##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Amendment No. 2
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2011
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File number: 0-54096
 SMSA Treemont Acquisition Corp.
  Nevada
    
    27-2969090(State of incorporation)
    
    (IRS Employer Identification No.)
 Ruixing Industry Park
Dongping County
Shandong Province, 271509
Peoples Republic of China
  þ o
 o þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 o þ
  o þ




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONITEM 1. INDEPENDENT AUDITORS REPORTITEM 2. FINANCIAL STATEMENTSCONDENSED CONSOLIDATED BALANCE SHEETCONDENSED CONSOLIDATED INCOME STATEMENTCONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY (UNAUDITED)CONDENSED CONSOLIDATED CASH FLOW STATEMENTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSITEM 3. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 4. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 5. CONTROLS AND PROCEDURESPART II  OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGSITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSITEM 3. DEFAULTS UPON SENIOR SECURITIESITEM 4. (REMOVED AND RESERVED)ITEM 5. OTHER INFORMATIONITEM 6. EXHIBITSSIGNATURESExhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2    Table of Contents  
 PART I  FINANCIAL INFORMATION
 
 ITEM 1.
    
    INDEPENDENT AUDITORS REPORT
 INDEPENDENT AUDITORS REPORT
 
    
  1




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##### Table of Contents



ITEM 2.
    
    FINANCIAL STATEMENTS
 
 SMSA TREEMONT ACQUISITION CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
 30 JUNE
    
    
    31 DECEMBERNotes
    
    2011
    
    
    2010US$
    
    
    US$ASSETSCurrent AssetsCash
    
    
    
    
    2,698,647
    
    
    
    6,634,012Restricted Cash
    
    
    
    
    
    
    
    
    226,494Notes receivable
    
    3
    
    
    175,560
    
    
    
    2,236,468Accounts receivable, net
    
    3
    
    
    884,824
    
    
    
    255,870Inventories, net
    
    
    
    
    2,114,662
    
    
    
    1,954,879Advances to third party suppliers
    
    
    
    
    501,444
    
    
    
    907,796Other receivables
    
    
    
    
    294,376
    
    
    
    104,681Amounts due from related parties
    
    11
    
    
    980,517
    
    
    
    Deferred tax assets
    
    7
    
    
    271,447
    
    
    
    265,254Total Current Assets
    
    
    
    
    7,921,477
    
    
    
    12,585,454Non-current AssetsProperty, plant and equipment, net
    
    4
    
    
    10,043,430
    
    
    
    2,973,276Land use rights, net
    
    5
    
    
    2,510,867
    
    
    
    2,542,749Total Non-current Assets
    
    
    
    
    12,554,297
    
    
    
    5,516,025TOTAL ASSETS
    
    
    
    
    20,475,774
    
    
    
    18,101,479
   2




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##### Table of Contents



SMSA TREEMONT ACQUISITION CORP.
CONDENSED CONSOLIDATED BALANCE SHEET (continued)
(UNAUDITED)
 30 JUNE
    
    
    31 DECEMBERNotes
    
    2011
    
    
    2010US$
    
    
    US$LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesShort-term bank borrowings
    
    6
    
    
    5,949,069
    
    
    
    8,078,276Accounts payable to third parties
    
    
    
    
    1,410,429
    
    
    
    827,993Notes payable
    
    
    
    
    1,545,213
    
    
    
    Advance from third party customers
    
    
    
    
    347,616
    
    
    
    167,704Payroll and welfare payable
    
    
    
    
    36,074
    
    
    
    19,305Accrued expenses
    
    
    
    
    132,425
    
    
    
    106,179Amounts due to related parties
    
    11
    
    
    2,340,448
    
    
    
    2,249,526Income tax payable
    
    7
    
    
    402,076
    
    
    
    150,218VAT and miscellaneous taxes payable
    
    8
    
    
    136,267
    
    
    
    948,065Other payables to third parties
    
    9
    
    
    94,120
    
    
    
    205,481Total Current Liabilities
    
    
    
    
    12,393,737
    
    
    
    12,752,747Non-current liabilitiesDeferred tax liabilities
    
    7
    
    
    164,609
    
    
    
    172,363Total Non-current Liabilities
    
    
    
    
    164,609
    
    
    
    172,363Total Liabilities
    
    
    
    
    12,558,346
    
    
    
    12,925,110Shareholders EquityCommon stock, $.0001 par value, 13,294,500 shares authorized, issued
and outstanding
    
    
    
    
    13,295
    
    
    
    12,895Additional paid-in capital
    
    
    
    
    2,440,323
    
    
    
    2,416,446Statutory reserves
    
    10
    
    
    966,648
    
    
    
    522,591Accumulated other comprehensive income
    
    
    
    
    (481,718
    )
    
    
    (427,019
    )Retained earnings
    
    
    
    
    4,978,880
    
    
    
    2,651,456Total Shareholders Equity
    
    
    
    
    7,917,428
    
    
    
    5,176,369TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
    
    
    
    
    20,475,774
    
    
    
    18,101,479
   3




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##### Table of Contents



SMSA TREEMONT ACQUISITION CORP.
CONDENSED CONSOLIDATED INCOME STATEMENT
(UNAUDITED)
 THREE MONTHS ENDED
    
    
    SIX MONTHS ENDED30 JUNE
    
    
    30 JUNENotes
    
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010US$
    
    
    US$
    
    
    US$
    
    
    US$RevenuesCornstarch
    
    
    
    
    
    
    16,572,603
    
    
    
    8,511,331
    
    
    
    29,723,798
    
    
    
    15,414,788Glucose
    
    
    
    
    
    
    2,906,547
    
    
    
    2,188,986
    
    
    
    5,818,429
    
    
    
    4,259,224Others
    
    
    
    
    
    
    30,087
    
    
    
    42,176
    
    
    
    88,846
    
    
    
    52,394Total Revenues
    
    
    
    
    
    
    19,509,237
    
    
    
    10,742,493
    
    
    
    35,631,073
    
    
    
    19,726,406Cost of SalesCornstarch
    
    
    
    
    
    
    14,697,383
    
    
    
    7,438,699
    
    
    
    25,871,925
    
    
    
    13,484,608Glucose
    
    
    
    
    
    
    2,219,458
    
    
    
    1,909,866
    
    
    
    4,399,795
    
    
    
    3,591,133Others
    
    
    
    
    
    
    30,533
    
    
    
    33,673
    
    
    
    89,292
    
    
    
    43,891Total Cost of Sales
    
    
    
    
    
    
    16,947,374
    
    
    
    9,382,238
    
    
    
    30,361,012
    
    
    
    17,119,632Gross Profit
    
    
    
    
    
    
    2,561,863
    
    
    
    1,360,255
    
    
    
    5,270,061
    
    
    
    2,606,774Operating expensesSelling and distribution
    
    
    
    
    
    
    247,862
    
    
    
    264,209
    
    
    
    541,383
    
    
    
    506,816General and administrative
    
    
    
    
    
    
    371,567
    
    
    
    63,358
    
    
    
    488,014
    
    
    
    118,703Total Operating Expenses
    
    
    
    
    
    
    619,429
    
    
    
    327,567
    
    
    
    1,029,397
    
    
    
    625,519Interest income
    
    
    
    
    
    
    1,034
    
    
    
    
    
    
    
    2,344
    
    
    
    Interest expenses
    
    
    
    
    
    
    223,345
    
    
    
    45,979
    
    
    
    398,519
    
    
    
    132,326Other expenses, net
    
    
    
    
    
    
    80,415
    
    
    
    19,248
    
    
    
    121,704
    
    
    
    13,637Income Before Income Tax
Expenses
    
    
    
    
    
    
    1,639,708
    
    
    
    967,461
    
    
    
    3,722,785
    
    
    
    1,835,292Income tax expenses
    
    
    7
    
    
    
    404,798
    
    
    
    261,634
    
    
    
    951,304
    
    
    
    481,610NET INCOME
    
    
    
    
    
    
    1,234,910
    
    
    
    705,827
    
    
    
    2,771,481
    
    
    
    1,353,682Basic and diluted
weighted average shares
outstanding
    
    
    
    
    
    
    12,934,500
    
    
    
    12,894,500
    
    
    
    12,934,500
    
    
    
    12,894,500Basic net earnings per
share
    
    
    
    
    
    
    0.1
    
    
    
    0.06
    
    
    
    0.21
    
    
    
    0.11
   4




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SMSA TREEMONT ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY

 (UNAUDITED)
 Accumulatedother
    
    
    TotalCommon
    
    
    Additional
    
    
    Statutory
    
    
    Retained
    
    
    comprehensive
    
    
    shareholdersStock
    
    
    Paid-in capital
    
    
    reserves
    
    
    earnings
    
    
    loss
    
    
    equityUS$
    
    
    US$
    
    
    US$
    
    
    US$
    
    
    US$
    
    
    US$(Note 1)Balance at 31 December 2010
    
    
    12,895
    
    
    
    2,416,446
    
    
    
    522,591
    
    
    
    2,651,456
    
    
    
    (427,019
    )
    
    
    5,176,369Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,771,481
    
    
    
    
    
    
    
    2,771,481Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (54,699
    )
    
    
    (54,699
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,771,481
    
    
    
    (54,699
    )
    
    
    2,716,782New shares issued
    
    
    400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400Appropriation of statutory
reserve
    
    
    
    
    
    
    
    
    
    
    444,057
    
    
    
    (444,057
    )
    
    
    
    
    
    
    Contribution from shareholders
    
    
    
    
    
    
    23,877
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,877Balance at 30 June 2011
    
    
    13,295
    
    
    
    2,440,323
    
    
    
    966,648
    
    
    
    4,978,880
    
    
    
    (481,718
    )
    
    
    7,917,428
   5




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SMSA TREEMONT ACQUISITION CORP.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
(UNAUDITED)
 SIX MONTHS ENDED30 JUNE2011
    
    
    2010US$
    
    
    US$CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    
    2,771,481
    
    
    
    1,353,682Adjustment to reconcile net income to net cash provided by operating activitiesDepreciation of property, plant and equipment
    
    
    383,091
    
    
    
    381,217Amortization of land use rights
    
    
    31,882
    
    
    
    30,885Gain from disposals of fixed assets and other
    
    
    48,518
    
    
    
    Changes in operating assets and liabilitiesAccounts receivable to third parties
    
    
    (628,954
    )
    
    
    (1,688,502
    )Notes receivable
    
    
    2,060,907
    
    
    
    224,966Advances to third party suppliers, net
    
    
    406,352
    
    
    
    12,085Other receivables
    
    
    (189,295
    )
    
    
    1,260,224Amounts due from related parties
    
    
    (980,517
    )
    
    
    (2,577,344
    )Inventories
    
    
    (159,783
    )
    
    
    38,127Accounts payable to third parties
    
    
    582,436
    
    
    
    (418,112
    )Notes payable
    
    
    1,545,213
    
    
    
    (2,196,772
    )Tax payable
    
    
    251,858
    
    
    
    609,812Advances from third party customers
    
    
    179,912
    
    
    
    19,667Payroll and welfare payable
    
    
    16,768
    
    
    
    Other payables to third parties
    
    
    (923,159
    )
    
    
    830,092Amounts due to related parties
    
    
    90,922
    
    
    
    (160,411
    )Accrued expenses
    
    
    26,246
    
    
    
    81,839Deferred tax assets
    
    
    13,208
    
    
    
    19,656Deferred tax liabilities
    
    
    (27,155
    )
    
    
    (26,868
    )Net cash provided by /(used in) operating activities
    
    
    5,499,932
    
    
    
    (2,205,757
    )
   6




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SMSA TREEMONT ACQUISITION CORP.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT (continued)
(UNAUDITED)
 SIX MONTHS ENDED30 JUNE2011
    
    
    2010US$
    
    
    US$CASH FLOWS FROM INVESTING ACTIVITIESRelease of restricted cash
    
    
    226,494
    
    
    
    2,416,449Purchases of property and equipment
    
    
    (7,501,763
    )
    
    
    (150,814
    )Net cash provided by (used in) investing activities
    
    
    (7,275,269
    )
    
    
    2,265,636CASH FLOWS FROM FINANCING ACTIVITIESBank loan repaid
    
    
    (5,349,520
    )
    
    
    (5,922,557
    )Proceeds from additional paid-in capital
    
    
    23,877
    
    
    
    Proceeds from short-term bank borrowings
    
    
    3,056,868
    
    
    
    6,440,781Net cash provided by (used in) financing activities
    
    
    (2,268,775
    )
    
    
    518,224Effect of foreign exchange rate changes
    
    
    108,747
    
    
    
    (46,378
    )Net increase/(decrease) in cash
    
    
    (3,935,365
    )
    
    
    531,725Cash, beginning of year
    
    
    6,634,012
    
    
    
    881,229Cash, end of year
    
    
    2,698,647
    
    
    
    1,412,954Supplementary disclosure of cash flow information:Interest expense paid
    
    
    398,519
    
    
    
    132,326Income taxes paid
    
    
    713,393
    
    
    
    120,989
   7




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SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 1.
    
    CORPORATE INFORMATION AND BASIS OF PRESENTATION
 a)
    
    Corporate information
 SMSA Treemont Acquisition Corp. (the Company) was originally incorporated in the State of
Nevada on 3 May 2010.
 Xiangrui Pharmaceutical International Limited (Xiangrui) was incorporated in the British
Virgin Islands on 29 November 2010. Taian Yisheng Management & Consulting Co., Ltd (WFOE)
was incorporated by Xiangrui on 6 May 2011 as a wholly foreign owned enterprise in China.
Xiangrui is a holding company that has no operations or assets other than its ownership of all
of the capital stock of the WFOE.
 On 9 May 2011, the WFOE entered into a series of variable interest entity contractual
agreements (the VIE Agreements) with Shandong Xiangrui Pharmacy Co., Ltd., (Shandong
Xiangrui), a PRC company and its shareholders. The VIE Agreements are comprised of a series of
agreements, including an Exclusive Technical and Consulting Service Agreement, Management Fee
Payment Agreement, Equity Interest Pledge Agreement, Exclusive Equity Interest Purchase
Agreement, Operating Agreement and Proxy Agreement, through which the WFOE has the right to
advise, consult, manage and operate the Company for an annual consulting services fee in the
amount of the Companys yearly net income before tax. In order to further reinforce the WFOEs
rights to control and operate the Company, the Companys shareholders have entrusted their
shareholders rights in the Company to a person designated by the WFOE.
 As a result of entering the abovementioned agreements, the WFOE deems to control Shandong
Xiangrui as a Variable Interest Entity as required by Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC) 810-10 Consolidated of Variable Interest
Entities.
 On May 12, 2011, the Company issued to New Fortress Group, Ltd., 400,000 restricted shares of
common stock at a price of $0.001 per share in consideration for in country due diligence
services provided to the Company in connection with the evaluation of merits of the exchange
transaction with Xiangrui. On May 13, 2011, the Company entered into the Share Exchange
Agreement with Xiangrui and its sole shareholder, Mr. Xu. Pursuant to the Share Exchange
Agreement the Company issued 12,363,885 newly created shares to Mr. Xu, and became the sole
shareholder of Xiangrui. The shares the Company issued to Mr. Xu constitute 93% of our issued
and outstanding capital stock on a fully-diluted basis as of and immediately after the
consummation of the transactions contemplated by the Share Exchange Agreement.
  Common StockShares
    
    
    Amount(US$)Shares issued as of 31 December 2010
    
    
    530,615
    
    
    
    531New shares issued
    
    
    400,000
    
    
    
    400Recapitalization for reverse acquisition
    
    
    12,363,885
    
    
    
    12,364Balance as at 30 June 2011
    
    
    13,294,500
    
    
    
    13,295
 This transaction has been accounted as a reverse acquisition and recapitalization of the
Company whereby Xiangrui is deemed to be the accounting acquirer (legal acquiree) and the
Company the accounting acquiree (legal acquirer). The historical financial statements for the
periods prior to 13 May 2011 are those of consolidated results of Xiangrui and the Company.
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 a)
    
    Principles of Consolidation
 The accompanying consolidated financial statements include the financial statements of the
Company, Xiangrui, WFOE and Shandong Xiangrui (the Group)All significant inter-company accounts and transactions have been eliminated in consolidation.
  8




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SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)a)
    
    Principles of Consolidation (continued)
 The Group has adopted FIN 46R which requires a VIE to be consolidated by a company if that
company is subject to a majority of the risk of loss for the VIE or is entitled to receive a
majority of the VIEs residual returns.
 b)
    
    Basis of preparation
 In the opinion of management, the unaudited condensed financial statements have been prepared
and presented in accordance with the accounting principles generally accepted in the United
States of America (US GAAP) for interim financial information and with the instruction to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and
footnotes required by US GAAP. However, the information included in these interim financial
statements reflects all adjustments (consisting solely normal recurring adjustments) which are,
in the opinion of management, necessary for the fair presentation of financial position and the
results of operations. Results shown for interim periods are not necessarily indicative of the
results to be obtained for the full year.
 c)
    
    Use of estimates
 The preparation of financial statements in conformity with US GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities at the balance sheet dates and the reported
amounts of revenues and expenses during the reporting periods. Significant estimates and
assumptions reflected in the financial statements include, but are not limited to, revenue
recognition, allowance for doubtful accounts, provision for inventories, useful lives of
property and equipment and intangible assets, income tax and tax related valuation allowance,
and contingencies. Actual results could differ significantly from those estimates.
 d)
    
    Foreign currency
 The functional currency of Shandong Xiangrui is Chinese Renminbi (RMB), as determined based on
the criteria of FASB ASC 830 Foreign Currency Matters. The Group uses the U.S. dollar for
financial reporting purpose.
 Shandong Xiangrui translates assets and liabilities into U.S. dollars using the applicable
exchange rate quoted by the Peoples Bank of China at the balance sheet date. The income and
expenses items are translated using average rates during the reporting period. Adjustments
resulting from the translation of financial statements from RMB into U.S. dollars are recorded
in shareholders equity as part of accumulated other comprehensive income  translation
adjustments. The exchange rates used for the translation are listed below.
 Period end exchange rate
    
    
    Year end exchange rateUS$:RMB
    
    
    US$:RMBJune 30, 2011
    
    
    6.4716
    
    
    
    N/ADecember 31,2010
    
    
    N/A
    
    
    
    6.6227
  9




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SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)d)
    
    Foreign currency (continued)
 Three months average
    
    
    Six months averageUS$:RMB
    
    
    US$:RMBSecond quarter of 2011
    
    
    6.4850
    
    
    
    N/AFirst half of 2011
    
    
    N/A
    
    
    
    6.5426Second quarter of 2010
    
    
    6.8151
    
    
    
    N/AFirst half of 2010
    
    
    N/A
    
    
    
    6.7538
 Fair value of financial instruments
 The Group adopted ASC 820 Fair Value Measurements and Disclosures. ASC 820 defines fair value,
establishes a framework for measuring fair value, and requires disclosures to be provided on
fair value measurement.
 ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in
measuring fair value as follows:
 
    
    Level 1  Observable inputs that reflect quoted prices (unadjusted) for identical assets or
liabilities in active markets.
    
    Level 2  Include other inputs that are directly or indirectly observable in the marketplace;
and
    
    Level 3  Unobservable inputs which are supported by little or no market activity, therefore
requiring an entity to develop its own assumptions.
 The carrying values of cash and cash equivalents, accounts receivable, other current assets,
accounts payable, other current liabilities, and amounts due to employees approximate their
fair value due to their short-term maturities.f)
    
    Cash
 The Group considers all cash on hand and demand deposits as cash.g)
    
    Restricted cash
 Restricted cash represents amounts held by banks, which are not available for the Group use, as
secure for issuance of letters of credit.
  10




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SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)h)
    
    Notes and accounts receivable
 Notes receivable represent bank notes which are paid by third party commercial banks upon due
thus are believed to have low credit risk. Provisions are made against notes and accounts
receivable for estimated losses resulting from the inability of collecting payments from our
customers. The Group periodically assesses notes and accounts receivable balances to determine
whether an allowance for doubtful accounts should be made based upon historical bad debt
analysis, specific customer creditworthiness, and current economic trends. Notes and accounts
receivable in the balance sheets are stated net of such provision, if any.i)
    
    Inventories
 Inventories are stated at the lower of cost or net realizable value at balance sheet date. Cost
of inventories is determined using the weighted average method. Provisions are made for
excessive, slow moving and obsolete inventories as well as inventories whose carrying value
exceeds their net realizable value. Net realizable value is the estimated selling price in the
ordinary course of business, less estimated costs and expenses and related taxes necessary to
make the sale. Provision for inventories is determined on an individual item basis. Raw
material costs are based on purchase costs while work-in-progress and finished goods comprise
direct materials, direct labor and an allocation of manufacturing overhead costs.j)
    
    Property, plant and equipment
 Property, plant and equipment are stated at cost less accumulated depreciation and are
depreciated on a straight-line basis over the estimated useful lives detailed as follows:
 Estimated
    
    Estimated
    
    
    
    
    
    
    AnnualCategory
    
    useful life
    
    
    residual value
    
    
    depreciation rateBuildings
    
    20 years
    
    
    
    5
    %
    
    
    4.75
    %Machinery
    
    510 years
    
    
    
    5
    %
    
    
    9.5%19
    %Office equipments
    
    510 years
    
    
    
    5
    %
    
    
    9.5%19
    %Vehicles
    
    10 years
    
    
    
    5
    %
    
    
    9.5
    %
 Expenditures for major additions or improvement that extend the useful lives of property and
equipment are capitalized as additions to the related assets. Expenditure for minor
replacements, maintenance and repairs that do not improve or extend the lives of the assets are
charged to expense when incurred. Retirement, sales and disposals of assets are recorded by
removing the cost and accumulated depreciation, with any resulting gain or loss reflected in
the statements of income.
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SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)k)
    
    Property, plant and equipment
 All direct and indirect costs that are related to the construction of property and equipment
and incurred before the assets are ready for their intended use are capitalized as construction
in progress. Construction in progress is transferred to specific property and equipment
accounts and commences depreciation when these assets are ready for their intended use.
Interest costs are capitalized if they are incurred during the acquisition, construction or
production of a qualifying asset and such costs could have been avoided if expenditures for the
assets have not been made. Capitalization of interest costs commences when the activities to
prepare the asset are in progress and expenditures and borrowing costs are being incurred.
Interest costs are capitalized until the assets are ready for their intended use.
Capitalization of interest costs is suspended during extended periods in which activities
related to the acquisition or construction of the qualifying assets are interrupted.l)
    
    Land use rights
 Prepayments for land use rights represent amounts paid for the right to use land in China and
are recorded at cost less accumulated amortization. Amortization is recorded on a straight-line
basis over the terms of the respective land use rights agreements, which are 50 years.m)
    
    Revenue recognition
 The Group recognizes revenue pursuant to ASC 605 Revenue Recognition, where persuasive evidence
of an arrangement exists (demonstrated via contract with purchasers), delivery has occurred,
the sellers price is fixed or determinable and collectibility is reasonably assured. This
generally occurs when the customer receives the product or at the time title passes to the
customer. Customers generally do not have the right to return product unless damaged or
defective. The Group does not provide discount for early payments or any other allowances on
sales.n)
    
    Shipping and handling costs
 Shipping and handling costs are included in selling expenses. The shipping and handling costs
for the six-month period ended June 30, 2011 and 2010 were US$317,347 and US$236,833,
respectively.o)
    
    Cost of goods sold
 Cost of goods sold consists primarily of purchase costs of raw material, direct labor costs and
overhead expenses attributable to production and machine depreciation.p)
    
    Advertising expenditures
 Advertising expenditures are expensed as incurred. There were no advertising costs incurred in
the reporting period.
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SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)q)
    
    Comprehensive income
 Comprehensive income is defined to include all changes in equity except those resulting
from investments by owners and distributions to owners. Among other disclosures, ASC 220
Comprehensive Incomerequires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial statements. The Group has chosen
to report comprehensive income in the Statements of Stockholders Equity. The Groups other
comprehensive income represents foreign currency translation adjustments.r)
    
    Income taxes
 The Group uses the accrual method of accounting to determine income taxes for the year. The
Group has implemented Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes. Income tax liabilities computed according to the United States
and Peoples Republic of China (PRC) tax laws are provided for the tax effects of
transactions reported in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to accumulated depreciation, allowance for doubtful
accounts as well as the potential impact of any net operating loss carryforwards and their
potential utilization. The deferred tax assets and liabilities represent the future tax
return consequences of those differences, which will be either taxable or deductible when
the assets and liabilities are recovered or settled. A valuation allowance is created to
evaluate deferred tax assets if it is more likely than not that these items will either
expire before the Group is able to realize that tax benefit, or that future realization is
uncertain.
 The Groups operation in U.S. files income tax returns in the United States of America and
various states, as appropriate and applicable. As a result of the Companys bankruptcy
action, the Companys operation in U.S. is no longer subject to U.S. federal, state and
local, as applicable, income tax examinations by regulatory taxing authorities for any
period prior to 1 August 2008. The Company does not anticipate any examinations of returns
filed for periods ending after 1 August 2008.
 All of Shandong Xiangruis operations are in China. Shandong Xiangruis operations in
China are subject to Chinas New Enterprise Income Tax (EIT) Law, which became effective on 1
January 2008 and has a uniform statutory tax rate of 25 percent.
 s)
    
    Value-added tax (VAT)
 In accordance with the relevant tax laws of China, value-added taxes (VAT) are levied on
the invoiced value of sales and are payable by the purchaser. The Company is required to
remit the VAT it collects to the tax authority, but can deduct the VAT it has paid on
eligible purchases. The difference between the amounts collected and paid is presented as
VAT recoverable or payable balance on the balance sheets.
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SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)t)
    
    Employee benefits
 Full-time employees of Shandong Xiangrui participate in a government-mandated
multi-employee defined contribution plan pursuant to which certain pension benefits, medical
care, unemployment insurance, employee housing fund and other welfare benefits are provided to
employees. Chinese labor regulations require Shandong Xiangrui make contributions to the
government for these benefits based on a specific percentage of the employees salaries up to a
maximum of three times the average annual salary for the city in which Shandong Xiangrui
operates for the prior year. Shandong Xiangrui has no legal obligation for the benefits beyond
the contributions made.u)
    
    Impairment of long-lived assets
 The Group evaluates its long-lived assets, including property and equipment for impairment
whenever events or changes in circumstances, such as a significant adverse change to market
conditions that will impact the future use of the assets, indicate that the carrying amount of
an asset may not be recoverable in accordance with ASC 360 Property, Plant and Equipment. When
these events occur, the Group assesses the recoverability of long-lived assets by comparing the
carrying amount of the assets to the expected future undiscounted cash flows resulting from the
use of the assets and their eventual disposition. If the sum of the expected undiscounted cash
flow is less than the carrying amount of the assets, the Group recognizes an impairment loss
based on the excess of the carrying amount of the assets over their fair value. Fair value is
generally determined by discounting the cash flows expected to be generated by the assets, when
the market prices are not readily available. No impairment of long-lived assets was recognized
for any of the years presented.v)
    
    Government grants
 We receive grants from the government. The grants received from government are recorded in
the financial statements in accordance with the purpose and the nature of the grant, either as
other income, a reduction of expenses, or a reduction of the cost of the capital investment.
The benefit of grants is recorded when performance is complete and all conditions as specified
in the agreement are fulfilled. Any refundable grant is accounted for as a liability.w)
    
    Income (Loss) per share
 Basic earnings (loss) per share is computed by dividing the net income (loss) available to
common stockholders by the weighted-average number of common shares outstanding during the
respective period presented in our accompanying financial statements.
Fully diluted earnings (loss) per share is computed similar to basic income (loss) per share
except that the denominator is increased to include the number of common stock equivalents
(primarily outstanding options and warrants).
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SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 w)
    
    Income (Loss) per share (continued)
 Common stock equivalents represent the dilutive effect of the assumed exercise of the
outstanding stock options and warrants, using the treasury stock method, at either the
beginning of the respective period presented or the date of issuance, whichever is later, and
only if the common stock equivalents are considered dilutive based upon the Groups net income
(loss) position at the calculation date.
 As of 30 June 2011, the Group had no outstanding stock warrants, options or convertible
securities which could be considered as dilutive for purposes of the loss per share
calculation.x)
    
    Recently issued accounting pronouncements
 In July 2010, the FASB issued ASU 2010-20 an accounting update to provide guidance to
enhance disclosures related to the credit quality of a companys financing receivables
portfolio and the associated allowance for credit losses (FASB ASC Topic 310). Pursuant to
this accounting update, a company is required to provide a greater level of disaggregated
information about its allowance for credit loss with the objective of facilitating users
evaluation of the nature of credit risk inherent in the Groups portfolio of financing
receivables, how that risk is analyzed and assessed in arriving at the allowance for credit
losses, and the changes and reasons for those changes in the allowance for credit losses. The
revised disclosures as of the end of the reporting period are effective for the Group beginning
in the second quarter of fiscal 2011, and the revised discourses related to activities during
the reporting period are effective for the Group beginning in the third quarter of fiscal 2011.
The adoption of such standard did not have a material impact on the Groups consolidated
financial statements and disclosures.
 In December 2010, the FASB issued ASU 2010-28 an accounting pronouncement related to
intangibles  goodwill and other (FASB ASC Topic 350), which requires a company to consider
whether there are any adverse qualitative factors indicating that an impairment may exist in
performing step 2 of the impairment test for reporting units with zero or negative carrying
amounts. The provisions for this pronouncement are effective for fiscal years, and interim
periods within those years, beginning after December 15, 2010, with no early adoption. We will
adopt this pronouncement for our fiscal year beginning July 1, 2011. The adoption of this
pronouncement is not expected to have a material impact on our consolidated financial
statements.
 In December 2010, the FASB issued ASU 2010-29 an accounting pronouncement related to
business combinations (FASB ASC Topic 815), which specifies that if a public entity
presents comparative financial statements, the entity should disclose revenue and earnings
of the combined entity as though the business combination(s) that occurred during the
current year had occurred as of the beginning of the comparable prior annual reporting
period only. It also expands the supplemental pro forma disclosures under Topic 805 to
include a description of the nature and amount of material, nonrecurring pro forma
adjustments directly attributable to the business combination included in the reported pro
forma revenue and earnings. The amendments in this Update are effective prospectively for
business combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2010. Early adoption is
permitted. The adoption of this pronouncement is not expected to have a material impact on
our consolidated financial statements.
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SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 y)
    
    Recently issued accounting pronouncements (continued)
 In January 2011, the FASB issued ASU 2011-01 an accounting pronouncement related to
receivables (FASB ASC Topic 310). The amendments in this update temporarily delay the
effective date of the disclosures about troubled debt restructurings in ASU 2010-20 for public
entities. The delay is intended to allow the Board time to complete its deliberations on what
constitutes a troubled debt restructuring. The effective date of the new disclosures about
troubled debt restructurings for public entities and the guidance for determining what
constitutes a troubled debt restructuring will then be coordinated. Currently, that guidance is
anticipated to be effective for interim and annual periods ending after 15 June 2011. The
adoption of this pronouncement is not expected to have a material impact on our consolidated
financial statements.
 3.
    
    NOTES AND ACCOUNTS RECEIVABLE, NET
 Accounts receivable is stated at net value. As of 30 June 2011, the allowance for doubtful
accounts recorded by the Group amounted to US$936,669.
 Notes receivable represent bank drafts that are non-interest bearing and due within six
months. Such bank drafts have been arranged with third party financial institutions by certain
customers to settle their purchases from us. The carrying amount of notes receivable
approximate their fair values due to their short maturities.
 4.
    
    PROPERTY , PLANT AND EQUIPMENT, NET
 30 JUNE
    
    
    31 DECEMBER2011
    
    
    2010US$
    
    
    US$Buildings
    
    
    2,368,933
    
    
    
    2,368,933Machinery
    
    
    6,652,819
    
    
    
    6,934,521Office equipment
    
    
    32,636
    
    
    
    18,911Motor vehicles
    
    
    60,172
    
    
    
    59,098Total
    
    
    9,114,560
    
    
    
    9,381,463Less: Accumulated depreciation
    
    
    (6,625,076
    )
    
    
    (6,484,434
    )Subtotal
    
    
    2,489,484
    
    
    
    2,897,029Construction in progress
    
    
    7,553,946
    
    
    
    76,247Property, plant and equipment, net
    
    
    10,043,430
    
    
    
    2,973,276
 As of 30 June 2011, Shandong Xiangrui pledged its building with net book value of
US$1,152,612 to Citibank (China) Co., Ltd., Shanghai Branch to secure a long term bank loan
provided by the bank to Shandong RunYin Bio-Chemical Co., Ltd., a related party (Note 11).
 Depreciation expenses for the three months ended 30 June 2011 and 2010 were $254,304 and
$184,370 and for the six months ended 30 June 2011 and 2010 were $383,091 and $381,217,
respectively.
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SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
 5.
    
    LAND USE RIGHTS, NET
 As of 30 June 2011, Shandong Xiangrui pledged its land use rights with net book value of
US$646,372 to Citibank (China) Co., Ltd., Shanghai Branch to secure a long term bank loan
provided by the bank to Shandong RunYin Bio-Chemical Co., Ltd, a related party.
 Land use rights are summarized as follows:
 30 JUNE
    
    
    31 DECEMBER2011
    
    
    2010US$
    
    
    US$Land use rights, cost
    
    
    2,766,860
    
    
    
    2,766,860Less: accumulated amortization
    
    
    (255,993
    )
    
    
    (224,111
    )Land use rights, net
    
    
    2,510,867
    
    
    
    2,542,749
 6.
    
    BANK BORROWINGS
 The Group had the following outstanding short-term loans with banks:
 30 JUNE
    
    
    31 DECEMBER2011
    
    
    2010US$
    
    
    US$Rural Cooperative Bank of Dongping, Shandong
    
    
    4,403,856
    
    
    
    2,793,422China Merchant Bank
    
    
    1,545,213
    
    
    
    Agricultural Develop Bank
    
    
    
    
    
    
    4,529,875Bank of Communications
    
    
    
    
    
    
    754,979Total
    
    
    5,949,069
    
    
    
    8,078,276
  7.
    
    INCOME TAXES
 On 13 May 2011, income from the Companys foreign subsidiaries became subject to U.S. income
tax liability; however, this tax is deferred until foreign source income is repatriated to the
Company from earnings and profits after foreign income taxes, which has not yet occurred.All of Shandong Xiangruis operations are in the PRC, and in accordance with the relevant tax
laws and regulations of PRC, the corporate income tax rate is 25%.
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SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
 7.
    
    INCOME TAXES (CONTINUED)Income before taxes and the provision for taxes consists of the following:
 THREE MONTHS ENDED 30 JUNE2011
    
    
    2010US$
    
    
    US$Income before taxes:US Federal
    
    
    
    
    
    
    US State
    
    
    
    
    
    
    BVI
    
    
    
    
    
    
    PRC
    
    
    1,639,708
    
    
    
    967,461Total income before taxes
    
    
    1,639,708
    
    
    
    967,461
 THREE MONTHS ENDED 30 JUNE2011
    
    
    2010US$
    
    
    US$Provision for income taxes:Current:US Federal
    
    
    
    
    
    
    US State
    
    
    
    
    
    
    BVI
    
    
    
    
    
    
    PRC
    
    
    402,440
    
    
    
    255,845Current income taxes
    
    
    402,440
    
    
    
    255,845DeferredUS Federal
    
    
    
    
    
    
    US State
    
    
    
    
    
    
    BVI
    
    
    
    
    
    
    PRC
    
    
    2,358
    
    
    
    5,789Deferred income taxes
    
    
    2,358
    
    
    
    5,789Total provision for income taxes
    
    
    404,798
    
    
    
    261,634
 SIX MONTHS ENDED 30 JUNE2011
    
    
    2010US$
    
    
    US$Income (loss) before taxes:US Federal
    
    
    
    
    
    
    US State
    
    
    (3,877
    )
    
    
    (6,095
    )BVI
    
    
    
    
    
    
    PRC
    
    
    3,726,662
    
    
    
    1,841,387Total income (loss) before taxes
    
    
    3,722,785
    
    
    
    1,835,292
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SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
 7.
    
    INCOME TAXES (CONTINUED)
 SIX MONTHS ENDED 30 JUNE2011
    
    
    2010US$
    
    
    US$Provision for income taxes:Current:US Federal
    
    
    
    
    
    
    US State
    
    
    
    
    
    
    BVI
    
    
    
    
    
    
    PRC
    
    
    965,251
    
    
    
    488,822Current income taxes
    
    
    965,251
    
    
    
    488,822DeferredUS Federal
    
    
    
    
    
    
    US State
    
    
    
    
    
    
    BVI
    
    
    
    
    
    
    PRC
    
    
    (13,947
    )
    
    
    (7,212
    )Deferred income taxes
    
    
    (13,947
    )
    
    
    (7,212
    )Total provision for income taxes
    
    
    951,304
    
    
    
    481,610
 A reconciliation for the provision for income taxes with amounts determined by applying
the statutory income tax rate to income before income tax is as follows:
 THREE MONTHS ENDED 30 JUNE2011
    
    
    2010US$
    
    
    US$Profit before income tax
    
    
    1,639,708
    
    
    
    967,461Corporate income tax rate
    
    
    25
    %
    
    
    25
    %Computed tax at statutory rate
    
    
    409,927
    
    
    
    241,865Income exempted from taxation
    
    
    (5,129
    )
    
    
    Expenses not deductible for tax purposes
    
    
    
    
    
    
    19,769Provision for income taxes
    
    
    404,798
    
    
    
    261,634
 SIX MONTHS ENDED 30 JUNE2011
    
    
    2010US$
    
    
    US$Profit before income tax
    
    
    3,722,785
    
    
    
    1,835,292Corporate income tax rate
    
    
    25
    %
    
    
    25
    %Computed tax at statutory rate
    
    
    930,696
    
    
    
    458,823Income exempted from taxation
    
    
    (6,098
    )
    
    
    Expenses not deductible for tax purposes
    
    
    26,706
    
    
    
    22,787Provision for income taxes
    
    
    951,304
    
    
    
    481,610
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SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
 7.
    
    INCOME TAXES (CONTINUED)Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amount of assets and liabilities for financial reporting purposes and the amounts used for income
tax purposes. Components of the Groups deferred tax assets and liabilities are as follows:
 30 JUNE
    
    
    31 DECEMBER2011
    
    
    2010US$
    
    
    US$Deferred tax assetsAllowance for doubtful accounts
    
    
    271,447
    
    
    
    265,254Total deferred tax assets
    
    
    271,447
    
    
    
    265,254Deferred tax liabilitiesDepreciation of property, plant and equipments
    
    
    164,609
    
    
    
    172,363Total deferred tax liabilities
    
    
    164,609
    
    
    
    172,363
 Deferred assets are current assets while deferred liabilities are non-current liabilities. No
valuation allowance was provided for deferred tax assets in the periods presented.
 8.
    
    VAT AND MISCELLANEOUS TAXES PAYABLE
 Miscellaneous tax payables mainly comprise local supplementary taxes that levied as a
percentage of the total income tax and VAT tax paid. Details of VAT and miscellaneous taxes payable
are set forth in the following table:
 30 JUNE
    
    
    31 DECEMBER2011
    
    
    2010US$
    
    
    US$VAT
    
    
    111,293
    
    
    
    859,128Urban construction tax
    
    
    6,415
    
    
    
    46,064Education tax
    
    
    3,849
    
    
    
    25,837Local supplementary tax
    
    
    2,566
    
    
    
    8,613Land use tax
    
    
    2,905
    
    
    
    3,918Real estate tax
    
    
    4,010
    
    
    
    2,838Stamp duty
    
    
    2,829Personal income tax payable on behalf of staffs
    
    
    2,400
    
    
    
    1,667Total
    
    
    136,267
    
    
    
    948,065
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SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
 9.
    
    OTHER PAYABLE TO THIRD PARTIES
 Other payables to third parties consist of the following:
 30 JUNE
    
    
    31 DECEMBER2011
    
    
    2010US$
    
    
    US$Purchases of property and equipment
    
    
    77,884
    
    
    
    111,535Others
    
    
    16,236
    
    
    
    93,946Total
    
    
    94,120
    
    
    
    205,481
 10.
    
    STATUTORY RESERVES
  30 JUNE
    
    
    31 DECEMBER2011
    
    
    2010US$
    
    
    US$Statutory reserve
    
    
    604,154
    
    
    
    326,619Discretionary reserve
    
    
    362,494
    
    
    
    195,972Total
    
    
    966,648
    
    
    
    522,591
 11.
    
    RELATED PARTY TRANSACTIONS
 The principal related parties with which the Group had transactions are listed as follows:
 Name
    
    RelationshipShandong Runyin Bio-chemical Co., Ltd.
    
    Affiliates under common controlRuixing Group Co., Ltd.
    
    Affiliates under common controlShandong Xinrui Chemical Devices Co., Ltd.
    
    Affiliates under common control
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SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
 11.
    
    RELATED PARTY TRANSACTIONS (CONTINUED)For the six months ended 30 June 2011, and 2010, the Group engaged in the following significant related party transactions:
 (a)
    
    Utility (steam and electricity) supply
 Steam supply received from
 SIX MONTHS ENDED 30 JUNE2011
    
    
    2010US$
    
    
    US$Shandong Runyin Bio-chemical Co., Ltd.
    
    
    (i
    )
    
    
    982,686
    
    
    
    834,695
 Electricity supply received from
 SIX MONTHS ENDED 30 JUNE2011
    
    
    2010US$
    
    
    US$Shandong Runyin Bio-chemical Co., Ltd.
    
    
    (i
    )
    
    
    998,990
    
    
    
    763,044
 Electricity supplied to
 SIX MONTHS ENDED 30 JUNE2011
    
    
    2010US$
    
    
    US$Shandong Xinrui Chemical Devices Co., Ltd.
    
    
    (i
    )
    
    
    
    
    
    
    273,167
 (b)
    
    Raw materials purchased from
 SIX MONTHS ENDED 30 JUNE2011
    
    
    2010US$
    
    
    US$Shandong Runyin Bio-chemical Co., Ltd.
    
    
    1,362,750
    
    
    
    373,535
 (c)
    
    Plant facility lease from
 SIX MONTHS ENDED 30 JUNE2011
    
    
    2010US$
    
    
    US$Shandong Runyin Bio-chemical Co., Ltd.
    
    (ii)
    
    
    4,700
    
    
    
    4,574
 (i)
    
    In January 2009, the Company entered into a non-cancelable
contract with Shandong Runyin Bio-chemical Co., Ltd. to secure
the steam and electricity supply for the Companys cornstarch
and glucose production. The non-cancellable utility supply
contract with the Shandong Runyin Bio-chemical Co., Ltd. expires
in December 2014 whose price was determined by reference to
market price.(ii)
    
    In December 2008, Shandong Xiangrui entered into a rental
contract with the Shandong Runyin Bio-chemical Co., Ltd. for
some plants, which are used for the production of stearic and
glycerol. The lease contract is renewed on a yearly basis. The
lease payment is around US$9,000 per year, which was determined
in reference to market price.  22




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##### Table of Contents



SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
 11.
    
    RELATED PARTY TRANSACTIONS (CONTINUED)As of 30 June 2011 and 31 December 2010, the Group had following balances with related parties:
 (e)
    
    Amounts due from related parties
 30 JUNE
    
    
    31 DECEMBER2011
    
    
    2010US$
    
    
    US$Shandong Runyin Bio-chemical Co., Ltd.
    
    
    980,517
    
    
    
    Total
    
    
    980,517
    
    
    
    
 (f)
    
    Amounts due to related parties
 JUNE 30,
    
    
    DECEMBER 312011
    
    
    2010US$
    
    
    US$Ruixing Group Co., Ltd.
    
    
    245,716
    
    
    
    297,285Shandong Runyin Bio-chemical Co., Ltd.
    
    
    2,094,732
    
    
    
    1,952,241Total
    
    
    2,340,448
    
    
    
    2,249,526
 12.
    
    COMMITMENTS AND CONTINGENCIES
 (a)
    
    Supply CommitmentIn January 2009, Shandong Xiangrui entered into a non-cancelable contract with Shandong Runyin
Bio-chemical Co., Ltd. to secure the steam and electricity supply for Shandong Xiangruis
cornstarch and glucose production. The non-cancelable utility supply contract with the Shandong
Runyin Bio-chemical Co., Ltd. expires in December 2014 with a price that approximates market price.
Total amount of the contract per year would be determined by the actual quantity of utilities
consumed by Shandong Xiangrui. Please refer to Note 11 for the actual value of supply consumed by
Shandong Xiangrui in six months ended 30 June 2011 and 2010 respectively.(b)
    
    Loan GuaranteeAs of 30 June 2011, Shandong Xiangrui pledged its building with net book value of US$2,510,867 to
Citibank (China) Co., Ltd., Shanghai Branch to secure a long term bank loan provided by the bank to
Shandong RunYin Bio-Chemical Co., Ltd.As of 30 June 2011, Shandong Xiangrui pledged its land use rights with net book value of US$646,372
to Citibank (China) Co., Ltd., Shanghai Branch to secure a long term bank loan provided by the bank
to Shandong RunYin Bio-Chemical Co., Ltd, a related party (Note 11).
  23




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##### Table of Contents



SMSA TREEMONT ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
 12.
    
    COMMITMENTS AND CONTINGENCIES (CONTINUED)
 (c)
    
    Capital Purchase CommitmentAs of 30 June 2011, Shandong Xiangrui entered into non-cancellable contracts with some constructor
and machinery suppliers for purchase of plant and machinery with amount of US$793,576.(d)
    
    ContingenciesThe Group had no material contingent events during the reporting period.
 13.
    
    SEGMENT AND GEOGRAPHIC INFORMATION
 Business segments
 The main products of the Company are cornstarch and glucose, which utilize almost the same
production processes. Both are produced from the raw material corn. The difference in production
processes is that glucose is further processed from cornstarch by adding in auxiliary materials.
The two products are sold to the same type of customers and use the same distribution methods.
 While the cost base is similar for the two products, the selling prices are independently
determined by reference to their respective market prices, which resulted in different trend of
gross profit margins of the two products as shown in the following table. The economies of scale
also contributed to the overall rise of gross profit margins.
 SIX MONTHS ENDED 30 JUNE2011
    
    
    2010US$
    
    
    US$RevenuesCornstarch
    
    
    29,723,798
    
    
    
    15,414,788Glucose
    
    
    5,818,429
    
    
    
    4,259,224Cost of salesCornstarch
    
    
    25,871,925
    
    
    
    13,484,608Glucose
    
    
    4,399,795
    
    
    
    3,591,133GPMCornstarch
    
    
    13.0
    %
    
    
    12.5
    %Glucose
    
    
    24.4
    %
    
    
    15.7
    %
 The deviation of the gross profit margins of the two products as determined by market prices is
expected to continue in the future.Because of the similar production processes and raw materials and the same type of customers and
distribution methods, the cornstarch and glucose production processes are not individually assessed
when the Companys chief operating decision maker reviews the operation results and makes decisions
on resources allocation. Therefore, it is not practical to separate the information on the assets
of the two products and other profit and loss information which are believed to have no relevance
to the decision-making relating to the Companys economic activities.
 Geographical segmentsAll the revenue is attributed to the revenue from China.
 14.
    
    SUBSEQUENT EVENTS
 In the opinion of the management, the Group had no significant subsequent events.
  24




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##### Table of Contents



ITEM 3.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  (1)
    
    Overview
 We are a corn processor in Shandong Province, China. We manufacture and distribute cornstarch,
glucose, and other by-products through our direct and indirect subsidiaries in China. Our
products are important ingredients for a wide range of industries, including food and beverages,
animal nutrition, pharmaceuticals, textile and other industrial manufacturing industries.
 Our customers are located primarily in Shandong Province. We sell products constituting
approximately 90% of our revenues through our direct sales force, with the remaining 10% sold to
distributors. Our principal customers purchase corn starch and glucose products for use in food
and beverages as well as the pharmaceutical industries, which together constituted approximately
76.38% of our revenue for the six month period ended June 30, 2011. Our other corn-refined
products are principally sold to the animal feed industry, which accounted for approximately
12.5% of our revenue for the six months ended June 30, 2011. Sales of our products to the
industrial manufacturing sector accounted for approximately 11.12% of our revenue for the six
months ended June 30, 2011.
 As of June 30, 2011, we had an annual production capacity of 140,000 tones of cornstarch. We
have invested about $7.6 million in new equipments and a new building to install a new product
line and expect to invest an additional $4.4 million into this project by the end of 2011. Once
the new production line is ready to use by October 2011, we expect to increase our annual
capacity to 240,000 tonnes.
 Results of Operations
 The information provided below relates to the combined enterprises after the acquisition of
Xiangrui Pharmaceutical International Limited, a British Virgin Islands company and its direct
and indirect subsidiaries (Xiangrui) pursuant to a share exchange agreement (the Share
Exchange Agreement) dated as of May 13, 2011, among us, Xiangrui, and Mr. Chongxin Xu, the sole
shareholder of Xiangrui, except that information relating to periods prior to May 13, 2011, the
date of the reverse acquisition, only relate to Xiangrui unless otherwise specifically
indicated.
  25




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##### Table of Contents



Results of operations for the three months ended June 30, 2011 as compared with the three months
ended June 30, 2010.
 Three months EndedJune 30,(unaudited)2011
    
    
    2010
    
    
    $ Change
    
    
    % Change(In thousands, except percentages)Statement of operations dataRevenues
    
    $
    19,509
    
    
    
    10,742
    
    
    
    8,767
    
    
    
    82
    %Cost of sales
    
    
    16,947
    
    
    
    9,382
    
    
    
    7,565
    
    
    
    81
    %Gross profit
    
    
    2,562
    
    
    
    1,360
    
    
    
    1,202
    
    
    
    88
    %Operating expensesSelling and distribution expenses
    
    
    248
    
    
    
    264
    
    
    
    (16
    )
    
    
    (6
    %)General and administrative expenses
    
    
    371
    
    
    
    64
    
    
    
    307
    
    
    
    480
    %Total operating expenses
    
    
    619
    
    
    
    328
    
    
    
    219
    
    
    
    89
    %Income from operations
    
    
    1,943
    
    
    
    1,032
    
    
    
    911
    
    
    
    88
    %Interest income
    
    
    1
    
    
    
    
    
    
    
    1Interest expenses
    
    
    223
    
    
    
    45
    
    
    
    178
    
    
    
    396
    %Other expenses, net
    
    
    80
    
    
    
    19
    
    
    
    61
    
    
    
    321
    %Income before income tax expenses
    
    
    1,640
    
    
    
    967
    
    
    
    673
    
    
    
    70
    %Income taxes expenses
    
    
    405
    
    
    
    262
    
    
    
    143
    
    
    
    55
    %Net income attributable to ordinary shareholders
    
    
    1,235
    
    
    
    706
    
    
    
    529
    
    
    
    75
    %
 Revenues.
  Cost of Sales.
   26




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##### Table of Contents



Gross Profit.
  Selling and Distribution Expenses.
  General and Administrative Expenses.
  Interest Expenses.
  Income Before Income Tax Expenses.
  Income Tax Expenses.
  Net Income Attributable to Ordinary Shareholders.
   27




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##### Table of Contents



Results of operations for the six months ended June 30, 2011 as compared with the six months ended
June 30, 2010.
 Six months EndedJune 30,(unaudited)2011
    
    
    2010
    
    
    $ Change
    
    
    % Change(In thousands, except percentages)Statement of operations dataRevenues
    
    $
    35,631
    
    
    
    19,726
    
    
    
    15,905
    
    
    
    81
    %Cost of sales
    
    
    30,361
    
    
    
    17,120
    
    
    
    13,241
    
    
    
    77
    %Gross profit
    
    
    5,270
    
    
    
    2,607
    
    
    
    2,663
    
    
    
    102
    %Operating expensesSelling and distribution expenses
    
    
    541
    
    
    
    507
    
    
    
    34
    
    
    
    7
    %General and administrative expenses
    
    
    488
    
    
    
    119
    
    
    
    369
    
    
    
    310
    %Total operating expenses
    
    
    1,029
    
    
    
    626
    
    
    
    403
    
    
    
    64
    %Income from operations
    
    
    4,241
    
    
    
    1,981
    
    
    
    2,260
    
    
    
    114
    %Interest income
    
    
    2
    
    
    
    
    
    
    
    2Interest expenses
    
    
    399
    
    
    
    132
    
    
    
    267
    
    
    
    202
    %Other expenses, net
    
    
    122
    
    
    
    14
    
    
    
    108
    
    
    
    771
    %Income before income tax expenses
    
    
    3,723
    
    
    
    1,835
    
    
    
    1,888
    
    
    
    103
    %Income taxes
    
    
    951
    
    
    
    482
    
    
    
    469
    
    
    
    97
    %Net income attributable to ordinary shareholders
    
    
    2,771
    
    
    
    1,354
    
    
    
    1,417
    
    
    
    105
    %
 Revenues.
   Cost of Sales.
  Gross Profit.
   28




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##### Table of Contents



Selling and Distribution Expenses.
  General and Administrative Expenses.
  Interest Expenses.
  Income Before Income Tax Expenses.
  Income Tax Expenses.
  Net Income Attributable to Ordinary Shareholders.
  (3) Liquidity and Capital Resources
 Operating Activities
  Investing Activities
  Financing Activities
  Loans
   29




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##### Table of Contents



Guarantees
  Future Cash Commitments and Needs
  (4) Critical Accounting Policies and Estimates
  (5) Recently Issued Accounting Pronouncements
  (6) Special Note Regarding Forward-Looking Statements
   30




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##### Table of Contents



ITEM 4.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Inflation
  Foreign Currency Exchange Risk
   Interest Rate Risk
     31




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##### Table of Contents



ITEM 5.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
 Certifying Officer Exchange Act
 Changes in Internal Controls
  
 PART II  OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
  
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4.
    
    (REMOVED AND RESERVED)
  32




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##### Table of Contents



ITEM 5.
    
    OTHER INFORMATION
  
 ITEM 6.
    
    EXHIBITS
 Exhibit No.
    
    Description2.1
    
    
    Share Exchange Agreement, dated May 13, 2011,
among the Company, Xiangrui and Mr. Chonxing Xu.
[Incorporated by reference to Exhibit 2.1 to the
Companys Current Report on Form 8-K/A filed on
July 20 , 2011]10.1
    
    
    Loan Agreement, dated March 15, 2011, between
Shandong Xiangrui and Rural Cooperative Bank of
Dongping, Shandong, for RMB 5 million. [English
Translation of Summary] [Incorporated by
reference to Exhibit 10.12 to the Companys
Current Report on Form 8-K/A filed on July 20 ,
2011]10.2
    
    
    Loan Agreement, dated March 16, 2011, between
Shandong Xiangrui and Rural Cooperative Bank of
Dongping, Shandong, for RMB 5 million. [English
Translation of Summary] [Incorporated by
reference to Exhibit 10.13 to the Companys
Current Report on Form 8-K/A filed on July 20 ,
2011]10.3
    
    
    Guarantee Agreement, dated March 15, 2011,
between Shandong Guangda Sun & Moon Grease Co.,
Ltd. and Rural Cooperative Bank of Dong Ping,
Shandong for RMB 10 million loans. [English
Translation of Summary] [Incorporated by
reference to Exhibit 10.14 to the Companys
Current Report on Form 8-K/A filed on July 20 ,
2011]10.4
    
    
    Loan Agreement, dated April 15, 2011, between
Shandong Xiangrui and China Merchant Bank, Jinan
Branch, for RMB 10 million. [English Translation
of Summary] [Incorporated by reference to
Exhibit 10.15 to the Companys Current Report on
Form 8-K/A filed on July 20 , 2011]10.5
    
    
    Irrevocable Maximum Guarantee Letter, dated
April 15, 2011, issued to China Merchant Bank,
Jinan Branch, by Shandong Runyin Bio-chemical,
for a RMB 10 million loan. [English Translation
of Summary] [Incorporated by reference to
Exhibit 10.16 to the Companys Current Report on
Form 8-K/A filed on July 20 , 2011]10.6
    
    
    Irrevocable Maximum Guarantee Letter, dated
April 15, 2011, issued to China Merchant Bank,
Jinan Branch, by Mr. Xuchun Wang, for a RMB 10
million loan. [English Translation]
[Incorporated by reference to Exhibit 10.17 to
the Companys Current Report on Form 8-K/A filed
on July 20 , 2011]10.7
    
    
    Contract of Offering Technology Design, Key
Equipments, Materials and Technique Service for
Effluent Disposal Project, dated February 1,
2011, between Shandong Xiangrui and Park
Environment Protection Technology (Shanghai)
Co., Ltd. [English Translation of Summary]
[Incorporated by reference to Exhibit 10.22 to
the Companys Current Report on Form 8-K/A filed
on July 20 , 2011]10.8
    
    
    Corn Kernels Purchase Agreement, dated April 1,
2011, between Shandong Xiangrui and Jinan
Jingliang Grains Storage Co., Ltd. [English
Translation] [Incorporated by reference to
Exhibit 10.23 to the Companys Current Report on
Form 8-K/A filed on July 20 , 2011]10.9
    
    
    Corn Kernels Purchase Agreement, dated May 6,
2011, between Shandong Xiangrui and Zhongjiao
Grain and Oil Storage Center, Qingdao
Tariff-free Area. [English Translation]
[Incorporated by reference to Exhibit 10.24 to
the Companys Current Report on Form 8-K/A filed
on July 20 , 2011]10.10
    
    
    Corn Kernels Purchase Agreement, dated May 9,
2011, between Shandong Xiangrui and Taian
Branch of China Grain Reserves Corporation.
[English Translation] [Incorporated by reference
to Exhibit 10.25 to the Companys Current Report
on Form 8-K/A filed on July 20 , 2011]
  33




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##### Table of Contents



Exhibit No.
    
    Description10.11
    
    
    Corn Kernels Purchase Agreement, dated May 11, 2011, between Shandong Xiangrui
and Shanghai Yihai Commerce & Trade Co., Ltd. [English Translation]
[Incorporated by reference to Exhibit 10.26 to the Companys Current Report on
Form 8-K/A filed on July 20 , 2011]10.12
    
    
    Exclusive Technical and Consulting Service Agreement, dated May 9, 2011, between
the WFOE and Shandong Xiangrui. [previously filed as Exhibit 10.33]
[Incorporated by reference to Exhibit 10.27 to the Companys Current Report on
Form 8-K/A filed on July 20 , 2011]10.13
    
    
    Management Fee Payment Agreement, dated May 9, 2011, among the WFOE, Shandong
Xiangrui and the Shandong Xiangrui Shareholders. [previously filed as Exhibit
10.34] [Incorporated by reference to Exhibit 10.28 to the Companys Current
Report on Form 8-K/A filed on July 20 , 2011]10.14
    
    
    Equity Interest Pledge Agreement, dated May 9, 2011, between the WFOE and the
Shandong Xiangrui Shareholders. [Incorporated by reference to Exhibit 10.29 to
the Companys Current Report on Form 8-K/A filed on July 20 , 2011]10.15
    
    
    Exclusive Equity Interest Purchase Agreement, dated May 9, 2011, among the WFOE,
Shandong Xiangrui and the Shandong Xiangrui Shareholders. [Incorporated by
reference to Exhibit 10.30 to the Companys Current Report on Form 8-K/A filed
on July 20 , 2011]10.16
    
    
    Operating Agreement, dated May 9, 2011, among the WFOE, Shandong Xiangrui and
the Shandong Xiangrui Shareholders. [Incorporated by reference to Exhibit 10.31
to the Companys Current Report on Form 8-K/A filed on July 20 , 2011]10.17
    
    
    Proxy Agreement, dated May 9, 2011, among the WFOE, Shandong Xiangrui and the
Shandong Xiangrui Shareholders. [Incorporated by reference to Exhibit 10.32 to
the Companys Current Report on Form 8-K/A filed on July 20 , 2011]10.18
    
    
    Option Agreement, dated May 13, 2011, between Mr. Chongxin Xu and Mr. Binglong
Qiao. [Incorporated by reference to Exhibit 10.33 to the Companys Current
Report on Form 8-K/A filed on July 20 , 2011]10.19
    
    
    Option Agreement, dated May 13, 2011, between Mr. Chongxin Xu and Mr. Guo Wang.
[Incorporated by reference to Exhibit 10.34 to the Companys Current Report on
Form 8-K/A filed on July 20 , 2011]10.20
    
    
    Option Agreement, dated May 13, 2011, between Mr. Chongxin Xu and Mr. Lingfa
Huang. [Incorporated by reference to Exhibit 10.35 to the Companys Current
Report on Form 8-K/A filed on July 20 , 2011]10.21
    
    
    Option Agreement, dated May 13, 2011, between Mr. Chongxin Xu and Mr. Xuchun
Wang. [Incorporated by reference to Exhibit 10.36 to the Companys Current
Report on Form 8-K/A filed on July 20 , 2011]10.22
    
    
    Loan Agreement, dated August 23, 2011, between Shandong Xiangrui and Bank of
Communications Taian Branch for RMB 5 million. [Incorporated by reference to
Exhibit 10.45 to the Companys Current Report on Form 8-K/A filed on September
6, 2011]10.23
    
    
    Guaranty Contract, dated August 23, 2011, between Runyin Bio-chemical and Bank of
Communications, Taian Branch, for a RMB 5 million loan. [Incorporated by
reference to Exhibit 10.46 to the Companys Current Report on Form 8-K/A filed
on September 6, 2011]10.24
    
    
    Guaranty Contract, dated August 23, 2011, between Mr. Xuchun Wang and Bank of
Communications Taian Branch, for a RMB 5 million loan. [Incorporated by
reference to Exhibit 10.47 to the Companys Current Report on Form 8-K/A filed
on September 6, 2011]
  34




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##### Table of Contents



Exhibit No.
    
    Description10.25
    
    
    Loan Agreement, dated August 3, 2011, between Shandong Xiangrui and Agriculture
Development Bank of China, Dongping Branch, for RMB 30 million. [Incorporated by
reference to Exhibit 10.48 to the Companys Current Report on Form 8-K/A filed
on September 6, 2011]10.26
    
    
    Guarantee Contract, dated August 3, 2011, between Ruixing Group and Agriculture
Development Bank of China, Dongping Branch, for a RMB 30 million loan.
[Incorporated by reference to Exhibit 10.49 to the Companys Current Report on
Form 8-K/A filed on September 6, 2011]10.27
    
    
    Guarantee Contract, dated August 3, 2011, between Mr. Lingfa Huang (and his wife
Ma Hong) and Agriculture Development Bank of China, Dongping Branch, for a RMB
30 million loan. [Incorporated by reference to Exhibit 10.50 to the Companys
Current Report on Form 8-K/A filed on September 6, 2011]31.1
    *
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer31.2
    *
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer32.1
    *
    
    Section 1350 Certification of Chief Executive Officer32.2
    *
    
    Section 1350 Certification of Chief Financial Officer
 *
    
    Filed herein  35




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##### Table of Contents



SIGNATURES
  SMSA Treemont Acquisition Corp.Dated: November 3, 2011
    By:
    /s/ Guo WangGuo WangChief Executive OfficerDated: November 3, 2011
    By:
    /s/ Wencai PanWencai PanChief Financial Officer