UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q/A

(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, 2010

OR

[   ] 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 000-53343

SMSA PALESTINE ACQUISITION CORP.
(Exact name of registrant as specified in its charter)

(86) 0599-2335520
(Issuer's telephone number, including area code)

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

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

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

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

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:

SMSA Palestine Acquisition Corp.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended September 30, 2010

TABLE OF CONTENTS

-i-

EXPLANATORY NOTE

In this report, unless the context otherwise requires, the terms “SMSA,” “Company,” “we,” “us,” and “our” refer to SMSA Palestine Acquisition Corp., a Nevada corporation and/or its subsidiaries, as the case may be. We are a Nevada holding company and conduct substantially all of our business through our operating subsidiary Fujian Yada Group Co., Ltd. in China.

On August 20, 2010, we entered into an Exchange Agreement (the "Exchange Agreement") with Sino Oriental Agriculture Group Ltd. ("Sino Oriental") and the shareholders of Sino Oriental. In connection the Exchange Agreement we issued 11,685,617 shares of our common stock to the shareholders of Sino Oriental, in exchange for all of the issued and outstanding capital stock of Sino Oriental. Prior to the Exchange Agreement, we were a shell company with nominal operations. Sino Oriental, through its wholly owned subsidiaries operates a green and organic food production and manufacturing business in the People's Republic of China. The acquisition of Sino Oriental has been accounted for as a "reverse merger". Accordingly, the historical financial statements contained in this report reflect the operations of the business of Sino Oriental and its subsidiaries.

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

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

The forward-looking statements in this report speak only as of the date of this report and caution should be taken not to place undue reliance on any such forward-looking statements. Forward-looking statements are subject to certain events, risks, and uncertainties that may be outside of our control. When considering forward-looking statements, you should carefully review the risks, uncertainties and other cautionary statements in this report as they identify certain important factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. These factors include, among others, the risks described under Item 1A and elsewhere in this report, as well as in the other reports and documents we file with the SEC.

-ii-

PART I—FINANCIAL INFORMATION

Item 1.        FINANCIAL STATEMENTS.

SMSA Palestine Acquisition Corp.
Condensed Consolidated Statements of Income and Comprehensive Income
For the three and nine months ended September 30, 2010 and 2009
(Stated in US Dollars)

See the accompanying notes to condensed consolidated financial statement

1

SMSA Palestine Acquisition Corp.
Condensed Consolidated Balance Sheets
As of September 30, 2010 and December 31, 2009
(Stated in US Dollars)

See the accompanying notes to condensed consolidated financial statements

2

SMSA Palestine Acquisition Corp.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
(Stated in US Dollars)

3

SMSA Palestine Acquisition Corp.
Condensed Consolidated Statement of Cash Flows
For the nine months ended September 30, 2010 and 2009
(Stated in US Dollars)

See the accompanying notes to Condensed Consolidated Financial Statements

4

SMSA Palestine Acquisition Corp.
Notes to Condensed Consolidated Financial Statements
(Stated in US Dollars)

5

The aggregate cash consideration of $2,306,858 paid to Mr. Zhan and his spouse, Liufeng Zhou stated in Notes 2 (i), (ii) and (iii) is deemed distribution in connection of the transactions. Upon the completion of Reorganization on August 20, 2010, Fujian Yada, Yaxin, Shengda and Xinda became the wholly owned subsidiaries of the Company.

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Basis of consolidation and presentation

Before and immediately after the completion of Reorganization, the Company, Fujian Yada, Yaxin, Shengda and Xinda are under the common control of Mr. Zhan and his spouse, Liufeng Zhou. Accordingly, accounting for recapitalization is adopted for the preparation of condensed consolidated financial statements to present the combined results of operations and financial position of the Company, Fujian Yada, Yaxin, Shengda and Xinda as if the current group structure, which means that Fujian Yada, Yaxin, Shengda and Xinda are wholly owned subsidiaries of the Company, had been in existence at the beginning of the reporting period.

The accompanying unaudited condensed consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) including the instructions to Form 10-Q and Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles gennerally accepted in the United States of America have been condensed or omitted from these statements pursuant to such rules and regulation and, accordingly, they do not include all the information and notes necessary for comprehensive consolidated financial statements and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2009.

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP").

The condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

Concentration of credit risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist principally of cash and cash equivalents, restricted cash, trade receivables and other receivables, prepayment and deposits. As of September 30, 2010 and December 31, 2009, substantially all of the Company's cash and cash equivalents and restricted cash were held by major financial institutions located in the PRC, which the management believes are of high credit quality. With respect to trade receivables, the Company extends credit based on an evaluation of the customer's financial condition. The Company generally does not require collateral for trade receivables and maintains an allowance for doubtful accounts of trade receivables.

As of September 30, 2010, the Company did not have any balance of gross trade receivables due from individual customer that represented 10% or more of the Company's gross trade receivables.

As of December 31, 2009, except for a receivable balance from one customer which represents 12% of gross trade receivables, no any other single customer's receivable balance was considered to be large enough to pose a significant credit risk to the Company.

Fair value of financial instruments

The Company adopted ASC 820 (previously Statement of Financial Accounting Standards (“SFAS”) No. 157) on January 1, 2008. The adoption of ASC 820 did not materially impact the Company's financial position, results of operations or cash flows.

ASC 820 requires the disclosure of the estimated fair value of financial instruments. The carrying amounts of the financial assets and liabilities approximate to their fair values due to short maturity of such instruments.

Derivative financial instruments

The Company is for derivative financial instruments in accordance with the Topic ASC 815 “Derivatives and Hedging”. The topic requires the Company to recognize the value of derivative instruments as either assets or liabilities in the condensed consolidated balance sheets at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated as a hedge and qualifies as part of a hedging relationship.

7

The Company enters into foreign currency forward exchange contracts (“forward exchange contracts”) to manage its exposure to the foreign currency exchange risk related to the trade receivable denominated in Japanese Yen (“JPY”). The Company does not enter into forward exchange contracts for trading or speculative purposes. In accordance with US GAAP, the forward exchange contracts are considered as “derivatives not designated as hedging instruments”. Therefore, the foreign exchange contracts are recorded at fair value, with the gain or loss on these transactions recorded in the condensed consolidated statements of income and comprehensive income within “other (loss) income - net” in the period in which they occur. As of September 30, 2010 and December 31, 2009, the Company had outstanding forward exchange contracts to sell totaling JPY617,000,000 and JPY500,000,000 respectively with maturities of less than one year.

Fair value measurements

When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. The Company uses the following three levels of inputs in determining the fair value of the Company's assets and liabilities, focusing on the most observable inputs when available:

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement.

The following items recorded or measured at fair value on a recurring basis in the accompanying condensed consolidated financial statements were based on the use of Level 2 inputs as of September 30, 2010 and December 31, 2009:

8

The Company estimates the fair value of forward exchange contracts on a quarterly basis by obtaining market quotes of spot and forward rates for contracts with similar terms, adjusted where necessary for maturity differences. There were no changes in valuation techniques during the nine months ended September 30, 2010 and 2009.

Recently issued accounting pronouncements

Accounting for Transfers of Financial Assets (Included in amended Topic ASC 860 “Transfers and Servicing”, previously SFAS No. 166, “Accounting for Transfers of Financial Assets - an Amendment of Financial Accounting Standard Board (“FASB”) Statement No. 140.”). The amended topic addresses information a reporting entity provides in its financial statements about the transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor's continuing involvement in transferred financial assets. Also, the amended topic removes the concept of a qualifying special purpose entity, limits the circumstances in which a transferor derecognizes a portion or component of a financial asset, defines participating interest and enhances the information provided to financial statement users to provide greater transparency. The amended topic is effective for the first annual reporting period beginning after November 15, 2009 and was effective for us as of January 1, 2010. The adoption of this amended topic has no material impact on the Company's financial statements.

Consolidation of Variable Interest Entities - Amended (Included in amended Topic ASC 810 “Consolidation”, previously SFAS 167 “Amendments to FASB Interpretation No. 46(R)”). The amended topic requires an enterprise to perform an analysis to determine the primary beneficiary of a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity and to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity. The amended topic also requires enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise's involvement in a variable interest entity. The amended topic is effective for the first annual reporting period beginning after November 15, 2009 and was effective for us as of January 1, 2010. The adoption of this amended topic has no material impact on the Company's financial statements.

The FASB issued Accounting Standards Update (ASU) No. 2009-13, Revenue Recognition (Topic 605): Multiple Deliverable Revenue Arrangements - A Consensus of the FASB Emerging Issues Task Force.” This update provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. The Company will be required to apply this guidance prospectively for revenue arrangements entered into or materially modified after January 1, 2011; however, earlier application is permitted. The management is in the process of evaluating the impact of adopting this ASU update on the Company's financial statements.

9

10

In July 2006, the FASB issued ASC 740-10-25 (previously Interpretation No. 48, "Accounting for Uncertainty in Income Taxes"). This interpretation requires recognition and measurement of uncertain income tax positions using a "more-likely-than-not" approach. The Company adopted this ASC 740-10-25 on January 1, 2007. Under the new CIT Law which became effective on January 1, 2008, the Company may be deemed to be a resident enterprise by the PRC tax authorities. If the Company was deemed to be resident enterprise, the Company may be subject to the CIT at 25% on the worldwide taxable income and dividends paid from PRC subsidiaries to their overseas holding companies may be exempted from 10% PRC withholding tax. Except for certain immaterial interest income from bank deposits placed with financial institutions outside the PRC, all of the Company's income is generated from the PRC operation. Given the immaterial amount of income generated from outside the PRC and the PRC subsidiaries do not intend to pay dividends for the foreseeable future, the management considers that the impact arising from resident enterprise on the Company's financial position is not significant. The management evaluated the Company's overall tax positions and considered that no additional provision for uncertainty in income taxes is necessary as of September 30, 2010 and December 31, 2009.

11

During the reporting periods, depreciation charge is included in:

12

As of September 30, 2010 and December 31, 2009, buildings and plant and machinery with carrying amount of $8,818,514 and $9,272,656 were pledged as collateral under certain loan arrangements, respectively (Note 15).

During the nine months ended September 30, 2010, property, plant and equipment with net book value of $185,961 were disposed of at a consideration of $236,171, resulting in a gain of $50,210. There was no disposal during the nine months ended September 30, 2009.

For the nine months ended September 30, 2009, the Company capitalized interest of $74,191 to the cost of property, plant and equipment. There was no capitalized interest during the nine months ended September 30, 2010.

13

The secured borrowings were secured by the following:

14

15

Rental expense for operating leases amounted to $2,058,762 and $1,559,839 for the nine months ended September 30, 2010 and 2009, respectively, have been recorded in cost of sales and inventories.

Rental expense for operating leases amounted to $889,486 and $518,755 for the three months ended September 30, 2010 and 2009, respectively, have been recorded in cost of sales and inventories.

Registration payment arrangement

On August 20, 2010, the Company completed a private placement of 1,939,407 shares of common stock and three-year warrants to purchase up to 387,881 shares of common stock at an exercise price of $9.45 per share. In connection with the private placement, three-year warrants to purchase up to 135,759 shares of common stock at an exercise price of $9.45 per share were issued to the Placement Agent.

Pursuant to the subscription agreement, the Company was required to file a registration statement (the “Registration Statement”) under the Securities Act of 1933, as amended, (i) registering for resale by the investors 1,939,407 shares of common stock and warrants to purchase up to 387,881 shares of common stock issued to the investors; and (ii) registering for resale for the Placement Agents for the warrants to purchase up to 135,759 shares of common stock (all of the foregoing securities being collectively referred herein as the “Registrable Securities”). The Company agreed to use its best efforts to file the Registration Statement within 30 days from the closing date (the “Closing Date”), August 20, 2010, (the “Registration Filing Date”) and to have the Registration Statement declared effective prior to the 150th day of Closing Date (the “Registraction Effective Date”).

In the event that (i) the Registration Statement has not been filed on or prior to the Registration Filing Date or declared effective by the SEC on or before the Registration Effective Date; and (ii) the Registrable Securities included in such Registration Statement are not saleable under Rule 144, the Company shall pay to each investor as liquidated damages, a cash payment equal to 0.5% per month of the aggregated amount invested by such investors in the private placement until the registration statement has been filed and/or declared effective, but the maximum amount of liquidated damages is capped at 6% on aggregated amount invested by such investors. In accordance with FASB ASC 825-20, if the Company determines a registration payment arrangement is probable and can be reasonably estimated, a liability should be recorded. As of September 30, 2010 and up to the date of approval of these financial statements, it is not considered probable that the Company will be required to make any material payments under the registration rights arrangement and therefore no provision for such liability has been made.

16

Notes:

17

A reconciliation is provided for unallocated amounts relating to corporate operations which is not included in the segment information.

All of the Company's long-lived assets are located in the PRC. Geographic information about the revenues, which are classified based on the customers, is set out as follows:

18

During the reporting periods, no individual customer represented 10% or more of the Company's consolidated revenue.

Apart from the transactions as disclosed in notes 14 and 15 to the condensed consolidated financial statements, the Company had no other material transactions with its related parties during the nine months ended September 30, 2010 and 2009.

The Company evaluated all events or transactions that occurred after September 30, 2010 through the date the financial statements were issued and has determined that there is no material recognizable nor subsequent events or transactions which would require recognition or disclosure in the condensed consolidated financial statements.

19

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

FORWARD-LOOKING STATEMENTS

Statements in the following discussion and throughout this report that are not historical in nature are “forward-looking statements”. You can identify forward-looking statements by the use of words such as “expect,” “anticipate,” “estimate,” “may,” “should,” “intend,” “believe,” and similar expressions. Although we believe the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct. Actual results could differ from those described in this report because of numerous factors, many of which are beyond our control. These factors include, without limitation, those described under Item 1A “Risk Factors.” We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes. Please see “Special Note Regarding Forward Looking Statements” at the beginning of this report.

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

OVERVIEW

Prior to August 20, 2010 we were a shell company with nominal operations. On August 20, 2010, we entered into the Exchange Agreement with Sino Oriental and the shareholders of Sino Oriental. In connection the Exchange Agreement we issued 11,685,617 shares of our common stock to the shareholders of Sino Oriental, in exchange for all of the issued and outstanding capital stock of Sino Oriental. The acquisition of Sino Oriental has been accounted for as a "reverse merger". Accordingly, the historical financial statements and the discussion of results of operations contained in this report, reflect the operations of the business of Sino Oriental and its subsidiaries.

We are a green and organic food company with headquarters in Fujian Province, China. We currently provide over 100 kinds of fresh and processed products in three principal categories, bamboo shoot products, fresh vegetables and fruit, and processed vegetables. Bamboo shoot products accounted for 49% of our revenue in 2009, while fresh vegetables and fruit accounted for 38% of revenue, processed vegetables for 5% of revenue, and bamboo wood for 8% of revenue, respectively. We have an integrated production line consisting of planting, manufacturing and sales of final products. We can supply most of fresh raw material from our own land. We conduct our operations in China and sell products in 10 provinces and administrative regions in China as well as the Japanese market. In 2009, we derived approximately 86% of our revenue in China and approximately 14% in Japan. Agricultural products are naturally subject to seasonality tied to their local growing season. For example, our fresh bamboo shoots, an important revenue driver, are only available for sale from approximately December through April. As a result, our fourth and first quarter revenues tend to be significantly higher than our second and third quarter revenues. We seek to offset the impact of seasonality on our revenues by managing a diversified portfolio of products. In addition to product diversification, we use cold storage facilities to preserve some of our fresh products to extend their season and time market sales to improve gross margin. We also maintain research and development facilities which focus on the development of unique products which either have unique size or flavor characteristics or which have the potential to expand the market for products, such as our high PH bamboo shoots.

We view our integrated operations as key to the quality of our products, as we monitor substantially all of our products from seed to ultimate sale. Accordingly, our ability to grow is dependent in part on the size of lands we control under lease, and our processing and storage capacity. We are currently experiencing rapid growth in our business and continually seek to procure additional lands for planting. We anticipate making capital expenditures over the next twelve to 24 months to increase our cold storage capacity, increase production resources and establish new corporate offices.

Our growth strategy is currently centered on the following five initiatives:

• Expand our planting base.
• Improve our profitability by continuously introducing new high value added products.
• Further expand our domestic sales and distribution network and enter new markets.
• Increase our cold storage capacity.
• Further enhance our brand recognition.

We are continuing to invest in new forest and planting bases. The table below summarizes our planting bases as of December 31, 2009, October 31, 2010 and our anticipated expansion through the end of 2010.

Through our research and development initiatives we plan to introduce at least one or two new products per year with the potential capture higher gross margins and improve profitability. We launched the sale of our proprietary high PH bamboo shoot product line in April 2010, and have experienced gross margins of approximately 70% on sales of that product through September 30, 2010. Gross margins for the nine months ended September 30, 2010 increased to 38% as a result of product mix, including the sale of more high margin products such as bamboo wood and the new high PH bamboo shoots.

We currently sell through distributors and members of our own sales force to farmers' markets, supermarkets, food manufacturers, restaurants and retailers in China. The following table shows the number of internal sales team members, outside sales agents and markets served at December 31, 2009 and September 30, 2010.

We have a 1,500 metric ton cold storage facility for storing fresh and semi-finished products, which is fully utilized. We are investing approximately $2.9 million in a new 10,000 metric ton cold storage facility in order to meet the requirements of our existing products and the anticipated need for recent new product launches. As of November 2010, the construction plan has been finalized and the construction work has commenced.

We have been gaining brand recognition in China, especially in Fujian Province. We will further enhance our branding through branded counters in supermarkets. We also plan to open a number of new exclusive Yada-branded distribution locations in select locations in China. At September 30, 2010 we had expanded our sales to approximately 700 supermarket stores and had opened 3 Yada-branded distribution locations.

RECENT DEVELOPMENTS

In the first nine months of 2010, our sales revenue grew by 94% to $50.7 million, from $26.1 million in the same period of 2009. Net income grew by 201% in the first nine months of 2010 to $16.6 million, from $5.5 million in the same period of 2009. Our gross margin for the first nine months of 2010 was approximately 38%.

20

On August 20, 2010, we acquired all of the outstanding capital stock of Sino Oriental. a British Virgin Islands company in exchange for the issuance of 11,685,617 newly issued shares of our common stock. Sino Oriental is a holding company whose sole asset is 100% of the outstanding the capital stock of Misaky, a Hong Kong company. Misaky is also a holding company whose sole asset is 100% of the outstanding capital stock of Fujian Yada, a company formed in the People's Republic of China. Fujian Yada has three operating subsidiaries each of which are formed in, and operate in, the People's Republic of China. The acquisition of Sino Oriental and its subsidiaries was accounted for as a reverse merger.

Also on August 20, 2010, under the terms of the Securities Purchase Agreement, we sold 1,939,407 units, each consisting of one share of our common stock and a warrant to purchase one-fifth of a share of our common stock, to certain institutional investors for a total of $15.3 million. The warrants entitle their holders to purchase, in the aggregate, 387,881 shares of our common stock. In addition, we issued to the Placement Agents and the financial advisor warrants to purchase 135,759 shares of our common stock. The warrants are exercisable at a price of $9.45 per share and have a term of three years.

CRITICAL ACCOUNTING POLICIES

Allowance for doubtful debts

We establish an allowance for doubtful accounts based on management's assessment of the collectibility of trade receivables. A considerable amount of judgment is required in assessing the amount of the allowance, management consider the historical level of credit losses and applies percentages to aged receivable categories. We make judgments about the creditworthiness of each customer based on ongoing credit evaluations, and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition of the customers were to deteriorate, resulting in their inability to make payments, a larger allowance may be required.

Based on the above assessment, during the reporting years, management established the general provisioning policy to make allowance equivalent to 30% of gross amount of trade receivables due between one and two years and 100% of gross amount of accounts receivable due over 2 years. Additional specific provision is made against trade receivables whenever they are considered to be doubtful.

Bad debts are written off when identified. We extend unsecured credit to certain customers ranging from one to three months in the normal course of business. We do not accrue interest on trade accounts receivable.

Historically, losses from uncollectible accounts have not significantly deviated from the general allowance estimated by the management and no significant additional bad debts have been written off directly to the profit and loss. This general provisioning policy has not changed in the past since establishment and the management considers that the aforementioned general provisioning policy is adequate and not too excessive and does not expect to change this established policy in the near future.

Inventories

Inventories are stated at the lower of cost or market. Cost is computed using the weighted average cost method for finished goods, raw materials and packaging materials. Finished goods include fresh and processed produce while raw materials and packaging materials consist primarily of purchased fresh and processed produce and containers.

Expenditures on bamboo and other growing crops are valued at the lower of cost or market and are deferred and charged to cost of sales when the related produce is harvested and sold. The deferred growing costs included in inventories in the consolidated balance sheets consist primarily of land rental cost and service costs.

In assessing the ultimate realization of inventories, the management makes judgments as to future demand requirements compared to current or committed inventory levels. Our reserve requirements generally increase or decrease with our projected demand requirements and market conditions. We estimate the demand requirements based on market conditions, forecasts prepared by its customers, sales contracts and orders in hand.

In addition, we estimate net realizable value based on intended use, current market value and inventory ageing analyses. We write down the inventories for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventories and the estimated market value based upon assumptions about future demand and market conditions.

21

Based on the above assessment, we established a general provision to make a 20% provision for inventories aged between one and two years and 100% provision for inventories aged over 2 years.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use.

Depreciation is provided on the straight-line basis (after taking into account the respective estimated residual values) over the estimated useful lives of property, plant and equipment. The principal useful lives and residual value are as follows:

Maintenance or repairs are charged to expense as incurred. Upon sale or disposition, the applicable amounts of asset cost and accumulated depreciation are removed from the accounts and the net amount less proceeds from disposal is charged or credited to income.

Construction in progress mainly represents expenditures in respect of our offices and factories under construction. All direct costs relating to the acquisition or construction of the Company's office and factories are capitalized as construction in progress. No depreciation is provided in respect of construction in progress.

Land use rights

Land use rights are stated at cost less accumulated amortization. Amortization is provided using the straight-line method over the terms of the lease of 20 or 50 years obtained from the relevant PRC land authority or Villager's Committee.

Impairment of long-lived assets

Long-lived assets are tested for impairment in accordance with ASC 360-10-45 "Impairment or Disposal of Long-Lived Assets" (previously Statement of Financial Accounting Standards ("SFAS") No. 144). We periodically evaluate potential impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. We recognize impairment of long-lived assets in the event that the net book values of such assets exceed the future undiscounted cash flows attributable to such assets. During the reporting periods, we have not identified any indicators that would require testing for impairment.

Capitalized interest

The interest cost associated with the major development and construction projects is capitalized and included in the cost of the project. When no debt is incurred specifically for a project, interest is capitalized on amounts expended on the project using weighted-average cost of the our outstanding borrowings. Capitalization of interest ceases when the project is substantially complete or development activity is suspended for more than a brief period.

Revenue recognition

Revenue from sales of our products is recognized upon customer acceptance, which occurs at the time of delivery to customer, provided persuasive evidence of an arrangement exists, such as signed sales contract, the significant risks and rewards of ownership have been transferred to the buyer at the time when the products are delivered to its customers with no significant post-delivery obligation on our part, the sales price is fixed or determinable and collection is reasonably assured.

22

Revenue from sales of our product represents the invoiced value of goods, net of the value-added tax ("VAT"). Our processed produce products that are sold in the PRC are subject to VAT at a rate of 17% of the gross sales price. This VAT may be offset by VAT we pay on raw materials, other materials or costs included in the cost of producing our processed produce products.

Government grants

Government grants are received for compensation of finance costs already incurred or for good performance of the Company and are recognized when the approval documents are obtained from the relevant government authorities.

For compensation of finance costs, we match and offset the government grants with the finance costs as specified in the grant approval document in the corresponding period when such expenses are incurred. Government grants received for good performance of the Company are recognized as income in the period they become recognizable.

Cost of sales

Cost of sales consists primarily of land rental cost and service costs, materials costs, purchasing and receiving costs, inspection costs, wages, employee compensation, depreciation and related costs, which are directly attributable to the cost of fresh and processed produce and production of products. Write-down of inventories to lower of cost or market is also recorded in cost of sales.

Administrative expenses

Administrative expenses consist primarily of office expenses, entertainment, traveling expenses, depreciation, audit fee, salaries and staff pension which are incurred at the administrative level and exchange difference.

Selling expenses

Selling expenses consist primarily of advertising, salaries and transportation costs incurred during the selling activities.

Income taxes

We use the asset and liability method of accounting for income taxes pursuant to ASC 740 "Income Taxes" (previously SFAS No. 109). Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and loss carry forwards and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

We file separate tax returns in the United States and China. Income taxes of the Company's PRC subsidiary are calculated in accordance with taxation principles currently effective in the PRC. For SMSA Palestine Acquisition Corp., applicable U.S. tax laws are followed. We expect that the tax rate of 25% currently applicable to Fujian Yada will remain unchanged in 2010.

In 2007, China passed the New EIT Law and its implementing rules, both of which became effective on January 1, 2008. The New EIT Law significantly curtails tax incentives granted to foreign-invested enterprises under the previous law. The New EIT Law, however, (i) reduces the statutory rate of enterprise income tax from 33% to 25%, (ii) permits companies to continue to enjoy their existing tax incentives, adjusted by certain transitional phase-out rules, and (iii) introduces new tax incentives, subject to various qualification criteria.

Substantially all of our income may be derived from dividends it receives from its PRC operating subsidiaries described above. The New EIT Law and its implementing rules generally provide that a 10% withholding tax applies to China-sourced income derived by non-resident enterprises for PRC enterprise income tax purposes. We expect that such 10% withholding tax will apply to dividends paid to it by its PRC subsidiaries but this treatment will depend on our status as a non-resident enterprise. For detailed discussion of PRC tax issues related to resident enterprise status, see "Risk Factors — Risks Associated with Doing Business in China — Under the New EIT Law, we may be classified as a 'resident enterprise' of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC stockholders."

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Advertising, transportation, research and development expenses

Advertising, transportation, research and development expenses are charged to expense as incurred.

Dividends

Dividends are recorded in our financial statements in the period in which they are declared.

Comprehensive income

We have adopted ASC 220, "Comprehensive Income" (previously SFAS No. 130), which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Components of comprehensive income include net income and foreign currency translation adjustments.

Foreign currency translation

The functional currency of the Company is RMB and RMB is not freely convertible into foreign currencies. We maintain our financial statements in the functional currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet date. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchanges rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.

For financial reporting purposes, the financial statements of the Company that are prepared using the functional currency have been translated into United States dollars. Assets and liabilities are translated at the exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and stockholder's equity is translated at historical exchange rates. Any translation adjustments resulting are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of stockholders' equity.

Derivative financial instruments

We account for derivative financial instruments in accordance with the Topic ASC 815 "Derivatives and Hedging". The topic requires us to recognize the value of derivative instruments as either assets or liabilities in the consolidated balance sheets at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated as a hedge and qualifies as part of a hedging relationship.

We enter into foreign currency forward exchange contracts ("forward exchange contracts") to manage its exposure to the foreign currency exchange risk related to the trade receivable denominated in JPY. The Company does not enter into forward exchange contracts for trading or speculative purposes. In accordance with US GAAP, the forward exchange contracts are considered as "derivatives not designated as hedging instruments". Therefore, the forward exchange contracts are recorded at fair value, with the gain or loss on these transactions recorded in the consolidated statements of income within "other net income (loss)" in the period in which they occur.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2010 Compared to Three Months Ended September 30, 2009

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

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(All amounts, other than percentage, in thousands of US dollars)

The functional currency of the Company is RMB; however, our financial information is expressed in USD. The results of operations reported in the table above is based on the exchange rate of RMB 6.761 to $1 for the three months ended September 30, 2010 and the rate of RMB 6.821 to $1 for the three months ended September 30, 2009.

Net Sales. Our net sales consist of revenue derived from the sale of our food products, less discounts and returns. For the three months ended September 30, 2010 our net sales were $18.0 million compared to $7.0 million for the same period last year, an increase of $11.0 million or approximately 157%. The increase was primarily due to overall increased demand for our products in the Chinese domestic market, and to a lesser extent to the sales of our newly launched high PH bamboo shoots. Of such increase, approximately $9.0 million was attributable to increased sales volume of our products, while approximately $2.0 million was due to higher average selling prices of our products.

Cost of Sales. Our cost of sales is primarily comprised of the costs of our raw materials, labor, overhead and sales tax. For the three months ended September 30, 2010 our cost of sales were $8.5 million compared to $4.7 million for the same period last year, an increase of $3.8 million or approximately 81%. This increase was primarily due to the increase of sales volume. As a percentage of net sales, the cost of sales decreased to approximately 47% for the three months ended September 30, 2010 from approximately 67% for the three months ended September 30, 2009. The decrease was primarily due to an increase in sales of higher margin products during the more recent period.

Gross Profit and Gross Margin. Our gross profit is equal to our net revenues less our cost of sales. Our gross profit was $9.5 million for the three months ended September 30, 2010, compared to $2.3 million for the same period last year, an increase of $7.2 million or approximately 313 percent. Gross profit as a percentage of net sales was approximately 53% and 33% for the three months ended September 30, 2010 and 2009, respectively. The increase in the gross margin when comparing the two periods was primarily driven by the relatively greater contribution in the more recent period from products such as bamboo wood and high PH bamboo shoots with higher gross margin.

Selling and Administrative Expenses. Our selling and administrative expenses increased $0.6 million, or approximately 502%, to $0.7 million for the three months ended September 30, 2010 from $0.1 million for the three months ended September 30, 2009.

Our selling expenses include sales commissions, the cost of promotional materials, salaries and fringe benefits of sales personnel, transportation costs and other sales related costs. Our selling expenses increased to $0.46 million for the three months ended September 30, 2010. We did not have material selling expenses for the three months ended September 30, 2009. As a percentage of net sales, selling expenses for the three months ended September 30, 2010 were approximately 3%, as compared to 0% for the three months ended September 30, 2009. Both the dollar and percentage increase of our selling expenses is generally attributable to the increase in the expenses associated with our sales expansion in Chinese domestic market.

Our administrative expenses primarily include the costs associated with staff and support personnel who manage our business activities, office expense, professional fees paid to third parties, foreign exchange expense, and depreciation of non-production facilities. Our administrative expenses increased $0.18 million, or approximately 180%, to $ 0.28 million for the three months ended September 30, 2010 from $0.10 million for the three months ended September 30, 2009. The increase is mainly attributed to the professional fees paid to third parties that we did not incur during the three months ended September 30, 2009, and to a lesser extent to the increase in salaries, depreciation costs and travel expenses. As a percentage of net sales, administrative expenses remained relatively unchanged at approximately 1% for the three months ended September 30, 2010 and the three months ended September 30, 2009.

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Net Finance Costs. Our net finance costs increased to $0.3 million for the three months ended September 30, 2010 from $0.1 million for the three months ended September 30, 2009. The increase is mainly due to the increase in average bank loan balances.

Income Taxes. We had income tax credit of $0.09 million for the three months ended September 30, 2010, as compared to an income tax expense of $0.02 million for the three months ended September 30, 2009. This was primarily attributable to the tax loss, due primarily to our tax exemption on profits from fresh produce, incurred for the three months ended September 30, 2010.

Net Income. Our net income increased by $6.6 million or approximately 357%, to $8.4 million for the three months ended September 30, 2010 from $1.8 million for the three months ended September 30, 2009. The main reasons for the growth of our net income were due to the changes in our other key components of our results of operations discussed above.

Nine months Ended September 30, 2010 Compared to Nine months Ended September 30, 2009

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

(All amounts, other than percentage, in thousands of US dollars)

The functional currency of the Company is RMB; however, our financial information is expressed in USD. The results of operations reported in the table above is based on the exchange rate of RMB 6.798 to $1 for the nine months ended September 30, 2010 and the rate of RMB 6.822 to $1 for the nine months ended September 30, 2009.

Net Sales. Our net sales consist of revenue derived from the sale of our food products, less discounts and returns. For the nine months ended September 30, 2010 our net sales were $50.7 million compared to $26.1 million for the same period last year, an increase of $24.6 million or approximately 94%. The increase was primarily due to increased market demand for our products in the Chinese domestic market, and to a lesser extent an increase in average selling prices. To a still lesser extent, the increase was due to the sales of our new high PH bamboo shoot products. Of such increase, approximately $16.6 million was attributable to increased sales volume of our products, while approximately $8.0 million was due to higher average selling prices of our products.

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Cost of Sales. Our cost of sales is primarily comprised of the costs of our raw materials, labor, overhead and sales tax. For the nine months ended September 30, 2010 our cost of sales were $31.4 million compared to $19.9 million for the same period last year, an increase of $11.5 million or approximately 58%. This increase was primarily due to the increase of sales volume. As a percentage of net sales, the cost of sales decreased to approximately 62% for the nine months ended September 30, 2010 from approximately 76% for the nine months ended September 30, 2009. The decrease was primarily due to an increase in sales of higher margin products during the more recent period.

Gross Profit and Gross Margin. Our gross profit is equal to our net revenues less our cost of sales. Our gross profit was $19.3 million for the nine months ended September 30, 2010, compared to $6.3 million for the same period last year, an increase of $13.0 million or approximately 206%. Gross profit as a percentage of net sales was approximately 38% and 24% for the nine months ended September 30, 2010 and 2009, respectively. The increase in the gross margin when comparing the two periods was primarily driven by the relatively greater contribution in the most recent period by sales of higher margin products such as bamboo wood and the newly launched high PH bamboo shoots, and to a lesser extent the increase in average sales prices in Chinese domestic market.

Selling and Administrative Expenses. Our selling and administrative expenses increased $1.4 million, or approximately 284%, to $1.9 million for the nine months ended September 30, 2010 from $0.5 million for the nine months ended September 30, 2009.

Our selling expenses include sales commissions, the cost of promotional materials, salaries and fringe benefits of sales personnel, transportation costs and other sales related costs. Our selling expenses increased to $1.0 million for the nine months ended September 30, 2010, compared to $0.1 million for the same period last year, an increase of $0.9 million. As a percentage of net sales, selling expenses for the nine months ended September 30, 2010 were approximately 2%, as compared to 1% for the nine months ended September 30, 2009. Both the dollar and percentage increase of our selling expenses is generally attributable to higher expenses associated with our sales expansion in Chinese domestic market, and to a lesser extent, branding activities.

Our administrative expenses primarily include the costs associated with staff and support personnel who manage our business activities, office expense, professional fees paid to third parties, foreign exchange expense, and depreciation of non-production facilities. Our administrative expenses increased $0.5 million, or approximately 142%, to $ 0.9 million for the nine months ended September 30, 2010 from $0.37 million for the nine months ended September 30, 2009. The increase is mainly attributed to the professional fees paid to third parties that we did not incur during the nine months ended September 30, 2009, and the increase in salaries, depreciation costs and travel expenses. As a percentage of net sales, administrative expenses for the nine months ended September 30, 2010 were approximately 2%, as compared to 1% for the nine months ended September 30, 2009. This increase was the result of the professional fees paid in the nine months ended September 30, 2010, that we did not incur in the same period last year.

Net Finance Costs. Our net finance costs, increased $0.34 million, or approximately 97%, to $0.70 million for the nine months ended September 30, 2010 from $0.36 million for the nine months ended September 30, 2009. The increase is mainly due to losses associated with exchange rate volatility and an increase in average bank loan balances.

Income Taxes. We had an income tax credit of $0.08 million for the nine months ended September 30, 2010, as compared to an income tax expense of $0.16 million for the nine months ended September 30, 2009. This was primarily attributable to an increase in our tax loss, which was due primarily to our tax exemption on profits from fresh produce.

Net Income. Our net income increased by $11.1 million or approximately 201%, to $16.6 million for the nine months ended September 30, 2010 from $5.5 million for the nine months ended September 30, 2009. The main reasons for the growth of our net income were due to the changes in our other key components of our results of operations discussed above.

Liquidity and Capital Resources

As of September 30, 2010 and December 31, 2009, we had cash and cash equivalents of approximately $11.3 million and $0.4 million, respectively. Our various financing agreements serve as one of our principal sources of funding and any failure by us to meet the obligations under the agreements could have an adverse impact on our liquidity and capital resources. To our knowledge, the Company and its subsidiaries have been in compliance with the covenants in the agreements. The following table provides detailed information about our net cash flow for all financial statements periods presented in this report.

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Cash Flow
(All amounts in thousands of U.S. dollars)

Cash Flows from Operating Activities.

Net cash provided by operating activities was $9.5 million for nine months ended September 30, 2010, an increase of $4.7 million from $4.8 million for nine months ended September 30, 2009. The increase of net cash provided by operating activities was primarily attributable to the additional net income generated in the period.

Net cash provided by operating activities was $1.2 million in fiscal year 2009, a decrease from $1.9 million of net cash provided by operating activities in fiscal year 2008. The decrease in net cash provided by operating activities was primarily attributable to a reduction in the amount of cash received in advance of order shipment. In 2008, we had $4.9 million in advance receipts for product, while advance receipts were $1.2 million in 2009. The reason for this decrease is that in 2008 we took the unususal step of requesting customers to make substantial advance payments in order to reduce our credit risk during the poor economy. In 2009, we discontinued this practice and the level of advance reciepts for product returned to more typical levels.

Our days' sales outstanding increased to 102 days as at September 30 2010 from 79 days as at December 31 2009. The increase was due to sales to new customers in the third quarter of 2010, payment for which amounts was not yet due as at period end.

Cash Flows from Investing Activities.

Net cash used in investing activities for the nine months ended September 30, 2010 was $8.0 million compared to $2.0 million for the nine months ended September 30, 2009. The increase of net cash used in investing activities was primarily attributable to the expansion of production facilities and planting bases. During the nine months ended September 30, 2010 we invested $2.9 million to acquire property, plant and equipment and an additional $5.3 million to acquire land use rights.

Net cash used in investing activities in fiscal year 2009 was $2.0 million, as compared to $1.2 million in fiscal year 2008. We acquired approximately $2.0 million of property, plant and equipment in each year, but sold equipment in 2008 for approximately $0.8 million in cash proceeds.

Cash Flows from Financing Activities.

Net cash provided by financing activities was $9.2 million in the nine months ended September 30, 2010. The net cash provided by financing activities for the nine months ended September 30, 2010 was mainly attributable to proceeds from issue of shares to investors set off by repayments of advances from related parties.

Net cash provided by financing activities totaled $1.1 million in fiscal year 2009, compared to net cased used in financing activities of $0.9 million in fiscal year 2008. The increase of net cash provided by financing activities was primarily due to increases in secured borrowings of $2.3 million offset by repayments of advances from related parties.

As of September 30, 2010 and December 31, 2009, the Company's banking facilities were composed of the following:

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Capital Expenditures

Our capital expenditures were $8.3 million and $2.0 million for the nine months ended September 30, 2010 and the fiscal year ended December 31, 2009, respectively. Our capital expenditures were mainly used to acquire property, plant and equipment and land use rights to expand our production capacity. Our material capital expenditure requirement for fiscal year 2010 is expected to be approximately $2.9 million, which will be used for constructing additional cost storage and preliminary processing facilities.

Capital Resources

At September 30, 2010 we did not have any unused credit facility that was available to us.

The Company has made a provision of approximately $492,000 to cover potential liability with respect to certain unpaid social insurance obligations for full-time employees. In addition, the company believes that the total potential liabilities include cost of rectifying non-compliance of social insurance obligations for full-time employees and temporary workers, and the cost of rectifying non-compliance of housing fund obligations for full-time employees and temporary workers, which is $1,212,460. See “Risk Factors—We may face claims or administrative penalties for non-execution of labor contracts or non-payment and/or underpayment of social insurance and housing fund obligations in respect of our temporary workers and full-time employees.” The provision reflects our good faith estimate of the costs of rectifying our non-compliance with these obligations; actual costs could be lower or higher. If we are required to rectify our non-compliance and the costs of doing so approach or exceed our good faith estimate, it would have a material adverse effect on our liquidity and capital resources.

We receive significant tax exemptions and subsidies in connection with our business activities in China. See “Risk Factors—We benefit from certain preferential tax policies and subsidies for agricultural producers in China; the discontinuation or loss of any of these policies or subsidies would increase our tax expenses and reduce our profitability.” For example, in the nine months ended September 30, 2010, we enjoyed an income tax exemption on profits from fresh produce worth approximately $4.32 million . Moreover, in the year ended December 31, 2009, we had government grant income, in the form of government grants received for compensation of finance costs already incurred or for good performance of the Company, equal to approximately $205,000. We cannot assure you that these tax exemptions and grants will continue, and if they do not, our net cash provided by operating activities and net income will be reduced by the value of the benefits lost. Based on our financial performance in prior periods, this decrease would constitute a material adverse effect on our operating results and liquidity and capital resources.

We believe that our cash on hand, and cash flow from operations, will meet our expected capital expenditure and working capital requirements for the next 12 months. In addition, we may, in the future, require additional cash resources due to changed business conditions, implementation of our strategy to expand our production capacity or other investments or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.

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Recent Accounting Pronouncements

See Note 3 to our audited consolidated financial statements for the years ended December 31, 2009 and 2008 beginning on page F-15 and our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2010 and 2009 beginning on page F-37.

Item 3.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide disclosure under this item.

Item 4.         CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures.

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that material information is: (1) gathered and communicated to our management, including our principal executive and financial officers, on a timely basis; and (2) recorded, processed, summarized, reported and filed with the SEC as required under the Securities Exchange Act of 1934, as amended.

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2010. Based on such evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective for their intended purpose described above.

Changes In Internal Controls Over Financial Reporting.

No changes were made in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations On Disclosure Controls And Procedures.

Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls or internal controls over financial reporting will prevent all errors or all instances of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II—OTHER INFORMATION

Item 1.         LEGAL PROCEEDINGS.

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business, including claims of alleged infringement, misuse or misappropriation of intellectual property rights of third parties. As of the date of this report, we are not a party to any litigation which we believe would have a material adverse effect on our business operations or financial condition.

Item 1A.      RISK FACTORS.

You should carefully consider the risk factors discussed in our Current Report on Form 8-K dated August 20, 2010, as amended, the occurrence of which could materially affect harm our business, financial position and results of operations, before making an investment decision.

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

Unregistered Sales of Equity Securities

On August 20, 2010, in connection the Exchange Agreement we issued 11,685,617 shares of our common stock to the shareholders of Sino Oriental. The total consideration for the 11,685,617 shares of our common stock is 50,000 shares of Sino Oriental, which are all of the issued and outstanding capital stock of Sino Oriental. The number of our shares issued to the shareholders of Sino Oriental was determined based on an arms-length negotiation. The issuance of our shares to those shareholders was made in reliance on the exemption provided by Section 4(2) of the Securities Act for the offer and sale of securities not involving a public offering, and Regulation S promulgated under the Securities Act.

On August 20, 2010, under the terms of the Securities Purchase Agreement, we sold 1,939,407 units, each consisting of one share of our common stock and a warrant to purchase one-fifth of a share of our common stock, to certain institutional investors for a total of $15.3 million. The warrants entitle their holders to purchase, in the aggregate, 387,881 shares of our common stock. In addition, we issued to the Placement Agents and the financial advisor warrants to purchase 135,759 shares of our common stock. The warrants are exercisable at a price of $9.45 per share and have a term of three years. The issuance of our shares and warrants to the investors and the Placement Agents was made in reliance on the exemption provided by Section 4(2) of the Securities Act for the offer and sale of securities not involving a public offering, and Regulation D and Regulation S promulgated under the Securities Act.

In instances described above where we issued securities in reliance upon Regulation D, we relied upon Rule 506 of Regulation D. The parties who received the securities in such instances made representations that such party (a) is acquiring the securities for his, her or its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution within the meaning of the Securities Act, (b) agrees not to sell or otherwise transfer the purchased shares unless they are registered under the Securities Act and any applicable state securities laws, or an exemption or exemptions from such registration are available, (c) has knowledge and experience in financial and business matters such that he, she or it is capable of evaluating the merits and risks of an investment in us, (d) had access to all of our documents, records, and books pertaining to the investment and was provided the opportunity ask questions and receive answers regarding the terms and conditions of the offering and to obtain any additional information which we possessed or were able to acquire without unreasonable effort and expense, and (e) has no need for the liquidity in its investment in us and could afford the complete loss of such investment. Management made the determination that the investors in instances where we relied on Regulation D are accredited investors (as defined in Regulation D) based upon management's inquiry into their sophistication and net worth. In addition, there was no general solicitation or advertising for securities issued in reliance upon Regulation D.

In instances described above where we indicate that we relied upon Section 4(2) of the Securities Act in issuing securities, our reliance was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there were only a limited number of offerees; (c) there were no subsequent or contemporaneous public offerings of the securities by us; (d) the securities were not broken down into smaller denominations; and (e) the negotiations for the sale of the stock took place directly between the offeree and us.

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In instances described above where we indicate that we relied upon Regulation S promulgated under the Securities Act in issuing securities, our reliance was based upon the following factors: (a) each subscriber was neither a U.S. person nor acquiring the shares for the account or benefit of any U.S. person, (b) each subscriber agreed not to offer or sell the shares (including any pre-arrangement for a purchase by a U.S. person or other person in the United States) directly or indirectly, in the United States or to any natural person who is a resident of the United States or to any other U.S. person as defined in Regulation S unless registered under the Securities Act and all applicable state laws or an exemption from the registration requirements of the Securities Act and similar state laws is available, (c) each subscriber agreed not to engage in hedging transactions with regard to our shares of common stock unless in compliance with the Securities Act, (d) each subscriber made his, her or its subscription from the subscriber's residence or offices at an address outside of the United States and (e) each subscriber or the subscriber's advisor has such knowledge and experience in financial and business matters that the subscriber is capable of evaluating the merits and risks of, and protecting his interests in connection with an investment in us.

Item 3.         Defaults Upon Senior Securities.

None.

Item 4.         (REMOVED AND RESERVED).

Item 5.         OTHER INFORMATION.

None.

Item 6.         EXHIBITS.

See the Exhibit Index immediately following the signature page of this report.

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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.

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Exhibit Index

34

35

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