ORIENTAL DRAGON CORPORATION CONSOLIDATED PARENT COMPANY STATEMENTS OF INCOME

	For the Nine Months Ended September 30,
	2012			2011
REVENUES	$	-		$	-

OPERATING EXPENSES:
General and administrative		188,952			204,624
Total Operating Expenses		188,952			204,624

LOSS FROM OPERATIONS		(188,952	)		(204,624	)

LOSS ATTRIBUTABLE TO PARENT ONLY		(188,952	)		(204,624	)

EQUITY INCOME EARNINGS OF SUBSIDIARIES		27,604,786			18,289,736

NET INCOME	$	27,415,834		$	18,085,094

ORIENTAL DRAGON CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

NOTE 9 – RESTRICTED NET ASSETS (Continued)

ORIENTAL DRAGON CORPORATION CONSOLIDATED PARENT COMPANY STATEMENTS OF CASH FLOWS

	For the Nine Months Ended September 30,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	27,415,834		$	18,085,094
Adjustments to reconcile net income to net cash
used in operating activities:
Equity in earnings of subsidiary and VIE		(27,604,786	)		(18,289,736	)
Stock-based compensation		-			18,000
Changes in assets and liabilities:
Prepaid expenses		-			(47,500	)
Accounts payable		(35,761	)		(103,090	)
NET CASH USED IN OPERATING ACTIVITIES		(224,713	)		(337,232	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment payments to subsidiaries		-			(900,000	)
NET CASH USED IN INVESTING ACTIVITIES		-			(900,000	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in cash – restricted		224,184			336,653
NET CASH PROVIDED BY FINANCING ACTIVITIES		224,184			336,653

NET DECREASE IN CASH		(529	)		(900,579	)
CASH - beginning of period		95,410			996,143
CASH - end of period	$	94,881		$	95,564

NOTE 10 – SEGMENT REPORTING

For the nine months ended September 30, 2012 and 2011, the Company operated in two reportable business segments - (1) the manufacture and sale of Laiyang pear and other juice concentrate and puree segment (the Juice Concentrate and Puree Segment”) and (2) the manufacture of sale of bio-animal feed segment. The Company's reportable segments are strategic business units that offer different products. The Company does not manage these segments separately and the manufacture of bio-animal feed in dependent of the waste generated from the manufacture of Laiyang pear juice concentrate. All of the Company’s operations are conducted in the PRC.

ORIENTAL DRAGON CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

NOTE 10 – SEGMENT REPORTING (continued)

Segment information available with respect to these reportable business segments for the three and nine months ended September 30, 2012 and 2011 was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Revenue:
Juice concentrate and puree segment	$	32,017,557	$	15,858,368	$	101,176,103	$	75,674,196
Bio animal feed segment		1,583,726		780,188		5,983,897		3,326,109
		33,601,283		16,638,556		107,160,000		79,000,305
Gross profit:
Juice concentrate and puree segment		12,305,394		4,617,688		34,738,231		24,084,125
Bio animal feed segment		1,227,889		575,099		4,750,505		2,637,770
	$	13,533,283	$	5,192,787	$	39,488,736	$	26,721,895

Identifiable long-lived tangible assets at September 30, 2012 and December 31, 2011 by geographical location:

China	$	17,779,765	$	19,190,976
United States		-		-
	$	17,779,765	$	19,190,976

Identifiable long lived asset related to the bio animal feed segment is less than 10% of total consolidated identifiable long-lived assets.

The Company does not allocate any general and administrative expenses of to its reportable segments because these activities are managed at a corporate level.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the results of operations and financial condition of the Company for the three and nine months ended September 30, 2012 and 2011 should be read in conjunction with the 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, and Business sections in our Form 10-K as filed with the Securities and Exchange Commission on March 30, 2012. 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.

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 costs associated with uncompleted factory improvements and deposits on machinery pending installation, 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
Parcel K	Laiyang pear orchards	30	04/2012	03/2042	502.5 acres

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 revenues.

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.

Foreign currency translation

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 nine months ended September 30, 2012 and 2011 included net income and unrealized gains (losses) from foreign currency translation adjustments.

Recent Accounting Pronouncements

RESULTS OF OPERATIONS

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

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2012			2011			2012			2011
NET REVENUES	$	33,601,283		$	16,638,556		$	107,160,000		$	79,000,305
COST OF REVENUES		20,068,000			11,445,769			67,671,264			52,278,410
GROSS PROFIT		13,533,283			5,192,787			39,488,736			26,721,895
OPERATING EXPENSES:
Selling		130,828			101,322			376,607			345,951
Research and development		-			231,873			-			384,781
General and administrative		895,816			760,401			2,709,799			1,988,128
Total Operating Expenses		1,026,644			1,093,596			3,086,406			2,718,860
INCOME FROM OPERATIONS		12,506,639			4,099,191			36,402,330			24,003,035
OTHER INCOME (EXPENSE):
Interest income		49,120			52,501			217,119			183,441
Loss from foreign currency		-			(33	)		-			(4,803	)
Total Other Income (Expense)		49,120			52,468			217,119			178,638
INCOME BEFORE PROVISION FOR INCOME TAXES		12,555,759			4,151,659			36,619,449			24,181,673
PROVISION FOR INCOME TAXES:
Current		(3,123,164	)		(1,036,027	)		(9,155,173	)		(6,049,473	)
Deferred		(16,127	)		(15,907	)		(48,442	)		(47,106	)
Total Provision for Income Taxes		(3,139,291	)		(1,051,934	)		(9,203,615	)		(6,096,579	)
NET INCOME	$	9,416,468		$	3,099,725		$	27,415,834		$	18,085,094
COMPREHENSIVE INCOME:
NET INCOME	$	9,416,468		$	3,099,725		$	27,415,834		$	18,085,094
Other Comprehensive Income (Loss):
Unrealized foreign currency translation gain (loss)		(279,407	)		1,062,490			595,580			3,229,805
COMPREHENSIVE INCOME	$	9,137,061		$	4,162,215		$	28,011,414		$	21,314,899

Results of Operations for the Three and Nine Months ended September 30, 2012 Compared to the Three and Nine Months ended September 30, 2011

Revenues. For the nine months ended September 30, 2012, we had net revenues of $107,160,000 as compared to net revenues of $79,000,305 for the nine months ended September 30, 2011, an increase of 35.6%. For the three months ended September 30, 2012, we had net revenues of $33,604,283, as compared to net revenues of $16,638,556 for the three months ended September 30, 2011, an increase of 101.9%. Revenue and changes for each product line was summarized as follows:

		Nine Months Ended September 30,
		2012		2011		Increase		Percentage Change
Laiyang Pear juice concentrate	(1)	$	79,111,467	$	61,756,346	$	17,355,121		28.1	%
Strawberry juice concentrate and puree	(2)		22,064,636		13,917,850		8,146,786		58.5	%
Bio animal feed	(3)		5,983,897		3,326,109		2,657,788		79.9	%
Total net revenues		$	107,160,000	$	79,000,305	$	28,159,695		35.6	%

		Three Months Ended September 30,
		2012		2011		Increase		Percentage Change
Laiyang Pear juice concentrate	(1)	$	17,397,933	$	9,128,479	$	8,269,454		90.6	%
Strawberry juice concentrate and puree	(2)		14,619,624		6,729,889		7,889,735		117.2	%
Bio animal feed	(3)		1,583,726		780,188		803,538		103.0	%
Total net revenues		$	33,601,283	$	16,638,556	$	16,962,727		101.9	%

(1)

During the three and nine months ended September 30, 2012, 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 nine months ended September 30, 2012, our revenues from Laiyang Pear juice concentrate increased by 28.1% as compared to the nine months ended September 30, 2011 with the Laiyang Pear juice concentrate increased revenue attributable to an increase in volume with no change in our selling price. During the nine months ended September 30, 2012, we sold 29,990 metric tons (“MT”) of Laiyang pear juice concentrate as compared to 24,075 MT in the nine months ended September 30, 2011, an increase of 24.6%.

During the three months ended September 30, 2012, our revenues from Laiyang Pear juice concentrate increased by 90.6% as compared to the three months ended September 30, 2011 with the Laiyang Pear juice concentrate decreased revenue attributable to the lack of inventory of Laiyang pear juice concentrate available for sale during the three months ended June 30, 2012. During the three months ended September 30, 2012, we sold 6,609 metric tons (“MT”) of Laiyang pear juice concentrate as compared to 3,424 MT in the three months ended September 30, 2011, an increase of 93.0%.

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 juice and beverage products and 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)

The production of strawberry juice concentrate and puree that we 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 juice concentrates and puree when we are not producing Laiyang Pear juice concentrate. For the three and nine months ended September 30, 2012, we had an increase in revenues from the sale of strawberry juice concentrate and puree of $7,889,735, and $8,146,786, respectively, as compared the comparable 2011 periods. The increase was primarily attributable increase in the sale of strawberry puree during the third quarter of 2012 as compared to the 2011 comparable period. This increase was attributable to an increase in volume sold of 89% and an increase in selling price of 12%.

(3)

The manufacture of bio-animal feed began in 2010 and is dependent on the waste generated from the manufacture of Laiyang pear juice concentrate. During the 2012 period, we produced more Laiyang pear juice concentrate as compared to the 2012 period and according were able to produce more animal bio feed. Currently, we sell our bio-animal feed is sold to 2 customers who have purchased all of the bio-animal feed produced. For the three and nine months ended September 30, 2012, we had an increase in revenues from the sale of bio-animal feed of $803,538 and $2,657,788, respectively, as compared the comparable 2011 periods. This increase was attributable to an increase in volume sold of 75% with no increase in the selling price.

Cost of revenues. Cost of revenues increased by $15,392,854, or 29.4%, from $52,278,410 for the nine months ended September 30, 2011 to $67,671,264 for the nine months ended September 30, 2012. Cost of revenues increased by $8,622,231, or 75.3%, from $11,445,769 for the three months ended September 30, 2011 to $20,068,000 for the three months ended September 30, 2012. These increases are attributable to the increase in our net revenues.

Gross profit and gross margin. Our gross profit was $39,488,736 for the nine months ended September 30, 2012 as compared to $26,721,895 for the nine months ended September 30, 2011 representing gross margins of 36.8% and 33.8%, respectively. Our gross profit was $13,533,283 for the three months ended September 30, 2012 as compared to $5,192,787 for the three months ended September 30, 2011 representing gross margins of 40.3% and 31.2%, respectively.

Gross margin percentages by product line are as follows:

	For the Three Months Ended September 30, 2012			For the Three Months Ended September 30, 2011			For the Nine Months Ended September 30, 2012			For the Nine Months Ended September 30, 2011
Laiyang Pear juice concentrate		29.3	%		29.5	%		31.0	%		31.7	%
Strawberry juice concentrate and puree		49.3	%		28.5	%		46.4	%		32.3	%
Bio animal feed		77.5	%		73.6	%		79.4	%		79.3	%
Overall gross profit %		40.3	%		31.2	%		36.8	%		33.8	%

●	For the three and nine months ended September 30, 2012, the decrease in gross margin percentages related to Laiyang Pear juice concentrate as compared to the three and nine months ended September 30, 2011, was attributed to a slight increase in raw materials costs.

●

For the three and nine months ended September 30, 2012, the increase in gross margin percentages related to strawberry juice concentrate and puree as compared to the three and nine months ended September 30, 2011, was attributed to the 2012 increase in the sale price and volume from the sale of strawberry puree for which we recognize a higher gross margin as compared to the sale of strawberry juice concentrate.

●

Gross margin percentages related to the sale of bio animal feed was ranged from 73.6% to 79.4% 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 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 and in April 2012.

Selling expenses. Selling expenses, which includes sales related compensation and related benefits, shipping and handling costs and other selling costs, were $376,607for the nine months ended September 30, 2012 as compared to $345,951 for the nine months ended September 30, 2011, an increase of $30,656 or 8.9%. Selling expenses were $130,828 for the three months ended September 30, 2012 as compared to $101,322 for the three months ended September 30, 2011, an increase of $29,506 or 29.1%. These increases were primarily attributable to an increase in sales commission expense.

Research and development expenses. For the three and nine months ended September 30, 2011, research and development expenses amounted to $231,873 and $384,781. We did not incur research and development expenses during the 2012 periods. 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 we completed in 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 $2,709,799 for the nine months ended September 30, 2012, as compared to $1,988,128 for the nine months ended September 30, 2011, an increase of $721,671 or 36.3%. General and administrative expenses amounted to $895,816 for the three months ended September 30, 2012, as compared to $760,401 for the three months ended September 30, 2011, an increase of $135,415 or 17.8%. General and administrative expenses consisted of the following:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Compensation and related benefits	$	160,007	$	186,884	$	510,861	$	557,449
Professional fees		34,710		39,366		148,674		185,921
Depreciation		62,744		63,076		192,826		186,436
Amortization of land use rights		425,599		239,440		1,097,009		424,221
Other		212,756		231,635		760,429		634,101
Total	$	895,816	$	760,401	$	2,709,799	$	1,988,128

	●	For the nine months ended September 30, 2012, compensation and related benefits decreased due to the reduction of office staff and a decrease in director’s fees.

	●	Professional fees consisting of legal fees, accounting fees, internal control consulting services and other fees associated with being a public company. For the nine months ended September 30, 2012, professional fees decrease by $37,247 or 20.0% as compared to the nine months ended September 30, 2011 and was attributable to a decrease in fees incurred in connection with internal control procedures approximately $40,000 and a decrease in investor relations fees of $30,000 offset by an increase in legal fees of $36,000. For the three months ended September 30, 2012, professional fees decrease by $4,656 or 11.8% as compared to the three months ended September 30, 2011.

●

During the three and nine months ended September 30, 2012, amortization of land use rights increased by $186,159 and $672,788 as compared to the three and nine months ended September 30, 2011, respectively. The increase was attributable to the amortization of land use rights acquired in June 2011 and April 2012 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.

●

Other general and administrative expenses which consist of entertainment, utilities, office maintenance, travel expenses, pension, miscellaneous taxes, office supplies, filing fees and telephone. During the nine months ended September 30, 2012, other general and administrative expenses increased by $126,328 or 19.9% as compared to the nine months ended September 30, 2011. The increase was primarily attributable to an increase in pension contributions of $32,000 and an increase in non-capitalized maintenance expenses of approximately $72,000. During the three months ended September 30, 2012, other general and administrative expenses increased by $135,415 or 17.8% as compared to the three months ended September 30, 2011.

Income from operations. For the nine months ended September 30, 2012, income from operations was $36,402,330, as compared to $24,003,035 for the nine months ended September 30, 2011, an increase of $12,399,295 or 51.7%. For the three months ended September 30, 2012, income from operations was $12,506,639, as compared to $4,099,191 for the three months ended September 30, 2011, an increase of $8,407,448 or 205.1%.

Other income (expenses). For the nine months ended September 30, 2012, other income amounted to $217,119 as compared to $178,638 for the nine months ended September 30, 2011, an increase of $38,481 or 21.5%. For the three months ended September 30, 2012, other income amounted to $49,120 as compared to $52,468 for the three months ended September 30, 2011, a decrease of $3,348 or 6.4%. The decrease was primarily attributable to the following:

●

For the nine months ended September 30, 2012, interest income increased by $33,678 or 18.4% as compared to the nine months ended September 30, 2011. For the three months ended September 30, 2012, interest income decreased by $3,381 or 6.4% as compared to the three months ended September 30, 2011, and related to an increase (decrease) in funds in interest bearing accounts.

Income tax expense. Income tax expense increased by $3,107,036, or 51.0%, for the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011 which was attributed to an increase in taxable income. Income tax expense increased by $2,087,357, or 198.4%, for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011 which was attributed to an increase in taxable income.

Net income. As a result of the factors described above, our net income for the nine months ended September 30, 2012 was $27,415,834, or $1.00 per ordinary share (basic and diluted). For the nine months ended September 30, 2011, we had net income of $18,085,094, or $0.66 per ordinary share (basic and diluted). Our net income for the three months ended September 30, 2012 was $9,416,468, or $0.34 per ordinary share (basic and diluted). For the three months ended September 30, 2011, we had net income of $3,099,725, or $0.11 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 $595,580 for the nine months ended September 30, 2012 as compared to $3,229,805 for the nine months ended September 30, 2011. We reported a foreign currency translation loss of $(279,407) for the three months ended September 30, 2012 as compared to a gain of $1,062,490 for the three months ended September 30, 2011. These non-cash gains (losses) had the effect of increasing (decreasing) our reported comprehensive income.

Comprehensive income. For the nine months ended September 30, 2012, comprehensive income of $28,011,414 is derived from the sum of our net income of $27,415,834 plus foreign currency translation gains of $595,580. For the nine months ended September 30, 2011, comprehensive income of $21,314,899 is derived from the sum of our net income of $18,085,094 plus foreign currency translation gains of $3,229,805. For the three months ended September 30, 2012, comprehensive income of $9,137,061 is derived from the sum of our net income of $9,416,468 less a foreign currency translation loss of $279,407. For the three months ended September 30, 2011, comprehensive income of $4,162,215 is derived from the sum of our net income of $3,099,725 plus foreign currency translation gains of $1,062,490.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2012, our balance of cash and cash equivalents was $67,567,272, as compared to $54,287,373 as of December 31, 2011. 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, 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,
	●	Acquisitions of similar or complimentary businesses,
	●	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.

Cash flows for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011

Changes in our working capital position are summarized as follows:

	September 30,			December 31,
	2012			2011			Increase
Current assets	$	72,277,480		$	69,071,509		$	3,205,971
Current liabilities		(5,061,618	)		(10,902,144	)		5,840,526
Working capital	$	67,215,862		$	58,169,365		$	9,046,497

Our working capital increased by $9,046,497 to $67,215,862 at September 30, 2012 from working capital of $58,169,365 at December 31, 2011. This increase in working capital is primarily attributable to:

●	an increase in cash of $13,279,899 as described below,

●	a decrease in accounts payable of approximately $3,236,000 due to the payment of accounts payable,

●	a decrease in accrued expenses of approximately $744,000 due to the payment of accrued wages, and

●	a decrease in income taxes payable of approximately $2,174,000 due to the payment of income taxes due, and

Offset by:

●	an increase in VAT and other taxes payable of approximately $313,000.

●	a decrease in inventories of approximately $9,907,000 from the sale of substantially all of the 2011/2012 Laiyang pear inventory in the 2012 period.

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 September 30, 2012 and December 31, 2011, 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 nine months ended September 30, 2012 and 2011:

	Nine Months Ended September 30,
	2012			2011
Net cash provided by operating activities	$	34,564,790		$	25,442,591
Cash flows used in investing activities	$	(21,765,685	)	$	(31,697,780	)
Cash flows provided by financing activities	$	224,184		$	336,653
Effect of exchange rate on cash	$	256,610		$	1,510,686
Net increase (decrease) in cash equivalents	$	13,279,899		$	(4,407,850	)

Net cash flow provided by operating activities was $34,564,790 for the 2012 period as compared to $25,442,591 for the 2011 period, an increase of $9,122,199.

●	Net cash flow provided by operating activities for the 2012 period was mainly due to:

●	net income of $27,415,834 adjusted for the add back (reduction) of non-cash items such as depreciation of $1,552,347, the amortization of land use rights of $1,514,794, deferred income taxes of $48,442 and a reduction in inventory reserve of $(49,858), and

●	Changes in operating assets and liabilities consisting primarily of:

■	a decrease in inventories of $10,043,009 attributable to the seasonality factors described above, and

offset by

■	a decrease in accounts payable of $3,259,267,

■	a decrease in accrued expenses of $750,816, and

■	a decrease in income taxes payable of $2,202,919 due to the payment of income taxes due.

●	Net cash flow provided by operating activities for the 2011 period was mainly due to:

●	net income of $18,085,094 adjusted for the add back of non-cash items such as depreciation of $1,511,109, the amortization of land use rights of $830,483, stock-based compensation of $18,000, and deferred income taxes of $47,106, and

●	Changes in operating assets and liabilities primarily consisting of:

■	a decrease in inventories of $12,629,967 attributable to the seasonality factors,

■	a decrease in prepaid VAT on purchases of $454,556, and

■	an increase in other taxes payable of $554,471,

offset by

■	an increase in prepaid and other current assets of $179,712,

■	a decrease in accounts payable of $501,760,

■	a decrease in accrued expenses of $292,320, and

■	a decrease in income taxes payable of $7,714,403 due to the payment of 2010 and 2011 incomes taxes due.

Net cash flow used in investing activities was $21,765,685 for the 2012 period as compared to $31,697,780 for the 2011 period. During the 2012 period, we used cash of $21,723,647 for the acquisition of land use rights related to Laiyang pear orchards and we used cash of $42,038 for the acquisition of property and equipment. During the 2011 period, we used cash of $31,579,257 for the acquisition of land use rights related to our new facility and for Laiyang pear orchards. Additionally, during the 2011 period, we used cash towards the construction of our new manufacturing facility and for the purchase of property and equipment for our new production lines of $118,523.

Net cash flow provided by financing activities was $224,184 for the nine months ended September 30, 2012 as compared to $336,653 for the nine months ended September 30, 2011. During the nine months ended September 30, 2012 and 2011, we received operating cash from our restricted cash held in escrow of $224,184 and $336,653, respectively.

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 September 30, 2012 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)	$	2,959,000	$	2,959,000	$	-	$	-	$	-
Total Contractual Obligations:	$	2,959,000	$	2,959,000	$	-	$	-	$	-

(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 3. 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 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are effective as of September 30, 2012 to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

No change in our system of internal control over financial reporting occurred during the period covered by this report 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 1A.	RISK FACTORS

	There are no material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC on March 30, 2012.

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

	None.

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

	None.

ITEM 4.	MINING SAFETY DISCLOSURES
	Not applicable.

ITEM 5.	OTHER INFORMATION

	None.

ITEM 6.

EXHIBITS.

Exhibit Number		Description
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 and Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS†		XBRL Instance Document
101.SCH†		XBRL Taxonomy Extension Schema Document
101.CAL†		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF†		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB†		XBRL Taxonomy Extension Label Linkbase Document
101.PRE†		XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

** In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are furnished and not filed.

† Furnished herewith. XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SIGNATURES

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

	ORIENTAL DRAGON CORPORATION

Date: November 9, 2012	By:	/s/ Zhide Jiang
		Zhide Jiang
		President, Chief Executive Officer
		and Chairman of the Board of Directors
		(Duly Authorized Officer and Principal
		Executive Officer)

Date: November 9, 2012	By:	/s/ Adam Wasserman
		Adam Wasserman
		Chief Financial Officer (Principal Financial Officer)

Oriental Dragon Corp 10-Q