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, 2010
  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 000-53905
 
 SABRE INDUSTRIAL,
INC.
 (Exact
name of registrant as specified in its charter)
  Delaware
              65-1714523(State
      or other jurisdiction of
              (IRS
      Employerincorporation
      or organization)
              Identification
      No.)
  Linpan Industrial
Park,
 Linyi County, Shandong
Province, P.R. China  570216
 (Address
of principal executive offices)  (Zip Code)
 
 +86-534-5054799
(China)
 (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 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 o  No o
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
 
 Large
      accelerated filero
              Accelerated
      fileroNon-accelerated
      filero
                (Do
      not check if a smaller reporting company)
              Smaller
      reporting companyx
 
 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
  APPLICABLE
ONLY TO CORPORATE ISSUERS:
 
 Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date:  61,749,618 shares of Common
Stock, $.001 par value, were outstanding as of November 3, 2010.
  
 
 TABLE
OF CONTENTS
 
 PART
      I
              FINANCIAL
      INFORMATION
              
              PageItem
      1.
              Financial
      Statements.
              
              
              2Condensed
      Consolidated Balance Sheets As of September 30, 2010 and December 31, 2009
      (Unaudited)
              
              
              F-1Condensed
      Consolidated Statements of Operations and Comprehensive Income For the
      Three Months and Nine Months Ended September 30, 2010 and 2009
      (Unaudited)
              
              
              F-2Condensed
      Consolidated Statements of Cash Flows For the Nine Months Ended September
      30, 2010 and 2009 (Unaudited)
              
              
              F-3Notes
      to Condensed Consolidated Financial Statements (Unaudited)
              
              
              F-4Item
      2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              
              
              3Item
      3.
              Quantitative
      and Qualitative Disclosures about Market Risk
              
              
              11Item
      4.
              Controls
      and Procedures.
              
              
              11PART
      II
              OTHER
      INFORMATIONItem
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              
              
              13Item
      5.
              Other
      Information
              
              
              13Item
      6.
              Exhibits
              
              
              13Signatures
              
              
              14Exhibits/Certifications
              
              
              15
  
  PART
I - FINANCIAL INFORMATION
 
 Item
1. Financial Statements
 
 The accompanying unaudited condensed
consolidated balance sheets, statements of operations and comprehensive income,
and statements of cash flows and the related notes thereto, have been prepared
in accordance with generally accepted accounting principles in the United States
of America for interim financial information and in conjunction with the rules
and regulations of the Securities and Exchange Commission (the “SEC”).
Accordingly, they do not include all of the disclosures required by GAAP for
complete financial statements. The financial statements reflect all adjustments,
consisting only of normal, recurring adjustments, which are, in the opinion of
management, necessary for a fair presentation for the interim
periods.
 
 The accompanying financial statements
should be read in conjunction with the notes to the aforementioned financial
statements and Management’s Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements and notes thereto included in
our Current Report on Form 8-K filed with the SEC on September 24,
2010.
 
 The results of operations for the
three-month period and nine-month period ended September 30, 2010 are not
necessarily indicative of the results to be expected for the entire fiscal year
or any other period.
 
 
   SABRE
      INDUSTRIAL, INC. AND SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETS
  September
      30, 2010
                            
                            
                            December
      31, 2009(Unaudited)
                            
                            
                            (Unaudited)ASSETSCurrent
      Assets:Cash
      and cash equivalents
                            
                            $
                            411,069
                            
                            
                            $
                            3,731,802Accounts
      receivable, net of allowance for doubtful accounts of $0 as
    ofSeptember
      30, 2010 and December 31, 2009, respectively
                            
                            
                            3,710,354
                            
                            
                            
                            505,464Inventories
                            
                            
                            3,358,687
                            
                            
                            
                            569,886Total
      Current Assets
                            
                            
                            7,480,110
                            
                            
                            
                            4,807,152Plant
      and equipment, net of accumulated depreciation of $2,424,575 and
      $1,675,766as
      of September 30, 2010 and December 31, 2009, respectively
                            
                            
                            17,008,324
                            
                            
                            
                            16,836,710Restricted
      assets
                            
                            
                            -
                            
                            
                            
                            808,564Deferred
      tax assets
                            
                            
                            -
                            
                            
                            
                            71,158Intangible
      asset, net
                            
                            
                            1,426,942
                            
                            
                            
                            1,419,029Total
      Assets
                            
                            $
                            25,915,376
                            
                            
                            $
                            23,134,049LIABILITIES AND STOCKHOLDERS'
      EQUITYCurrent
      Liabilities:Short-term
      loans
                            
                            $
                            -
                            
                            
                            $
                            6,581,642Accounts
      payable and accrued expense
                            
                            
                            1,219,287
                            
                            
                            
                            3,835,656Advances
      from customers
                            
                            
                            283,663
                            
                            
                            
                            -Taxes
      payable
                            
                            
                            2,698,067
                            
                            
                            
                            91,834Due
      to related parties
                            
                            
                            4,350,389
                            
                            
                            
                            371,106Total
      Current Liabilities
                            
                            
                            8,551,406
                            
                            
                            
                            10,880,238Stockholders'
      Equity:Preferred
      stock, Series B - $0.001 par value, 1,000 authorized, 0
      sharesissued
      and outstanding
                            
                            
                            -
                            
                            
                            
                            -Common
      stock ($0.001 par value, 300,000,000 shares authorized,126,857,289
      and 125,107,671 shares issued and outstanding)
                            
                            
                            126,858
                            
                            
                            
                            125,108Additional
      paid-in capital
                            
                            
                            11,012,045
                            
                            
                            
                            11,033,425Statutory
      surplus reserves
                            
                            
                            482,389
                            
                            
                            
                            -Retained
      earnings (accumulated deficit)
                            
                            
                            4,043,460
                            
                            
                            
                            (264,851
                            )Accumulated
      other comprehensive income
                            
                            
                            1,699,218
                            
                            
                            
                            1,360,129Total
      Stockholders' Equity
                            
                            
                            17,363,970
                            
                            
                            
                            12,253,811Total
      Liabilities and Stockholders' Equity
                            
                            $
                            25,915,376
                            
                            
                            $
                            23,134,049
 See notes
to unaudited consolidated financial
statements
  F-1
  SABRE
      INDUSTRIAL, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME(Unaudited)
  For
      the Three Months Ended
                                  
                                  
                                  For
      the Nine Months EndedSeptember
      30,
                                  
                                  
                                  September
      30,2010
                                  
                                  
                                  2009
                                  
                                  
                                  2010
                                  
                                  
                                  2009Sales
                                  
                                  $
                                  18,525,985
                                  
                                  
                                  $
                                  3,798,568
                                  
                                  
                                  $
                                  32,869,038
                                  
                                  
                                  $
                                  9,861,691Cost
      of goods sold
                                  
                                  
                                  14,432,621
                                  
                                  
                                  
                                  2,719,463
                                  
                                  
                                  
                                  26,141,747
                                  
                                  
                                  
                                  7,528,546Gross
      profit
                                  
                                  
                                  4,093,364
                                  
                                  
                                  
                                  1,079,105
                                  
                                  
                                  
                                  6,727,291
                                  
                                  
                                  
                                  2,333,145Operating
      expenses:General
      and administrative expenses
                                  
                                  
                                  121,943
                                  
                                  
                                  
                                  83,781
                                  
                                  
                                  
                                  331,690
                                  
                                  
                                  
                                  197,340Selling
      expenses
                                  
                                  
                                  42,010
                                  
                                  
                                  
                                  730
                                  
                                  
                                  
                                  66,356
                                  
                                  
                                  
                                  5,426Total
      operating expenses
                                  
                                  
                                  163,953
                                  
                                  
                                  
                                  84,511
                                  
                                  
                                  
                                  398,046
                                  
                                  
                                  
                                  202,766Income
      from operations
                                  
                                  
                                  3,929,411
                                  
                                  
                                  
                                  994,594
                                  
                                  
                                  
                                  6,329,245
                                  
                                  
                                  
                                  2,130,379Other
      income (expense):Interest
      expense
                                  
                                  
                                  (3,328
                                  )
                                  
                                  
                                  (154,180
                                  )
                                  
                                  
                                  (189,788
                                  )
                                  
                                  
                                  (742,700
                                  )Interest
      income
                                  
                                  
                                  5,519
                                  
                                  
                                  
                                  44,177
                                  
                                  
                                  
                                  149,983
                                  
                                  
                                  
                                  286,484Other
      (expense) income
                                  
                                  
                                  46,161
                                  
                                  
                                  
                                  15,971
                                  
                                  
                                  
                                  98,147
                                  
                                  
                                  
                                  226,873Total
      other income (expenses)
                                  
                                  
                                  48,352
                                  
                                  
                                  
                                  (94,032
                                  )
                                  
                                  
                                  58,342
                                  
                                  
                                  
                                  (229,343
                                  )Income
      before income taxes
                                  
                                  
                                  3,977,763
                                  
                                  
                                  
                                  900,562
                                  
                                  
                                  
                                  6,387,587
                                  
                                  
                                  
                                  1,901,036Income
      taxes expense (benefit)
                                  
                                  
                                  997,912
                                  
                                  
                                  
                                  237,739
                                  
                                  
                                  
                                  1,596,887
                                  
                                  
                                  
                                  442,884Net
      income
                                  
                                  
                                  2,979,851
                                  
                                  
                                  
                                  662,823
                                  
                                  
                                  
                                  4,790,700
                                  
                                  
                                  
                                  1,458,152Other
      comprehensive income:Unrealized
      foreign currency translation adjustment
                                  
                                  
                                  280,664
                                  
                                  
                                  
                                  15,971
                                  
                                  
                                  
                                  339,089
                                  
                                  
                                  
                                  26,660Comprehensive
      income
                                  
                                  $
                                  3,260,515
                                  
                                  
                                  $
                                  678,794
                                  
                                  
                                  $
                                  5,129,789
                                  
                                  
                                  $
                                  1,484,812Earnings
      per share - basic and diluted:Net
      income attributable to Sabre Industrial, Inc.common
      shareholders
                                  
                                  $
                                  2,979,851
                                  
                                  
                                  $
                                  662,823
                                  
                                  
                                  $
                                  4,790,700
                                  
                                  
                                  $
                                  1,458,152Weighted-average
      shares outstanding, basic
                                  
                                  
                                  125,430,970
                                  
                                  
                                  
                                  125,107,671
                                  
                                  
                                  
                                  125,216,622
                                  
                                  
                                  
                                  125,107,671Weighted-average
      shares outstanding, diluted
                                  
                                  
                                  125,430,970
                                  
                                  
                                  
                                  125,107,671
                                  
                                  
                                  
                                  125,216,622
                                  
                                  
                                  
                                  125,107,671Earnings
      per share, basic
                                  
                                  $
                                  0.02
                                  
                                  
                                  $
                                  0.01
                                  
                                  
                                  $
                                  0.04
                                  
                                  
                                  $
                                  0.01Earnings
      per share, diluted
                                  
                                  $
                                  0.02
                                  
                                  
                                  $
                                  0.01
                                  
                                  
                                  $
                                  0.04
                                  
                                  
                                  $
                                  0.01
 See notes
to unaudited consolidated financial
statements
  F-2
  SABRE
      INDUSTRIAL, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWS(Unaudited)
  For
      the Nine Months EndedSeptember
      30,2010
                                    
                                    
                                    2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
                                    
                                    $
                                    4,790,700
                                    
                                    
                                    $
                                    1,458,152Adjustments
      to reconcile net income to net cashprovided
      by operating activities:Depreciation
      and amortization
                                    
                                    
                                    722,799
                                    
                                    
                                    
                                    376,915Changes
      in operating assets and liabilities:Accounts
      receivable
                                    
                                    
                                    (3,138,953
                                    )
                                    
                                    
                                    (388,453
                                    )Advances
      to suppliers
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (1,616,741
                                    )Inventories
                                    
                                    
                                    (2,728,772
                                    )
                                    
                                    
                                    (1,328,373
                                    )Restricted
      assets
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Deferred
      tax assets
                                    
                                    
                                    71,376
                                    
                                    
                                    
                                    442,884Accounts
      payables and accrued expense
                                    
                                    
                                    (2,668,523
                                    )
                                    
                                    
                                    185,243Taxes
      payable
                                    
                                    
                                    2,559,127
                                    
                                    
                                    
                                    227,535Other
      payables
                                    
                                    
                                    -
                                    
                                    
                                    
                                    3,108,084Advances
      from customers
                                    
                                    
                                    278,740
                                    
                                    
                                    
                                    -Total
      adjustments
                                    
                                    
                                    4,904,206
                                    
                                    
                                    
                                    1,007,094Net
      cash (used in) provided by operating activities
                                    
                                    
                                    (113,506
                                    )
                                    
                                    
                                    2,465,246CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of intangible assets
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (268,727
                                    )Purchase
      of plant and equipment
                                    
                                    
                                    (526,671
                                    )
                                    
                                    
                                    -Net
      cash used in investing activities
                                    
                                    
                                    (526,671
                                    )
                                    
                                    
                                    (268,727
                                    )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from short-term loans
                                    
                                    
                                    -
                                    
                                    
                                    
                                    6,284,244Repayments
      to short-term loans
                                    
                                    
                                    (6,601,725
                                    )
                                    
                                    
                                    (13,591,504
                                    )Due
      to related parties
                                    
                                    
                                    3,902,649
                                    
                                    
                                    
                                    1,154,407Due
      from related parties
                                    
                                    
                                    -
                                    
                                    
                                    
                                    9,230,564Net
      cash (used in) provided by financing activities
                                    
                                    
                                    (2,699,076
                                    )
                                    
                                    
                                    3,077,711NET
      (DECREASE) INCREASE IN CASH
                                    
                                    
                                    3,339,253
                                    
                                    
                                    
                                    5,274,230EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
                                    
                                    
                                    18,520
                                    
                                    
                                    
                                    (27,516
                                    )CASH,
      BEGINNING OF PERIOD
                                    
                                    
                                    3,731,802
                                    
                                    
                                    
                                    1,937,771CASH,
      END OF PERIOD
                                    
                                    $
                                    411,069
                                    
                                    
                                    $
                                    7,184,485SUPPLEMENTAL
      DISCLOSURES:Cash
      paid during the period for:Interest
      paid
                                    
                                    $
                                    73,670
                                    
                                    
                                    $
                                    759,614Income
      tax paid
                                    
                                    $
                                    1,129,062
                                    
                                    
                                    $
                                    -
 See notes
to unaudited consolidated financial statements
 F-3
  Note
      1
                Organization and Basis of
      Presentation
 
 The
consolidated financial statements include the financial statements of Sabre
Industrial, Inc. (referred to herein as “Sabre”) a corporation incorporated
under the laws of the State of Delaware, its subsidiaries, and variable interest
entities (“VIEs”), where Sabre is deemed the primary beneficiary. Sabre, its
consolidated subsidiaries and VIEs are collectively referred to herein as the
“Company”, “we” and “us”.
 
 On
September 13, 2010, Dingyou Zhang, a citizen of the People’s Republic of China
(the “PRC”), purchased 60,000,000 shares of common stock of Sabre from Corporate
Services International, Inc. (“CSII”) (the “Zhang Stock Purchase”). The former
CEO of CSII, in addition to being the majority shareholder of CSII, was the
former sole director of Sabre. The Zhang Stock Purchase was for $408,000 in a
private transaction whereby Sabre did not issue any shares, and will not receive
any of the proceeds. Sabre, prior to, and subsequent to the Zhang Stock
Purchase, was a shell corporation seeking a merger, or business combination,
with an operating entity.
 
 Prior to
the Zhang Stock Purchase, and as a condition of the Zhang Stock Purchase, CSII
held 40,150,641 shares of Sabre’s common stock, in addition to the
aforementioned 60,000,000 shares sold in the Zhang Stock
Purchase.  These 40,150,641 common shares were exchanged for 1,000
shares of Sabre’s newly authorized non-voting preferred stock, Series B
Preferred Stock. The preferred shares can convert into 0.9% of the fully diluted
common stock of Sabre within thirty days after Sabre files a current report on
Form 8-K stating that it has ceased being a shell company. Subsequent to the
Zhang Stock Purchase and the buy back of the 40,150,641 common shares held by
CSII, Mr. Zhang became the majority shareholder of Sabre controlling 99% of
Sabre’s 100,758,543 outstanding common shares. Prior to the Zhang Stock Purchase
and the buy back of 40,150,641 common shares, Sabre had 100,758,543 common
shares outstanding. On September 28, 2010, the 1,000 shares of Series B
Preferred Stock issued to CSII were converted into 1,141,716 shares of common
stock of Sabre.
 
 On
September 24, 2010, Sabre entered into a Share Exchange Agreement (the “Share
Exchange”) with Tsingyuan Group Holding, Inc., a holding company organized under
the laws of the State of Delaware (“Tsingyuan Holding”) that controls operating
entities in the PRC through its direct ownership of Beijing Qingyuan (as defined
below). Tsingyuan Holding was established on March 30, 2010, by Mr. Dingyou
Zhang, with Mr. Zhang retaining majority ownership and control of Tsingyuan
Holding. In accordance with the Share Exchange, Sabre issued 65,107,671 shares
of its 300,000,000 authorized $0.001 par value common stock for 100% of the
equity of Tsingyuan Holding. As a result of the Share Exchange, Tsingyuan
Holding became Sabre’s wholly-owned subsidiary. Tsingyuan Holding, is a holding
company for the operating VIEs who are producers of beer and malt in the
People’s Republic of China (the “PRC”). Subsequent to the Share Exchange Sabre
ceased being a shell company.
 
 The
effect of the Share Exchange is such that effectively a reorganization of the
entities has occurred for accounting purposes and is deemed to be a reverse
acquisition. Subsequent to the Share Exchange the financial statements presented
are those of a combined Tsingyuan Holding and its subsidiaries, including their
VIEs’, as if the Share Exchange had been in effect retroactively for all periods
presented.
 F-4
 On April
22, 2010, Tsingyuan Holding established is  wholly-owned subsidiary,
Tsingyuan Group (HK) Co., Ltd.  (“Tsingyuan HK”), a Hong Kong limited
liability company. Tsingyuan HK was established with 10,000 shares authorized,
with a par value of $1 Hong Kong Dollar per share (approximately $0.13 US dollar
per share). On June 17, 2010, Tsingyuan HK established Beijing Qingyuan
Hengchang Consulting, Co. Ltd. (“Beijing Qingyuan”), a wholly-owned Chinese
limited liability company. Beijing Qingyuan is a wholly foreign owned
enterprise, or a WFOE. Beijing Qingyuan through a series of entrusted management
agreements entered into on June 26, 2010, controls the business of Linyi
Hengchang Brewer’s Malt Co., Ltd. (“Linyi Malt”), a PRC limited liability
company established on March 3, 2004 and Shandong Qingyuan Beer Co., Ltd.
(“Qingyuan Beer”), a PRC limited liability company established December 16,
2005. Linyi Malt owns 66.8% of Qingyuan Beer, the remaining 33.2% of the
shareholders are relations of or similar owners of Linyi Malt. Qingyuan Beer
brews and distributes beer throughout northern and eastern China. Linyi Malt is
engaged in the production and distribution of brewer’s malt. The beers are
commonly marketed under the trade names “QINGLIN,” “QINGYI,” and “QINGYUAN”. The
controlling shareholder of Linyi Malt and Qingyuan Beer is Mr. Dingyou
Zhang.
 
 Subsequent
to the Share Exchange the “Company” is referred to as the consolidation of
Tsingyuan Holding, Tsingyuan HK, Beijing Qingyuan, Linyi Malt, Qingyuan Beer and
Sabre, with Sabre as the legal acquirer in Share Exchange, and subsequent to the
Share Exchange the parent company of the consolidated entity.
 
 The Share
Exchange acquisition will be accounted for as a “reverse acquisition” since,
immediately following completion of the transaction, the shareholders of
Tsingyuan Holding and it majority shareholder Mr. Dingyou Zhang, will have
effective control of Sabre. For accounting purposes, Tsingyuan Holding will be
deemed to be the accounting acquirer in the transaction and, consequently, the
transaction will be treated as a recapitalization of Sabre, i.e., a capital transaction
involving the issuance of shares by Sabre for the shares of Tsingyuan Holding.
Accordingly, the combined assets, liabilities and results of operations of
Tsingyuan Holding, and its subsidiaries and VIE’s,  became the
historical financial statements of Sabre at the closing of the Share Exchange,
and Sabre assets (primarily cash and cash equivalents), liabilities and results
of operations will be consolidated with those of Tsingyuan Holding beginning on
the Share Exchange date. No step-up in basis or intangible assets or goodwill
will be recorded in this transaction. As this transaction is being accounted for
as a reverse acquisition, all direct costs of the transaction will be charged to
additional paid-in capital. All professional fees and other costs associated
with transaction will be charged to additional paid-in-capital.
 
 The
control that Beijing Qingyuan has over Linyi Malt and Qingyuan Beer is generally
identified as an “entrusted management” business arrangement that is a result of
Linyi Malt and Qingyuan Beer, together with their shareholders, having entered
into a series of entrusted management agreements. The agreements provide that
all economic benefits and risks arising from the operations of Linyi Malt and
Qingyuan Beer are transferred to Beijing Qingyuan. Accordingly, Linyi Malt and
Qingyuan Beer are commonly referred to as VIEs with respect to Beijing Qingyuan
as they are deemed the primary beneficiary of these agreements. Details of the
VIE Agreements are set out below in “the Entrusted Management Agreements”
caption.
 F-5
 Tsingyuan
Holding, Tsingyuan HK and Beijing Qingyuan do not own any assets or any
operations, except for services Beijing Qingyuan provides to Linyi Malt and
Qingyuan Beer under the aforementioned series of entrusted management
agreements. The agreements are such that the operations and financial position
of Linyi Malt and Qingyuan Beer, subsequent to the completion of the entrusted
management agreements, were consolidated with those of Beijing Qingyuan,
Tsingyuan HK and Tsingyuan Holding.
 
 Chinese
laws and regulations currently do not prohibit or restrict foreign ownership in
alcohol brewery businesses. However, Chinese laws and regulations do prevent
direct foreign investment in certain industries. On June 26, 2010, to protect
the Company’s shareholders from possible future foreign ownership restrictions,
Linyi Malt and Qingyuan Beer entered into the entrusted management agreements
with Beijing Qingyuan that provide Beijing Qingyuan will be entitled to the full
guarantee for the performance of such entrusted management agreement entered
into by Linyi Malt and Qingyuan Beer. Beijing Qingyuan is also entitled to
receive the residual return of Linyi Malt and Qingyuan Beer.  As a
result of the agreement, Beijing Qingyuan will absorb 100% of the expected gains
or losses of Linyi Malt and Qingyuan Beer, which results in Beijing Qingyuan
being the primary beneficiary of Linyi Malt and Qingyuan
Beer.
 
 Beijing
Qingyuan also entered into share pledge agreements with the principal
shareholders of Linyi Malt and Qingyuan Beer (the “Principal Shareholders”), who
pledged all their equity interest in these entities to Beijing Qingyuan. The
share pledge agreements, which were entered into by Principal Shareholders,
pledged each of the Principal Shareholders’ equity interest in Linyi Malt and
Qingyuan Beer as a guarantee for the entrustment payments under the entrusted
management agreements.
 
 In
addition, Beijing Qingyuan entered into option agreements to acquire the
Principal Shareholders’ equity interest in these entities if or when permitted
by the PRC laws.
 
 Based on
these exclusive agreements, the Company consolidates the VIEs, Linyi Malt and
Qingyuan Beer, as required by generally accepted accounting principles in the
United States (“US GAAP”), because the Company is the primary beneficiary of the
VIEs. The profits and losses of the Company are allocated based upon the
entrusted management agreements.
 
 The
following are brief  description of entrusted management agreements
entered by Beijing Qingyuan and each of Linyi Malt and Qingyuan
Beer:
  (1)
Exclusive Technical Service and Business Consulting Agreement - The Exclusive
Technical Service and Business Consulting Agreement, provides that Beijing
Qingyuan will be fully and exclusively responsible for the management of Linyi
Malt and Qingyuan Beer. As consideration for such services, Linyi Malt and
Qingyuan Beer have agreed to pay Beijing Qingyuan a management fee during the
term of this agreement in an amount equal to Linyi Malt’s and Qingyuan Beer’s
estimated earnings before income tax. In addition, Beijing Qingyuan will assume
all operating risks related to Linyi Malt and Qingyuan Beer and will bear all
losses of Linyi Malt and Qingyuan Beer. This agreement will terminate on the
earliest of the following: (1) the winding up of Linyi Malt and Qingyuan Beer,
or (2) the termination date determined by the parties thereto, or (3) the date
on which Beijing Qingyuan completes the acquisition of Linyi Malt and Qingyuan
Beer.
  F-6
  (2)
Exclusive Option Agreement - of Linyi Malt and Qingyuan Beer and their
shareholders have entered into an Exclusive Option Agreement with Beijing
Qingyuan, pursuant to which Beijing Qingyuan will be entitled to acquire all of
the equity shares of such companies from the current shareholders upon certain
terms and conditions, or to purchase all or part of the assets and business of
Linyi Malt and Qingyuan Beer, if such a purchase is or becomes allowable under
PRC laws and regulations. The Exclusive Option Agreement also prohibits Linyi
Malt and Qingyuan Beer and their shareholders from transferring any portion of
their equity interests, business or assets to anyone other than Beijing
Qingyuan. Beijing Qingyuan has not yet taken any corporate action to exercise
this right of purchase, and there is no guarantee that it will do so, or will be
permitted to do so, by applicable law at such times as it may wish to do
so.
  (3)
Shareholders’ Voting Proxy Agreement - All the shareholders of Linyi Malt and
Qingyuan Beer have executed a Shareholders’ Voting Proxy Agreement to
irrevocably appoint the persons designated by Beijing Qingyuan as their proxies
with the exclusive right to exercise, on their behalf, all of their rights
related to their equity interests in Linyi Malt and Qingyuan Beer under the
Articles of Association of such companies or applicable law, including but not
limited to the right to sell or transfer all or any of their equity interests of
Linyi Malt and Qingyuan Beer, and to elect the directors of Linyi Malt and
Qingyuan Beer. This agreement may not be terminated prior to the completion of
the acquisition by Beijing Qingyuan of all of the equity interests in, or all of
the assets or business of, Linyi Malt and Qingyuan Beer.
  (4) Share
Pledge Agreement - Beijing Qingyuan and the shareholders of Linyi Malt and
Qingyuan Beer have entered into Share Pledge Agreement, pursuant to which all
such shareholders pledged all of their shares (100%) of Linyi Malt and Qingyuan
Beer, as appropriate, to Beijing Qingyuan. If Linyi Malt and Qingyuan Beer or
any of their respective shareholders breaches its contractual obligations in the
entrusted management agreements, Beijing Qingyuan as pledgee, will be entitled
to certain rights to foreclose on the pledged equity interests. Such Linyi Malt
and Qingyuan Beer shareholders cannot dispose of the pledged equity interests or
take any actions that would prejudice Beijing Qingyuan’s interest.
 Unaudited
Financial Statements
 The
accompanying consolidated financial statements as of September 30, 2010 and for
the three and nine months ended September 30, 2010 and 2009 are unaudited. In
the opinion of management, all necessary adjustments (which include only normal
recurring adjustments) have been made to present fairly the financial position,
results of operations and cash flows for the periods presented. Certain
information and footnote disclosure normally included in financial statements
prepared in accordance with US GAAP have been condensed or omitted. However, the
Company believes that the disclosures are adequate to make the information
presented not misleading. These consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto
included in the year ended December 31, 2009 and 2008 financial statements. The
results of operations for the three-month nine-month periods ended September 30,
2010 are not necessarily indicative of the operating results to be expected for
the full year ending December 31, 2010. The consolidated balance sheet as of
December 31, 2009 has been derived substantially from the combined audited
balance sheet of Linyi Malt and Qingyuan Beer, as included in financial
statements included by the Company on Form 8-K, as filed on September 24,
2010.
 Note 2
                Summary of Significant
      Accounting Policies
 Principles of
Consolidation
 
 The
accompanying consolidated financial statements include the accounts of Linyi
Malt and Qingyuan Beer, as noted previously. All intercompany transactions and
balances have been eliminated in consolidation.
  F-7
 Segment
Reporting
 
 The
Company consists of two operating segments. One segment includes the business
operations of buying and selling brewer’s malts and the other segment includes
the business operations of producing and selling beers. The Company’s brands,
which include “QINGLIN,” “QINGYI,” and “QINGYUAN,” are predominantly malt
beverages, which are sold to the same type of customers in similar size
quantities, at similar price points and through substantially the same channels
of distribution. The Company’s beverage products are manufactured using similar
production processes and have comparable alcohol content and constitute a single
group of similar products.
 
 Use of
Estimates
 
 The
preparation of the consolidated financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting periods.
Management makes these estimates using the best information available at the
time the estimates are made. Actual results could differ from those
estimates.
 
 Cash and Cash
Equivalents
 
 For
financial reporting purposes, the Company considers all highly-liquid
investments purchased with an original maturity of three months or less to be
cash equivalents. The Company maintains all of its bank accounts in
China.  Balances at financial institutions or state-owned banks within
the PRC are not covered by insurance.  However, the Company has not
experienced any losses in such accounts and believes it is not exposed to any
significant risks on its cash in bank accounts.
 
 Allowance for
Doubtful Accounts
 
 The
Company records an allowance for doubtful accounts that is based on historical
trends, customer knowledge, any known disputes, and the aging of the accounts
receivable balances combined with management’s estimate of future potential
recoverability. The Company has not recorded an allowance as of September 30,
2010 and December 31, 2009.
 
 Concentrations of
Credit Risk
 
 Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of cash equivalents and trade receivables. The Company
places its cash equivalents with high-credit-quality financial
institutions.
 F-8
 The
Company sells primarily to independent beer distributors across the PRC. Sales
to foreign customers are insignificant. Receivables arising from sales are not
collateralized; however, credit risk is minimized as a result of the large and
diverse nature of the Company’s customer base. There is no individual customer
accounts receivable balances outstanding at September 30, 2010 and
December 31, 2009 that was in excess of 10% of the gross accounts
receivable balances on those dates. No individual customer represented more than
10% of the Company’s revenues during the first nine months of 2010 and 2009 on
the fiscal quarters ended September 30, 2010 or 2009.
 
 Financial
Instruments and Fair Value of Financial Instruments
 
 Financial
Account Standards Board (FASB) Account Standards Codification (ASC) 820
(formerly SFAS No. 157 Fair Value Measurements) establishes a three-tier fair
value hierarchy, which prioritizes the inputs used in measuring fair value. The
hierarchy prioritizes the inputs into three levels based on the extent to which
inputs used in measuring fair value are observable in the
market.
 
 These
tiers include:
 
 •
      Level 1—defined as observable inputs, such as quoted prices in active
      markets;•
      Level 2—defined as inputs other than quoted prices in active markets that
      are either directly or indirectly observable;
  and
 
 •
      Level 3—defined as unobservable inputs in which little or no market data
      exists, therefore requiring an entity to develop its own
      assumptions.
 
 The
Company’s primary financial instruments consisted of cash equivalents, accounts
receivable, advances to suppliers, due from related parties, restricted assets,
accounts payable and accrued expense, other payables, accrued payroll, advances
from customers, taxes payable and due to related parties as of September 30,
2010 and December 31, 2009. The carrying amounts of these financial instruments
approximate their fair values due to the short-term nature of these
instruments.
 
 Cash and
cash equivalents include money market securities and commercial paper that are
considered to be highly liquid and easily tradable. These securities are valued
using inputs observable in active markets for identical securities and are
therefore classified as Level 1 within the fair value
hierarchy.
 
 As of the
balance sheet dates, the estimated fair values of financial instruments were not
materially different from their carrying value as presented due to the short
maturities of these instruments and that the interest rates on these instruments
approximate those that would have been available for loans of similar remaining
maturities and risk profiles at respective year ends.
 
 Inventories
 
 Inventories
consist of raw materials and finished goods. Raw materials, which principally
consist of hops, other brewing materials and packaging, are stated at the lower
of cost (weighted average basis) or market. The cost elements of finished goods
inventory consist of raw materials, direct labor and manufacturing overhead.
Packaging design costs are expensed as incurred.
 F-9
 The
provisions for excess or expired inventory are based on management’s estimates
of forecasted usage of inventories. A significant change in the timing or level
of demand for certain products as compared to forecasted amounts may result in
recording additional provisions for excess or expired inventory in the future.
Provisions for excess inventory are included in cost of goods
sold.
 
 The
computation of the excess hops inventory requires management to make certain
assumptions regarding future sales growth, product mix, cancellation costs, and
supply, among others. The Company manages inventory levels in an effort to
maximize utilization of hops on hand. The Company’s accounting policy for hops
inventory and purchase commitments is to recognize a loss by establishing a
reserve to the extent inventory levels and commitments exceed forecasted needs
as determined by the Company’s brewmasters. The Company has not recorded any
loss on purchase commitments during the three or  nine months ended
September 30, 2010 and 2009.
 
 Property, Plant
and Equipment
 
 Property,
plant, and equipment are stated at cost. Expenditures for repairs and
maintenance are expensed as incurred. Major renewals and betterments that extend
the life of the property are capitalized. Depreciation is computed using the
straight-line method based upon the estimated useful lives of the underlying
assets as follows:
 
 Building
      and building improvements
                    
                    30
      yearsOperation
      equipment
                    
                    15
      yearsVehicles
                    
                    10  yearsElectricity
      equipment
                    
                    10  yearsOffice
      equipment and furniture
                    
                    10  years
 
 Land
Use Rights
 
 According
to PRC laws, the government owns all the land in the PRC. Companies or
individuals are authorized to possess and use the land only through land use
rights granted by the Chinese government.  The land use rights granted
to the Company, located at Shandong Province, are being amortized using the
straight-line method over the lease term of fifty years.
 
 Long-lived
Assets
 
 Long-lived
assets are recorded at cost and depreciated over their estimated useful lives.
For purposes of determining whether there are any impairment losses, as further
discussed below, management has historically examined the carrying value of the
Company’s identifiable long-lived assets, including their useful lives, when
indicators of impairment are present. For all long-lived assets, if an
impairment loss is identified based on the fair value of the asset, as compared
to the carrying value of the asset, such a loss would be charged to expense in
the period the impairment is identified. Furthermore, if the review of the
carrying values of the long-lived assets indicates impairment of such assets,
the Company may determine that shorter estimated useful lives are more
appropriate. In that event, the Company will be required to record additional
depreciation in future periods, which will reduce earnings.
 F-10
 Factors
generally considered important which could trigger an impairment review on the
carrying value of long-lived assets include the following: (1) significant
underperformance relative to expected historical or projected future operating
results; (2) significant changes in the manner of use of acquired assets or the
strategy for the Company’s overall business; (3) underutilization of assets; and
(4) discontinuance of products by the Company or its customers. The Company
believes that the carrying value of its long-lived assets was realizable as of
September 30, 2010 and December 31, 2009.
 
 Restricted
Assets
 
 Restricted
assets represents cash held by a bank as security for bank acceptance notes and
therefore is not available for the Company’s use until such time as the bank
acceptance notes have been fulfilled or expired, normally within a12-month
period.
 
 Income
Taxes
 
 The
Company provides for deferred taxes using an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the Company’s
consolidated financial statements or tax returns. This results in differences
between the book and tax bases of the Company’s assets and liabilities and
carryforwards, such as tax credits. In estimating future tax consequences, all
expected future events, other than enactment of changes in the tax laws or
rates, are generally considered. Valuation allowances are provided to the extent
deemed necessary when realization of deferred tax assets appears
unlikely.
 
 The
calculation of the Company’s tax liabilities involves dealing with uncertainties
in the application of complex tax regulations in several different tax
jurisdictions. The Company is periodically reviewed by tax authorities regarding
the amount of taxes due. These reviews include inquiries regarding the timing
and amount of deductions and the allocation of income among various tax
jurisdictions. At the beginning of fiscal 2007, the Company adopted FASB ASC
Topic 740 (originally issued as Financial Accounting Standards Board
Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes”) and
records estimated reserves for exposures associated with positions that it takes
on its income tax returns in accordance with that standard. The adoption of that
standard did not have a material impact on the Company’s financial
statements.
 
 Other
Taxes
 
 The
Company is responsible for compliance with the State Administration of Taxation
of the PRC Treasury Department (the “SAT”) regulations that include making
timely and accurate excise tax payments. The Company is subject to periodic
compliance audits by the SAT. The Company calculates its excise tax expense
based upon units produced and on its understanding of the applicable excise tax
laws.
 F-11
 Revenue
Recognition
 
 The
Company recognizes revenue on product sales at the time when the product is
shipped and the following conditions exist: persuasive evidence of an
arrangement exists, title has passed to the customer according to the shipping
terms, the price is fixed and determinable, and collection of the sales proceeds
is reasonably assured.
 
 Cost
of Goods Sold
 
 The
following expenses are included in cost of goods sold: raw material costs,
packaging costs, costs and income related to deposit activity, purchasing and
receiving costs, manufacturing labor and overhead, brewing and processing costs,
inspection costs relating to quality control, inbound freight charges,
depreciation expense related to manufacturing equipment and warehousing costs,
which include rent, labor and overhead costs.
 
 Shipping
Costs
 
 Costs
incurred for the shipping of products to customers are on the customers’ duty.
The Company did not have shipping cost included in the consolidated financial
statements for the three months or nine months ended September 30, 2010 and
2009.
 
 General
and Administrative Expenses
 
 The
following expenses are included in general and administrative expenses in the
accompanying consolidated statements of income: general and administrative
salary and benefit expenses, utility expenses, and other general and
administrative overhead costs.
 
 Foreign
Currency Translation
 
 The
accompanying consolidated financial statements are presented in United States
dollars (“US$”). The functional currency of the Company is Renminbi (“RMB”). The
consolidated financial statements are translated into United States dollars from
RMB at year-end exchange rates as to assets and liabilities and average exchange
rates as to revenues and expenses. Capital accounts are translated at their
historical exchange rates when the capital transactions occurred. The resulting
transaction adjustments are recorded as a component of shareholders’ equity.
Gains and losses from foreign currency transactions are included in net
income.
 
 2010
                  
                  
                  2009(unaudited)
                  
                  
                  (unaudited)RMB:
      US$ exchange rate ended September 30, 2010 and 2009
                  
                  
                  6.6981
                  
                  
                  
                  6.8376
  Nine
      Months Ended
                        September
      30,
                      
                      
                      Three
      Months Ended
                        September
      30,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009(unaudited)
                      
                      
                      (unaudited)
                      
                      
                      (unaudited)
                      
                      
                      (unaudited)Average
      RMB: US$ exchange rate
                      
                      
                      6.8164
                      
                      
                      
                      6.8425
                      
                      
                      
                      6.7462
                      
                      
                      
                      6.8321
 F-12
 The RMB
is not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into US$ at
the rates used in translation.
 
 Comprehensive
Income
 
 Comprehensive
income is defined as the change in equity during the year from transactions and
other events, excluding the changes resulting from investments by owners and
distributions to owners, and is not included in the computation of income tax
expense or benefit. Accumulated comprehensive income consists of changes in
unrealized gains and losses on foreign currency translation.
 
 Economic
and Political Risks
 
 The
Company’s operations are conducted 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 economy.
 
 The
Company’s operations in the PRC are subject to special considerations and
significant risks not typically associated with companies in North America and
Western Europe.  These include risks associated with, among others,
the political, economic and legal environment and foreign currency
exchange.  The Company’s results may be adversely affected by changes
in the political and social conditions in the PRC, and by changes in
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion, remittances abroad, and rates and methods of
taxation, among other things.
 
 Exchange
Risk
 
 The
Company cannot guarantee that the current exchange rate will remain steady.
Therefore, there is a possibility that the Company could post the same amount of
profit for two comparable periods and because of a fluctuating exchange rate
actually post higher or lower profit depending on exchange rate of PRC Renminbi
(RMB) converted to U.S. dollars on the date. The exchange rate could fluctuate
depending on changes in the political and economic environments without
notice.
 Subsequent
Events
 In
accordance with ASC 855, “Subsequent Events,” the Company evaluated subsequent
events after the balance sheet date of September 30, 2010. The Company did not
have any material subsequent events to disclose.
 F-13
 Recent Accounting
Pronouncements
 
 The
following is a list of recent accounting pronouncements summarized
below:
 
 -
                  In
      April 2010, the FASB issued Accounting Standards Update 2010-13 (ASU
      2010-13), "Compensation—Stock Compensation (Topic 718)." This Update
      provides amendments to Topic 718 to clarify that an employee share-based
      payment award with an exercise price denominated in the currency of a
      market in which a substantial portion of the entity’s equity securities
      trades should not be considered to contain a condition that is not a
      market, performance, or service
      condition. Therefore, an entity would not classify such an award as a
      liability if it otherwise qualifies as equity. The amendments in ASU
      2010-13 are effective for fiscal years, and interim periods within those
      fiscal years, beginning on or after December 15, 2010. The provision of
      ASU 2010-13 are not expected to have a material effect on the Company’s
      consolidated financial
statements.
 
 -
                  In
      March 2010, the FASB issued Accounting Standards Update 2010-11 (ASU
      2010-11), "Derivative and Hedging (Topic 815)."  All entities
      that enter into contracts containing an embedded credit derivative feature
      related to the transfer of credit risk that is not only in the form of
      subordination of one financial instrument to another will be affected by
      the amendments in this Update because the amendments clarify that the
      embedded credit derivative scope exception in paragraph 815-15-15-8
      through 15-9 does not apply to such contracts.  ASU 2010-11
      became effective at the beginning of the reporting entity's first fiscal
      quarter beginning after June 15, 2010.  The provisions of ASU
      2010-11 are not expected to have a material effect on the Company’s
      consolidated financial
statements.
 
 -
                  In
      February 2010, the FASB issued Accounting Standards Update 2010-10 (ASU
      2010-10), "Consolidation (Topic 810)."  The amendments to the
      consolidation requirements of Topic 810 resulting from the issuance of
      Statement 167 are deferred for a reporting entity's interest in an entity
      (1) that has all the attributes of an investment company or (2) for
      which it is industry practice to apply measurement principles for
      financial reporting purposes that are consistent with those followed by
      investment companies.  An entity that qualifies for the deferral
      will continue to be assessed under the overall guidance on the
      consolidation of variable interest entities in Subtopic 810-10 (before the
      Statement 167 amendments) or other applicable consolidation guidance, such
      as the guidance for the consolidation of partnerships in Subtopic
      810-20.  The deferral is primarily the result of differing
      consolidation conclusions reached by the International Accounting
      Standards Board ("IASB") for certain investment funds when compared with
      the conclusions reached under Statement 167.  The deferral is
      effective as of the beginning of a reporting entity's first annual period
      that begins after November 15, 2009, and for interim periods within that
      first annual reporting period, which coincides with the effective date of
      Statement 167.  Early application is not permitted.  The
      provisions of ASU 2010-10 are effective for the Company beginning in 2010.
      The adoption of ASU 2010-10 did not have a material impact on the
      Company’s consolidated financial
statements.
  A variety
of proposed or otherwise potential accounting standards are currently under
study by standard setting organizations and various regulatory agencies. Due to
the tentative and preliminary nature of those proposed standards, management has
not determined whether implementation of such proposed standards would be
material to the consolidated statements.
 F-14
 Note 3
                Accounts
      Receivable
 Accounts
receivable, net of allowance for doubtful accounts, was $3,710,354 and $505,464
as of September 30, 2010 and December 31, 2009, respectively. The allowance for
doubtful accounts as of September 30, 2010 and December 31, 2009 was
$0.
 
 Note 4
                Inventories
 Inventories
consisted of the following:
  September
      30,
                            
                            December
      31,2010
                            
                            2009(Unaudited)
                            
                            (Unaudited)Raw
      materials
                            
                            $
                            2,344,417
                            
                            
                            $
                            244,248Finished
      goods
                            
                            
                            1,014,270
                            
                            
                            
                            325,638$
                            3,358,687
                            
                            
                            $
                            596,886
 
 Note
      5
                Property, Plant and
      Equipment
 Property,
plant and equipment consisted of the following:
  September
      30,
                            
                            
                            December
      31,2010
                            
                            
                            2009(Unaudited)
                            
                            
                            (Unaudited)Building
      and building improvements
                            
                            $
                            6,948,292
                            
                            
                            $
                            6,806,933Operation
      equipment
                            
                            
                            12,461,581
                            
                            
                            
                            11,682,986Vehicles
                            
                            
                            15,684
                            
                            
                            
                            15,364Electricity
      equipment
                            
                            
                            6,775
                            
                            
                            
                            6,637Office
      equipment and furniture
                            
                            
                            567
                            
                            
                            
                            55619,432,899
                            
                            
                            
                            18,512,476Less:
      accumulated depreciation
                            
                            
                            (2,424,575
                            )
                            
                            
                            (1,675,766
                            )$
                            17,008,324
                            
                            
                            $
                            16,836,710
 
 The
depreciation expenses related to these assets for the nine months ended
September 30, 2010 and 2009 was $701,617 and $357,536, respectively, and for the
three months ended September 30, 2010 was $249,052and $116,354,
respectively.
 F-15
 Note
      6
                Intangible
      Asset
 Intangible
asset consisted of the following:
 
 September
      30,
                              
                              December
      31,2010
                              
                              2009(Unaudited)
                              
                              (Unaudited)Cost
      of land use rights
                              
                              $
                              1,513,678
                              
                              
                              $
                              1,482,883Less:
      Accumulated amortization
                              
                              
                              (86,736
                              )
                              
                              
                              (63,854
                              )$
                              1,426,942
                              
                              
                              $
                              1,419,029
 
 The land
use rights,
for the lands located at the Linyi County, Shandong province facility commenced
in the year ended December 31, 2007, with the use right terms of forty -seven years and fifty years for certain parcels
of the land.
 
 For the
nine months ended September 30, 2010 and 2009, the amortization expense was
$21,182 and $19,379, respectively and for the three months ended September 30,
2010 and 2009 was $6,026 and $7,095, respectively.
 
 Note
      7
                Short-term
      Loans
 
 As of
September 30, 2010 and December 31, 2009,
the short-term loans were as follow:
 
 September
      30,
                                
                                
                                December
      31,2010
                                
                                
                                2009(Unaudited)
                                
                                
                                (Unaudited)Loan
      payable to Agricultural Bank of China, interest at 6.903% annually, due by
      July 15, 2010, collateralized by certain assets of the
      Company.
                                
                                $
                                -
                                
                                
                                $
                                585,034Loan
      payable to Commercial Bank Dezhou Beiyuan Branch, interest at 9.6642%
      annually, due by November 20, 2010 and repaid by June 30, 2010,
      collateralized by certain assets of the Company.
                                
                                
                                -
                                
                                
                                
                                314,456Loan
      payable to Commercial Bank Dezhou Beiyuan Branch, interest at 9.5742%
      annually, due by June 16, 2010, collateralized by certain assets of the
      Company.
                                
                                
                                -
                                
                                
                                
                                731,294Loan
      payable to China Construction Bank, interest at 7.31% annually, due by
      January 1, 2010, collateralized by certain assets of the
      Company.
                                
                                
                                -
                                
                                
                                
                                438,776Loan
      payable to Agricultural Bank of China, interest at 8.2305% annually, due
      by March 17, 2010, collateralized by certain assets of the
      Company.
                                
                                
                                -
                                
                                
                                
                                1,170,070Loan
      payable to Agricultural Bank of China, interest at 6.903% annually, due by
      March 11, 2010, collateralized by certain assets of the
      Company.
                                
                                
                                -
                                
                                
                                
                                1,462,587Loan
      payable to Commercial Bank Dezhou Beiyuan Branch, interest at 9.9828%
      annually, due by March 25, 2010, collateralized by certain assets of the
      Company.
                                
                                
                                -
                                
                                
                                
                                731,294Loan
      payable to Commercial Bank Dezhou Beiyuan Branch, interest at 9.9828%
      annually, due by January 26, 2010, collateralized by certain assets of the
      Company.
                                
                                
                                -
                                
                                
                                
                                585,035Loan
      payable to Commercial Bank Dezhou Beiyuan Branch, interest at 9.6642%
      annually, due by November 20, 2010, collateralized by certain assets of
      the Company. Repaid prior to September 30, 2010.
                                
                                
                                -
                                
                                
                                
                                124,320Loan
      payable to Commercial Bank Dezhou Beiyuan Branch, interest at 9.72%
      annually, due by February 24, 2010, collateralized by certain assets of
      the Company.
                                
                                
                                -
                                
                                
                                
                                438,776$
                                -
                                
                                
                                $
                                6,581,642
 F-16
 Short-term
bank loans were obtained from local banks in China. All the short-term bank
loans are repayable within one year and were secured by property, plant and
equipment and land use rights owned by the Company.
 
 For the
nine months ended September 30, 2010 and 2009, the interest expense was $189,788
and $742,700,  respectively. For the three months ended September 30,
2010, interest expense was $3,328 and $154,180, respectively.
 
 Note
      8
                Accounts
      Payable
 
 As of
September 30, 2010 and December 31, 2009, the Company recorded accounts payable
of $1,219,237 and $3,835,656, respectively. Accounts payable are primarily
payments due to suppliers and vendors for malts.
 
 Note 9
                Taxes
 (a)
Corporation Income Tax (“CIT”)
 
 On March
16, 2007, the National People’s Congress of China approved the new Corporate
Income Tax Law of the People’s Republic of China (the “New CIT Law”), which was
effective from January 1, 2008.
 F-17
 Prior to
January 1, 2008, the CIT rate applicable to our subsidiaries in the PRC was
33%.  After January 1, 2008, under the New CIT Law, the corporate
income tax rate applicable to our subsidiaries is 25%. The New CIT Law has an
impact on the deferred tax assets and liabilities of the Company. The Company
adjusted deferred tax balances as of December 31, 2009 based on its best
estimate and will continue to assess the impact of such new law in the future.
The effects arising from the enforcement of the New CIT Law have been reflected
in the accounts.
 
 In
accordance with the New CIT Law, enterprises established under the laws of
foreign countries or regions and whose “place of effective management” is
located within the PRC territory are considered PRC resident enterprises and
subject to the PRC income tax at the rate of 25% on worldwide
income.  The definition of “place of effective management" refers to
an establishment that exercises, in substance, overall management and control
over the production and business, personnel, accounting and properties of an
enterprise. As of September 30, 2010, no detailed interpretation or guidance has
been issued to define “place of effective management”. Furthermore, as of
September 30, 2010, the administrative practice associated with interpreting and
applying the concept of “place of effective management” was unclear. If the
Company’s non-PRC incorporated entities are deemed PRC tax residents, such
entities would be subject to PRC tax under the New CIT Law.  The
Company has analyzed the applicability of this law, as of September 30, 2010 and
December 31, 2009, and the Company has not accrued for PRC tax on such
basis.  The Company will continue to monitor changes in the
interpretation or guidance of this law.
 
 The New
CIT Law also imposes a 10% withholding income tax, subject to reduction based on
tax treaty where applicable, for dividends distributed by a foreign-invested
enterprise to its immediate holding company outside China.  Such
dividends were exempted from PRC tax under the previous income tax law and
regulations.  Foreign-invested enterprises became subject to the
withholding tax starting January 1, 2008.  There were no dividends
distributed during the three months or nine months ended September 30, 2010 and
2009.
 
 Income
tax expenses consisted of the following:
 
 Nine
      Months Ended
                                September
      30,2010
                              
                              2009(Unaudited)
                              
                              (Unaudited)Current
      taxes expense
                              
                              $
                              1,525,511
                              
                              
                              $
                              -Deferred
      taxes expense (benefit)
                              
                              
                              71,376
                              
                              
                              
                              442,884Income
      taxes expense (benefit)
                              
                              $
                              1,596,887
                              
                              
                              $
                              442,884
 
 The table
below summarizes the reconciliation of the Company’s income tax provision
(benefit) computed at the statutory rate in the PRC and the actual tax
provision:
 
 Nine
      Months Ended September 30,2010
                            
                            2009(Unaudited)
                            
                            (Unaudited)Income
      tax (benefit) provision at PRC statutory rate
                            
                            $
                            1,507,000
                            
                            
                            $
                            -Permanent
      differences
                            
                            
                            90,000
                            
                            
                            
                            443,000Tax
      provision
                            
                            $
                            1,597,000
                            
                            
                            $
                            443,000
   F-18
 
 Income
taxes payable were as follows:
 
 September
      30, 2010
                                          
                                          December
      31, 2009(Unaudited)
                                          
                                          (Unaudited)Computed
      "expected" income tax liabilities (refund)
                                          
                                          $
                                          1,596,887
                                          
                                          
                                          $
                                          561,767Effect
      on net operating loss carryforward
                                          
                                          
                                          (71,376
                                          )
                                          
                                          
                                          (546,196
                                          )Income
      taxes liabilities
                                          
                                          $
                                          1,525,511
                                          
                                          
                                          $
                                          15,571
  Components
of net deferred tax assets were as follows:
 
 September
      30,
                              
                              December
      31,2010
                              
                              2009(Unaudited)
                              
                              (Unaudited)Deferred
      tax assets – current
                              
                              $
                              -
                              
                              
                              $
                              71,158Provision
      of doubtful account
                              
                              
                              -
                              
                              
                              
                              -$
                              -
                              
                              
                              $
                              71,158
 
 The
Company uses FASB ASC 740 (formerly FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (“FIN 48”)). – AN INTERPRETATION OF FASB STATEMENT
NO. 109, ACCOUNTING FOR INCOME TAXES.  The Interpretation addresses
the determination of whether tax benefits claimed or expected to be claimed on a
tax return should be recorded in the financial statements.  Under FIN
48, we may recognize the tax benefit from an uncertain tax position only if it
is more likely than not that the tax position will be sustained on examination
by the taxing authorities, based on the technical merits of the
position.  The tax benefits recognized in the financial statements
from such a position should be measured based on the largest benefit that has a
greater than fifty percent likelihood of being realized upon ultimate
settlement.  FIN 48 also provides guidance on recognition,
classification, interest and penalties on income taxes, accounting in interim
periods and requires increased disclosures.  As of September 30, 2010
and December 31, 2009, the Company did not have a liability for unrecognized tax
expenses.
 
 (b) Value
Added Tax (“VAT”)
 
 Enterprises
or individuals who sell commodities, engage in repair and maintenance or engage
in the import or export of goods in the PRC are subject to a value added tax in
accordance with Chinese Laws. The VAT standard rate is 17% of the gross sale
price.  A credit is available whereby VAT paid on the purchases of
semi-finished products or raw materials used in the production of the Company’s
finished products can be used to offset the VAT due on the sales of the finished
products.
 
 The VAT
payable balance of $1,028,441 and $69,890 at September 30, 2010 and December 31,
2009, respectively, are included in taxes payable in the accompanying
consolidated balance sheets.
 F-19
 Taxes
Payable was comprised of the following:
 
 September
      30,
                                      
                                      
                                      December
      31,2010
                                      
                                      
                                      2009(Unaudited)
                                      
                                      
                                      (Unaudited)VAT
      and Consumption Taxes Payable
                                      
                                      $
                                      1,028,441
                                      
                                      
                                      $
                                      69,890Local
      and Municipal Taxes and Fees
                                      
                                      
                                      144,115
                                      
                                      
                                      
                                      6,373Income
      Taxes Payable
                                      
                                      
                                      1,525,511
                                      
                                      
                                      
                                      15,571$
                                      2,698,067
                                      
                                      
                                      $
                                      91,834
 
 
 Note
      10
                Related
      Party Transaction
 Parties
are considered to be related if one party has the ability, directly or
indirectly, to control the other party or exercise significant influence over
the other party in making financial and operational decisions. Parties are also
considered to be related if they are subject to common control or common
significant influence. The due from/to related parties represented the advances
from or to the Company’s shareholders. Such advances are non-interest bearing,
unsecured and due upon demand. As of September 30, 2010 and December 31, 2009,
the Company had due to related party of $4,350,389 and $371,106,
respectively.
 
 Note11
                Statutory
      Reserve
 As
stipulated by the Company Law of the PRC, net income after taxation can only be
distributed as dividends after appropriation has been made for the
following:
 
 ·
                Making
      up cumulative prior years’ losses, if any;·
                Allocations
      to the “Statutory surplus reserve” of at least 10% of income after tax, as
      determined under PRC accounting rules and regulations, until the fund
      amounts to 50% of the Company’s registered
  capital;
 ·
                Allocations
      of 5% to 10% of income after tax, as determined under PRC accounting rules
      and regulations, to the Company’s “Statutory common welfare fund”, which
      is established for the purpose of providing employee facilities and other
      collective benefits to the Company’s employees;
  and
 ·
                Allocations
      to the discretionary surplus reserve, if approved in the stockholders’
      general meeting.
 ·
                The
      transfer to this reserve must be made before distribution of any dividend
      to shareholders. The surplus reserve fund is non-distributable other than
      during liquidation and can be used to fund previous years’ losses, if any,
      and may be utilized for business expansion or converted into share capital
      by issuing new shares to existing shareholders in proportion to their
      shareholdings or by increasing the par value of the shares currently held
      by them, provided that the remaining reserve balance after such issue is
      not less than 25% of the registered
capital.
 
 The
Company had an accumulated deficit of $264,851 as of December 31, 2009. As of
September 30, 2010, the Company had retained earnings of $4,043,460. In
accordance with the Company Law of the PRC, the Company did not allocate 10% of
its annual net income as statutory reserve for the years ended December 31, 2009
and 2008. For the nine months ended September 30, 2010, the Company allocated
$482,389 as statutory reserve.
 F-20
 According
to the new Company Law the of PRC executed in 2006, the Company is no longer
required to reserve the “Statutory common welfare fund”. Accordingly, the
Company did not reserve the common welfare fund as of September 30, 2010 and
December 31, 2009.
 
 Note
      12
                Segment
      Reporting
 US GAAP
requires the use of the management approach model for segment reporting. The
management approach model is based on how a company's management organizes
segments within the company for making operating decisions and assessing
performance. Reportable segments are based on products and services, geography,
legal structure, management structure, or any other manner in
which management disaggregates a company. Based on this model, the Company
has determined that it has two segments. The Company’s principal businesses are
buying and selling brewer’s malts, and the production and distribution of beers.
Based on its various operating activities, the Company’s reportable segments are
as follows:
 
 F-21
 
 As
      of and for the Nine Months Ended September 30, 2010
                        (unaudited)Malts
                      
                      
                      Beer
                      
                      
                      Corporate
                      
                      
                      TotalRevenues
                      
                      $
                      20,979,542
                      
                      
                      $
                      11,889,496
                      
                      
                      $
                      -
                      
                      
                      $
                      32,869,038Depreciation
      and amortization
                      
                      $
                      353,602
                      
                      
                      $
                      369,197
                      
                      
                      $
                      -
                      
                      
                      $
                      722,799Interest
      income
                      
                      $
                      149,577
                      
                      
                      $
                      406
                      
                      
                      $
                      -
                      
                      
                      $
                      149,983Interest
      expense
                      
                      $
                      189,788
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      189,788Income
      tax expense
                      
                      $
                      1,051,037
                      
                      
                      $
                      545,850
                      
                      
                      $
                      -
                      
                      
                      $
                      1,596,887Segment
      net income
                      
                      $
                      1,675,777
                      
                      
                      $
                      3,114,923
                      
                      
                      $
                      -
                      
                      
                      $
                      4,790,700Segment
      assets
                      
                      
                      14,107,204
                      
                      
                      
                      11,808,172
                      
                      
                      
                      -
                      
                      
                      
                      25,915,376Expenditure
      for segment assets
                      
                      $
                      526,671
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      526,671
 
 
 As
      of and For the Nine Months Ended September 30, 2009
                        (unaudited)Malts
                      
                      
                      Beer
                      
                      
                      Corporate
                      
                      
                      TotalRevenues
                      
                      $
                      7,500,306
                      
                      
                      $
                      2,361,385
                      
                      
                      $
                      -
                      
                      
                      $
                      9,861,691Depreciation
      and amortization
                      
                      $
                      218,555
                      
                      
                      $
                      158,360
                      
                      
                      $
                      -
                      
                      
                      $
                      376,915Interest
      income
                      
                      $
                      286,479
                      
                      
                      $
                      5
                      
                      
                      $
                      -
                      
                      
                      $
                      286,484Interest
      expense
                      
                      $
                      738,547
                      
                      
                      $
                      4,153
                      
                      
                      $
                      -
                      
                      
                      $
                      742,700Income
      tax expense
                      
                      $
                      442,884
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      442,884Segment
      net income
                      
                      $
                      1,023,498
                      
                      
                      $
                      434,654
                      
                      
                      $
                      -
                      
                      
                      $
                      1,458,152Segment
      assets
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Expenditure
      for segment assets
 
 As
      of December 31, 2009
                          (audited)Malts
                        
                        
                        Beer
                        
                        Corporate
                        
                        
                        TotalSegment
      Assets
                        
                        $
                        15,671,243
                        
                        
                        $
                        7,462,806
                        
                        
                        
                        -
                        
                        
                        $
                        23,134,049
 F-22
  ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 Disclosure
Regarding Forward-Looking Statements
 
 The
statements contained in this report with respect to our financial condition,
results of operations and business that are not historical facts are
forward-looking statements. Forward-looking statements can be identified by the
use of forward-looking terminology, such as "anticipate", "believe", "expect",
"plan", "intend", "seek", "estimate", "project", "could", "may" or the negative
thereof or other variations thereon, or by discussions of strategy that involve
risks and uncertainties. Management wishes to caution the reader of the
forward-looking statements that any such statements that are contained in this
report reflect our current beliefs with respect to future events and involve
known and unknown risks, uncertainties and other factors, including, but not
limited to, economic, competitive, regulatory, technological, key employee, and
general business factors affecting our operations, markets, growth, services,
products, licenses and other factors discussed in our other filings with the
SEC. Some of these risks are described in “Risk Factors” in our Current Report
on Form 8-K filed with the SEC on September 24, 2010.
 
 These
risk factors should be considered in connection with any subsequent written or
oral forward-looking statements that we or persons acting on our behalf may
issue. All written and oral forward looking statements made in connection with
this report that are attributable to our company or persons acting on our behalf
are expressly qualified in their entirety by these cautionary statements. Given
these uncertainties, we caution investors not to unduly rely on our
forward-looking statements. We do not undertake any obligation to review or
confirm analysts’ expectations or estimates or to release publicly any revisions
to any forward-looking statements to reflect events or circumstances after the
date of this report or to reflect the occurrence of unanticipated events except
as required by applicable securities law or regulations.
 
 The
following discussion and analysis of our company’s financial condition and
results of operations should be read in conjunction with our unaudited
consolidated financial statements and the related notes included elsewhere in
this report.
 
 OVERVIEW
 
 We are
principally engaged in the production and distribution of brewers’ malt and
beers throughout northern and eastern China. We control two affiliated entities,
Linyi Hengchang Brewer’s Malt Co., Ltd. (“Linyi Malt”) and Shandong Qingyuan
Beer Co., Ltd. (“Qingyuan Beer”), pursuant to a series of control agreements
among Linyi Malt, Qingyuan Beer and our wholly-owned subsidiary, Beijing
Qingyuan Hengchang Consulting Co., Ltd. (“Beijing Qingyuan”).
 
 Linyi
Malt is a People’s Republic of China (the "PRC”) limited liability company
established at March 3, 2004. Qingyuan Beer is a PRC limited liability company
established on December 16, 2005.  Linyi Malt is engaged in the
production and distribution of brewer’s malt.  Qingyuan Beer brews and
distributes beer throughout northern and eastern China. Linyi Malt owns 66.8% of
Qingyuan Beer. The remaining 33.2% of Qingyuan Beer is owned by affiliates of
Linyi Malt. Our beer products are marketed under the trade names “QINGLIN,”
“QINGYI,” and “QINGYUAN”. Our malts are used in making our own beers, and are
sold to other brewers in the PRC. We operate our own beer and malt production
facility in Shandong Province in China, which is used to create consistent
quality and operational efficiencies in the production of our beer.
 
 BUSINESS
STRATEGY
 
 Our
Malt Business
  Linyi
Malt was organized in 2004. Its business purpose is to engage in the manufacture
and sale of brewer’s malt used in the production of beer. With the growth of
demand for beer in both urban and rural China, industry data has consistently
indicated a shortage of suppliers of quality brewer’s malt. Linyi Malt was
established to help fill that gap. Linyi Malt currently has the capacity to
produce 200,000 tons per year.
 
 3
  Linyi
Malt imports barley from Australia, Canada and France, depending on customer
demand and market conditions. We also malt a variety of domestic barleys,
including Jiangsu barley from eastern China and Gansu barley from northwest
China, and a particularly high-quality barley from Inner Mongolia. We also
import French wheat for malting for use in wheat beers. Raw material generally
arrives at the nearby Pingyuan railway station, from which we transport it to
our factory in our own vehicles.
 
 The
malting process is an ancient process, but modern technology has enabled us to
optimize the quality and consistency of our end product. Malting, in general,
consists of germinating grain in water, then applying heat to rapidly halt the
germination process. Our technology allows us to adjust the timing and
ventilation process to provide the optimal malting conditions for each variety
of grain that we use.
 
 Our
brewer’s malt is currently shipped to brewers in ten provinces of China. Our
central location of Shandong Province within China’s industrial corridor makes
transportation particularly convenient. In general, our customers pay the
freight charges from our warehouse loading dock.
 
 In 2008,
Linyi Malt was awarded the Quality Management System Certification by the
Beijing United Intelligence Certificate Co., Ltd. The certification verified
that the Company’s quality management system for the production of brewer’s malt
met the standards of ISO9001:2000.
 
 Linyi
Malt is required to qualify with several government agencies in order to carry
out its business.  Primary among its government approvals
are:
 
 ·
                Grain
      Purchases Permit issued by Linyi County Grain Administration in 2008
      (renewable biennially);
 ·
                Sanitation
      License issued by Linyi County Health Bureau in 2010 (renewable every
      three years);
 ·
                Drawing
      of Water Permit issued by the Ministry of Water Resources in 2007, which
      authorizes the company to draw up to 10,000 cubic meters of deep
      underground water into its plant;
 ·
                Certification
      to act as consignee or consignor for import-export of malt products,
      awarded in 2005.
 
 The
establishment of Qingyuan Beer in 2005 provided us a captive customer for our
brewer’s malt. Currently, only a small percentage of our malt production is
delivered to Qingyuan Beer. If its growth continues, we believe Qingyuan Beer
will purchase a larger portion of our annual malt production, which should
reduce our costs of producing beers and increase the overall profitability of
our enterprise.
 
 Our
Beer Business
  Qingyuan
Beer was organized in December 2005 with registered capital of RMB30 million
(approximately $4.4 million) to take advantage of the synergies that arise from
integrating a manufacturer of high-quality brewer’s malt with a
brewery.  Linyi Malt owns 66.8% of the registered capital of Qingyuan
Beer. The remainder is owned by our officers, Dingyou Zhang and Mingxia Yuan. In
September 2007, after government inspection of our newly-developed production
facilities, we were awarded the National Industrial Product Manufacture
Licensing Certification, which enables us to distribute our beers throughout
China. Currently our beers are distributed by retailers in seven provinces in
eastern and northern China: Shandong, Hebei, Tianjin, Henan Anhui, Jiangsu and
Shanxi.
 
 In the
past decade, the beer industry in China, like most consumer goods industries,
has experienced rapid growth. For example, industry analysts reported that from
2007 to 2008, beer production increased by nearly 13%. This growth has been
primarily driven by the remarkable expansion of the purchasing power of the
Chinese population over the past two decades. In addition, the Chinese
government has provided favorable tax advantages to the industry, with a goal of
rapid expansion. As beer consumption has increased, consumers have become more
aware of brand differentiation and differences in product quality. This process
of market stratification opens the door for new entrants to successfully target
specific strata of the market.
 
 4
 Qingyuan
Beer’s business plan targets the mid-market, which management believes has been
under-exploited in China. This is the market for the well-crafted, but
moderately-priced beers that our relationship with Linyi Malt allows us to
produce. With the rapid growth of the middle class in China, we believe the
demand for well-crafted beer is likewise expanding and will continue to do so.
Nevertheless, 90% of the beer produced in China today remains the low-quality,
low-price beer developed to meet the demands of a less developed economy.
Significant improvements in beer technology in the past 20 years have enabled
low-cost production of generic beer, which has prompted most established brewers
to compete on the basis of price. This phenomenon has resulted in reducing
margins across the industry, preventing most brewers from capturing a
significant portion of the market outside their own province. All but a few of
the beer manufacturers in China sell their products only locally, where they
hold market position on the basis of familiarity. We believe it is neither easy
nor profitable to attempt to gain a nationwide foothold in the low-end
market.
 
 The
majority of the new beers entering the market in the PRC, therefore, are
directed to the mid- and upper-priced level, where it remains possible to garner
a significant profit. However, because China’s economic growth has focused on
its larger cities, and because prestige is a dominant factor in the development
of brand consciousness in the larger cities, the majority of new brands entering
the market have been high-priced, finely-crafted beers. While these are
attractive to urbanites seeking to develop a cosmopolitan image, we believe most
Chinese residents cannot afford to drink these beers on a daily
basis.
 
 Our plan
for growth targets the most underserved portion of the growing Chinese middle
class. While the newer high-end entrants to the market and the importers focus
on the largest cities in China, we are focused on the second and third-tier
cities, as well as small towns that are within the Chinese industrial and
technology zone and so are sharing in the growing prosperity of China. In many
of these areas, our beers are among the few available beers that are crafted
from top-quality raw materials using advanced brewing technology, while
remaining priced at a level affordable for everyday consumption. We believe our
wholesalers and distributors are generally pleased by our “alternative market”
focus, as their marketing efforts can be more effective in areas in which they
do not face the intense marketing pressure common in Beijing, Guangzhou and
other major metropolitan areas.  Moreover, the receptivity of the
middle-class population of the smaller cities to a quality brand tends to be in
inverse proportion to the number of quality brands available.
 
 Our
facilities include two bottling lines, one fermentation line and one cooling
line, plus a laboratory to monitor the content and quality of the beer. In order
to sustain our reputation for quality, we manufacture all of our beer in-house,
and apply strict controls over the manufacturing process to assure consistent
quality. Our brewing professionals were previously employed in senior positions
by Tsingtao, the largest and most well-known brand of Chinese beer, both in
China and internationally. All of the water used in our beer is drawn from our
own sources and carefully monitored for purity, which we believe is crucial to
the quality of a brewed product.
 
 To assure
quality, we use high-grade raw materials, including malt imported from
Australia, high-quality Dongbei rice that is locally grown, and hops from Ganshu
Province. Ownership by Linyi Malt provides us a dedicated supplier of the key
beer component, the malt. We believe the predictability of price and supply that
our integration offers enables us to pursue our target market, which is the
developing market for a high quality but moderately-priced beer.
 
 We market
our beer under the trademarks “Qinglin,” “Qingyi” and “Qingyuan.” Our
application to the Shandong provincial government for designation of each of
these three trademarks as a “Famous Shandong Brand” is pending. Currently, our
products include:
 
 Qinglin
      Original Draft
                  Qingyuan
      Light Beer
                  Qingyuan
      Woniucheng BeerQingyi
      Original Draft
                  Qingyuan
      Aumaiwang
                  Qingyuan
      Qingdao Qingyi BeerQingyi
      Pure
                  Qingyuan
      Qingyi Beer
                  Qingyuan
      Golden Wheat Dry
 
 We sell
directly to distributors, who in turn sell to wholesalers. The wholesalers are
responsible for securing and stocking our retailers. This multi-tier network is
particularly effective in achieving the widespread distribution necessary for us
to achieve market position in small cities and villages. Our advertising program
supports our distribution network by emphasizing the association between our
brand and quality beer.
 
 5
 Competition
in the Chinese beer industry is developing rapidly due to the growth in demand
and the encouragement of China’s government.  Within Linyi County
alone, where our Qingyuan Beer is located, there are two brewers with annual
production of 200,000 tons, and five brewers with annual production of 100,000
tons, including Qingyuan Beer. There are few national brands in China with the
exception of Tsingtao, which has approximately 26% of the national market. That
situation may change, however, as foreign beer begins to make inroads into
China. Currently, 85% of the beer consumed in China is brewed by Chinese
brewers, and only one foreign-owned beer company has established control of a
significant portion of the Chinese market: Huangren Xuhua Beer (China) Co., Ltd,
a subsidiary of SABMiller, has a 13% market share. Our expectation, however, is
that the major international brewers will make further inroads into the China
market in the coming years.
 
 Our plan
for growth is primarily based on the utilization of our existing marketing
network to introduce our brands into new cities and towns. In addition, however,
we expect to acquire compatible breweries in other areas of China, where we can
introduce our production technology and marketing practices, with the view to
achieving exponential expansion. We intend to make such acquisitions slowly and
carefully, however, in order to avoid any risk to the association we have
developed between our brand and the idea of quality in beer.
 
 RESULTS
OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2010 AS COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 2009
  Selected
information from the Consolidated Statements of Operations
  For the Three Months Ended September 30,2010
                                        
                                        
                                        
                                        2009Net
      revenue
                                        
                                        $
                                        18,525,
      985
                                        
                                        
                                        $
                                        3,798,568Gross
      profit
                                        
                                        $
                                        4,093,364
                                        
                                        
                                        $
                                        1,079,105-
      Gross profit margin
                                        
                                        
                                        22
                                        %
                                        
                                        
                                        28
                                        %General
      and administrative expenses
                                        
                                        $
                                        121,943
                                        
                                        
                                        $
                                        83,781Interest
      expenses
                                        
                                        $
                                        (3,328)
                                        
                                        
                                        $
                                        (154,180)Net
      income
                                        
                                        $
                                        2,979,851
                                        
                                        
                                        $
                                        662,823
  REVENUES.
Net revenues for the three months ended September 30, 2010 were approximately
$18,526,000, representing an increase of approximately $14,727,000, or
388%, as compared to the same period of 2009. The increased revenue came from
increased sales of malts, which represented a revenue increase of approximately
$9,462,000, or 380%, as we entered into certain major contracts with several
beer manufacturers at the beginning of this calendar year. Additionally, as a
result of our long-term efforts at marketing and brand awareness, we have
gradually became the sole malt supplier to some of our customers. Our increased
sales of beer represented an increase of approximately $5,265,000, or 403% as
our marketing development efforts resulted in the increase of our customers. In
addition to our addition of new customers, the demand of our old customers also
increased.
  GROSS
PROFIT AND GROSS PROFIT MARGIN. For the three months ended September 30, 2010,
gross profit was approximately $4,093,000, which represented an increase of by
approximately 279% from $1,079,000 gross profit for the same period of
2009. The gross profits from beer segment were approximately $1,289,000 and
$344,000 for the three months ended September 30, 2010 and 2009, respectively.
The gross profits from malt segment were approximately $2,804,000 and $735,000
for the three months ended September 30, 2010 and 2009, respectively. Gross
profit margin was approximately 22% for the three months ended September 30,
2010, as compared to 28% for the same period of 2009. The decrease in our gross
profit margin in the 2010 period was primarily due to (i) the unit price of malt
decreased and (ii) we sold more ordinary beer as compared to the high-end beer
in the third quarter of 2010 which resulted in a lower gross profit
margin.
 
 GENERAL
AND ADMINISTRATIVE EXPENSES. For the three months ended September 30, 2010,
general and administrative expenses increased by approximately $38,000 to
$122,000 in 2010 as compared to $84,000 in 2009.
 
 6
 INTEREST
EXPENSE.  Interest expense decreased approximately $151,000 in the three
months ended September 30, 2010 as compared to the same period of 2009. The
difference in interest expense was mainly due to the repayments of
short-term bank loans in the second and third quarters of 2010.
 
 NET
INCOME. Net income for the three months ended September 30, 2010 was
approximately $2,980,000, as compared to net income of approximately $663,000
for the same period of 2009. Basic net income per share was $0.02 and $0.01 for
the three months ended September 30, 2010 and 2009, respectively.
  SEGMENT
PERFORMANCE ANALYSIS
 
 Segment Revenue
                            
                            Segment Gross
      ProfitFor the
      Three Months Ended September 30,
                            
                            For the
      Three Months Ended September 30,2010
                            
                            
                            2009
                            
                            2010
                            
                            
                            2009Malt
                            
                            $
                            11,953,532
                            
                            
                            $
                            2,492,425
                            
                            
                            $
                            2,804,843
                            
                            
                            $
                            734,640Beer
                            
                            $
                            6,572,453
                            
                            
                            $
                            1,306,143
                            
                            
                            $
                            1,288,521
                            
                            
                            $
                            344,465
 
 Malt
 
 In the
third quarter of 2010, malt segment revenue increased to approximately $11.95
million, or by 380%, from approximately $2.49 million in the third quarter of
2009.
  Our malt
segment gross profit was approximately $2.8 million for the three months
ended September 30, 2010, compared to a segment gross profit of
$0.73 million in the same period of 2009.
 
 Beer
 
 Beer
segment revenue for the three months ended September 30, 2010 amounted to $6.5
million, representing an increase of approximately $5.2 million or 403%, as
compared to the same period of 2009.
 
  RESULTS
OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2010 AS COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 2009
  Selected
information from the Consolidated Statements of Operations
  For the Nine
      Months Ended September 30,2010
                          
                          
                          2009Net
      revenue
                          
                          $
                          32,869,038
                          
                          
                          $
                          9,861,691Gross
      profit
                          
                          $
                          6,727,291
                          
                          
                          $
                          2,333,145-
      Gross profit margin
                          
                          
                          20
                          %
                          
                          
                          24
                          %General
      and administrative expenses
                          
                          $
                          331,690
                          
                          
                          $
                          197,340Interest
      expenses
                          
                          $
                          (189,788)
                          
                          
                          $
                          (742,700)Net
      income
                          
                          $
                          4,790,700
                          
                          
                          $
                          1,458,152
  REVENUES.
Net revenues for the nine months ended September 30, 2010 were approximately
$32,869,000, representing an increase of approximately $23,007,000, or
233%, as compared to the same period of 2009. The improved performance was
mainly due to the increased revenues from the malt and beer segments as
described above in the three-month period comparison.
  7
 GROSS
PROFIT AND GROSS PROFIT MARGIN. For the nine months ended September 30, 2010,
gross profit was approximately $6,727,000, which represented on increase of
approximately 188% from the $2,333,000 for the same period of 2009. The
gross profits from the malt segment were approximately $4,519,000 and $1,871,000
for the nine months ended September 30, 2010 and 2009, respectively. The gross
profits from the beer segment were approximately $2,208,000 and $462,000 for the
nine months ended September 30, 2010 and 2009, respectively. Gross profit margin
was approximately 20% for the nine months ended September 30, 2010, which was
slightly decreased as compared to 24% for the same period of 2009.
 
 GENERAL
AND ADMINISTRATIVE EXPENSES. For the nine months ended September 30, 2010,
general and administrative expenses increased by approximately $135,000 to
$332,000 in 2010 as compared to $197,000 in 2009.
 
 INTEREST
EXPENSE.  Interest expense decreased approximately $553,000 as compared to
the same period of 2009. The difference in interest expense was due
to the repayment of all of our short-term loans in the second and third
quarters of 2010.
 
 NET
INCOME. Net income for the nine months ended September 30, 2010 was
approximately $4,791,000, an increase of approximately $3,333,000 compared to
net income of $1,458,000 for the same period of 2009. Basic net income per share
was $0.04 and $0.01 for the nine months ended September 30, 2010 and 2009,
respectively.
  SEGMENT
PERFORMANCE ANALYSIS
 
 Segment
      Revenue
                            
                            Segment
      Gross profitFor the
      Nine months ended September 30,
                            
                            For the
      Nine months ended September 30,2010
                            
                            2009
                            
                            2010
                            
                            2009Malt
                            
                            $
                            20,979,542
                            
                            
                            $
                            7,500,306
                            
                            
                            $
                            4,519,187
                            
                            
                            $
                            1,871,234Beer
                            
                            $
                            11,889,496
                            
                            
                            $
                            2,361,385
                            
                            
                            $
                            2,208,104
                            
                            
                            $
                            461,911
 
 Malt
 
 For the
nine months ended September 30, 2010, malt segment revenue increased by 180%
from $7.50 million for 2009 to $20.98 million for 2010. The increase
was primarily due to the increases in sales volume for beers and higher sale
price of malt. As discussed above, in the third quarter of 2010, the market
price of malts was significantly increased due to the entry into several major
contracts with beer manufacturers at the beginning of this year. Additionally,
as a result of our long-term efforts at marketing and brand awareness, we have
gradually became the sole malt supplier to some of our customers.
  Our malt
segment gross profit was $4.52 million for the nine months ended
September 30, 2010, compared to a segment profit of $1.87 million in the
same period of 2009.
 
 Beer
 
 Beer
segment revenue for the nine months ended September 30, 2010 amounted to $11.89
million, representing an increase of approximately $9.53 million, or 123%, as
compared to the same period of 2009 as our marketing development efforts
resulted in the increase of our customers. In addition to our addition of new
customers, the demand of our old customers also increased.
 
 8
 LIQUIDITY
AND CAPITAL RESOURCES
 
 Our
principal sources of liquidity include cash from operations and borrowings from
local commercial banks. We believe that we have sufficient cash on hand and
positive projected cash flow from operations to support our business growth for
the next twelve months to the extent we do not have further acquisitions or
expansions. Notwithstanding the foregoing, we may seek additional financing for
expansion purposes, which may include additional equity
financings.  There can be no assurance that any additional financing
will be available on acceptable terms, if at all. Any equity financing may
result in dilution to existing stockholders and any debt financing may include
restrictive covenants.
 
 As of
September 30, 2010, Cash and cash equivalents were $0.41 million as of
September 30, 2010, a decrease of $3.32 million as compared to the
balance at December 31, 2009 of $3.73 million.
 
 Net cash
used in operating activities for the nine months ended September 30,
2010 was $0.11 million, representing a $2.57 million decrease as
compared to $2.46 million provided for the same period in
2009. The decrease was mainly due to (i) an increase in accounts
receivable and inventories of $3.14 million and $2.73 million, respectively,
(ii) the decrease of $2.67 million in accounts payable and accrued expenses, and
(iii) the increase in taxes payable of $2.56 million.
 
 Net cash
used in investing activities for the nine months ended September 30, 2010 were
$0.53 million, as compared to $0.27 million used for the same period of 2009.
The cash was mainly used in the purchase of plant and property and intangible
assets in the nine months ended September 30, 2010 and 2009,
respectively.
 
 Net cash
used in financing activities for the nine months ended September 30,
2010 was $2.70 million, as compared to $3.08 million provided by financing
activities for the same period of 2009, which was mainly due to the repayment of
our short-term loans from Chinese banks during each period as described in the
Note 7 to our financial statements.
  OFF-BALANCE
SHEET ARRANGEMENTS
 
 Under SEC
regulations, we are required to disclose our off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect on our
financial condition, such as changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors. An off-balance sheet arrangement means
a transaction, agreement or contractual arrangement to which any entity that is
not consolidated with us is a party, under which we have:
  •
                
                any
      obligation under certain guarantee
contracts,
  •
                
                any
      retained or contingent interest in assets transferred to an unconsolidated
      entity or similar arrangement that serves as credit, liquidity or market
      risk support to that entity for such
assets,
  •
                
                any
      obligation under a contract that would be accounted for as a derivative
      instrument, except that it is both indexed to our stock and classified in
      shareholder equity in our statement of financial position,
    and
  •
                
                any
      obligation arising out of a material variable interest held by us in an
      unconsolidated entity that provides financing, liquidity, market risk or
      credit risk support to us, or engages in leasing, hedging or research and
      development services with us.
 
 We do not
have any off-balance sheet arrangements that we are required to disclose
pursuant to these regulations.
  INFLATION
 
 The
Company does not foresee any material adverse effects on its earnings as a
result of inflation.
 
 9
 CRITICAL
ACCOUNTING POLICIES
 
 The
consolidated financial statements include the financial statements of us and our
subsidiaries.  All transactions and balances among our company and our
subsidiaries have been eliminated upon consolidation. Certain amounts included
in or affecting our consolidated financial statements and related disclosures
must be estimated, requiring us to make certain assumptions with respect to
values or conditions that cannot be known with certainty at the time the
financial statements are prepared. These estimates and assumptions affect the
amounts we report for assets and liabilities and our disclosure of contingent
assets and liabilities at the date of our financial statements. We routinely
evaluate these estimates, utilizing historical experience, consulting with
experts and other methods we consider reasonable in the particular
circumstances. Nevertheless, actual results may differ significantly from our
estimates. Any effects on our business, financial position or results of
operations resulting from revisions to these estimates are recorded in the
period in which the facts that give rise to the revision become
known.
 
 Estimates of
allowances for receivables – We must periodically review our trade
and other receivables to determine if all are collectible or whether an
allowance is required for possible uncollectible balances.  A number of
factors are considered when determining the allowances, including the length of
time the receivable is past due, past loss history, the counter party’s current
ability to pay and the general condition of the economy and industry.  We
perform this review semi-annually, and events could occur that would require us
to increase our allowance in the future.
 
 Estimate of the useful lives of
property and equipment–We must estimate the useful lives and residual values of our property and
equipment. We must also review property and equipment for possible impairment
whenever events and circumstances indicate that the carrying value of those
assets may not be recovered from the estimated future cash flows expected to
result from their use and eventual disposition.  We recognized no
impairments in the three and nine month periods ended September 30, 2010 and
2009.
 
 Estimate of the useful lives of
intangible assets–Intangible assets, which are purchased seeds variety rights, are
amortized using the straight-line method over their estimated period of benefit,
normally 10 years. We must review the marketability of the seed varieties for
possible impairment whenever events and circumstances imply that carrying value
of such assets may not be recovered from the estimated future cash flow result
from sales of such seeds products or possible disposition. We recognized no
impairments in the three and nine month periods ended September 30, 2010 and
2009.
 
 Inventory – We value
inventories at the lower of cost or market value.  We determine the cost of
inventories using the weighted average cost method and include any related
production overhead costs incurred in bringing the inventories to their present
location and condition.  We must determine whether we have any excessive,
slow moving, obsolete or impaired inventory.  We perform this review
quarterly, which requires management to estimate the future demand of our
products and market conditions. We make provisions on the value of
inventories at period end equal to the difference between the cost and the
estimated market value. If actual market conditions change, additional
provisions may be required.  In addition, we may write off some provisions
if we later sell some of the subject inventory.
 
 Revenue recognition –Revenue
from the sale of goods is recognized on the transfer of risks and rewards of
ownership, which generally coincides with the time when the goods are shipped to
customers and the title has passed.  We render neither sales returns nor
rebates to our customers, thus revenue would reflect the actual sales we are
entitled to.
 
 See “Note
2. Basis of Presentation and Summary of Significant Accounting Policies” in
“Item 1. Financial Statements” herein for a more complete discussion of the
critical accounting policies and estimates adopted in this report.
 10
  Item
3. Quantitative and Qualitative Disclosures about Market Risk
  As a “smaller reporting company” as
defined by Item 10 of Regulation S-K, we are not required to provide information
required by this item.
  Item
4. Controls and Procedures
 
 Evaluation
of Disclosure Controls and Procedures
 
 Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended, as of the end of the period covered by this
report (the “Evaluation Date”). The evaluation of our disclosure controls and
procedures included a review of our processes and the effect on the information
generated for use in this report. In the course of this evaluation, we sought to
identify any material weaknesses in our disclosure controls and procedures and
to confirm that any necessary corrective action, including process improvements,
was taken. The purpose of this evaluation is to determine if, as of the
Evaluation Date, our disclosure controls and procedures were operating
effectively such that the information, required to be disclosed in our SEC
reports (i) was recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms, and (ii) was accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
  11
  As of
September 30, 2010, our Chief Executive Officer and its Chief Financial Officer
have concluded that, as of that date, the Company’s controls and procedures were
not effective due to some significant deficiencies (as defined in Public Company
Accounting Oversight Board Standard No. 2) in the our internal controls over
financial reporting. This is due to the fact that the we lack sufficient
personnel with the appropriate levels of knowledge, experience and training in
the application of US generally accepted accounting principles (“US GAAP”)
standards, especially related to complicated accounting issues. This could cause
us to be unable to fully identify and resolve certain accounting and disclosure
issues that could lead to a failure to maintain effective controls over
preparation, review and approval of certain significant account reconciliation
from Chinese GAAP to US GAAP and necessary journal entries.
 
 The
Company has relatively small number of professionals employed by the Company in
bookkeeping and accounting functions, which prevents the Company from
appropriately segregating duties within its internal control systems. The
inadequate segregation of duties is a weakness because it could lead to the
untimely identification and resolution of accounting and disclosure matters or
could lead to a failure to perform timely and effective reviews.
 
 Based on the control deficiency
identified above, we have designed and plan to implement, or in some cases have
already implemented, the specific remediation initiatives described
below:
 
 ● We are
evaluating the roles of our existing accounting personnel in an effort to
realign the reporting structure of our internal auditing staff in China that
will test and monitor the implementation of our accounting and internal control
procedures.
 
 ● We will
begin implementation an initiative and training in China to ensure the
importance of internal controls and compliance with established policies and
procedures are fully understood throughout the organization and will provide
additional U.S. GAAP training to all employees involved with the performance of
or compliance with those procedures and policies.
 
 ● We will
increase our accounting and financing personnel resources, by retaining more
U.S. GAAP knowledgeable financial professionals.
 
 The
remedial measures being undertaken may not be fully effectuated or may be
insufficient to address the significant deficiencies we identified, and there
can be no assurance that significant deficiencies or material weaknesses in our
internal control over financial reporting will not be identified or occur in the
future. If additional significant deficiencies (or if material weaknesses) in
our internal controls are discovered or occur in the future, among other similar
or related effects: (i) the Company may fail to meet future reporting
obligations on a timely basis, (ii) the Company’s consolidated financial
statements may contain material misstatements, (iii) the Company’s business and
operating results may be harmed.
 
 Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that, as of the
Evaluation Date, our disclosure controls and procedures were not operating
effectively.
 
 Changes
in Internal Controls over Financial Reporting
 
 There were no changes in our internal
control over financial reporting identified in connection with the evaluation
required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred
during our last fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
  12
  PART
II OTHER INFORMATION
 
 Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
 
 On September 28, 2010, the Company
issued 1,141,716 shares of common stock to Corporate Services International,
Inc. (“CSII”). CSII is controlled by the Company’s former principal shareholder
and former sole director and executive officer, Michael Anthony. The issuance
was a result of the conversion of 1000 shares of Series B Preferred Stock CSII
held pursuant to the Company’s Certificate of Designation of Series B Preferred
Stock. Therefore, the issuance was exempt from registration pursuant to Section
3(a)(9) of the Securities Act of 1933, as amended.
 
 Item
5. Other Information
 
 Effective September 30, 2009, the board
of directors of the Company resolved to amend the Company’s Bylaws to the effect
that the Company’s fiscal year end is changed from March 31 to December 31.
Accordingly, Article VII of the Company’s by-laws was amended to be the
following:
  ARTICLE
VII
  FISCAL
YEAR
  The
fiscal year of the Corporation shall be December 31.
  Item
6. Exhibits
 
 The exhibits required by this item are
set forth in the Exhibit Index attached hereto.
  13
  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.
  SABRE
      INDUSTRIAL, INC.Date:
      November 15, 2010
                By:
                /s/
      Dingyou ZhangName:
      Dingyou ZhangTitle:
      Chairman and Chief Executive Officer
                  (principal
      executive officer)
  Date:
      November 15, 2010
                By:
                /s/
      Mingxia YuanName:
      Mingxia YuanTitle:
      Chief Financial Officer
                  (principal
      financial officer and principalaccounting
      officer)
 14
  EXHIBIT
INDEX
  No.                      Description
 3.1
– Certificate of Designation of Series B of Preferred Stock of Sabre
Industrial, Inc.
 
 3.2
– Amendment to By-laws of Sabre Industrial, Inc.
 
 31.1 –
Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
 
 31.2 –
Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
 
 32.1 –
Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 32.2 –
Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
  15