Yanglin Soybean (YSYB) 10-Q 2012 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended September 30, 2012

£ 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 000-52127

YANGLIN SOYBEAN, INC.

(Exact name of registrant as specified in its charter)

Nevada	20-4136884
(State or other jurisdiction of	(IRS Employer
incorporation or organization)	Identification No.)

99 Fan Rong Street, Jixian County, Heilongjiang 155900 P.R. China

(Address of principal executive offices)

Registrant’s telephone number, including area code:(86) 469-467-8077

(Former Name, Former Address And Former Fiscal Year, If Changed Since Last Report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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). YesxNo¨

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 definitions of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer¨	Accelerated filer	£
Non-accelerated filer¨	Smaller Reporting Company	S
(Do not check if a Smaller Reporting Company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ Nox

As of November 15, 2012, the Company had 21,220,119 shares of Common Stock, $0.001 par value per share, issued and outstanding.

Yanglin Soybean, Inc.

INDEX

PART 1-FINANCIAL INFORMATION	3
ITEM 1-FINANCIAL STATEMENTS	3
CONSOLIDATED BALANCE SHEETS	3
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011(UNAUDITED)(Stated in US Dollars)	4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY	5
CONSOLIDATED STATEMENTS OF CASH FLOWS	6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	7
ITEM 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS	51
ITEM 3—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	74
ITEM 4—CONTROLS AND PROCEDURES	74
PART II—OTHER INFORMATION	76
ITEM 1. LEGAL PROCEEDINGS	76
ITEM 1A—RISK FACTORS	76
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	76
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	76
ITEM 4. MINE SAFETY DISCLOSURES	76
ITEM 5. OTHER INFORMATION.	76
ITEM 6. EXHIBITS	77
SIGNATURES	77

2

PART 1-FINANCIAL INFORMATION

ITEM 1-FINANCIAL STATEMENTS

YANGLIN SOYBEAN, INC.

CONSOLIDATED BALANCE SHEETS

AS AT SEPTEMBER 30, 2012 (UNAUDITED), AND DECEMBER 31, 2011

(Stated in US Dollars)

	September 30, 2012 (unaudited)			December 31, 2011
ASSETS
Current assets
Cash	$	5,437,803		$	16,882,123
Cash-restricted		247,961			247,961
Trade receivables		3,019,684			2,883,097
Inventories		513,658			5,023,011
Advances to suppliers		7,865,553			7,825,968
Prepaid VAT and other taxes		11,070,120			9,863,838
Other receivables and prepaid expenses		22,182			56,963
Total current assets		28,176,961			42,782,961
Property, plant and equipment, net		10,626,088			19,675,794
Assets held for sale		4,330,228			0
Intangible assets, net		2,848,441			4,285,356
TOTAL ASSETS	$	45,981,718		$	66,744,111
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Short-term bank loans	$	13,816,012		$	22,017,771
Loans from related parties – current		44,878			42,187
Accounts payable		14,238			11,203
Other payables		35			37
Customers deposits		1,080,871			1,073,348
Accrued liabilities		722,807			570,197
Current maturities of long-term debt		1,422,588			1,415,428
Warrant liability		0			1,850,000
Total current liabilities		17,101,429			26,980,171
Long-term liabilities
Long-term bank loan		2,845,175			2,830,856
Loan from related parties – non-current		163,089			195,141
TOTAL LIABILITIES		20,109,693			30,006,168
STOCKHOLDERS' EQUITY
Convertible preferred stock 50,000,000 authorized shares with a par value of $.001 designated as follows:
10,000,000 shares designated as Series A $0.001 par value, 9,134,883 and 9,134,883 shares issued and outstanding as of September 30, 2012 and December 31, 2011, respectively		9,135			9,135
Common stock:
$0.001 par value, 10,000,000,000 shares authorized; 20,865,119 and 20,865,119 shares issued and outstanding as of September 30, 2012 and December 31, 2011, respectively		20,865			20,865
Additional paid-in capital		27,932,842			27,932,842
Statutory reserves		5,628,636			5,628,636
Retained earnings (accumulated deficit)		(18,761,626	)		(7,723,645	)
Accumulated other comprehensive income		11,042,173			10,870,110
Total stockholders’ equity		25,872,025			36,737,943
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	45,981,718		$	66,744,111

The accompanying notes are an integral part of these consolidated financial statements.

3

YANGLIN SOYBEAN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME FORTHE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011(UNAUDITED)(Stated in US Dollars)

	For the three months ended September 30						For the nine months ended September 30
	2012			2011			2012			2011
Net sales	$	17,016,657		$	38,747,753		$	103,141,496		$	117,904,533
Cost of sales		(18,120,042	)		(41,035,346	)		(108,917,207	)		(123,662,226	)
Gross (loss)		(1,103,385	)		(2,287,593	)		(5,775,711	)		(5,757,693	)
Operating Expenses
Selling expenses		(54,284	)		(59,859	)		(175,560	)		(206,096	)
General and administrative expenses		(586,260	)		(533,995	)		(1,315,230	)		(1,678,208	)
Impairment loss of assets held for sale		(4,317,129	)					(4,322,391	)		-
Total operating expenses		(4,957,673	)		(593,854	)		(5,813,181	)		(1,884,304	)
(Loss)income from operations		(6,061,058	)		(2,881,447	)		(11,588,892	)		(7,641,997	)
Interest expenses		(383,380	)		(223,040	)		(1,332,199	)		(1,081,906	)
Interest income		5,604			16,102			28,252			60,877
Other income		0			2,049			4,858			3,762
Changes in fair value of warrants		0			(5,953,229	)		1,850,000			(6,247,652	)
(Loss) income before income taxes		(6,438,834	)		(9,039,565	)		(11,037,981	)		(14,906,916	)
Income tax		0			-			0
Net income (loss)		(6,438,834	)		(9,039,565	)		(11,037,981	)		(14,906,916	)
Foreign currency translation adjustment		(73,580	)		637,554			172,063			1,594,375
Comprehensive income	$	(6,512,414	)	$	(8,402,011	)	$	(10,865,918	)	$	(13,312,541	)
Earnings(loss) per share
Basic	$	(0.31	)	$	(0.44	)	$	(0.53	)	$	(0.73	)
Diluted	$	(0.31	)	$	(0.44	)	$	(0.53	)	$	(0.73	)
Weighted average shares outstanding
Basic		20,865,119			20,465,119			20,865,119			20,465,119
Diluted		20,865,119			20,465,119			20,865,119			20,465,119

The accompanying notes are an integral part of these consolidated financial statements.

4

YANGLIN SOYBEAN, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 (UNAUDITED)

(Stated in US Dollars)

	Preferred stock Series A				Common stock								(Accumulated			Accumulated
	Number of shares		Amount		Number of shares		Amount		Additional paid-in capital		Statutory reserves		deficit) retained earnings			other comprehensive income		Total
Balance, December 31, 2011		9,134,883	$	9,135		20,865,119	$	20,865	$	27,932,842	$	5,628,636	$	(7,723,645	))	$	10,870,110	$	36,737,943
Net income(loss)		-		-		-		-		-		-		(11,037,981	))		-		(11,037,981	)
Share-based compensation expense		-		-		-		-		-		-		-			-		-
Foreign currency translation adjustment		-		-		-		-		-		-		-			172,063		172,063
Balance, September 30, 2012		9,134,883	$	9,135		20,865,119	$	20,865	$	27,932,842	$	5,628,636	$	(18,761,626	)	$	11,042,173	$	25,872,025

The accompanying notes are an integral part of these consolidated financial statements.

5

YANGLIN SOYBEAN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011 (UNAUDITED)

(Stated in US Dollars)

	For the nine months ended
	September 30
	2012			2011
Cash flows from operating activities
Net income (loss)	$	(11,037,981	)	$	(14,906,916	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		1,793,889			2,215,754
Amortization		169,756			169,920
Share-based compensation expense		0			9,293
Bad debt recovery		617			519
Impairment loss of assets held for sale		4,322,391			-
Change in fair value of warrants		(1,850,000	)		6,247,652
Changes in operating assets and liabilities:
Trade receivable		(122,168	)		-
Inventories		4,540,862			9,774,367
Advances to suppliers		0			9,130,658
Prepaid VAT and other taxes		(1,157,945	)		(583,149	)
Other receivables		34,499			65,749
Accounts payable		2,983			(44,602	)
Other payables		(2	)		-
Customers deposits		2,096			557,938
Accrued liabilities		150,264			(115,235	)
Net cash provided by(used in ) operating activities		(3,150,739	)		12,521,948
Cash flows from investing activities
Purchase of property, plant and equipment		0			(37,514	)
		-
Net cash used in investing activities		0			(37,514	)
Cash flows from financing activities
Proceeds from bank loans		-			-
Cash-restricted		-			-
Principal payments for short-term bank loans		(8,324,311	)		(24,010,343	)
Principal payments for loans from related parties		(30,602	)		(74,328	)
Net cash flows provided by (used in) financing activities		(8,354,913	)		(24,084,671	)
Net increase ( decrease ) in cash		(11,505,652	)		(11,600,237	)
Effect of foreign currency translation on cash		61,332			644,912
Cash- beginning of period		16,882,123			24,065,082
Cash- end of period	$	5,437,803		$	13,109,757
Supplementary cash flow information:
Interest paid	$	1,332,199		$	1,117,276
Supplemental disclosure of non-cash investing activities:
Reclassify impaired assets from fixed assets to other assets - held for sale	$	4,330,228			$

The accompanying notes are an integral part of these consolidated financial statements.

6

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

Yanglin Soybean, Inc. (the “Company”) was incorporated in the State of Nevada on May 26, 1921. Prior to October 3, 2007, the Company had only nominal operations and assets. On October 3, 2007, the Company executed a reverse-merger with Faith Winner Investments Limited (“Faith Winner (BVI)”) by an exchange of shares and the Company issued 18,500,000 common shares at $0.001 par value in exchange for all Faith Winner (BVI) shares. As a result of the shares exchange, Faith Winner (BVI) became a wholly-owned subsidiary of the Company. The exchange transaction was accounted for as a reverse acquisition in accordance with Accounting Standards Codification 805 “Business Combinations”. The reverse-merger also included an equity financing of $21,500,000 by the issuance of 9,999,999 Series A Convertible Preferred Stock at $2.15 per share to ten accredited investors.

The Company is in the business of manufacturing, distributing, and selling of non-genetically modified soybean products, including soybean oil, salad oil, and soybean meal, throughout the Province of Heilongjiang and other parts of People's Republic of China ("PRC"). The Company conducts its operations through the following subsidiaries: (a) a wholly-owned subsidiary in the British Virgin Islands: Faith Winner (BVI), (b) a wholly-owned subsidiary of Faith Winner (BVI) located in the PRC: Faith Winner (Jixian) Agriculture Development Company (“WFOE”) and (c) an entity located in the PRC: Yanglin Soybean Group Co., Ltd. (“Yanglin”), which is controlled by the Company through contractual arrangements with WFOE, as if Yanglin were a wholly-owned subsidiary of the Company.

The Company, its subsidiaries and Yanglin are collectively referred to as “the Group”.

Faith Winner (BVI) and WFOE each have entered into a series of agreements with Yanglin and as a result of such agreements WFOE gained control of all of Yanglin’s assets, management and business as if Yanglin were a wholly-owned subsidiary of WFOE. These agreements included a loan agreement, a consigned management agreement, two consignment agreements of equity interests, an exclusive purchase option agreement, a registered trademark transfer contract and a trademark licensing agreement. The consignment agreements were entered into on September 1, 2007, and the other agreements were all signed on September 24, 2007. The exclusive purchase option agreement and the consigned management agreement were amended as of April 3, 2009. As described by the amendment, the exercise price of the exclusive purchase option shall be $17,000,000, or such greater amount as required by the then applicable Chinese law and regulations. If WFOE elects to purchase the Equity Interests held by Shulin Liu and Huanqin Ding (collectively “the Shareholders”), all of the consideration net tax (the “ Consideration of Equity Transfer ” ) obtained by the Shareholders shall be used to repay Yanglin. If WFOE elects to purchase the assets of Yanglin, Yanglin shall use all of the consideration net tax (the “Consideration of Assets Transfer” ) to repay WFOE. To the extent that the Consideration of Equity Transfer or Assets Transfer is greater than $17,000,000 as required by the then applicable law or for any other reasons, the excess shall be paid by Yanglin to WFOE as interest on the loan made under the Loan Agreement dated September 24, 2007 between WFOE and Yanglin.

7

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES (Continued)

Pursuant to the above-mentioned agreements, WFOE made a loan (the “Loan”) of $17 million on October 10, 2007 and it was utilized by Yanglin for working capital needs. In return, the Company obtained management control and an exclusive right to acquire all of the equity of Yanglin. The rights of existing shareholders of Yanglin were assigned by the consignment of equity interests to Faith Winner (BVI). The exclusive purchase agreement and the loan agreement restrict both Yanglin and its shareholders from making any significant decisions including but not limited to any amendments to the articles of association or rules of Yanglin, any change in registered capital, any transfer, mortgage or disposal of Yanglin’s assets or income in a way that would affect WFOE’s security interest, entering any material contract (exceeding RMB5 million in value) and distributing any dividends to the shareholders. Pursuant to the consigned management agreement between WFOE and Yanglin, Yanglin agreed to entrust the business operations of Yanglin and its management to WFOE until WFOE formally acquires all equity or substantially all the assets of Yanglin. Under the consigned management agreement as amended on April 3, 2009, WFOE will provide financial, technical and human resources management services to Yanglin which will enable WFOE to control Yanglin's operations, assets and cash flows. In turn, WFOE will be entitled to a management fee equal to 5% of Yanglin’s annual net sales on a yearly basis.

Under the Registered Trademark Transfer Agreement, Yanglin agreed to transfer to WFOE all of its rights in connection with the two trademarks, including without limitation the title of the trademarks and right to license (the “Transferred Trademark”) for a purchase price of $1,000,000, which is subject to a purchase price adjustment based on the minimum appraised value on intellectual property (“IP”) rights allowed under PRC laws and regulations for such transfer. Under the Trademark Licensing Agreement, WFOE agreed to grant an exclusive license to Yanglin, for a term of 10 years, to use the Transferred Trademark for an annual licensing fee equal to 1% of Yanglin’s net sales of that year. The license fee and the management fee aforesaid – a total of 6% of the annual net sales of Yanglin – entitled by WFOE are designed to approximate Yanglin’s annual net profit. If the licensing and management fees entitled by WFOE exceed the net income after tax of Yanglin, Yanglin should not be obligated to pay WFOE any shortfall. In the event that the net income after tax is greater than the licensing and management fees entitled by WFOE, Yanglin should maintain any excess on its books and should not distribute any of such excess as a dividend in any manner to its shareholders until WFOE exercises its exclusive purchase option pursuant to the Exclusive Purchase Option Agreement dated September 24, 2007 between Yanglin and WFOE and as amended on April 3, 2009.

According to the exclusive purchase option agreement, WFOE has the exclusive purchase option to purchase all or part of Yanglin’s shareholders’ equity interest in Yanglin when and as permitted under PRC laws and regulations and no other party has the right to purchase any equity from the shareholders of Yanglin. The agreement provides that, unless otherwise required under PRC laws and regulations, the consideration for the equity transfer or the asset transfer under the agreement will be $17 million or such greater amount as required by the then applicable PRC law and regulations (the “Option Price”). Under the loan agreement and the exclusive purchase option agreement, the money received as the Option Price by the shareholders of Yanglin upon execution of the option shall be used to satisfy the repayment of the Loan. Therefore, the actual consideration of the investment in Yanglin is exactly the amount of the Loan. Under such contractual arrangements, all of the assets and equity including any residual profits of Yanglin are totally controlled by WFOE and will be formally captured upon exercise of the exclusive purchase option.

8

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES (Continued)

The loan of $17 million to Yanglin is considered as an investment in Yanglin by the Company through a series of contractual arrangements by way of the Loan. As a result of entering into the aforementioned agreements, WFOE should be deemed to control Yanglin as a Variable Interest Entity. The creditors of Yanglin do not have recourse to the Company’s other assets.

2.	GENERAL
(a)	Basis of presentation

The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America.

On September 30, 2009, the Company adopted changes issued by the Financial Accounting Standards Board (“FASB”) to the authoritative hierarchy of GAAP. These changes establish the FASB Accounting Standards Codification (“ASC”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions (“FSP”), or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates (“ASUs”). ASUs will not be authoritative in their own right as they will only serve to update the ASC. These changes and the ASC itself do not change GAAP. Other than the manner in which new accounting guidance is referenced, the adoption of these changes had no impact on the Company’s consolidated financial statements.

(b) Principles of consolidation

The share exchange transaction has been accounted for as a recapitalization of Yanglin Soybean Inc. where the Company (the legal acquirer) is considered the accounting acquiree and Faith Winner (BVI) (the legal acquiree) is considered the accounting acquirer. As a result of this transaction, the Company is deemed to be a continuation of the business of Faith Winner (BVI). The historical stockholders’ equity of the accounting acquirer prior to the share exchange has been retroactively restated as if the share exchange transaction occurred as of the beginning of the first period presented.

The consolidated financial statements include the accounts of the Company and the following subsidiaries, as well as Yanglin, a variable interest entity of which WFOE is the primary beneficiary as defined by ASC 810 “Consolidation of Variable Interest Entities.” All intercompany transactions and accounts have been eliminated in consolidation.

Name of Company	Place of incorporation	Attributable interest
Faith Winner Investments Ltd.	British Virgin Islands		100	%
Faith Winner (Jixian) Agriculture Development Company	PRC		100	%
Heilongjiang Yanglin Soybean Group Co. Ltd.*	PRC		100	%

*Deemed variable interest entity

9

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

2. GENERAL (Continued)

(c) Use of estimates

The preparation of the financial statements in conformity with generally accepted accounting principles in the United States of America 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. Items subject to such estimates and assumptions include the carrying value and estimated useful lives of long-lived assets; valuation allowances for receivables; valuation of warrant liabilities; inventory and deferred tax assets. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may differ from those estimates. Estimates and assumptions are reviewed periodically, and the effect of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.

(d) Economic and political risks

The Group’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 Group’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 Group’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.

(e) Intangible assets

Intangible assets include land use rights and railway use rights.

Land use rights are stated at cost less accumulated amortization. Amortization is provided over the respective useful lives, using the straight-line method. Estimated useful lives range from 22 to 50 years.

Railway use rights are stated at cost less accumulated amortization. Amortization is provided over the respective useful lives, using the straight-line method. Estimated useful life is 10 years.

10

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

2. GENERAL (Continued)

(f) Property, plant and equipment

Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of the property, plant and equipment are as follows:

Buildings	10 - 35 years
Machinery and equipment	3.5 - 30 years
Office equipment	4 - 20 years
Motor vehicles	6 - 10 years

The costs and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the consolidated statement of operations and comprehensive (loss) income. The cost of maintenance and repairs is charged to operations when incurred, whereas significant renewals and betterments are capitalized.

(g) Accounting for the impairment of assets held for sale

The assets held for sale by the Group are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of changes in technologies or situation in the industry. Determination of recoverability of assets to be held and used is done by comparing the carrying amount of an asset to the future net undiscounted cash flows to be generated by the asset.

If such assets are considered to be impaired, the impairment losses to be recognized are measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets held for sale are reported at the lower of the carrying amount or fair value less estimated costs of disposal.

(h) Inventories

Inventories consist of finished goods and raw materials, and are stated at the lower of cost or market value. The cost of inventories is measured using the weighted average method. Finished goods are comprised of direct materials, direct labor and an appropriate proportion of production overheads.

11

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

2. GENERAL (Continued)

(i) Trade receivables

Trade receivables are recognized and carried at the original invoice amount less an allowance for any uncollectible amounts. An allowance for doubtful accounts is maintained for all customers after considering a variety of factors, including the length of time past due, significant one-time events and the company’s historical experience.

The Group writes off trade receivables against its allowance after reasonable collection efforts have been made and the accounts are deemed uncollectible.

(j) Customer Deposits

Customer deposits represent advance payments from customers prior to the delivery of goods. The Company requires full payment from customers prior to delivery. Customer deposits are recognized in revenue upon delivery of goods.

(k) Foreign currency translation

The accompanying consolidated financial statements are presented in United States dollars. The reporting currency of the Group is the U.S. dollar (USD). WFOE and Yanglin use its local currency, Renminbi (RMB), as its functional currency. Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the end of period exchange rates. Translation adjustments resulting from this process are included in accumulated other comprehensive income in stockholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

The PRC government imposes significant exchange restrictions on fund transfers out of the PRC that are not related to business operations. These restrictions have not had a material impact on the Group because it has not engaged in any significant transactions that are subject to the restrictions.

The exchange rates used to translate amounts in RMB into USD for the purposes of preparing the consolidated financial statements were as follows:

	September 30,  2012		December 31, 2011		September 30, 2011
The closing rate at RMB : USD exchange rate		6.3265		6.3585		6.3952
Average nine-months ended RMB : USD exchange rate		6.3180		-		6.4972
Average three-months ended RMB : USD exchange rate		6.3257		-		6.4132

12

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

2. GENERAL (Continued)

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. There is no assurance that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.

13

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

2. GENERAL (Continued)

(l) Revenue recognition

Revenue is recognized upon the delivery of goods to customers. Revenue is recognized when all of the following criteria are met: Persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price to the buyer is fixed or determinable, and collection is reasonably assured.

(m) Costs of sales

Cost of sales consists primarily of direct material costs, direct labor cost, and applicable overhead costs attributable to the production of products. Permanent write-down of inventory to the lower of cost or market value is also reflected in the cost of revenues. For the nine and three months ended September 30, 2012 and 2011, there were no write-downs of inventories.

(n) Advertising

The Group expenses all advertising expenses as incurred. Advertising expenses included in selling expenses were nil for the nine months ended September 30, 2012 and 2011, respectively. Advertising expenses for the three months ended September 30, 2012 and 2011 were nil for both periods as well.

(o) Shipping and handling

All shipping and handling costs are expensed as incurred and included in selling expense. Total shipping and handling expenses were $42,756 and $53,628 for the nine months ended September 30, 2012 and 2011, respectively. The Shipping and handling costs for the three months ended September 30, 2012 and 2011 were $6,507 and $17,079, respectively.

(p) Stock-Based Compensation

The Company awards stock options and other equity-based instruments to its employees, directors and consultants. and (collectively “share-based payments”). Compensation cost related to such awards is measured based on the fair value of the instrument on the grant date and is recognized on a straight-line basis over the requisite service period, which generally equals the vesting period. All of the Company’s stock-based compensation is based on grants of equity instruments and no liability awards have been granted.

(q) Pension and Employee Benefits

Full time employees in PRC entities participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. The PRC labor regulations require the Group to accrue for these benefits based on certain percentages of the employees' salaries. Management believes full time employees who have passed the probation period are entitled to such benefits. The total provisions for employee pension were $153,022 and $142,940 for the nine months ended September 30, 2012 and 2011, respectively. The total provisions for employee pension for the three months ended September 30, 2012, and 2011 were $47,974 and $47,647, respectively.

14

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

2. GENERAL (Continued)

 (r) Income taxes

The Group accounts for income tax using an asset and liability approach and allows for recognition of deferred tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Group is able to realize their benefits, or the future realization is uncertain.

The Group applied the provisions of ASC 740.10, Accounting For Uncertainty In Income Taxes, which provides clarification related to the process associated with accounting for uncertain tax positions recognized in our consolidated financial statements. ASC 740.10 prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. ASC 740.10 also provides guidance related to, among other things, classification, accounting for interest and penalties associated with tax positions, and disclosure requirements.

The Group recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes in our consolidated statements of operation. The Group’s policy for recording interest and penalties associated with audits is to record such items as a component of income tax expense.

15

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

2. GENERAL (Continued)

(s) Statutory reserves

Pursuant to the applicable laws in PRC, PRC entities are required to make appropriations to three non-distributable reserve funds, namely the statutory surplus reserve, statutory public welfare fund, and discretionary surplus reserve, based on after-tax net earnings as determined in accordance with the PRC GAAP, after offsetting any prior years’ losses. Appropriation to the statutory surplus reserve should be at least 10% of the after-tax net earnings until the reserve is equal to 50% of the Company's registered capital. Appropriation to the statutory public welfare fund is 5% to 10% of the after-tax net earnings. The statutory public welfare fund is established for the purpose of providing employee facilities and other collective benefits to the employees and is non-distributable other than in liquidation. Beginning from January 1, 2006, enterprises have no further requirements to make the appropriation to the statutory public welfare fund. Discretionary surplus reserve is a prescribed percentage approved by the shareholder. The Group does not make appropriations to the discretionary surplus reserve fund.

As provided in WFOE’s and Yanglin’s respective organizational documents, WFOE’s and Yanglin’s net income after taxation can only be distributed as dividends after appropriation has been made for the following:

(i) Making up cumulative prior years’ losses, if any;

(ii) Allocations to the “Statutory surplus reserve” of at least 10% of net income after taxation, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company's registered capital, which is restricted for set off against losses, expansion of production and operation or increase in registered capital; and

(iii) Allocations to the discretionary surplus reserve, if any.

The Company established a statutory surplus reserve as well as a statutory public welfare fund and commenced to appropriate 10% and 5%, respectively, of the PRC net income after taxation to these reserves. The amounts included in the statutory reserves consisted of surplus reserve of $3,752,424 and common welfare fund of $1,876,212 as of September 30, 2012 and December 31, 2011, respectively.

(t) 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, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. The Group’s current component of other comprehensive income is the foreign currency translation adjustment.

16

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

2. GENERAL (Continued)

(u) Earnings per share

The Company reports earnings per share in accordance with the provisions of FASB ASC 260.10, "Earnings Per Share.” FASB ASC 260.10 requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock using the treasury method.

(v) Value-added tax (“VAT”)

Sales represent the involved value of goods, net of a VAT. All of Yanglin’s products that are sold in PRC are subject to a Chinese VAT on the gross sales price. VAT from sales may be offset by VAT paid on purchase of raw materials included in the cost of producing the finished goods.

(w) Warrant Liability

Effective January 1, 2009, the Company adopted the provisions of FASB ASC Topic 815, "Derivatives and Hedging" ("ASC 815") (previously ElTF 07-5, "Determining Whether an instrument (or an Embedded Feature) is Indexed to an Entity's Own Stock"). As a result of adopting ASC 815, the outstanding warrants of the Company previously treated as equity pursuant to the derivative treatment exemption were no longer afforded equity treatment as there was a down-round protection (full-ratchet down round protection). As a result, the warrants are not considered indexed to the Company's own stock, and as such, all future changes in the fair value of these warrants will be recognized currently in earnings until such time as the warrants are exercised or expire.

As such, effective January 1, 2009, the Company reclassified the fair value of these warrants from equity to liability, as if these warrants were treated as a derivative liability since their issuance in October 2007.

The Company determined the fair values of these securities using a modified lattice valuation model.

17

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

2. GENERAL (Continued)

(x) Recent accounting pronouncements

In January 2011, the FASB issued ASU 2011-01, “Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20”, which temporarily delay the effective date of the disclosures about troubled debt restructurings in ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, for public entities. The delay is intended to allow the FASB 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 June 15, 2011. The deferral in ASU 2011-01 is effective January 19, 2011 (date of issuance).

In April 2011, the FASB issued ASU 2011-02, “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring”, which clarifies when creditors should classify loan modifications as troubled debt restructurings. The guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the year. The guidance on measuring the impairment of a receivable restructured in a troubled debt restructuring is effective on a prospective basis. A provision in ASU 2011-02 also ends the FASB’s deferral of the additional disclosures about troubled debt restructurings as required by ASU 2010-20. The adoption of ASU 2011-02 is not expected to have a material impact on the Company’s financial condition or results of operations.

In April 2011, the FASB issued ASU 2011-03, Consideration of Effective Control on Repurchase Agreements, which deals with the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. ASU 2011-03 changes the rules for determining when these transactions should be accounted for as financings, as opposed to sales. The guidance in ASU 2011-03 is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The adoption of ASU 2011-03 is not expected to have a material impact on the Company’s financial condition or results of operation.

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”). ASU 2011-04 clarifies some existing concepts, eliminates wording differences between U.S. GAAP and IFRS, and in some limited cases, changes some principles to achieve convergence between U.S. GAAP and IFRS. ASU 2011-04 results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. ASU 2011-04 will be effective for the Company beginning after December 15, 2011. The Company does not expect the adoption of ASU 2011-04 to have a material effect on its operating results or financial position.

18

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

2. GENERAL (Continued)

In June 2011, the Financial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) 2011-05, Presentation of Comprehensive Income, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of equity. ASU 2011-05 will be effective for the Company beginning after December 15, 2011.

19

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

2. GENERAL (Continued)

(x) Recent accounting pronouncements

The Company does not expect the adoption of ASU 2011-05 to have a material effect on its operating results or financial position. However, it will impact the presentation of comprehensive income.

In July 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-06, Other Expenses (Topic 720): Fees Paid to the Federal Government by Health Insurers. This ASU amends the FASB Accounting Standards CodificationTM (Codification) to provide guidance about how health insurers should recognize and classify in their income statements fees mandated by the "Patient Protection and Affordable Care Act," as amended by the "Health Care and Education Reconciliation Act." ASU 2011-06 represents a consensus of the EITF on Issue No. 10-H, “Fees Paid to the Federal Government by Health Insurers.” ASU 2011-06 requires that the liability for the fee be estimated and recorded in full once the entity provides qualifying health insurance in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable. ASU 2011-06 is effective for calendar years beginning after December 31, 2013, when the fee initially becomes effective.

In July 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-07, Health Care Entities (Topic 954): Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities. The ASU represents a consensus of the EITF on Issue No. 09-H, “Health Care Entities: Presentation and Disclosure of Net Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts.” The amendments in this ASU require certain health care entities to change the presentation in their statement of operations by reclassifying the provision for bad debts associated with patient service revenue from an operating expense to a deduction from patient service revenue (net of contractual allowances and discounts). Additionally, those health care entities are required to provide enhanced disclosure about their policies for recognizing revenue and assessing bad debts. The amendments also require disclosures of patient service revenue (net of contractual allowances and discounts) as well as qualitative and quantitative information about changes in the allowance for doubtful accounts. For public entities, the amendments in this ASU are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2011, with early adoption permitted. For nonpublic entities, the amendments are effective for the first annual period ending after December 15, 2012, and interim and annual periods thereafter, with early adoption permitted. The amendments to the presentation of the provision for bad debts related to patient service revenue in the statement of operations should be applied retrospectively to all prior periods presented. The disclosures required by the amendments in this ASU should be provided for the period of adoption and subsequent reporting periods.

In September 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment. ASU 2011-08 is intended to simplify how entities, both public and nonpublic, test goodwill for impairment. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350, Intangibles-Goodwill and Other. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance.

20

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

2. GENERAL (Continued)

(x) Recent accounting pronouncements

In September 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-09, Compensation-Retirement Benefits-Multiemployer Plans (Subtopic 715-80): Disclosures about an Employer’s Participation in a Multiemployer Plan. ASU 2011-09 is intended to address concerns from various users of financial statements on the lack of transparency about an employer’s participation in a multiemployer pension plan. Users of financial statements have requested additional disclosure to increase awareness of the commitments and risks involved with participating in multiemployer pension plans. The amendments in this ASU will require additional disclosures about an employer’s participation in a multiemployer pension plan. Previously, disclosures were limited primarily to the historical contributions made to the plans. ASU 2011-09 applies to nongovernmental entities that participate in multiemployer plans. For public entities, ASU 2011-09 is effective for annual periods for fiscal years ending after December 15, 2011. For nonpublic entities, ASU 2011-09 is effective for annual periods for fiscal years ending after December 15, 2012. Early adoption is permissible for both public and nonpublic entities. ASU 2011-09 should be applied retrospectively for all prior periods presented.

In December 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-10, Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate-a Scope Clarification. ASU No. 2011-10 is intended to resolve the diversity in practice about whether the guidance in Subtopic 360-20, Property, Plant, and Equipment—Real Estate Sales, applies to a parent that ceases to have a controlling financial interest (as described in Subtopic 810-10, Consolidation—Overall) in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt. This Update does not address whether the guidance in Subtopic 360-20 would apply to other circumstances when a parent ceases to have a controlling financial interest in a subsidiary that is in substance real estate. ASU 2011-10 should be applied on a prospective basis to deconsolidation events occurring after the effective date; with prior periods not adjusted even if the reporting entity has continuing involvement with previously derecognized in substance real estate entities. For public entities, ASU 2011-10 is effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. For nonpublic entities, ASU 2011-10 is effective for fiscal years ending after December 15, 2013, and interim and annual periods thereafter. Early adoption is permitted.

In December 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. ASU No. 2011-11 is intended to provide enhanced disclosures that will enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. This includes the effect or potential effect of rights of setoff associated with an entity’s recognized assets and recognized liabilities within the scope of this Update. The amendments require enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either Section 210-20-45 or Section 815-10-45. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented.

21

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

2. GENERAL (Continued)

In December 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU No. 2011-11 is intended to supersede certain pending paragraphs in Accounting Standards Update No. 2011-05,Comprehensive Income (Topic 220): Presentation of Comprehensive Income, to effectively defer only those changes in Update 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The amendments will be temporary to allow the Board time to redeliberate the presentation requirements for reclassifications out of accumulated other comprehensive income for annual and interim financial statements for public, private, and non-profit entities. All other requirements in ASU No. 2011-05 are not affected by ASU No. 2011-12, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. Nonpublic entities should begin applying these requirements for fiscal years ending after December 15, 2012, and interim and annual periods thereafter.

22

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

2. GENERAL (Continued)

(x) Recent accounting pronouncements

In July 2012, FASB issued Accounting Standards Update (ASU) No. 2012-01, Health Care Entities (Topic 954): Continuing Care Retirement Communities — Refundable Advance Fees. This ASU clarifies that an entity should classify an advance fee as deferred revenue when a continuing care retirement community has a resident contract that provides for payment of the refundable advance fee upon reoccupancy by a subsequent resident, which is limited to the proceeds of reoccupancy. Refundable advance fees that are contingent upon reoccupancy by a subsequent resident but are not limited to the proceeds of reoccupancy should be accounted for and reported as a liability. For public entities (including conduit bond obligors), the amendments in ASU No. 2012-01 are effective for fiscal periods beginning after December 15, 2012. For nonpublic entities, the amendments to the codification in the ASU are effective for fiscal periods beginning after December 15, 2013. Early adoption is permitted. The amendments in ASU No. 2012-01 should be applied retrospectively by recording a cumulative-effect adjustment to opening retained earnings (or unrestricted net assets) as of the beginning of the earliest period presented.

In July 2012, FASB issued Accounting Standards Update (ASU) No. 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. This ASU states that an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with Codification Subtopic 350-30, Intangibles—Goodwill and Other, General Intangibles Other than Goodwill. Under the guidance in this ASU, an entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The amendments in this ASU are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance.

23

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

2. GENERAL (Continued)

In August 2012, FASB has issued Accounting Standards Update (ASU) No. 2012-03, Technical Amendments and Corrections to SEC Sections. This ASU amends various SEC paragraphs pursuant to SAB 114, SEC Release No. 33-9250, and ASU 2010-22, which amend or rescind portions of certain SAB Topics.

In October 2012, FASB issued Accounting Standards Update (ASU) No. 2012-04, Technical Corrections and Improvements. This ASU make technical corrections, clarifications, and limited-scope improvements to various Topics throughout the Codification. The amendments in this ASU that will not have transition guidance will be effective upon issuance for both public entities and nonpublic entities. For public entities, the amendments that are subject to the transition guidance will be effective for fiscal periods beginning after December 15, 2012. For nonpublic entities, the amendments that are subject to the transition guidance will be effective for fiscal periods beginning after December 15, 2013.

In October 2012, FASB issued Accounting Standards Update (ASU) No. 2012-05, Statement of Cash Flows (Topic 230). This ASU addresses how cash receipts arising from the sale of certain donated financial assets, such as securities, should be classified in the statement of cash flows of not-for-profit entities (NFPs). Some NFPs classify those cash receipts as investing cash inflows, while other entities classify them as either operating cash inflows or financing cash inflows, consistent with their treatment of inflows arising from cash contributions. The objective of this Update is for an NFP to classify cash receipts from the sale of donated financial assets consistently with cash donations received in the statement of cash flows if those cash receipts were from the sale of donated financial assets that upon receipt were directed without the NFP imposing any limitations for sale and were converted nearly immediately into cash. The amendments in the ASU are effective prospectively for fiscal years, and interim fiscal periods within those years, beginning after June 15, 2013. Retrospective application to all periods presented upon the date of adoption is permitted. Early adoption from the beginning of the fiscal year of adoption is permitted.

In October 2012, FASB issued Accounting Standards Update (ASU) No. 2012-06, Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution. This ASU addresses the diversity in practice about how to interpret the terms on the same basis and contractual limitations when subsequently measuring an indemnification asset recognized in a government-assisted (Federal Deposit Insurance Corporation or National Credit Union Administration) acquisition of a financial institution that includes a loss-sharing agreement (indemnification agreement). For public and nonpublic entities, the amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. Early adoption is permitted. The amendments should be applied prospectively to any new indemnification assets acquired after the date of adoption and to indemnification assets existing as of the date of adoption arising from a government-assisted acquisition of a financial institution.

24

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

2. GENERAL (Continued)

In October 2012, FASB issued Accounting Standards Update (ASU) No. 2012-07, Entertainment—Films (Topic 926): Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs. This ASU eliminates the rebuttable presumption that the conditions leading to the write-off of unamortized film costs after the balance sheet date existed as of the balance sheet date. The amendments also eliminate the requirement that an entity incorporate into fair value measurements used in the impairment tests the effects of any changes in estimates resulting from the consideration of subsequent evidence if the information would not have been considered by market participants at the measurement date. or SEC filers, the amendments are effective for impairment assessments performed on or after December 15, 2012. For all other entities, the amendments are effective for impairment assessments performed on or after December 15, 2013. The amendments resulting from this ASU should be applied prospectively. Earlier application is permitted, including for impairment assessments performed as of a date before October 24, 2012, if, for SEC filers, the entity’s financial statements for the most recent annual or interim period have not yet been issued or, for all other entities, have not yet been made available for issuance.

25

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

3. FAIR VALUE

As defined in FASB ASC Topic No. 820 – 10 (formerly SFAS 157), fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC Topic No. 820 – 10 requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requires fair value measurements be classified and disclosed in one of the following categories:

The levels of fair value hierarchy are as follows:

— Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

— Level 2 Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that La Cortez values using observable market data. Substantially all of these inputs are observable in the marketplace throughout the term of the derivative instruments, can be derived from observable data, or supported by observable levels at which transactions are executed in the marketplace.

— Level 3 Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e. supported by little or no market activity). Yanglin’s valuation models are primarily industry standard models. Level 3 instruments include derivative warrant instruments. Yanglin does not have sufficient corroborating evidence to support classifying these assets and liabilities as Level 1 or Level 2.

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. As of September 30, 2012, the carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable, other receivables, short-term bank loans, accounts payable, and other payables, approximate their fair values because of the short maturity of these instruments and market rates of interest available to the Group.

26

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

4. CREDIT RISK AND CUSTOMERS AND SUPPLIERS CONCENTRATIONS

Financial instruments which potentially expose the Group to concentrations of credit risk, is cash and accounts receivable as of September 30, 2012 and December 31, 2011. The Group performs ongoing evaluations of its cash position and credit evaluations of customers to ensure sound collections and minimize credit losses exposure.

CASH- U.S. ACCOUNTS– (RESTRICTED)

As of September 30, 2012 and December 31, 2011, respectively, the Group’s restricted cash of $247,961 and $247,961 was kept in bank account in the U.S. Cash accounts at financial institutions in the U.S. may exceed the federal depository insurance coverage limits. In October 2008, the FDIC increased its insurance from $100,000 per depositor to $250,000 and to an unlimited amount for non-interest bearing accounts. The coverage increase, which is temporary, extends through December 31, 2013 and September 30, 2010, respectively. All of the cash held in the U.S. is fully insured. Lastly, there is no unrestricted cash in U.S. accounts.

CASH- PRC ACCOUNTS– (RESTRICTED AND UN-RESTRICTED)

As of September 30, 2012 and December 31, 2011, respectively, the Group’s cash was with banks in the PRC where there is currently no rule or regulation mandated on obligatory insurance of bank accounts.

SALES AND VENDOR CONCENTRATIONS

For the three and nine months ended September 30, 2012 and 2011 respectively, all of the Group’s sales were generated within the PRC. In addition, all accounts receivable as of September 30, 2012 and December 31, 2011 are from entities within the PRC.

For the three and nine months ended September 30, 2012 and 2011, respectively, no customer accounted for 10% or more of the Group’s revenue.

For the three and nine months ended September 30, 2012 and 2011, respectively, no vendor accounted for 10% or more of the Group’s purchases.

27

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

5. CASH-RESTRICTED

Cash-restricted consists of the following at:

	September 30, 2012		December 31, 2011
		(unaudited)
Bank deposits held as collateral for bank loan – PRC	$	-	$	-
Bank deposits held in trust account – U.S.		247,961		247,961
Balance at the end of period	$	247,961	$	247,961

Cash-restricted maintained in a trust account in the United States is held for the purpose of payment for investor and public relations costs.

6. TRADE RECEIVABLES, NET

Details of trade receivables consist of the following:

	September 30, 2012			December 31, 2011
	(unaudited)
Trade receivables, gross	$	3,034,607		$	2,897,945
Allowance for doubtful accounts		(14,923	)		(14,848	)
Net balance at the end of period	$	3,019,684		$	2,883,097

An analysis of the allowance for doubtful accounts for the nine months ended September 30, 2012 and the year ended December 31, 2011 is as follows:

	September 30, 2012		December 31, 2011
	(unaudited)
Balance at beginning of period/year	$	14,848	$	345
(Reduction) / Addition of bad debt expense		-		14503
Foreign exchange adjustment		75		—
Balance at the end of period	$	14,923	$	14,848

28

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

6. TRADE RECEIVABLES, NET (Continued)

An allowance for doubtful accounts is established when collection of the full amount is no longer probable. Management reviews and adjusts this allowance periodically based on historical experience, the current economic climate as well as its evaluation of the collectability of outstanding accounts. The Group evaluates the credit risks of its customers utilizing historical data and estimations of future performance.

7. INVENTORIES

Inventories consist of the following:

	September 30, 2012		December 31, 2011
	(unaudited)
Finished goods	$	145,114	$	1,429,425
Raw materials		368,544		3,593,586
Balance at the end of period	$	513,658	$	5,023,011

8. OTHER RECEIVABLES AND PREPAID EXPENSES

Details of other receivables and prepaid expenses consist of the following:

	September 30, 2012		December 31, 2011
	(unaudited)
Advances for materials	$	3,351	$	3,334
Prepayment for customers’ transportation costs		837		45,391
Advances for travel		438		3,645
Prepaid service fee
Other		17,556		4,593
Balance at the end of period	$	22,182	$	56,963

29

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

9. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

	September 30, 2012			December 31, 2011
	(unaudited)
Building	$	15,713,081		$	8,910,142
Machinery and equipment		8,784,058			23,547,772
Office equipment		108,913			114,728
Motor vehicles		1,445,406			1,445,366
		26,051,458			34,018,008
Less: accumulated depreciation		(15,425,370	)		(14,342,214	)
Balance at the end of period	$	10,626,088		$	19,675,794

As of September 30, 2012, building with net book value of $ 0 and machinery and equipment with net book value of $0 were pledged as collateral under certain loan arrangements. These loans were primarily obtained for general working capital.

Assets held-for-sale and Impairment for the closure of Factory No.3

The Company received a written notice from the Jixian County People’s Government (the “Jixian Government”). Pursuant to the Notice, the Jixian Government notified the Company that it had determined that the Company would be required to move its Factory No. 3 from its current location by September 30, 2012 because the current location of Factory No. 3 was materially interfering with the city’s plan of northward expansion. The Notice further stated that the Jixian Government would enter into an agreement with the Company regarding the provision of compensation to the Company for its losses as a result of the required relocation of its Factory No. 3.

In the quarter ended September 30, 2012, machinery and equipment located in Factory No. 3 with net book value of $4,330,228 have been reclassified as assets held for sale.

There was $3,027,520 impairment charge on the buildings of Factory No. 3 during the quarter ended September 30, 2012. As a result, the buildings of Factory No. 3 have been fully impaired and their net book value has been fully written off.

Temporarily Idle Assets

Included in the above balances of property, plant and equipment are assets deemed as temporarily idle by the management comprised of the following:

30

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

9. PROPERTY, PLANT AND EQUIPMENT (Continued)

	September 30, 2012			December 31, 2011
	(unaudited)
Buildings	$	954,033		$	949,232
Machinery and equipment		4,141,310			4,120,469
		5,095,343			5,069,700
Less: accumulated depreciation		(1,291,803	)		1,285,302	)
fixed assets impairment		(3,803,540	)		3,784,398
Net book value	$	0		$	0

These assets belong to the powdered oil production line. They are temporarily idle because of technical issues in the formula. We are adjusting the formula and techniques used for powdered oil and expect to start formal production within a few months. If the production cannot be started as expected, we will consider disposal of these assets.

Depreciation expense is included in the consolidated statement of operations and comprehensive income as follows (unaudited):

	Three months ended September 30,					Nine months ended September 30,
	2012			2011		2012		2011
Cost of sales and inventory	$	544,762		$	556,616	$	1,481,475	$	1,609,601
General and administrative expenses		(34,608	)		184,822		312,414		659,681
Total depreciation expenses	$	510,154		$	741,438	$	1,793,889	$	2,269,282

10. ASSETS HELD FOR SALE

As of September 30, 2012, Yanglin has classified certain manufacturing facilities from property, plant and equipment as assets held for sale, due tothe Jixian Government notified the Company that it had determined that the Company would be required to move its Factory No. 3 from its current location by September 30, 2012. Assets held for sale consists of the following:

31

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

10. ASSETS HELD FOR SALE (Continued)

	September 30, 2012		December 31, 2011
	(unaudited)
Machinery and equipment	$	4,330,228	$	0
Balance at end of period/year	$	4,330,228	$	0

Management plans to seek a buyer for these assets at the open market. These assets are expected to be sold in 2013.

Assets held for sale are valued at the lower of cost or fair value less costs to sell. Estimates of fair value are based on the proceeds expected to be realized on the sale of the assets. There were no additional impairment charges recorded during the three months ended September 30, 2012.

32

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

11. INTANGIBLE ASSETS

Intangible assets consist of the following:

Amortized intangible assets	Costs on January 1, 2012		Impairment			Accumulated amortization			Foreign currency translation difference		September 30, 2012 (unaudited)
Land use rights	$	4,306,011		(1,483,169	)		(584,458	)		21,780	$	2,260,164
Railway use rights		1,289,612		-			(707,858	)		6,523		588,277
Total amortized intangible assets	$	5,595,623		(1,483,169	)		(1,292,316	)		28,303	$	2,848,441

As of September 30, 2012, land use rights with net book value of $0 were pledged as collateral for certain loans.

There were no additions or disposals during the nine months ended September 30, 2012.

The Company received a written notice from the Jixian Government. Pursuant to the Notice, the Jixian Government notified the Company that it had determined that the Company would be required to move its Factory No. 3 from its current location by September 30, 2012 because the current location of Factory No. 3 was materially interfering with the city’s plan of northward expansion. The Notice further stated that the Jixian Government would enter into an agreement with the Company regarding the provision of compensation to the Company for its losses as a result of the required relocation of its Factory No. 3.

No agreement regarding the provision of compensation for the losses of the Company has been finalized yet between the Jixian Government and the Company.

There was $1,483,169 impairment charges on the land use right of Factory No. 3 as stated above recorded during the quarter ended September 30, 2012. As a result, the land use right has been fully impaired and their net book value has been fully written off.

Amortization expenses are included in the consolidated statement of operations and comprehensive income as follows:

	Three months ended September 30,				Nine months ended September 30,
	2012		2011		2012		2011
Selling expenses	$	35,301	$	34,819	$	106,031	$	104,457
General and administrative expenses		15,408		22,563		46,281		67,688
Total amortization expense	$	50,709	$	57,382	$	152,312	$	172,145

33

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

11. INTANGIBLE ASSETS (Continued)

The estimated aggregate amortization expenses for intangible assets for the five succeeding years are as follows:

September 30,
2013	$	202,811
2014		202,811
2015		202,811
2016		202,811
2017		202,811
Thereafter		1,834,386
	$	2,848,441

34

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

12. SHORT-TERM BANK LOANS

(A) Short-term bank loans consist of the following:

	September 30, 2012`		December 31, 2011		Collateral
	(unaudited)
Loans from Agricultural Development Bank of China, interest rates at 6.56% per annum, due July 23, 2012		0		7,863,489
Loans from Agricultural Development Bank of China, interest rates at 6.56% per annum, due August 10, 2012		2,592,271		6,290,792
Loans from Agricultural Development Bank of China, interest rates at 6.56% per annum, due September 06, 2012		3,161,306		3,145,396
Loans from Agricultural Development Bank of China, interest rates at 6.56% per annum, due September 14, 2012		3,161,306		3,145,396	Machinery and equipment and land use rights
Loans from Agricultural Development Bank of China, interest rates at 6.56% per annum, due October 12, 2012		1,580,653		1,572,698
Loans from Agricultural Development Bank of China, interest rates at 6.56% per annum, due October 16, 2012		2,212,914		-
Loans from Agricultural Development Bank of China, interest rates at 6.56% per annum, due January 16, 2013		1,107,563		-
Balance at end of period	$	13,816,013	$	22,017,771

35

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

12. SHORT-TERM BANK LOANS (Continued)

These loans were obtained and used by Yanglin for working capital. Interest expense for the nine months ended September 30, 2012 and 2011 were $1,126,985 and $786,358, respectively. Interest expense for the three months ended September 30, 2012 and 2011 were $317,052 and $113,007, respectively.

(B) Credit lines

The Group has a credit line facility with the availability to borrow up to $25.04 million (equivalent to RMB 160 million) with Agricultural Development Bank of China (the “Bank”).

36

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

13. OTHER PAYABLES

Other payables consist of the following:

	September 30, 2012		December 31, 2011
	(unaudited)
Due for construction	$	-	$	-
Others		35		37
Balance at the end of period	$	35	$	37

14. LONG-TERM BANK LOAN

Long-term bank loans consist of the following:

	September 30,  2012			December 31, 2011			Collateral
	(unaudited)
Loans from Agricultural Development Bank of China, interest rates at 5.76% per annum, due August 26, 2014	$	4,267,763		$	4,246,284		Building, machinery and equipment and land use rights
Current maturities of long-term debt		(1,422,588	)		(1,415,428	)
Balance at the end of period	$	2,845,175		$	2,830,856

These loans were obtained and used by Yanglin for upgrading its products and expanding storage facilities. Interest expense for the nine months ended September 30, 2012 and 2011 was $184,615 and $314,352, respectively. Interest expense for the three months ended September 30, 2012 and 2011 were $61,464 and $104,784, respectively.

The future principal payments under the bank loans are as follows:

For the twelve months ended September 30,
2013	1,422,587
2014	1,422,588
2015	1,422,588
Total	4,267,763

37

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

15. RELATED PARTIES TRANSACTIONS

(A) Loans from related parties consist of the following:

	September 30, 2012			December 31, 2011
	(unaudited)
Loans from certain employees, interest rates at 7.722% and 9.405% per annum respectively, with various installments, due October 28, 2016	$	207,967		$	237,328
Current portion due within one year		(44,878	)		(42,187	)
	$	163,089		$	195,141

These loans were obtained and used by Yanglin for working capital. Interest expense for the nine months ended September 30, 2012 and 2011 were $0 and $16,566, respectively, and interest paid for the three months ended September 30, 2012 and 2011 were $0 and $5,249, respectively.

These loans are between Yanglin, Mr. Shulin Liu, the Chief Executive Officer of Yanglin, and certain employees and officers of Yanglin. Mr. Shulin Liu gifted 12 houses to these employees and officers for their long-term services, and these employees and officers personally obtained mortgage loans from the Industrial and Commercial Bank of The PRC, using these houses as collateral. The employees simultaneously loaned the proceeds to Yanglin to be used as working capital. These employees and officers have been making principal and interest payments on the loans directly to the bank and Yanglin will reimburse them for the full amount at a later date.

The future principal payments under the bank loans are as follows:

For the twelve months ended September 30,
2013		44,878
2014		48,410
2015		52,220
2016		55,137
Thereafter		7,322
Total	$	207,967

38

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

15. RELATED PARTIES TRANSACTIONS (Continued)

(B) Heilongjiang Yanglin Group Seed Co. Ltd.

Heilongjiang Yanglin Group Seed Co. Ltd. “Yanglin Seed Co.”, which is wholly owned and managed by Mr. Shulin Liu, the Company’s chief executive officer, is an affiliate of the Company. Yanglin Seeds Co. supplies the farmers with “Yanglin” brand soybean seeds which provide higher oil yield. Pursuant to annual supply agreements with the Company, the farmers sell the harvested soybeans to Yanglin. Yanglin Seeds Co. extends favorable commercial terms to these farmers, such as competitive price, for them to purchase “Yanglin” soybean seeds. Meanwhile, Yanglin offers cash-upon-delivery payment terms to the farmers for purchases of the harvested soybeans grown from “Yanglin” soybean seeds. These arrangements ensure that we maintain good relations with our suppliers, and enjoy a stable supply of soybeans that meet our high quality standards. There was no related party transaction or commitment between Yanglin Seed Co. and the Group as of September 30, 2012 and for the nine months ended September 30, 2012 and 2011, respectively.

(C) Stock exchange listing shares contributed by majority shareholder

In connection with the sale of the Series A Convertible Preferred Stock during October 2007, the Company committed to apply to list and have its shares of common stock traded on the Nasdaq Capital Market, the Nasdaq Global Select Market or the Nasdaq Global Market or any successor market thereto (collectively, “Nasdaq”), or the New York Stock Exchange or any successor market thereto (together with Nasdaq, each a “National Stock Exchange”), no later than December 31, 2008. As a result of failing to achieve such listing, the Company’s majority shareholder, Winner State Investments Limited, committed to transfer 1,000,000 shares of common stock in the Company to the purchasers of shares of Series A Convertible Preferred Stock. The Company has accounted for this as a contribution of capital by its majority stockholder and recorded a charge to operations in the amount of $4,480,000 for the year ended December 31, 2008 based on the closing market price of $4.48 per share on December 31, 2008.

39

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

16. CONVERTIBLE PREFERRED STOCK AND WARRANTS

SERIES A

On October 3, 2007, the Company sold 9,999,999 shares of Series A Preferred Stock and various stock purchase warrants for cash consideration totaling $21.5 million dollars. In addition, in connection with the sale of the Preferred Stock, certain advisors were provided warrants. The number of shares, exercise price and contractual terms eligible to be purchased with the warrants are summarized in the following table:

	Number of warrants						Exercise		Contractual
Series of warrant	9/30/2012		12/31/2011		6/30/2011		price		term	Expiration Date
Series A		10,000,000		10,000,000		10,000,000	$	2.75	5 years	October 2, 2012
Series B		5,000,000		5,000,000		5,000,000	$	3.50	5 years	October 2, 2012
Series E		1,000,000		1,000,000		1,000,000	$	2.58	5 years	October 2, 2012
Series F		500,000		500,000		500,000	$	3.01	5 years	October 2, 2012
Total		16,500,000		16,500,000		16,500,000

Series A Convertible Preferred Stock has liquidation rights senior to common stock and to any other class or series of stock issued by the Company not designated as ranking senior to or paripassu with Series A Convertible Preferred Stock. In the event of a liquidation of the Company, holders of Series A Convertible Preferred Stock are entitled to receive a distribution equal to $2.15 per share prior to any distribution to the holders of common stock or any other stock that ranks junior to the Series A Convertible Preferred Shares. Series A Convertible Preferred Stock is entitled to non-cumulative dividends only upon declaration of dividends by the Company. To date, no dividends have been declared or accrued. Series A Convertible Preferred Stock will participate based on their respective “as-if” conversion rates if the Company declares any dividends. Holders of Series A Convertible Preferred Stock also have voting rights required by applicable law and the relevant number of votes shall be equal to the number of shares of Common Stock issuable upon conversion of Series A Convertible Preferred Stock.

40

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

16. CONVERTIBLE PREFERRED STOCK AND WARRANTS (Continued)

The gross proceeds of the sale were $21.5 million. The proceeds from the sale were allocated to Series A Convertible Preferred Stock, warrants and beneficial conversion features based on the relative fair value of the securities. The value of Series A Convertible Preferred Stock was determined by reference to the market price of the common stock into which it converts, and the fair value of the warrants was calculated using the Black-Scholes model with the following assumptions: expected life of 5 year, expected dividend rate of 0%, volatility of 27% and an interest rate of 4.24%.

The Company recognized a beneficial conversion feature discount on Series A Convertible Preferred Stock at its intrinsic value, which was the fair value of the common stock at the commitment date for Series A Convertible Preferred Stock investment, less the effective conversion price but limited to the $21.5 million of proceeds received from the sale. The Company recognized the $8.0 million beneficial conversion feature as an increase in paid in capital in the accompanying consolidated balance sheet on the date of issuance of Series A Convertible Preferred Stocks since these shares were convertible at the issuance date.

Each share of Series A Convertible Preferred Shares is convertible into one share of Common Stock, subject to standard adjustment provisions as set forth in the Certificate of Designations for our Series A Convertible Preferred Shares. No conversion was recorded during the nine months ended September 30, 2011 and during the year ended December 31, 2010.

In connection to the Series A Convertible Preferred Stock as described above, on October 10, 2007, the Company also issued 1,000,000 Series E warrants at an exercise price of $2.58 per share and 500,000 Series F warrants at an exercise price of $3.01 per share to an investment banker and financial advisor, respectively. These warrants each have a five year term. The fair value of Series E warrants was $532,800 and Series F warrants was $205,452, and was recorded as offering cost of Series A Convertible Preferred Stock transaction.

The fair value of the Series E and F warrants was calculated using the Black-Scholes model with the following assumptions: expected life of 5 year, expected dividend rate of 0%, volatility of 27% and an interest rate of 4.24%.

The agreement also provides that if the Company does not file, or if the registration statements are not declared effective throughout the required period, or if the Company ceases to trade on certain exchanges as defined, the Company shall pay damages equal to 1.5% of the amount invested for each calendar month capped at a cumulative damage payment amount of 15%. In connection with the sale of the Series A Convertible Preferred Stock during October 2007, the Company committed to apply to list and have its shares of common stock traded on the Nasdaq Capital Market, the Nasdaq Global Select Market or the Nasdaq Global Market or any successor market thereto (collectively, “Nasdaq”), or the New York Stock Exchange or any successor market thereto (together with Nasdaq, each a “National Stock Exchange”), no later than December 31, 2008. As a result of failing to achieve such listing, the Company’s majority shareholder, Winner State Investments Limited, committed to transfer 1,000,000 shares of common stock in the Company to the purchasers of shares of Series A Convertible Preferred Stock of the Company. The Company has accounted for this as a contribution of capital by its majority stockholder and recorded a charge to operations in the amount of $4,480,000 for the year ended December 31, 2008. Such shares were valued based on the closing market price of $4.48 per share on December 31, 2008.

41

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

16. CONVERTIBLE PREFERRED STOCK AND WARRANTS (Continued)

Pursuant to the Registration Rights Agreement dated as of October 3, 2007 by and among the Company and certain holders (the Holders), the Company agreed to have a registration statement registering certain of the securities of the Holders declared effective with the Securities and Exchange Commission (“SEC”) on or prior to the Effectiveness Date defined in the Registration Rights Agreement, which was December 31, 2008, or pay the liquidated damages.

Although the registration statement was not declared effective as of December 31, 2008, pursuant to a Waiver and Release dated December 31, 2008, the Holders have waived their right to the liquidated damages for the Company’s failure to have the registration statement declared effective on or prior to the Effectiveness date under Registration Rights Agreement.

In exchange for the waiver and release of the liquidated damages, the Company entered into an Agreement dated December 31, 2008 (the Agreement). Under the Agreement, the Company agreed to hire and engage, by February 28, 2009, three (3) independent directors as defined by NASDAQ Rule 4200(a)(15) and who are acceptable to the Holders. Further, the Company shall comply with all of the provisions of NASDAQ Rule 4350 by February 28, 2009. If these requirements are not met, the Company shall pay to each Holder five percent (5%) of its initial investment under the Securities Purchase Agreement by and among the Company and the Holders dated October 3, 2007. On February 27, 2009, the Company signed an addendum to the Agreement with the Holders, which extended the deadline for hiring and engaging three (3) independent directors to March 13, 2009. On March 9, 2009, the Company adopted a form of new Bylaws, appointed three (3) independent directors, established three (3) standing committees under the Board of Directors (audit committee, compensation committee and governance and nominating committee), and approved the articles of the three (3) above mentioned standing committees and the Code of Conduct and Ethics, and thus has been compliant with the provisions of NASDAQ Rule 4350. In addition, the Company agreed to effect and announce, no later than September 30, 2009, a change to the Company’s current independent audit firm and engage a new independent audit firm listed as a Top 10 audit firm according to Public Accounting Report’s 2008 Annual Audit Rankings to audit the 2009 financial statements and review the interim financial statements. The Company has engaged UHY LLP, Inc. as its independent audit firm starting with the quarter ended September 30, 2009.

If these requirements were not met, the Company had to pay to each Holder ten percent (10%) of its initial investment under the Securities Purchase Agreement. Furthermore, the Company and the Holders agreed to extend the required Effectiveness Date of the Company’s Registration Statement filed with the Securities and Exchange Commission to September 30, 2009. The Company has complied with these requirements as of September 30, 2009 and the Registration Statement was declared effective by the SEC on June 29, 2009.

42

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

16. CONVERTIBLE PREFERRED STOCK AND WARRANTS (Continued)

Effective January 1, 2009, the Company adopted the provisions of FASB ASC Topic 815, "Derivatives and Hedging" ("ASC 815") (previously ElTF 07-5, "Determining Whether an instrument (or an Embedded Feature) is Indexed to an Entity's Own Stock"). As a result of adopting ASC 815, warrants to purchase 34,503,170 of the Company's common stock previously treated as equity pursuant to the derivative treatment exemption were no longer afforded equity treatment as there was a down-round protection (full-ratchet down round protection). As a result, the warrants are not considered indexed to the Company's own stock, and as such, all future changes in the fair value of these warrants will be recognized currently in earnings until such time as the warrants are exercised or expire.

As such, effective January 1, 2009, the Company reclassified the fair value of these warrants from equity to liability, as if these warrants were treated as a derivative liability since their issuance in October 2007. On January 1, 2009, the Company recorded as a cumulative effect adjustment by decreasing additional paid-in capital amounting to $15,003,941 and decreasing beginning retained earnings amounting to $72,047,158 and recording $87,051,099 as a warrant liability to recognize the fair value of such warrants on January 1, 2009. The fair value of the warrants was $1,344,423 and $1,050,000 on September 30, 2011 and December 31, 2010, respectively. The Company recognized $1,850,000 and $ (294,423) as income from the change in fair value of warrants for the nine months ended September 30, 2012, and 2011, respectively. The Company recognized $0 and $3,735,238 as income from the change in fair value of warrants for the three months ended September 30, 2012, and 2011, respectively.

As of September 30, 2012 and December 31, 2011, the Company adopted the lattice valuation method to improve the valuation of the existing warrants with early exercise rights and down ratchet exercise price reset provision. The change is accounted for as change in accounting estimates. As opposed to closed form model like Black Scholes which assumes warrants be exercised on expiry date, the lattice model assumes a low probability of early exercise due to declining stock prices and sample different price paths using Monte Carlo simulation.

The following assumptions provide information regarding the warrants as following:

	September 30, 2012			December 31, 2011
Common stock issuable upon exercise of warrants		15,000,000			15,000,000
Market value of common stock on measurement date (1)	$	0.03		$	0.35
Adjusted Exercise price	$	2.61-$3.30		$	2.61-$3.30
Risk free interest rate (2)		0.12	%		0.81	%
Warrant lives in years		0.01			1.26
Expected volatility (3)		137	%		166	%
Expected dividend yield (4)		0	%		0	%
Assumed offering price range per unit over next two years	$	0.25-$2.15		$	0.25-$2.15
Assumed number of units sold in the offering		500,000-10,000,000			500,000-10,000,000

43

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

16. CONVERTIBLE PREFERRED STOCK AND WARRANTS (Continued)

(1) The market values of common stock are the stock price at the close of trading on the date of September 30, 2012 and December 31, 2011, respectively.

(2) The risk-free interest rate was determined by management using the 2 year Treasury Bill as of September 30, 2012 and December 31, 2011.

(3) Expected volatility is based on average volatility of historical share trade information. The Company believes this method produces an estimate that is representative of the Company’s expectations of future volatility over the expected term of the warrants.

(4) Management determined the dividend yield to be 0% based upon its expectation that it will not pay dividends for the foreseeable future.

SERIES B

Series B Convertible Preferred Stock has par value of $0.001 per share and each share of the Series B Convertible Preferred Shares is convertible into one share of the Common Stock, subject to standard adjustment provisions in the Certificate of Designations for Series B Convertible Preferred Shares.

After the expiration of the Series J Warrants on April 3, 2009, all of the unissued Series B convertible Preferred Shares were cancelled and reverted to the status of authorized but unissued preferred stock, undesignated as to series and subject to reissuance as shares of preferred stock of any one or more series as permitted by the Articles of Incorporation. There were no issued and outstanding shares of Series B Convertible Preferred Shares as of September 30, 2012 and December 31, 2011.

The following table summarizes warrant activity for the nine months ended September 30, 2012 and the year ended December 31, 2011:

	Warrants		Weighted-average exercise price		Aggregate Intrinsic Value
Outstanding at December 31, 2011		16,500,000	$	2.97	$	-
Issued		-		-		-
Exercised		-		-		-
Expired		-		-		-
Outstanding at September 30, 2012		16,500,000	$	2.97	$	-

44

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

16. CONVERTIBLE PREFERRED STOCK AND WARRANTS (Continued)

The terms of outstanding warrants as of September 30, 2012 are as follows:

	Warrants outstanding					Warrants exercisable
Range of exercise prices	Number outstanding	Weighted average remaining contractual life (years)		Weighted average exercise price		Number exercisable		Weighted average exercise price
$2.75-$3.50	16,500,000	$	0.01	$	2.97		16,500,000	$	2.97

Fair Value on a Recurring Basis

The following table sets forth, by level within the fair value hierarchy, the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2012:

	Fair Value Measurements at September 30, 2012
	Quoted
	Prices
	In Active		Significant				Total
	Markets for		Other		Significant		Carrying
	Identical		Observable		Unobservable		Value as of
	Assets		Inputs		Inputs		June
Description	(Level 1)		(Level 2)		(Level 3)		30, 2012
Derivative warrant instruments	$	-	$	-	$	-	$	-
	$	-	$	-	$	-	$	-

45

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

17. STOCK OPTIONS

At the time the Company appointed Mr. Michael Marks as an independent director, the Company agreed to grant Mr. Marks, as part of his compensation, 20,000 stock options annually. The stock options was scheduled to be granted at the end of each quarter with the exercise price being the stock price at the last trading day of the quarter. During the three months ended September 30, 2012, the Company did not grant any stock option to its independent director, Mr. Marks, due to his resignation from his position as an independent director of the Company in October 2011. The options have exercise price ranges from $0.30-$3.10 per share and are fully vested on the date of grant.

The Company valued the stock options by the Black Scholes model with the following assumptions:

Number of Options Issued	Expected Term	Expected Volatility			Dividend Yield			Risk Free Interest Rate			Grant Date Fair Value
5,000	5		105	%		0	%		2.54	%	$	11,292
5,000	5		105	%		0	%		2.31	%	$	11,646
5,000	5		105	%		0	%		2.69	%	$	11,117
5,000	5		105	%		0	%		2.55	%	$	10,126
5,000	5		105	%		0	%		1.79	%	$	8,603
5,000	5		105	%		0	%		1.27	%	$	3,761
5,000	5		105	%		0	%		2.01	%	$	1,123
5,000	5		105	%		0	%		2.24	%	$	3,567
5,000	5		105	%		0	%		1.76	%	$	1,309
5,000	5		105	%		0	%		0.96	%	$	4,605
50,000											$	67,149

The following is a summary of the option activity:

	Options		Weighted-average exercise price		Aggregate Intrinsic Value
Outstanding at December 31, 2011		50,000		1.79		-
Issued						-
Exercised		-		-		-
Expired		-		-		-
Outstanding at September 30, 2012		50,000		1.79		-

46

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

17. STOCK OPTIONS (Continued)

Following is a summary of the status of options outstanding at September 30, 2012: 

		Options outstanding					Options exercisable
Range of exercise prices		Number outstanding	Weighted average remaining contractual life (years)		Weighted average exercise price		Number exercisable	Weighted average exercise price
$	0.30-$3.10	50,000		2.88	$	1.79	50,000	$	1.79

For the nine months ended September 30, 2012 and 2011, the Company recognized $0 and $9,293 as compensation expense for the stock options granted to one of its former independent directors, ,who resigned from his position in October 2011.

47

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

18. EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share attributable to the common stockholders is based on the following data for the three and nine months ended September 30 (unaudited):

	Three months ended September 30						Nine months ended September 30
	2012			2011			2012			2011
Numerator
Earnings:
Earnings (loss) for the purpose of basic earnings per share	$	(6,438,834	)	$	(9,039,565	)	$	(11,037,981	)	$	(14,906,916	)
Effect of dilutive potential common stock					-			-
Earnings (loss) for the purpose of dilutive earnings per share	$	(6,438,834	)	$	(9,039,565	)	$	(11,037,981	)	$	(14,906,916	)
Denominator
Number of shares:
Weighted average number of common stock for the purpose of basic earnings per share		20,865,119			20,465,119			20,865,119			20,465,119
Effect of dilutive potential common stock - conversion of convertible preferred stock		0			0			0			0
Effect of dilutive potential common stock - conversion of warrants and stock options		0			0			0			0
Weighted average number of common stock for the purpose of dilutive earnings per share		20,865,119			20,465,119			20,865,119			20,465,119

Because the Company reported a net loss for the nine and three months ended September 30, 2012, common stock equivalents were anti-dilutive; therefore, the amounts reported for basic and diluted loss per share were the same.

48

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

19. INCOME TAXES

As of September 30, 2012, the Group had net operating tax losses carried forward of $0, which includes $0 and $0 in the US and PRC, respectively. Those losses carried forward in the US and PRC will expire between years 2013 and 2029. The Group has established a full valuation allowance against its net deferred tax assets due to the Group’s history of pre-tax losses and the resulting likelihood that the deferred tax assets are not realizable.

The Group has not recorded any income tax provision for the three and nine months ended September 30, 2012, since the Group has estimated that its estimated annual effective income tax rate will be zero.

The Group is not aware of any unrecorded tax liabilities which would impact the Group’s financial position or its results of operations as of September 30, 2012 and December 31, 2011.

20. VARIABLE INTEREST ENTITY

The Company, as a primary beneficiary of Yanglin, consolidates Yanglin, as a Variable Interest Entity (“VIE”), of which we are the primary beneficiary. The liabilities recognized as a result of consolidating a VIE do not represent additional claims on our general assets; rather, they represent claims against the specific assets of the consolidated VIE. Conversely, assets recognized as a result of consolidating a VIE do not represent additional assets that could be used to satisfy claims against our general assets. Reflected in the September 30, 2012 and December 31, 2011 balance sheets are consolidated VIE assets of $59.8 and $66.5 million, respectively, which are comprised mainly of cash, inventory and property and equipment. VIE liabilities mainly consist of short term bank loans and payables for working capital.

49

YANGLIN SOYBEAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(UNAUDITED) (Stated in US Dollars)

21. PARENT-ONLY FINANCIAL STATEMENTS

As mentioned in note 1 to the consolidated financial statements, as a result of entering into the contractual agreements, WFOE is deemed to control Yanglin as a VIE. These agreements may have restrictions on the ability of Yanglin to transfer funds to the Company through inter-company loans, advances and cash dividends which consist of additional paid in capital, statutory reserves and retained earnings of $16,269,368 and $28,895,167 respectively as at September 30, 2012 and December 31, 2011.

The following tables present unconsolidated financial information of the Company only:

Balance Sheets as following:

	September 30, 2012 (unaudited)		December 31, 2011
Cash – restricted	$	247,961	$	247,961
Investments in subsidiaries		26,096,765		38,664,554
Total assets	$	26,344,726	$	38,912,515
Other current liabilities	$	624,785	$	476,656
Warrant liabilities		0		1,850,000
Total liabilities		624,785		2,326,656
Total shareholders’ equity		25,719,941		36,585,859
Total liabilities and shareholders’ equity	$	26,344,726	$	38,912,515

Statements of Operations and Other Comprehensive Income for the nine months ended September 30, 2012 and 2011 (unaudited)

	2012		2011
Investment loss - equity method	$	(12,567,789)	$	(7,019,596	)
General and administrative expenses		(148,129)		(45,293	)
Loss from operations before income taxes		(12,715,918)		(7,064,889	)
Change in fair value of warrants		1,850,000		(6,247,652	)
Income before income taxes		(10,865,918)		(13,312,541	)
Income taxes		-		-
Net income (loss)	$	(10,865,918)	$	(13,312,541	)

50

ITEM 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited consolidated financial statements, and the related footnotes thereto, appearing elsewhere in this report, and in conjunction with management’s discussion and analysis and the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011.

CAUTIONARY STATEMENT REGARDING FUTURE RESULTS,

FORWARD-LOOKING INFORMATION AND CERTAIN IMPORTANT FACTORS

In this report we make, and from time to time we otherwise make, written and oral statements regarding our business and prospects, such as projections of future performance, statements of management’s plans and objectives, forecasts of market trends, and other matters that are forward-looking statements. Statements containing the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimates,” “projects,” “believes,” “expects,” “anticipates,” “intends,” “target,” “goal,” “plans,” “objective,” “should” or similar expressions identify forward-looking statements. Our actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation, as discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report, as well as other factors, which may appear in documents, reports, filings with the Securities and Exchange Commission, news releases, written or oral presentations made by officers or other representatives made by us to analysts, stockholders, investors, news organizations and others, and discussions with management and other of our representatives.

Our future results, including results related to forward-looking statements, involve a number of risks and uncertainties. No assurance can be given that the results reflected in any forward-looking statements will be achieved. Any forward-looking statement speaks only as of the date on which such statement is made. Our forward-looking statements are based upon assumptions that are sometimes based upon estimates, data, communications and other information from suppliers, government agencies and other sources that may be subject to revision. There are other factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or which are reflected from time to time in any forward-looking statement.

We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Company Overview

We are a leading, comprehensive non-genetically modified (non-GM) soybean processor in People’s Republic of China (“PRC”). We currently manufacture ordinary soybean oil, salad oil and soybean meal in bulk package, along with other products in smaller quantities, which are sold throughout the PRC directly to our customers or through distributors. Approximately 80% of our customers are located in Northern PRC.

Our operating facilities are located in Jixian County, a major soybean production area in Heilongjiang Province, which is the main soybean growing region in the PRC. We maintain healthy, long-term relationships with local farmers and soybean vendors which help to ensure the stability of our supply of raw materials. Farmers deliver soybeans directly to our factories, thus we enjoy savings in transportation and purchasing costs. Our relationship with customers (mostly distributors) are also well established so we are able to require them to pay the full amount in advance, minimizing accounts receivable and supplementing our working capital.

51

The manufacturing process includes sifting, crushing, heating and pressing soybeans, extracting and separating oil from crushed soybeans, cleansing, hydrating and packaging of oil as well as drying and packaging soybean meal. Our main products include Grade IV soybean oil, salad oil, squeezed oil, soybean meal, and concentrated soy protein. We broadened our product line to include value-added products such as squeezed oil, low temperature soybean meal and concentrated soy protein, and we plan to produce powdered soy oil, textured protein and defatted soybean powder. Production of squeezed oil has already begun. We are producing concentrated soy protein in small quantities of commercial grade product to customers in order to solicit feedback, so we can adjust the specifications of the product to satisfy the specific needs of the customers. Powdered soybean oil is still in trial production phase and we are now adjusting the formula and techniques according to customer requirements and feedback. Defatted soy powder and textured protein may be launched at a later date, depending on trends in the market and the specific product economics.

We sell our products under the “Yanglin” brand name to various regions of the PRC through our many distribution channels. In the three months ended September 30, 2012, we generated total revenue of approximately $17.0 million with net loss of $6.4 million.

We are considering future expansion and acquisition opportunities, with the goal of significantly increasing our processing capacity and market share, but will only make a definite decision after the market and industrial environments improve materially.

We are also working to improve and strengthen our management and internal control over financial reporting. Our management has been conducting self-assessment of the effectiveness of our internal control systems since 2008, and is continuously rectifying the weaknesses and deficiencies found in the process.

Current Business Environment and Future Outlook

Since 2009, the Company has experienced certain difficulties in its operations. In addition, the supply of raw material in 2012 has been and is expected to continue to be low due to the rapid reduction of planting area of soybean in Heilongjiang province. Currently, there are only 40 million acres of planting area in Heilongjiang province, which is 48% less compared to 2010 when there were 64 million acres of planting area.

The main factors for the recent significant reduction of soybean planting areas are as follows:

· Cold and drought weather with random hail spells, which has resulted in inferior seed quality.

· Increases in the cost of planting soybeans due to increases in tenement, labor costs, the cost of chemical fertilizer and increased ractor-ploughing fees.

· Decreases in the relative profitability of soybean per acre , compared to other kinds of crops such as corn and rice.

Usually the price of soybean is determined by market mechanisms; however, government policy may have a significant impact. For example, the PRC government conducted a national strategic purchase two times from late 2008 to 2011 and effectively raised the purchase price of soybeans in the market by offering a price approximately 10% higher than normal market prices to farmers. Such and similar actions of the government, granting various forms of subsidies to farmers, may materially increase our cost of sales.

52

There are several factors that may have adverse impact in our future operation. There are as follows:

· We received a written notice dated June 27, 2012 (the “Notice”) from the Jixian County People’s Government (the “Jixian Government”). Pursuant to the Notice, the Jixian Government notified us that it had determined that we  would be required to move our Factory No. 3 from its current location by September 30, 2012 because the current location of Factory No. 3 was materially interfering with the city’s plan of northward expansion. The Notice further stated that the Jixian Government would enter into an agreement with us regarding the provision of compensation to us for our losses as a result of the required relocation of our Factory No. 3.  We ceased production at its Factory No. 3 at the end of July 2012 and we completed our removal work .with respect to Factory No. 3, in September 2012. We have identified a site for the construction of a new factory to replace Factory No. 3. Construction work with respect to the new factory is expected to begin in the second quarter of 2013. It is expected that construction of the new factory will take approximately two years. We are currently in negotiations with the Jixian Government with respect to the agreement for compensation for its losses as a result of the required relocation of Factory No. 3.

· The harvest of genetically modified soybeans in US and South America may cause an increase in the volume of soybeans imported to the PRC at lower prices.

· Possible further appreciation of Renminbi (RMB) against USD in the future may also reduce the import price of genetically modified soybeans.

· The uncertainties in the subsidy and supporting policies of the PRC government regarding the domestic soybean industry.

In response, we will continue to lobby the PRC government to grant new supporting policies. Meanwhile, we will continue to take strict cost saving measures and maintain our production at a suitable level. We will actively observe the trends in our industry and in the general economy in order to capitalize on any opportunity for our products. Over the long-term, we believe that we are well positioned to benefit from the growth opportunities in the PRC and throughout the world.

53

Major Performance Factors

Revenue

We derive most of our revenue from the sales of our main products: soybean oil (IVth grade), salad oil and soybean meal, and a small portion of our revenue is created by the sales of other products, including concentrated soybean protein, squeezed oil and low temperature soybean meal. The revenue may be affected by the following factors:

· Processing capacity of soybean;

· Pricing of the products; and

· Market demand.

Processing capacity of soybean. Our current annual processing capacity of soybean is 220,000 metrics tons, decreased by 300,000 metric tons, due to the closure of Factory No. 3. We processed approximately 258,697 metric tons in 2011, and 84,495 metric tons in the first quarter of 2012,65,514 metric tons in the second quarter of 2012, and 28,160 metric tons in the third quarter of 2012, respectively. Based on these figures, it can be estimated that the current production capacity is sufficient for current demand.

Pricing of the products.In general, our products are priced consistently with market prices, with consideration for cost of sales. However, prices are affected by several factors, including but not limited to: the pricing trends for domestic soybeans, the cost and volume of imported soybeans, temporary sudden changes in supply-demand relationship, general economic factors and income level of consumers.

Market demand. Revenue growth potential depends on market demand for our products. We believe that high growth potential for our sales revenue exists due to several factors: 1) total market demand for our products exceeds current production levels; 2) our products are recognized as high quality; 3) we maintain excellent relationships with our customers; and, 4) we generally sell almost all of our production volume.

Cost of Sales

Cost of sales generally consists of four major parts: raw materials, labor, production overhead and manufacturing related depreciation. Raw materials refer mainly to soybeans and accounts for over 90% of the cost of sales. Labor cost are relatively low and comprise a very small portion of cost of sales. Production overhead includes auxiliary materials, utility expenses, machinery maintenance costs, inspection costs and other related expenses. Depreciation costs are applied to manufacturing facilities and equipment, such as production lines, steam generators, and factory buildings.

Cost of sales is determined primarily by the following factors, either directly or indirectly:

· Availability and price of raw materials, especially soybeans;

· Operating efficiency of production facilities; and

· Government policy or direct purchase.

54

Availability and price of raw materials, especially soybeans.Raw materials costs account for more than 90% of cost of sales. Soybean is the only major raw material, so its price fluctuation will have a material impact on our cost. The price of soybeans may be affected by a series of factors, including the production volume of soybeans on national and international scale, weather, government policies and soybean transactions on commodity markets. Meanwhile, if there is a shortage in the supply of raw materials, our production facilities will have to operate at less than maximum efficiency. Our processing volume represents a relatively small portion of the total soybean supply of Heilongjiang Province; generally speaking the availability of raw materials is always high. Soybean price has a significant impact on our cost of sales.

Output ratio and operating efficiency of production facilities.Output ratio is the ratio between the input of raw materials (mostly soybeans) and the output of finished products. The more units of finished products we can produce using a single unit of raw material, the higher the output ratio. As labor, production overhead and manufacturing related depreciation expenses are mostly fixed, generally speaking, the more we produce, the lower the unit cost. Our output ratio and operating efficiency are continuously improving, due to the recent purchase and renovation of facilities and equipment, the enhanced competence and proficiency of our staff and the improvement of our management skills.

Government policy or direct purchase.Usually the price of soybean is determined by market mechanisms; however, government policy may have a significant impact. For example, the PRC government conducted a national strategic purchase four times from late 2008 to 2011 and effectively raised the purchase price of soybeans in the market by offering a price about 10% higher than normal market prices to farmers. Such and similar actions of the government, granting various forms of subsidies to farmers, may materially increase our cost of sales.

Gross Profit (Loss)

Gross profit (loss) is the result of the combined effects of the following factors: (a) the selling price of our products, (b) the sales volume and the individual profit margin of each product, and (c) the cost of sales. We are a middle stream processor, and the profit margin of middle stream processing is usually relatively stable. Under normal circumstances, our gross profit margin has been in the range of 7% to 9%, based on previous experience until 2008, However, our gross profit margin has decreased to negative 2% to 4% in the past years as a result of adverse changes in the market.

If exceptional circumstances exist, gross margin may be negatively affected. As mentioned above, a basic requirement for the domestic soybean processors to be entitled to the government subsidy announced in the end of 2011 is the purchase of soybeans from farmers at a government guided, higher than normal market price. The policy in effect made soybean prices increase from the end of 2011. Supported by the trend of increasing future prices of soybean in the global markets, the increased expectation of Chinese farmers on soybean prices helped maintain high price levels. However, prices of soybean products did not increase in line with that of soybeans. As a result, we suffered a gross loss in the first three quarters of 2012.

Over the past few years, particularly in 2011 and 2012, the profitability of our products has been greatly influenced by a combination of the following factors: the large and cheaper imports of genetically-modified (GM) soybeans which offered a low cost alternative to soybean processors and suppressed the prices of soybean products in China’s market. At the same time, the cost of our major raw material, domestic soybeans, was usually higher than that of imported ones. Unfavorable weather conditions, especially excessive rain, caused the production volume of soybean to decrease and its price to increase. The Chinese government conducted a national purchase of soybean and issued other policies to support the price of domestic soybeans at a relatively high level. In the near future, we expect our profitability to be significantly influenced by, in addition to the above-mentioned factors, the following, including but not limited to: the expected increase in soybean output of the United States and South America which may result in additional soybean imports to the PRC; the possible appreciation of the RMB against the USD, which may cause imported soybean to be cheaper; and uncertainties in the policies of the Chinese government.

55

Operating Expenses

Operating expenses consist of selling expenses and general & administrative expenses. Operating expenses represent only a small portion of total costs and expenses.

Selling expenses generally include business development expenses, sales meeting expenses, loading and handling, advertising, sales-related staff salaries and welfare expenses, and travel expenses. They are usually relative to sales volume.

General and administrative expenses include the depreciation of office buildings and equipment, office expenses and supplies, and management and administrative salaries. These expenses are typically fixed. General and administrative expenses may increase, as we revise our organizational structure and improve our management systems and internal control system and processes.

Income Tax

We are incorporated in the State of Nevada and Faith Winner (BVI) is incorporated under the laws of the British Virgin Islands. We conduct all our operations under certain contractual arrangements with Yanglin, a PRC company.

Although we are subject to United States taxation, we do not anticipate incurring significant United States income tax liability for the foreseeable future because:

· We do not conduct any material business or maintain any branch office in the United States;

· The earnings generated from our non-U.S. operating companies are generally eligible for a deferral from United States taxation until such earnings are repatriated to the United States; and

· We believe that we will not generate a significant amount of income inclusions under the income imputation rules applicable to a United States company that owns "controlled foreign corporations" for United States federal income tax purposes.

Therefore, we have made no provision for U.S. federal income taxes or tax benefits on the undistributed earnings and/or losses.

Yanglin, a PRC company, has income tax liabilities in the PRC. PRC enterprise income tax is calculated based on taxable income determined under PRC tax regulations. In accordance with Income Tax Law applicable to domestic companies, we are generally subject to an enterprise income tax rate of 25%.

However, as Yanglin has been recognized as a Key Leading Enterprise in the Industrialization of Agriculture Industry by the PRC’s central government, Yanglin enjoyed a complete exemption from income taxes until 2009. Our status is reviewed every two years. The latest review of Yanglin’s status of National Key Leading Enterprise in Agriculture was finished by the government in March 2010, and the status was granted to the Company for the period from January 2010 to June 2012. The Company received this government approval on May 7, 2010. In addition to the PRC's central government's award, a review by the local tax authority will also be required in order for us to enjoy a 2012 tax exemption. Yanglin is currently in the process of renewing its status of exemption from income taxes for an additional two year period from June 2012 to June 2014..

56

Warrant Liability

Effective January 1, 2009, we adopted the provisions of FASB ASC Topic 815, "Derivatives and Hedging" ("ASC 815") (previously ElTF 07-5, "Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entity's Own Stock"). As a result of adopting ASC 815, warrants to purchase the Company's common stock previously treated as equity pursuant to the derivative treatment exemption were no longer afforded equity treatment as there was a down-round protection (full-ratchet down round protection). As a result, the warrants are not considered indexed to the Company's own stock, and as such, all future changes in the fair value of these warrants will be recognized currently in earnings until such time as the warrants are exercised or expire.

Results of Operations

The Three Months Ended September 30, 2012 Compared with the Three Months Ended September 30, 2011

	The three months Ended September 30, 2012			The three months Ended September 30, 2011
	($)			($)
Consolidated Statement of Operations and Comprehensive (Loss) Income
Net Sales	$	17,016,657		$	38,747,753
Cost of sales		(18,120,042	)		(41,035,346	)
Gross loss		(1,103,385	)		(2,287,593	)
Selling expenses		(54,284	)		(59,859	)
General and administrative expenses		(586,260	)		(533,995	)
Impairment loss of assets held for sale		(4,317,129	)		0
Loss from operations		(6,061,058	)		(2,881,447	)
Interest income		5,604			(223,040	)
Interest expense		(383,380	)		16,102
Other expense					2,049-
Changes in fair value of warrants					(5,953,229	)
Income from operations before income tax		(6,438,834	)		(9,039,565	)
Income tax		-			-
Net income		(6,438,834	)		(9,039,565	)
Foreign currency translation adjustment		(73,580	)		637,554
Comprehensive income (loss)	$	(6,512,414	)	$	(8,402,011	)

57

Net Sales

	For The Three Months Ended September 30,
	2012		2011		Period to Period Change
Item	Amount ($)		Amount ($)		Amount ($)			%
Soybean meal	$	6,635,824	$	19,052,370	$	(12,416,546	)		-65.17	%
Soybean oil		5,841,874		11,724,976		(5,883,102	)		-50.18	%
Salad oil		0		3,112,550		(3,112,550	)		-100.00	%
Squeezed oil		443,415		391,836		51,579			13.16	%
Soy protein concentrates		946,906		992,425		(45,519	)		-4.59	%
Low temperature soy meal		3,148,638		3,473,596		(324,958	)		-9.36	%
Total Net Sales	$	17,016,657	$	38,747,753	$	(21,731,096	)		-56.08	%

Our net sales for the three months ended September 30, 2012 decreased by $12,416,546 or 65.17% compared to the three months ended September 30, 2011. The significant decrease in sales revenue was mainly due to the fact that Factory No.3 ceased operation following our receipt of a notice from Jixian County People’s Government which required us to move our Factory No. 3 from its current location by September 30, 2012 because the current location of Factory No. 3 was materially interfering with the city’s plan of northward expansion.

In the three months ended September 30, 2012, we purchased 25,960 tons of soybean and produced 14,291 tons of soybean meal, 4,215 tons of soybean oil,294 tons of squeezed oil, 783 tons of soy protein concentrates, and 6,442 tons of low-temperature soybean meal, as compared to 64,335 tons of soybean purchased, and 47,296 tons of soybean meal, 9,078 tons of soybean oil, 295 tons of squeezed oil, 783 tons of soy protein concentrates, and 6,827 tons of low-temperature soybean meal produced respectively, in the three months ended September 30, 2011. Consequently, in the third quarter of 2012, we sold 14,494 tons of soybean meal 4,328 tons of soybean oil, 311 tons of squeezed oil,790 tons of soy protein concentrates, and 5,300 tons of low-temperature soy meal, representing growth rates of -70%, -52.8%, 7.69%, -3.32% and -6.02%, respectively over the third quarter of 2011, when we sold 48,316 tons of soybean meal, 9,171 tons of soybean oil, 289 tons of squeezed oil, 817 tons of soy protein concentrates, and 5,640 tons of low-temperature soy meal,. Though the average sales prices of the products, namely soybean meal, soybean oil, squeezed oil, soy protein concentrates, and low-temperature soy meal, experienced growth rates of 14.52%, 4.13%, 3.65%, -2.65% and -4.86% in the third quarter of 2012 compared to those in the third quarter of 2011, such increases could not fully compensate for the decrease in sales volume caused by the closure of Factory No.3, resulting in a decline in total sales revenue.

58

Cost of Sales and Gross (Loss) Profit

	Period to Period Change									%
	2012			% of Sales			2011			of Sales
	Amount ($)			Revenue			Amount ($)			Revenue			Amount ($)			%
Cost of Sales:
Soybean meal	$	(6,959,091	)		104.87	%	$	(20,581,292	)		108.02	%	$	13,622,201			-66.19	%
Soybean oil		(6,271,127	)		107.35	%		(12,287,034	)		104.79	%		6,015,907			-48.96	%
Salad oil		0			0			(3,283,852	)		105.50	%		3,283,852			-100.00	%
Squeezed oil		(460,462	)		103.84	%		(424,861	)		108.43	%		(35,601	)		8.38	%
Soy protein concentrates		(1,026,887	)		108.45	%		(1,022,421	)		103.02	%		(4,466	)		0.44	%
Low-temp soy meal		(3,402,475	)		108.06	%		(3,435,886	)		98.91	%		33,411			-0.97	%
Total Cost of Sales	$	(18,120,042	)		106.48	%	$	(41,035,346	)		105.90	%	$	22,915,304			-55.84	%
Gross (Loss) Profit:
Soybean meal	$	(323,267	)		-4.87	%	$	(1,528,922	)		-8.02	%	$	1,205,655			-78.86	%
Soybean oil		(429,253	)		-7.35	%		(562,058	)		-4.79	%		132,805			-23.63	%
Salad Oil		0			0			(171,301	)		-5.50	%		171,301			-100.00	%
Squeezed oil		(17,047	)		-3.84	%		(33,025	)		-8.43	%		15,978			48.38	%
Soy protein concentrates		(79,981	)		-8.45	%		(29,996	)		0.46	%		(49,985	)		166.64	%
Low temperature soy meal		(253,837	)		-8.06	%		37,710			-0.18	%		(291,546	)		-773.13	%
Total Gross Profit (Loss)	$	(1,103,385	)		-6.48	%	$	(2,287,593	)		-5.90	%	$	1,184,208			51.77	%

Our cost of sales for the three months ended September 30, 2012 decreased by $22,915,304 or 55.84% compared to the three months ended September 30, 2011, while the ratio of cost as a percentage to net sales value increased from 105.90% to 106.48% over the period. The decrease in cost of sales was mainly caused by the closure of the Factory No.3 as stated above. We recorded a gross loss of $1,103,385 in the three months ended September 30, 2012, compared to a gross loss of $2,287,593 in the three months ended September 30, 2011. Our gross profit margin decreased from negative 5.90% to negative 6.48% over the same period. The main reasons for the gross loss in the third quarter of 2012 were the impact of the large imports of soybeans and the high price levels of soybeans. The main reason for the changes in gross profit was the increase in the raw material prices of certain of our soybean products.

Due to the reason of the increase in the cost of production and Chinese inflation expectations of the commodity prices, soybean purchase prices remain high. The average soybean purchase price increased from $523.12 per ton for the three months ended September 30, 2011 to $677.39 per ton for the three months ended September 30, 2012.

During the third quarter of 2012, the market prices of our products remained high. The average selling prices were generally higher than those in the third quarter of 2011 (please refer to the section “Net Sales” above for details). However, such increases has partly compensated for the increase in the soybean purchase price, resulting in a drop in gross margin.

Operating Expenses

	For The Three Months Ended September 30,												Period to Period
	2012			% of Sales			2011			% of Sales			Change
	Amount ($)			Revenue			Amount ($)			Revenue			Amount ($)			%
Selling Expenses	$	(54,284	)		0.32	%	$	(59,859	)		0.15	%	$	5,575			-9.31	%
General & Administrative Expenses		(586,260	)		3.45	%		(533,995	)		1.38	%		(52,265	)		9.79	%
Impairment loss of long-lived assets		(4,317,129	)		25.37	%	$	0			0		$	(4,317,129	)		0.00	%
Total Operating Expenses		(4,957,673	)		29.13	%		(593,854	)		1.53	%		(4,363,819	)		734.83	%

59

Selling expenses for the three months ended September 30, 2012 decreased from $59,859 to $54,284 or 9.31% as compared to the three months ended September 30, 2011.

General and administrative expenses for the three months ended September 30, 2012 increased from $533,995 to $586,260 or 9.79% as compared to the three months ended September 30, 2011. This was mainly caused by the expenses of removal of Factory No.3. As a percentage of net sales, general and administrative expenses increased from 1.38% for the third quarter of 2011 to 3.49% for the third quarter of 2012.

Total operating expenses increased from $593,854 to $4,957,673 or 734.83% in the third quarter of 2012 as compared to the third quarter of 2011, this was mainly caused by the impairment loss of long-lived assets. The percentage of net sales increased from 1.53% to 29.13% during the third quarter of 2012 as compared to the third quarter of 2011.

Net Income

	For The Three Months Ended September 30,												Period to Period
	2012			% of Sales			2011			%of Sales			Change
	Amount ($)			Revenue			Amount ($)			Revenue			Amount ($)			%
Loss from operations	$	(6,061,058	)		35.62	%	$	(2,881,447	)		7.44	%	$	(3,179,611	)		110.35	%
Interest expenses		(383,380	)		2.25	%		(223,040	)		0.58	%		(160,340	)		71.89	%
Interest income		5,604			0.03	%		16,102			0.04	%		(10,498	)		-65.20	%
Other (expense) income		0			0.00	%		2,049			0.01	%		(2,049	)		-100.00	%
Changes in fair value of warrants		0			0.00	%		(5,953,229	)		15.36	%		5,953,229			-100.00	%
Income tax		-			-			-			-			-			-
Net income	$	(6,438,834	)		37.84	%	$	(9,039,565	)		23.33	%	$	2,600,731			-28.77	%

Loss from operations was primarily due to the reasons described in the sections titled “Net Sales” and “Cost of Sales and Gross Profit” above. For the second quarter of 2011, we generated a gross loss and a loss after deducting selling and general and administrative expenses. Operating margin decreased from negative 7.44% to negative 35.62% from the third quarter of 2011 to the third quarter of 2012.

Interest expenses increased by 71.89% from the three months ended September 30, 2011, to the three months ended September 30, 2012. As a percentage of net sales, interest expense was 2.25% for the third quarter of 2012, as compared to 0.58% for the same period in 2011. The changes were mainly caused by increased bank borrowing. This was used to satisfy increased working capital needs. Interest income decreased by 65.20% over the same period.

Effective January 1, 2009, we adopted the provisions of FASB ASC Topic 815, "Derivatives and Hedging" ("ASC 815"). As a result of adopting ASC 815, we recorded non-cash income of $5,953,229 for the third quarter of 2011, and $0 for the third quarter of 2012, resulting from the change in fair value of warrants issued to investors in conjunction with the Company’s Series A Convertible Preferred Stock in October 2007. The accounting treatment of the warrants resulted from an anti-dilution provision to the warrant holders.

60

Since Yanglin has been recognized as a “Key Leading Enterprise” in the industrialization of the agriculture industry by the Chinese government, Yanglin has qualified for a complete exemption from income taxes through 2009. This status is usually reviewed every two years, according to a government order. The latest review of Yanglin’s status of National Key Leading Enterprise in Agriculture was finished by the government in March 2010, and the status was granted to the Company for the period from January 2010 to June 2012. The Company received government approval on May 7, 2010. In addition to the PRC's central government's award, a review by the local tax authority will also be is also required in order for us to enjoy a 2012 tax exemption. Yanglin is currently in the process of renewing its status of exemption from income taxes for an the additional two year period from since June 2012 to June 2014.

Net income, after including the abovementioned non-cash income from the change in fair value of warrants, decreased by 28.77% from the three months ended September 30, 2011, to the three months ended September 30, 2012. During the same period, net profit margin decreased from a negative 23.33% to a negative 37.84%.

Earnings Per Share

	For The Three Months Ended September 30,
	2012			2011
	Unaudited			Unaudited
Net Income (Loss) for Basic Earnings Per Share	$	(6,438,834	)	$	(9,039,565	)
Basic Weighted Average Number of Shares		20,865,119			20,465,119
Net Income (Loss) per Share – Basic	$	(0.31	)	$	(0.44	)
Net Income (Loss) for Diluted Earnings Per Share	$	(6,438,834	)	$	(9,039,565	)
Diluted Weighted Average Number of Shares		20,865,119			20,465,119
Net Income (Loss) per Share – Diluted	$	(0.31	)	$	(0.44	)

Basic and diluted earnings (losses) per share (EPS) for the quarter ended September 30, 2012, were $(0.31) and $(0.31), compared to $(0.44) and $(0.44) for the same quarter last year.

61

The Nine Months Ended September 30, 2012 Compared with the Nine Months Ended September 30, 2011

	The nine months			The nine months
	Ended September 30, 2012			Ended September 30, 2011
	($)			($)
Consolidated Statement of Operations and Comprehensive (Loss) Income
Net Sales	$	103,141,496		$	117,904,533
Cost of sales		(108,917,207	)		(123,662,226	)
Gross profit (loss)		(5,775,711	)		(5,757,693	)
Selling expenses		(175,560	)		(206,096	)
General and administrative expenses		(1,315,230	)		(1,678,208	)
Impairment loss of assets held for sale		(4,322,391	)		0
Loss from operations		(11,588,892	)		(7,641,997	)
Interest income		28,252			(1,081,906	)
Interest expense		(1,332,199	)		60,877
Other (expenses) income		4,858			3,762
Changes in fair value of warrants		1,850,000			(6,247,652	)
Income from operations before income tax		(11,037,981	)		(14,906,916	)
Income tax		-			-
Net income		(11,037,981	)		(14,906,916	)
Foreign currency translation adjustment		172,063			1,594,375
Comprehensive income	$	(10,865,918	)	$	(13,312,541	)

62

Net Sales

	For The Nine Months Ended September 30,
	2012		2011		Period to Period Change
Item	Amount ($)		Amount ($)		Amount ($)			%
Soybean meal	$	50,118,007		57,773,808		(7,655,801	)		-13.25	%
Soybean oil		32,461,312		36,948,836		(4,487,524	)		-12.15	%
Salad Oil		6,673,526		7,996,055		(1,322,529	)		-16.54	%
Squeezed oil		1,265,074		1,136,996		128,078			11.26	%
Soy protein concentrates		3,002,080		2,960,719		41,361			1.40	%
Low temperature soy meal		9,621,496		11,088,119		(1,466,623	)		-13.23	%
Total Net Sales	$	103,141,495		117,904,533		(14,763,038	)		-12.52	%

Our net sales for the nine months ended September 30, 2012 decreased by $14,763,038 or 12.52% as compared to the nine months ended September 30, 2011. The reduction in sales revenue was mainly the result of closure of Factory No.3 in the third quarter of 2012.

However, the average selling prices of these products increased over the period.

In the nine months ended September 30, 2012, we purchased 172,993 tons of soybean and produced 116,602 tons of soybean meal, 23,599 tons of soybean oil, 4,615 tons of salad oil, 883 tons of squeezed oil, 2,351 tons of soy protein concentrates, and 19,339 tons of low-temperature soybean meal, as compared to 205,061 tons of soybean purchased, and 148,375 tons of soybean meal ,29,456 tons of soybean oil, 6,165 tons of salad oil, 884 tons of squeezed oil, 2,350 tons of soy protein concentrates and 22,254 tons of low-temperature soybean meal produced respectively, in the nine months ended September 30, 2011. Consequently, in the nine month period ended September 30, 2012, we sold 116,648 tons of soybean meal, 24,127 tons of soybean oil, 4,796 tons of salad oil, 886 tons of squeezed oil, 2,463 tons of soy protein concentrates, and 15,969 tons of low-temperature soy meal, representing growth rates of -22.64%, -19.75%, -23.72%, 1.49%%, 1.36% and -14.95%, respectively as compared to the nine month ended September 30, 2011, when we sold 150,794 tons of soybean meal, 30,064 tons of soybean oil, 6,287 tons of salad oil, 873 tons of squeezed oil, 2,430 tons of soy protein concentrates, and 18,775 tons of low-temperature soy meal. Though the average sales prices of the products, namely soybean meal, soybean oil, squeezed oil, soy protein concentrates, and low-temperature soy meal, experienced growth rates of 10.27%, 6.18%, 6.57%, -2.81% and -0.89% in the nine months ended September 30, 2012, as compared to those same period of 2011, such increases have partly compensated for the decrease in sales volume, which has resulted in a drop in total sales revenue.

63

Cost of Sales and Gross (Loss) Profit

	For The Nine Months Ended September 30,
	2012			% of Sales			2011			%of Sales			Period to Period Change
	Amount ($)			Revenue			Amount ($)			Revenue			Amount ($)			%
Cost of Sales:
Soybean meal	$	(53,025,138	)		105.80	%	$	(61,877,961	)		107.10	%	$	8,852,823			-14.31	%
Soybean oil		(34,187,699	)		105.32	%		(38,295,933	)		103.65	%		4,108,234			-10.73	%
Salad oil		(7,027,536	)		105.30	%		(8,344,342	)		104.36	%		1,316,806			-15.78	%
Squeezed oil		(1,334,635	)		105.50	%		(1,207,820	)		106.23	%		(126,815	)		10.50	%
Soy protein concentrates		(3,194,446	)		106.41	%		(2,953,918	)		99.77	%		(240,528	)		8.14	%
Low-temp soy meal		(10,147,753	)		105.47	%		(10,982,252	)		99.05	%		834,499			-7.60	%
Total Cost of Sales		(108,917,207	)		105.60	%		(123,662,226	)		104.88	%		14,745,019			-11.92	%
Gross (Loss) Profit:
Soybean meal	$	(2,907,130	)		-5.80	%	$	(4,104,153	)		-7.10	%	$	1,197,023			-29.17	%
Soybean oil		(1,726,387	)		-5.32	%		(1,347,097	)		-3.65	%		(379,290	)		28.16	%
Salad Oil		(354,010	)		-5.30	%		(348,287	)		-4.36	%		(5,723	)		1.64	%
Squeezed oil		(69,561	)		-5.50	%		(70,824	)		-6.23	%		1,263			-1.78	%
Soy protein concentrates		(192,366	)		-6.41	%		6,801			-0.23	%		(199,167	)		-2,928.50	%
Low-temp soy meal		(526,257	)		-5.47	%		105,867			-0.95	%		(632,124	)		-597.09	%
Total Gross Profit (Loss)	$	(5,775,711	)		-5.60	%	$	(5,757,693	)		-4.88	%	$	(18,018	)		-0.31	%

Our cost of sales for the nine months ended September 30, 2012 decreased by $14,745,019 or 11.92% as compared to the nine months ended September 30, 2011, while the ratio of cost as a percentage to net sales value increased from 104.88% to 105.60% over the same period. The decrease in cost of sales in the nine months period ended September 30, 2012 was mainly caused by the material decrease in processing and sales volume in the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011. We recorded a gross loss of $5,775,711 in the nine months ended September 30, 2012, in comparison to a gross loss of $5,757,693 in the nine months ended September 30, 2011. Our gross profit margin decreased from a negative 4.88% to a negative 5.60% over the same period. The main reasons for the gross loss of the nine months ended September 30, 2012 were the impact of the still large imports of soybeans and the negative influence of foot-and-mouth disease.

64

Due to the increase in cost of production and the increase in Chinese inflation expectations with respect to commodity prices, soybean purchase prices remain high. The average soybean purchase price was $523.12 per ton for the nine months ended September 30, 2011 as compared to $579.17 per ton for the nine months ended September 30, 2012.

During the nine month period ended September 30, 2012, the market prices of our products remained high. The average selling prices were generally higher than those in the nine months ended September 30, 2011 (please refer to the section “Net Sales” above for details). Such increases were insufficient to compensate for the increase in the purchase price of soybeans, resulting in a drop in gross margin.

Operating Expenses

	For The Nine months ended September 30,
	2012			% of Sales			2011			% of Sales			Period to Period Change
	Amount ($)			Revenue			Amount ($)			Revenue			Amount ($)			%
Selling Expenses	$	(175,560	)		0.17	%	$	(206,096	)		0.17	%	$	30,536			-14.82	%
General & Administrative Expenses		(1,315,230	)		1.28	%		(1,678,208	)		1.42	%		362,978			-21.63	%
Impairment loss of long-lived assets		(4,322,391	)		-4.19	%		0			0.00	%		(4,322,391	)		-
Total Operating Expenses	$	(5,813,181	)		1.45	%	$	(1,884,304	)		1.60	%	$	(3,928,877	)		208.51	%

Selling expenses for the nine months ended September 30, 2012 decreased from $206,096 to $175,560 or by 14.82% as compared to the nine months ended September 30, 2011. This decrease was mainly due to the decrease in the expenses related to market development. As a percentage of net sales, selling expenses remained at 0.17% over the period.

General and administrative expenses for the nine months ended September 30, 2012 decreased from $1,678,208 to $1,315,230 or by 21.63% as compared to the nine months ended September 30, 2011. This decrease was due to the combined effect of the material decrease in depreciation charges, including those of the temporarily idle assets, and the material savings in professional service fees related to public company affairs. As a percentage of net sales, general and administrative expenses decreased from 1.42% to $1.28% for the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011.

As a result of removal of Factory No.3, the impairment loss for the nine months ended September 30 2012 was $4.322.391, as compared to nil impairment expenses for the nine months ended September 2011. Total operating expenses increased from $1,884,304 to $5,813,181 or by 208.51% in the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011, and the percentage of net sales decreased from 1.60% to 1.45% for the period ended September 30, 2012 as compared to the period ended September 30, 2011.

65

Net Income

	For The Nine months ended September 30,												Period to Period
	2012			% of Sales			2011			%of Sales			Change
	Amount ($)			Revenue			Amount ($)			Revenue			Amount ($)			%
Loss from operations	$	(11,588,892	)		-11.24	%	$	(7,641,997	)		-6.48	%	$	(3,946,895	)		51.65	%
Interest expenses		(1,332,199	)		-1.29	%		(1,081,906	)		-0.92	%		(250,293	)		23.13	%
Interest income		28,252			0.03	%		60,877			0.05	%		(32,625	)		-53.59	%
Other (expense) income		4,858			0.00	%		3,762			0.00	%		1,096			29.13	%
Changes in fair value of warrants		1,850,000			1.79	%		(6,247,652	)		-5.30	%		8,097,652			-129.61	%
Income tax		-			-			-			-			-			-
Net income	$	(11,037,981	)		-10.70	%	$	(14,906,916	)		-12.64	%	$	3,868,935			-25.95	%

Loss from operations was primarily due to the reasons set forth in the sections entitled “Net Sales” and “Cost of Sales and Gross Profit” above. For the nine months ended September 30, 2012, we generated a gross loss, and a loss after deducting selling and general and administrative expenses. Operating margin improved from negative 12.64% to negative 10.70%.

Interest expenses increased by 23.13% from the nine months ended September 30, 2011, to the nine months ended September 30, 2012. As a percentage of net sales, interest expense was 1.29% for the nine months ended September 30, 2012, as compared to 0.92% for the same period in 2011. The changes were mainly caused by a interest rate increase in bank borrowings. Interest income decreased by 53.59% over the same period.

Effective January 1, 2009, we adopted the provisions of FASB ASC Topic 815, "Derivatives and Hedging" ("ASC 815"). As a result of adopting ASC 815, we recorded non-cash income of $1,850,000 for the nine months ended September 30, 2012, and negative $6,247,652 for the nine months ended September 30, 2011, resulting from the change in fair value of warrants issued to investors in conjunction with the Company’s Series A Convertible Preferred Stock in October 2007. The accounting treatment of the warrants resulted from an anti-dilution provision to the warrant holders.

Since Yanglin has been recognized as a “Key Leading Enterprise” in the industrialization of the agriculture industry by the Chinese government, Yanglin has qualified for a complete exemption from income taxes through 2009. This status is usually reviewed every two years,in accordance to a governmental order. The latest review of Yanglin’s status of National Key Leading Enterprise in Agriculture was completed by the government in March 2010, and the status was granted to the Company for the period from January 2010 to June 2012. The Company received this government approval on May 7, 2010. In addition to the PRC's central government's award, a review by the local tax authority will also be is also required in order for us to enjoy a 2012 tax exemption. Yanglin is currently in the process of renewing its status of exemption from income taxes for an the additional two year period from since June 2012 to June 2014.

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Net income, after including the abovementioned non-cash income from the change in fair value of warrants, decreased by 25.95% from a net income of negative $14,906,916 in the nine months ended September 30, 2011, to a net income of negative $11,037,981 in the nine months ended September 30, 2012. During the same period, net profit margin improved from -12.64% to -10.70%.

Earnings Per Share

	For The Nine Months Ended September 30,
	2012			2011
	Unaudited			Unaudited
Net Income for Basic Earnings Per Share	$	(11,037,981	)	$	(14,906,916	)
Basic Weighted Average Number of Shares		20,865,119			20,465,119
Net Income per Share – Basic	$	(0.53	)	$	(0.73	)
Net Income for Diluted Earnings Per Share	$	(11,037,981	)	$	(14,906,916	)
Diluted Weighted Average Number of Shares		20,865,119			20,465,119
Net Income per Share – Diluted	$	(0.53	)	$	(0.73	)

Basic and diluted earnings per share (EPS) for the nine months ended September 30, 2012, were $(0.53) and $(0.53), as compared to $(0.73) and $(0.73) for the same period last year.

Liquidity and Capital Resources

Generally, we finance our business with cash flow from operations and short-term bank loans. Working capital is current assets less current liabilities, and our operational cash demand consists mainly of raw materials purchases, salaries, production overhead (auxiliary materials, and utilities) and financing expenses, of which raw materials (soybean) purchases comprise the majority.

As we generally pay cash to our suppliers upon purchase of soybeans, there is a higher than normal need for cash around harvest season. Under normal circumstances, our pattern of operations is as follows: (i) we will keep a large cash reserve until early October, the harvest time, and take short-term loans from banks at that time, (ii) we will build up a substantial inventory of soybeans so that for the period through the end of the year and for the following quarter or even the following half year, we will have sufficient raw materials to maintain operations and convert finished products to cash, and (iii) we will repay the short-term loans by the end of June or July the following year.

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The Group had a credit line facility with the ability to borrow up to $75.2 million (equivalent to RMB 492.9 million), with Agricultural Development Bank of China (the “Bank”).

Our operational cash requirements may be influenced by many factors, including the fluctuation of raw material prices, cash flow, competition, relationships with suppliers or customers, availability of credit facilities and financing alternatives. Under the current operational level, we can satisfy this demand with short-term loans from the Bank and our own cash reserve, within the next twelve months.

Cash Flows for the Nine Months Ended September 30, 2012 Compared with the Nine Months Ended September 30, 2011

Operating Activities

Cash used in operating activities for the nine months ended September 30, 2012 was $3,150,739, while cash provided by operating activities for the nine months ended September 30, 2011, was $12,521,948. The difference is primarily due to the reduction in the balance of our advances to suppliers by $ 9,130,658 in the nine months ended September 30, 2012 as compared to the same period in 2011, and the reduction in our inventories level by $4,540,862 in the nine months ended September 30 2012 as compared to $ 9,774,367 in the same period of 2011.

Our cash flows are becoming less stable, as a result of changes in the market since the end of 2011. We have started to sell products by credit term which is generally for a term of three month, rather than on a current cash payment basis.

Investing Activities

Net cash generated in investing activities for the nine months ended September 30, 2012 was nil, as compared to $37,514 used in investing activities for the nine months ended September 30, 2011.

Financing Activities

Net cash used in financing activities was $8,354,913 for the nine months ended September 30, 2012, as compared to net cash used in financing activities of $24,084,671 for the nine months ended September 30, 2011. Net cash used in the nine months ended September 30, 2011 included the repayment of the principals of the long-term loans from related parties, and no new borrowings were made during this period. During the nine months ended September 30, 2012, we made principal payments for short-term bank loans of $8,324,311, and principal payments for loans from related parties amounted to $30,602. During the nine months ended September 30, 2011, we made principal payments for short-term bank loans of $24,010,343, and principal payments for loans from related parties amounted to $74,328.

Loans

We had short-term bank loans of $13,816,013 on September 30, 2012, as compared to $ 22,017,771 on December 31, 2011. These loans are used to satisfy working capital needs. We have fully repaid all due loans on time. The loans outstanding as at September 30, 2012 are due at various dates between October, 2012 and January, 2013.

We had long-term bank loans, including the portion payable within one year, of approximately of $4,267,763 on September 30, 2012, as compared to $4,246,284 on December 31, 2011. These loans are used to upgrade our oil products and expand our storage facility. The loan outstanding as at September 30 2012 is due on August 26, 2014.

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The balance of our long-term bank loan from related parties, including the portion payable within one year, was approximately $207,967 on September 30, 2012, compared to $237,328 on December 31, 2011. The change was caused by repayment of the principal, and we did not borrow any additional funds during the nine months ended September 30, 2012.

Commitments and Contingencies

We have no future cash commitments or contingent liabilities as of September 30, 2012.

Critical Accounting Policies and Estimates

There have been no material changes to the Company’s Critical Accounting Policies and Assumption filed in the Company’s 2011 Annual Report on Form 10-K.

Economic and Political Risks

The Group’s operations are conducted in the PRC. Accordingly, the Group’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, so the Group’s operations 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 Group’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.

Recent Accounting Pronouncements

In January 2011, the FASB issued ASU 2011-01, “Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20”, which temporarily delay the effective date of the disclosures about troubled debt restructurings in ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, for public entities. The delay is intended to allow the FASB 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 June 15, 2011. The deferral in ASU 2011-01 is effective January 19, 2011 (date of issuance).

In April 2011, the FASB issued ASU 2011-02, “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring”, which clarifies when creditors should classify loan modifications as troubled debt restructurings. The guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the year. The guidance on measuring the impairment of a receivable restructured in a troubled debt restructuring is effective on a prospective basis. A provision in ASU 2011-02 also ends the FASB’s deferral of the additional disclosures about troubled debt restructurings as required by ASU 2010-20. The adoption of ASU 2011-02 is not expected to have a material impact on the Company’s financial condition or results of operations.

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In April 2011, the FASB issued ASU 2011-03, Consideration of Effective Control on Repurchase Agreements, which deals with the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. ASU 2011-03 changes the rules for determining when these transactions should be accounted for as financings, as opposed to sales. The guidance in ASU 2011-03 is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The adoption of ASU 2011-03 is not expected to have a material impact on the Company’s financial condition or results of operation.

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”). ASU 2011-04 clarifies some existing concepts, eliminates wording differences between U.S. GAAP and IFRS, and in some limited cases, changes some principles to achieve convergence between U.S. GAAP and IFRS. ASU 2011-04 results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. ASU 2011-04 will be effective for the Company beginning after December 15, 2011. The Company does not expect the adoption of ASU 2011-04 to have a material effect on its operating results or financial position.

In June 2011, the Financial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) 2011-05, Presentation of Comprehensive Income, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of equity. ASU 2011-05 will be effective for the Company beginning after December 15, 2011.

The Company does not expect the adoption of ASU 2011-05 to have a material effect on its operating results or financial position. However, it will impact the presentation of comprehensive income.

In July 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-06, Other Expenses (Topic 720): Fees Paid to the Federal Government by Health Insurers. This ASU amends the FASB Accounting Standards CodificationTM (Codification) to provide guidance about how health insurers should recognize and classify in their income statements fees mandated by the "Patient Protection and Affordable Care Act," as amended by the "Health Care and Education Reconciliation Act." ASU 2011-06 represents a consensus of the EITF on Issue No. 10-H, “Fees Paid to the Federal Government by Health Insurers.” ASU 2011-06 requires that the liability for the fee be estimated and recorded in full once the entity provides qualifying health insurance in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable.ASU 2011-06 is effective for calendar years beginning after December 31, 2013, when the fee initially becomes effective.

In July 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-07, Health Care Entities (Topic 954): Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities. The ASU represents a consensus of the EITF on Issue No. 09-H, “Health Care Entities: Presentation and Disclosure of Net Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts.” The amendments in this ASU require certain health care entities to change the presentation in their statement of operations by reclassifying the provision for bad debts associated with patient service revenue from an operating expense to a deduction from patient service revenue (net of contractual allowances and discounts). Additionally, those health care entities are required to provide enhanced disclosure about their policies for recognizing revenue and assessing bad debts. The amendments also require disclosures of patient service revenue (net of contractual allowances and discounts) as well as qualitative and quantitative information about changes in the allowance for doubtful accounts. For public entities, the amendments in this ASU are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2011, with early adoption permitted. For nonpublic entities, the amendments are effective for the first annual period ending after December 15, 2012, and interim and annual periods thereafter, with early adoption permitted. The amendments to the presentation of the provision for bad debts related to patient service revenue in the statement of operations should be applied retrospectively to all prior periods presented. The disclosures required by the amendments in this ASU should be provided for the period of adoption and subsequent reporting periods.

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In September 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment. ASU 2011-08 is intended to simplify how entities, both public and nonpublic, test goodwill for impairment. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350, Intangibles-Goodwill and Other. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance.

In September 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-09, Compensation-Retirement Benefits-Multiemployer Plans (Subtopic 715-80): Disclosures about an Employer’s Participation in a Multiemployer Plan. ASU 2011-09 is intended to address concerns from various users of financial statements on the lack of transparency about an employer’s participation in a multiemployer pension plan. Users of financial statements have requested additional disclosure to increase awareness of the commitments and risks involved with participating in multiemployer pension plans. The amendments in this ASU will require additional disclosures about an employer’s participation in a multiemployer pension plan. Previously, disclosures were limited primarily to the historical contributions made to the plans. ASU 2011-09 applies to nongovernmental entities that participate in multiemployer plans. For public entities, ASU 2011-09 is effective for annual periods for fiscal years ending after December 15, 2011. For nonpublic entities, ASU 2011-09 is effective for annual periods for fiscal years ending after December 15, 2012. Early adoption is permissible for both public and nonpublic entities. ASU 2011-09 should be applied retrospectively for all prior periods presented.

In December 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-10, Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate-a Scope Clarification. ASU No. 2011-10 is intended to resolve the diversity in practice about whether the guidance in Subtopic 360-20, Property, Plant, and Equipment—Real Estate Sales, applies to a parent that ceases to have a controlling financial interest (as described in Subtopic 810-10, Consolidation—Overall) in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt. This Update does not address whether the guidance in Subtopic 360-20 would apply to other circumstances when a parent ceases to have a controlling financial interest in a subsidiary that is in substance real estate. ASU 2011-10 should be applied on a prospective basis to deconsolidation events occurring after the effective date; with prior periods not adjusted even if the reporting entity has continuing involvement with previously derecognized in substance real estate entities. For public entities, ASU 2011-10 is effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. For nonpublic entities, ASU 2011-10 is effective for fiscal years ending after December 15, 2013, and interim and annual periods thereafter. Early adoption is permitted.

In December 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. ASU No. 2011-11 is intended to provide enhanced disclosures that will enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. This includes the effect or potential effect of rights of setoff associated with an entity’s recognized assets and recognized liabilities within the scope of this Update. The amendments require enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either Section 210-20-45 or Section 815-10-45. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented.

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In December 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU No. 2011-11 is intended to supersede certain pending paragraphs in Accounting Standards Update No. 2011-05,Comprehensive Income (Topic 220): Presentation of Comprehensive Income, to effectively defer only those changes in Update 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The amendments will be temporary to allow the Board time to redeliberate the presentation requirements for reclassifications out of accumulated other comprehensive income for annual and interim financial statements for public, private, and non-profit entities. All other requirements in ASU No. 2011-05 are not affected by ASU No. 2011-12, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. Nonpublic entities should begin applying these requirements for fiscal years ending after December 15, 2012, and interim and annual periods thereafter.

In July 2012, FASB issued Accounting Standards Update (ASU) No. 2012-01, Health Care Entities (Topic 954): Continuing Care Retirement Communities — Refundable Advance Fees. This ASU clarifies that an entity should classify an advance fee as deferred revenue when a continuing care retirement community has a resident contract that provides for payment of the refundable advance fee upon reoccupancy by a subsequent resident, which is limited to the proceeds of reoccupancy. Refundable advance fees that are contingent upon reoccupancy by a subsequent resident but are not limited to the proceeds of reoccupancy should be accounted for and reported as a liability. For public entities (including conduit bond obligors), the amendments in ASU No. 2012-01 are effective for fiscal periods beginning after December 15, 2012. For nonpublic entities, the amendments to the codification in the ASU are effective for fiscal periods beginning after December 15, 2013. Early adoption is permitted. The amendments in ASU No. 2012-01 should be applied retrospectively by recording a cumulative-effect adjustment to opening retained earnings (or unrestricted net assets) as of the beginning of the earliest period presented.

In July 2012, FASB issued Accounting Standards Update (ASU) No. 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. This ASU states that an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with Codification Subtopic 350-30, Intangibles—Goodwill and Other, General Intangibles Other than Goodwill. Under the guidance in this ASU, an entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The amendments in this ASU are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance.

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In August 2012, FASB has issued Accounting Standards Update (ASU) No. 2012-03, Technical Amendments and Corrections to SEC Sections. This ASU amends various SEC paragraphs pursuant to SAB 114, SEC Release No. 33-9250, and ASU 2010-22, which amend or rescind portions of certain SAB Topics.

In October 2012, FASB issued Accounting Standards Update (ASU) No. 2012-04, Technical Corrections and Improvements. This ASU make technical corrections, clarifications, and limited-scope improvements to various Topics throughout the Codification. The amendments in this ASU that will not have transition guidance will be effective upon issuance for both public entities and nonpublic entities. For public entities, the amendments that are subject to the transition guidance will be effective for fiscal periods beginning after December 15, 2012. For nonpublic entities, the amendments that are subject to the transition guidance will be effective for fiscal periods beginning after December 15, 2013.

In October 2012, FASB issued Accounting Standards Update (ASU) No. 2012-05, Statement of Cash Flows (Topic 230). This ASU addresses how cash receipts arising from the sale of certain donated financial assets, such as securities, should be classified in the statement of cash flows of not-for-profit entities (NFPs). Some NFPs classify those cash receipts as investing cash inflows, while other entities classify them as either operating cash inflows or financing cash inflows, consistent with their treatment of inflows arising from cash contributions. The objective of this Update is for an NFP to classify cash receipts from the sale of donated financial assets consistently with cash donations received in the statement of cash flows if those cash receipts were from the sale of donated financial assets that upon receipt were directed without the NFP imposing any limitations for sale and were converted nearly immediately into cash. The amendments in the ASU are effective prospectively for fiscal years, and interim fiscal periods within those years, beginning after June 15, 2013. Retrospective application to all periods presented upon the date of adoption is permitted. Early adoption from the beginning of the fiscal year of adoption is permitted.

In October 2012, FASB issued Accounting Standards Update (ASU) No. 2012-06, Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution. This ASU addresses the diversity in practice about how to interpret the terms on the same basis and contractual limitations when subsequently measuring an indemnification asset recognized in a government-assisted (Federal Deposit Insurance Corporation or National Credit Union Administration) acquisition of a financial institution that includes a loss-sharing agreement (indemnification agreement). For public and nonpublic entities, the amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. Early adoption is permitted. The amendments should be applied prospectively to any new indemnification assets acquired after the date of adoption and to indemnification assets existing as of the date of adoption arising from a government-assisted acquisition of a financial institution.

In October 2012, FASB issued Accounting Standards Update (ASU) No. 2012-07, Entertainment—Films (Topic 926): Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs. This ASU eliminates the rebuttable presumption that the conditions leading to the write-off of unamortized film costs after the balance sheet date existed as of the balance sheet date. The amendments also eliminate the requirement that an entity incorporate into fair value measurements used in the impairment tests the effects of any changes in estimates resulting from the consideration of subsequent evidence if the information would not have been considered by market participants at the measurement date. or SEC filers, the amendments are effective for impairment assessments performed on or after December 15, 2012. For all other entities, the amendments are effective for impairment assessments performed on or after December 15, 2013. The amendments resulting from this ASU should be applied prospectively. Earlier application is permitted, including for impairment assessments performed as of a date before October 24, 2012, if, for SEC filers, the entity’s financial statements for the most recent annual or interim period have not yet been issued or, for all other entities, have not yet been made available for issuance.

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Contractual Obligations and Off-Balance Sheet Arrangements

Contractual Obligations

We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our consolidated financial position, results of operations, and cash flows.

The following tables summarize our contractual obligations as of September 30, 2012, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

	Payments due by period
Contractual obligations	Total		Less than 1 year		2-3 years		3-5 years		More than 5 years
Long-Term Debt Obligations	$	4,475,730	$	1,467,466	$	2,945,805	$	62,459	$	0
Capital Lease Obligations		-		-		-		-		-
Operating Lease Obligations		-		-		-		-		-
Purchase Obligations		-		-		-		-		-

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

ITEM 3—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

ITEM 4—CONTROLS AND PROCEDURES

a. Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2012.

Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures. Management conducted its evaluation of disclosure controls and procedures under the supervision of our chief executive officer and our chief financial officer. Based upon, and as of the date of this evaluation, our chief executive officer and chief financial officer concluded that, as of September 30, 2012, our disclosure controls and procedures were not effective due to the material weaknesses and significant deficiencies in our internal control over financial reporting described below.

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Management conducted its evaluation of disclosure controls and procedures under the supervision of our chief executive officer and our chief financial officer. Based upon, and as of the date of this evaluation, our chief executive officer and chief financial officer concluded that, as of September 30, 2012, our disclosure controls and procedures were not effective due to the material weaknesses and significant deficiencies in our internal control over financial reporting described below.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. Our internal control system over financial reporting is a process designed under the supervision of the Company's Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with United States generally accepted accounting principles (“U.S. GAAP”). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. Our management is also required to assess and report on the effectiveness of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Management assessed the effectiveness of our internal control over financial reporting as of September 30, 2012. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. Based on our evaluation, our principal executive officer and principal financial officer have concluded that as of September 30, 2012, our internal control over financial reporting was not effective due to the identification of the following material weaknesses:

A.	No mechanism has been established for our directors and management to make declarations in relation to related parties and any conflicts of interest regarding our operations that our directors and management may have.
B.	There were no internal audit exercises performed, nor did we have formal policies and plan for regular internal audit exercise.
C.	We did not maintain personnel with a sufficient level of accounting knowledge, experience and training in the application of US GAAP and SEC requirements.

Both control deficiencies could result in material misstatements of significant accounts and disclosures that would result in a material misstatement to our interim or annual consolidated financial statements that would not be prevented or detected. Accordingly, the management has determined that these control deficiencies constitute material weaknesses.

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Remediation Initiative and Progress

We have engaged an accounting consulting firm to help with the preparation of our consolidated financial statements and deliver training to our own accounting staff on the selection and application of US GAAP and related SEC disclosure requirements. In addition, we have engaged a consulting firm to draft an accounting manual based on US GAAP. The draft has been prepared and is currently being reviewed by our management, and it will be released upon approval of the management and the audit committee.

b. Changes in Internal Controls over Financial Reporting

During the quarter ended September 30, 2012, there was no other change in our internal controls over financial reporting, except as described above, that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Such limitations include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures, such as simple errors or mistakes or intentional circumvention of the established process.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not currently a party to any material legal proceedings. From time to time, however, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.

ITEM 1A—RISK FACTORS

As a smaller reporting company, we are not required to provide the information required by this item.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION.

None.

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ITEM 6. EXHIBITS

31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

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.

	Yanglin Soybean, Inc.
Date: November 19, 2012	By:	/s/ Shulin Liu
		Shulin Liu
		Chief Executive Officer
		(Principal Executive Officer)
	Yanglin Soybean, Inc.
Date: November 19, 2012	By:	/s/ Yang Nan
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

77

EXHIBIT INDEX

Exhibit No.	Document Description
31.1	Certification of the Chief Executive Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Certification of the Chief Financial Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).*
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

* Filed Herewith

78