UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549



Form 10-Q



|x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
    1934
|- | -------------------------------------------------------------------------------------
|  |                                                                                      
|  | For the quarterly period ended July 31, 2012                                         
|  |                                                                                      
|o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   
|  |                                                                                      
|  | For the transition period from to                                                    



Commission File Number: 001-34808



CHINA BOTANIC PHARMACEUTICAL INC.

(Exact name of registrant
as specified in its charter)



|Nevada                          | 88-1273503         
|------------------------------- | -------------------
|(State or other jurisdiction of | (I.R.S. Employer   
|incorporation or organization)  | Identification No.)



|Level 11, Changjiang International
        Building
        No. 28, Changjiang Road, Nangang
        District, Harbin
        Heilongjiang Province, China
        150090
        (Address of principal executive
        offices)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



86-451-5762-03787

(Registrant’s
Telephone Number, Including Area Code)



Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.

xYesoNo



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).

xYesoNo



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



|Large accelerated filero                                                 | Accelerated filero        
|------------------------------------------------------------------------ | --------------------------
|Non-accelerated filero(Do not check if a smaller reporting 
    company) | Smaller reporting companyx



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

oYesxNo

As of September 4, 2012, there were 37,239,536 shares of the
registrant’s $0.001 par value common stock issued and outstanding.











TABLE OF CONTENTS



|               |                                                                                                                                                 | Page
|-------------- | ----------------------------------------------------------------------------------------------------------------------------------------------- | ----
|PART I         | FINANCIAL INFORMATION                                                                                                                           |     
|Item 1.        | Financial Statements                                                                                                                            |     
|               | Condensed Consolidated Balance Sheets as of July 31, 2012 (unaudited) and October 31, 2011
    (audited)                                        | 1   
|               | Condensed Consolidated Statements of Income and Comprehensive Income for the Three and Nine
    Months Ended July 31, 2012 and 2011 (unaudited) | 2   
|               | Condensed Consolidated Statements of Cash Flows for the Nine Months Ended July 31, 2012 and
    2011 (unaudited)                                | 3   
|               | Notes to the Condensed Consolidated Financial Statements (unaudited)                                                                            | 4   
|Item 2.        | Management’s Discussion and Analysis of Financial Condition and Results of Operations                                                           | 29  
|Item 3.        | Quantitative and Qualitative Disclosures About Market Risk                                                                                      | 40  
|Item 4.        | Controls and Procedures                                                                                                                         | 40  
|               |                                                                                                                                                 |     
|PART II        |                                                                                                                                                 |     
|Item 1.        | Legal Proceedings                                                                                                                               | 41  
|Item 1A.       | Risk Factors                                                                                                                                    | 41  
|Item 2.        | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                     | 41  
|Item 3.        | Defaults Upon Senior Securities                                                                                                                 | 41  
|Item 4.        | Mining Safety Disclosures                                                                                                                       | 41  
|Item 5.        | Other Information                                                                                                                               | 41  
|Item 6.        | Exhibits                                                                                                                                        | 41  
|Signature Page | 42                                                                                                                                             











In this Quarterly Report on Form 10-Q,
references to “dollars” and “$” are to United States dollars and, unless the context otherwise requires,
references to “we,” “us” and “our” refer to China Botanic Pharmaceutical Inc. and its
consolidated subsidiaries.



This Quarterly Report contains certain
forward-looking statements. When used in this Quarterly Report, statements which are not historical in nature, including the words
“anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,”
“may,” “project,” “plan” or “continue,” and similar expressions are intended to
identify forward-looking statements. They also include statements containing anticipated business developments, a projection of
revenues, earnings or losses, capital expenditures, dividends, capital structure or other financial terms.



The forward-looking statements in this
Quarterly Report are based upon management’s beliefs, assumptions and expectations of our future operations and economic
performance, taking into account the information currently available to them. These statements are not statements of historical
fact. Forward-looking statements involve risks and uncertainties, some of which are not currently known to us that may cause our
actual results, performance or financial condition to be materially different from the expectations of future results, performance
or financial condition we express or imply in any forward-looking statements. These forward-looking statements are based on
our current plans and expectations and are subject to a number of uncertainties and risks that could significantly affect current
plans and expectations and our future financial condition and results.



We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light
of these risks, uncertainties and assumptions, the forward-looking events discussed in this filing might not occur. We qualify
any and all of our forward-looking statements entirely by these cautionary factors. As a consequence, current plans, anticipated
actions and future financial conditions and results may differ from those expressed in any forward-looking statements made by
or on our behalf. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented
herein.











PART I – FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



|CHINA BOTANIC PHARMACEUTICAL INC. AND SUBSIDIARIES
|--------------------------------------------------
|Condensed Consolidated Balance Sheets             





|                                                                                                                                                              |  | Note |    |  | July 31, 2012 |   |             | October 31, 2011 | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- |  | ------------- | - | ----------- | ---------------- | 
|                                                                                                                                                              |  |      |    |  | (Unaudited)   |   |             | (Audited)        | 
|ASSETS                                                                                                                                                        |  |      |    |  |               |   |             |                  | 
|Current assets                                                                                                                                                |  |      |    |  |               |   |             |                  | 
|Cash                                                                                                                                                          |  |      |    |  |               | $ | 41,308,177  |                  | 
|Trade receivables, net                                                                                                                                        |  |      | 5  |  |               |   | 17,129,544  |                  | 
|Inventory, net                                                                                                                                                |  |      | 7  |  |               |   | 15,301,659  |                  | 
|Other receivables, net                                                                                                                                        |  |      | 6  |  |               |   | 180,211     |                  | 
|Total current assets                                                                                                                                          |  |      |    |  |               |   | 73,919,591  |                  | 
|                                                                                                                                                              |  |      |    |  |               |   |             |                  | 
|Property and equipment, net                                                                                                                                   |  |      | 8  |  |               |   | 4,254,975   |                  | 
|Intangible assets, net                                                                                                                                        |  |      | 9  |  |               |   | 16,739,514  |                  | 
|Construction-in-progress                                                                                                                                      |  |      | 10 |  |               |   | 1,952,353   |                  | 
|Deposits for properties                                                                                                                                       |  |      | 12 |  |               |   | 33,818,763  |                  | 
|Deferred tax assets                                                                                                                                           |  |      | 13 |  |               |   | 140,322     |                  | 
|Total assets                                                                                                                                                  |  |      |    |  |               | $ | 130,825,518 |                  | 
|                                                                                                                                                              |  |      |    |  |               |   |             |                  | 
|LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                                          |  |      |    |  |               |   |             |                  | 
|Current Liabilities                                                                                                                                           |  |      |    |  |               |   |             |                  | 
|Accounts payable                                                                                                                                              |  |      |    |  |               | $ | 1,785,043   |                  | 
|Tax payable                                                                                                                                                   |  |      |    |  |               |   | 2,358,644   |                  | 
|Accrued employee benefits                                                                                                                                     |  |      | 16 |  |               |   | 2,710,301   |                  | 
|Warrant Liabilities                                                                                                                                           |  |      | 17 |  |               |   | 1,086       |                  | 
|Total liabilities                                                                                                                                             |  |      |    |  |               |   | 6,855,074   |                  | 
|                                                                                                                                                              |  |      |    |  |               |   |             |                  | 
|Shareholders’ equity                                                                                                                                          |  |      |    |  |               |   |             |                  | 
|Preferred stock (no par value, 1,000,000 shares authorized; none issued and outstanding as of
    July 31, 2012 and October 31, 2011,respectively)            |  |      | 18 |  |               |   | -           |                  | 
|Common stock ($0.001 par value, 100,000,000 shares authorized; 37,239,536  issued and outstanding
    as of July 31, 2012 and October 31, 2011, respectively) |  |      | 18 |  |               |   | 37,240      |                  | 
|Additional paid-in capital                                                                                                                                    |  |      |    |  |               |   | 8,332,212   |                  | 
|Common stock warrants                                                                                                                                         |  |      | 19 |  |               |   | 0           |                  | 
|Reserves                                                                                                                                                      |  |      | 20 |  |               |   | 3,372,697   |                  | 
|Accumulated other comprehensive income                                                                                                                        |  |      |    |  |               |   | 9,440,272   |                  | 
|Retained earnings                                                                                                                                             |  |      |    |  |               |   | 102,788,023 |                  | 
|Total shareholders’ equity                                                                                                                                    |  |      |    |  |               |   | 123,970,444 |                  | 
|                                                                                                                                                              |  |      |    |  |               |   |             |                  | 
|Total liabilities and shareholders’ equity                                                                                                                    |  |      |    |  |               | $ | 130,825,518 |                  | 



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



1







CHINA BOTANIC PHARMACEUTICAL INC. AND
SUBSIDIARIES

Condensed Consolidated Statements of Income
and Comprehensive Income ( Unaudited )



|                                            |  |      |    |  | For the three months |   |            | For the nine months | 
|------------------------------------------- |  | ---- | -- |  | -------------------- | - | ---------- | ------------------- | 
|                                            |  | Note |    |  | ended July 31,       |   |            | ended July 31,      | 
|                                            |  |      |    |  | 2012                 |   |            | 2011                | 
|                                            |  |      |    |  |                      |   |            |                     | 
|Sales, net                                  |  |      |    |  |                      | $ | 15,076,663 |                     | 
|                                            |  |      |    |  |                      |   |            |                     | 
|Cost of goods sold                          |  |      |    |  |                      |   | 6,190,688  |                     | 
|                                            |  |      |    |  |                      |   |            |                     | 
|Gross profit                                |  |      |    |  |                      |   | 8,885,975  |                     | 
|                                            |  |      |    |  |                      |   |            |                     | 
|Operating and administrative expenses:      |  |      |    |  |                      |   |            |                     | 
|Sales and marketing                         |  |      |    |  |                      |   | 1,832,351  |                     | 
|General and administrative                  |  |      |    |  |                      |   | 1,365,805  |                     | 
|Research and development                    |  |      |    |  |                      |   | 1,900,363  |                     | 
|Total operating expenses                    |  |      |    |  |                      |   | 5,098,519  |                     | 
|                                            |  |      |    |  |                      |   |            |                     | 
|Income from operations                      |  |      |    |  |                      |   | 3,787,456  |                     | 
|                                            |  |      |    |  |                      |   |            |                     | 
|Other income:                               |  |      |    |  |                      |   |            |                     | 
|Interest income, net                        |  |      |    |  |                      |   | 44,153     |                     | 
|                                            |  |      |    |  |                      |   |            |                     | 
|Income before income tax expenses           |  |      |    |  |                      |   | 3,831,609  |                     | 
|                                            |  |      |    |  |                      |   |            |                     | 
|Income tax expenses                         |  |      | 14 |  |                      |   | 576,071    |                     | 
|                                            |  |      |    |  |                      |   |            |                     | 
|Net income                                  |  |      |    |  |                      | $ | 3,255,538  |                     | 
|                                            |  |      |    |  |                      |   |            |                     | 
|Other comprehensive income:                 |  |      |    |  |                      |   |            |                     | 
|Unrealized currency translation adjustments |  |      |    |  |                      |   | 143,931    |                     | 
|                                            |  |      |    |  |                      |   |            |                     | 
|Total comprehensive income                  |  |      |    |  |                      |   | 3,399,469  |                     | 
|                                            |  |      |    |  |                      |   |            |                     | 
|Earnings per common stock- Basic            |  |      | 15 |  |                      | $ | 0.09       |                     | 
|Earnings per common stock - Diluted         |  |      |    |  |                      | $ | 0.09       |                     | 
|                                            |  |      |    |  |                      |   |            |                     | 
|Weighted average common stock outstanding   |  |      | 15 |  |                      |   |            |                     | 
|Basic                                       |  |      |    |  |                      |   | 37,239,536 |                     | 
|Diluted                                     |  |      |    |  |                      |   | 37,239,536 |                     | 



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



2







CHINA BOTANIC PHARMACEUTICAL
INC. AND SUBSIDIARIES

Condensed Consolidated Statements
of Cash Flows ( Unaudited )



|                                                             |  | Note |   |  | For the nine
    months ended July 31, |  
|------------------------------------------------------------ |  | ---- | - |  | -------------------------------------- | -
|                                                             |  |      |   |  | 2012                                   |  
|                                                             |  |      |   |  |                                        |  
|Cash flows from operating activities:                        |  |      |   |  |                                        |  
|Net income                                                   |  |      |   |  |                                        | $
|Adjustments to reconcile net income to operating activities: |  |      |   |  |                                        |  
|Depreciation                                                 |  |      |   |  |                                        |  
|Amortization                                                 |  |      |   |  |                                        |  
|Share compensation                                           |  |      |   |  |                                        |  
|Noncash rental expenses                                      |  |      |   |  |                                        |  
|Warrants liability reevaluation                              |  |      |   |  |                                        |  
|Deferred tax assets                                          |  |      |   |  |                                        |  
|Changes in assets and liabilities:                           |  |      |   |  |                                        |  
|Decrease in trade receivables, net                           |  |      |   |  |                                        |  
|(Increase) in due from related parties                       |  |      |   |  |                                        |  
|(Increase) in inventory, net                                 |  |      |   |  |                                        |  
|Decrease (Increase) in other receivables, net                |  |      |   |  |                                        |  
|(Decrease) in accounts payable                               |  |      |   |  |                                        |  
|(Decrease) Increase in tax payable                           |  |      |   |  |                                        |  
|Increase in accrued employee benefits                        |  |      |   |  |                                        |  
|Net cash provided by operating activities                    |  |      |   |  |                                        |  
|                                                             |  |      |   |  |                                        |  
|Cash flows from investing activities:                        |  |      |   |  |                                        |  
|Deposits for land use right, property and patents            |  |      |   |  |                                        |  
|Refunds from patents deposit                                 |  |      |   |  |                                        |  
|Increase in construction-in-progress                         |  |      |   |  |                                        |  
|Purchase of property and equipment                           |  |      |   |  |                                        |  
|Net cash provided by (used in) investing activities          |  |      |   |  |                                        |  
|                                                             |  |      |   |  |                                        |  
|Effect of exchange rate changes on cash                      |  |      |   |  |                                        |  
|                                                             |  |      |   |  |                                        |  
|Net increase in cash                                         |  |      |   |  |                                        |  
|Cash, beginning of year                                      |  |      |   |  |                                        |  
|Cash, end of year                                            |  |      |   |  |                                        | $
|                                                             |  |      |   |  |                                        |  
|Supplemental disclosure of cash flow information:            |  |      |   |  |                                        |  
|Noncash investing activities in office building              |  |      | 8 |  |                                        |  
|Cash paid during the year for income taxes                   |  |      |   |  |                                        |  
|Interest paid during the year                                |  |      |   |  |                                        |  



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



3







CHINA BOTANIC PHARMACEUTICAL INC.

Notes to Unaudited Condensed Consolidated
Financial Statements

July 31, 2012 and 2011



NOTE 1 – DESCRIPTION OF THE BUSINESS



The accompanying condensed consolidated
financial statements include the financial statements of China Botanic Pharmaceutical Inc. (“CBP”) and its subsidiaries. 
CBP and its subsidiaries are collectively referred to as the “Company.”



CBP was incorporated in the State of Nevada
on August 18, 1988, originally under the corporate name of Solutions, Incorporated.  It was inactive until August 16, 1996,
when it changed its corporate name to Suarro Communications, Inc, and engaged in the business of providing internet based business
services.  This line of business was discontinued in 2006, and CBP became a non-operating public company.  CBP underwent
a number of corporate name changes as follows:



|June 1997     |  | ComTech Consolidation Group, Inc 
|------------- |  | ---------------------------------
|February 1999 |  | E-Net Corporation                
|May 1999      |  | E-Net Financial Corporation      
|January 2000  |  | E-Net.Com Corporation            
|February 2000 |  | E-Net Financial.Com Corporation  
|January 2002  |  | Anza Capital, Inc (“Anza”)       
|June 2006     |  | Renhuang Pharmaceuticals, Inc.   
|October 2010  |  | China Botanic Pharmaceutical Inc.



Effective August 28, 2006, CBP completed
the acquisition of 100% ownership of Harbin Renhuang Pharmaceutical Company Limited, a company incorporated in the British Virgin
Islands.  As a result, Harbin Renhuang Pharmaceutical Company Limited became a wholly owned subsidiary of CBP.



Harbin Renhuang Pharmaceutical Company
Limited owns 100% of the registered capital of Harbin Renhuang Pharmaceutical Co. Ltd (“CBP China”).



The core activities of subsidiaries included
in the condensed consolidated financial statements are as follow:



|· | Harbin Renhuang Pharmaceutical Company Limited – Investment holding.               
|- | -----------------------------------------------------------------------------------
|· | CBP China – Development, manufacturing and distribution of pharmaceutical products.



CBP China’s principal country of
operations is the People’s Republic of China (the “PRC”) and maintains their accounting records in Renminbi
(“RMB”).  Substantially all of the Company’s assets and operation are located in the PRC.



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES



The Company has included all adjustments,
consisting only of normal and recurring adjustments, necessary for a fair presentation of the result of operations for the three
and nine months ended July 31, 2012 and 2011. The condensed consolidated financial statements and notes thereto should be read
in conjunction with the audited consolidated financial statements and notes for the year ended October 31, 2011 included in the
Company’s Annual Report on Form 10-K. Interim results are not necessarily indicative of results for the full year due to
seasonal and other factors.



This summary of significant accounting
policies of the Company is presented to assist in understanding the Company’s condensed consolidated financial statements.
The condensed consolidated financial statements and notes are representation of the Company’s management, which is responsible
for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been
consistently applied in the preparation of the consolidated financial statements for July 31, 2012 and October 31, 2011.



4







| | a. | Basis of presentation of financial
                                                                statements
| | -- | -------------------------------------------------------------------------------------------------------------



The accompanying condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(“US GAAP”) and are expressed in terms of US dollars.



The Company operates in one operating
segment in accordance with accounting guidance FASB ASC Topic 280, “Segment Reporting”. Our CEO has been identified
as the chief operating decision maker as defined by FASB ASC Topic 280.



| | b. | Principles of consolidation
| | -- | ---------------------------



The condensed consolidated financial statements
include the financial statements of CBP and its subsidiaries.



All inter-company transactions and balances
have been eliminated in consolidation.



FASB ASC Topic 810, “Consolidation”,requires noncontrolling minority interests to represent the portion of earnings that is not within the parent company’s
control. The noncontrolling minority interests are required to be reported as equity instead of as a liability on the balance
sheet.  In addition this statement requires net income from noncontrolling minority interest to be shown separately on the
condensed consolidated statements of income and comprehensive income. The Company has no noncontrolling interest as of July
31, 2012 and October 31, 2011.



| | c. | Use of estimates
| | -- | ----------------



The preparation of these condensed consolidated
financial statements in conformity with US GAAP requires management to make estimates and assumptions that affected the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the condensed consolidated
financial statements and the reported amounts of net sales and expenses during the reported periods.



Significant estimates and assumptions
by management include, among others, uncollectible accounts receivable, slow moving, obsolete and/or damaged inventory, the carrying
amount of property and equipment and intangible assets, reserve for employee benefit obligations, stock warrant valuation, share-based
compensation, noncash rental expense and other uncertainties. Actual results may differ from these estimates.  The current
economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.



| | d. | Foreign currency translation
| | -- | ----------------------------



The Company’s principal country
of operations is in PRC. The financial position and results of operations of the subsidiaries are determined using the local currency
(“Renminbi” or “RMB”) as the functional currency.



Translation of amounts from RMB into US
dollars for reporting purposes is performed by translating the results of operations denominated in foreign currency at the weighted
average rate of exchange during the reporting period. Assets and liabilities denominated in foreign currencies at the balance
sheet date are translated at the market rate of exchange ruling at that date. The registered equity capital denominated in the
functional currency is translated at the historical rate of exchange at the time of capital contribution. All translation adjustments
resulting from the translation of the financial statements into the reporting currency (US dollars) are reported as a component
of accumulated other comprehensive income in shareholders’ equity.



As of July 31, 2012 and October 31, 2011,
the exchange rates were RMB 6.33 and RMB 6.38, respectively. For the three months ended July 31, 2012 and 2011, the average exchange
rates were RMB 6.33 and RMB 6.48, and the net income translation adjustments totaled $143,931 and $828,537, respectively. For
the nine months ended July 31, 2012 and 2011, the average exchange rates were RMB 6.34 and RMB 6.56, and the net income translation
adjustments totaled $819,577 and $3,004,411, respectively.



5







| | e. | Cash
| | -- | ----



There are no restriction to cash at July
31, 2012 and October 31, 2011. Substantially all of the Company’s cash is held in bank accounts in the PRC and is not
protected by the Federal Deposit Insurance Corporation (“FDIC”) insurance or any other similar insurance.  Given
the current economic environment and risks in the banking industry, there is a risk that deposits may not be readily available.



| | f. | Trade receivables, net
| | -- | ----------------------



Trade receivables are recorded at the
invoiced amount and do not bear interest. Trade receivable payment terms vary and amounts due from customers are stated in the
condensed consolidated financial statements net of an allowance for doubtful accounts and sales rebates. The Company maintains
an allowance for doubtful accounts for estimated losses inherent in its trade receivables.  Trade receivables outstanding
longer than the payment terms are considered past due. The Company determines its allowance by considering a number of factors,
including the length of time the trade receivable is past due, the Company’s previous loss history, the counter party’s
current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. The
Company writes off receivables when they are deemed uncollectible, and payments subsequently received on such trade receivables
are credited to the allowance for doubtful accounts.  There were no trade receivables write offs for the three and nine months
ended July 31, 2012 and 2011. The Company does not have any off-balance sheet credit exposure related to its customers.



| | g. | Inventory, net
| | -- | --------------



Inventory consists of raw materials, packaging
materials, work-in-progress and finished goods and is valued at the lower of cost or market value. The value of inventory is determined
using the weighted average cost method and includes any related production overhead costs incurred in bringing the inventory to
their present location and condition. Overhead costs included in finished goods include, direct labor cost and other costs directly
applicable to the manufacturing process.



The Company estimates an inventory provision
for excessive, slow moving and obsolete inventories as well as inventory whose carrying value is in excess of net realizable value. 
Inventory amounts are reported net of such allowances.  There were no inventory write offs for the three and nine months
ended July 31, 2012 and 2011.



| | h. | Property and equipment, net
| | -- | ---------------------------



Property and equipment are recorded at
cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged
to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation
are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period.



Depreciation is provided over the estimated
useful lives of the related assets using the straight-line method.  The estimated useful lives for significant property and
equipment categories are as follows:



|Machinery and equipment          | 10 years  
|-------------------------------- | ----------
|Office equipment and furnishings | 5-10 years
|Motor vehicles                   | 5-10 years
|Office buildings                 | 30 years  



| | i. | Intangible
                                                                                      assets, net
| | -- | ------------------------------------------------------------------------------------------------------------



Intangible assets consist of purchased
patents and resource using right. Intangible assets are carried at cost less accumulated amortization and any impairment. Intangible
assets with a finite useful life are amortized using the straight-line method over valid periods varied from 10 to 30 years, which
is the estimated economic life of the intangible assets.



6







| | j. | Accounting for the impairment of long-lived assets
| | -- | --------------------------------------------------



The Company’s long-lived assets
and other assets (consisting of property and equipment) are reviewed for impairment in accordance with the guidance of the FASB
ASC Topic 360, “Property, Plant, and Equipment,” FASB ASC Topic 350, "Intangibles - Goodwill and Others,"and FASB ASC Topic 205 “Presentation of Financial Statements.”  The Company tests for impairment losses
on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset
may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an
asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Impairment
evaluations involve management’s estimates on asset useful lives and future cash flows.  Actual useful lives and cash
flows could be different from those estimated by management which could have a material effect on our reporting results and financial
positions.  Fair value is determined through various valuation techniques including discounted cash flow models, quoted market
values and third-party independent appraisals, as considered necessary. As of July 31, 2012 and October 31, 2011, the Company
had not experienced impairment losses on its long-lived assets. However, there can be no assurances that demand for the Company’s
products or services will continue, which could result in an impairment of long-lived assets in the future.



| | k. | Fair value of financial instruments
| | -- | -----------------------------------



The Company applies the provisions of
accounting guidance, FASB ASC Topic 825, “Financial Instruments,” that requires all entities to disclose the
fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which
it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing parties.  As of July 31, 2012 and October 31, 2011 the carrying
value of cash, trade receivables, other receivables and accounts payable, approximated their fair value. All derivatives are recorded
at fair value evaluated based on Black-Scholes option model.



| | l. | Fair value measurements
| | -- | -----------------------



The FASB ASC Topic 820, “Fair
Value Measurements and Disclosures,” clarifies the definition of fair value for financial reporting, establishes a framework
for measuring fair value and requires additional disclosures about the use of fair value measurements.



Various inputs are considered when determining
the fair value of the Company’s financial instruments. The inputs or methodologies used for valuing securities are
not necessarily an indication of the risk associated with investing in these securities.  These inputs are summarized in
the three broad levels listed below.



| | Ÿ | Level 1 – observable market inputs that are unadjusted quoted prices for identical assets or
    liabilities in active markets.                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                
| | Ÿ | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, credit
    risk, etc.).         
| |   |                                                                                                                                                
| | Ÿ | Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair
    value of financial instruments).



The Company’s adoption of FASB ASC
Topic 825 did not have a material impact on the Company’s condensed consolidated financial statements.



The carrying value of financial assets
and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured
on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. The Company had no financial
assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities
measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared.



The availability of inputs observable
in the market varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether
the instrument is actively traded, and other characteristics particular to the transaction. For many financial instruments, pricing
inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the
valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable
in the market and may require management judgment.



7







| | m. | Revenue recognition
| | -- | -------------------



Revenue is recognized in accordance with
Staff Accounting Bulletin No. 104, “Revenue Recognition,” which states that revenue should be recognized when
the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the service has been rendered; (3) the selling
price is fixed or determinable; and (4) collection of the resulting receivable is reasonably assured.



Interest income is recognized when earned,
taking into account the average principal amounts outstanding and the interest rates applicable.



The Company provided annual sales rebates
to its distributors based upon sales volumes.  Sales rebates are recorded as a current liability at the time of the
sale based upon the Company’s estimates of whether each customer would be entitled to rebates for the period.  At quarter
end, the accrued rebate amount is adjusted to the actual amount earned and reclassified to trade receivables in accordance
with legal right of offset.  Sales rebates were deducted from sales in the accompanying condensed consolidated statements
of income and comprehensive income. Sales rebates are calculated based on terms specified in contracts with individual distributors.



As of July 31, 2012 and October 31, 2011,
the Company has accrued $1,225,303 and $1,681,721, respectively, for sales rebates, which offset the balance of trade receivables.  For
the three months ended July 31, 2012 and 2011, the Company has deducted sales rebates in the amount of $1,408,448 and $790,792,
respectively, from sales. For the nine months ended July 31, 2012 and 2011, the Company has deducted sales rebates in the
amount of $6,061,247 and $4,995,396, respectively, from sales.



| | n. | Sales returns and allowances
| | -- | ----------------------------



The Company does not allow return of products
except for products that were damaged during shipment. The total amount of returned product is less than 0.05% of total sales.
The cost of damaged products is netted against sales and cost of goods sold, respectively.



| | o. | Cost of goods sold
| | -- | ------------------



Cost of goods sold primarily consists
of direct and indirect manufacturing costs, including raw material, packaging material, production overhead costs, city construction
tax and educational tax for the products sold.



| | p. | Sales and marketing
| | -- | -------------------



Sales and marketing costs consist primarily
of advertising and market promotion expenses, and other overhead expenses incurred by the Company’s sales and marketing
personnel. Sales and marketing expenses are expensed as incurred and amounted to $1,832,351 and $1,559,863 during the three months
ended July 31, 2012 and 2011, respectively, and $5,247,122 and $4,430,053 during the nine months ended July 31, 2012 and 2011,
respectively.





| | q. | Research and development
| | -- | ------------------------



Research and development (“R&D”)
consists primarily of cost of materials and overhead expenses incurred by research and development staff. Research and development
costs are expensed as incurred. Research and development expenses amounted to $1,900,363 and $1,686,677 during the three months
ended July 31, 2012 and 2011, respectively, and $2,928,875 and $2,585,863 for the nine months ended July 31, 2012 and 2011, respectively.



8







| | r. | Employee benefit costs
| | -- | ----------------------



According to the PRC regulations on pension,
a company contributes to a defined contribution retirement plan organized by municipal government in the province in which the
CBP China was registered and all qualified employees are eligible to participate in the plan. Contributions to the plan are calculated
at 22% of the employees’ salaries above a fixed threshold amount.



| | s. | Share-based compensation
| | -- | ------------------------



For purposes of determining the variables
used in the calculation of stock compensation expense under the provisions of FASB ASC Topic 505, “Equity”
and FASB ASC Topic 718, “Compensation — Stock Compensation,” we perform an analysis of current market
data and historical Company data to calculate an estimate of implied volatility, the expected term of the option and the expected
forfeiture rate. With the exception of the expected forfeiture rate, which is not an input, we use these estimates as variables
in the Black-Scholes option pricing model. Depending upon the number of stock options granted, any fluctuations in these variables
could have a material effect on the results presented in our condensed consolidated statement of income and comprehensive income.
In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on our condensed
consolidated financial statements.



| | t. | Taxation
| | -- | --------



Taxation on profits earned in the PRC
has been calculated on the estimated assessable profits for the year at the rates of taxation prevailing in the PRC in which the
Company operates after taking into effect the benefits from any special tax credits or “tax holidays” allowed in the
country of operations.



The Company accounts for income tax under
the provisions of FASB ASC Topic 740, “Income Taxes,” which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of the events that have been included in the condensed consolidated financial
statements or tax returns. Deferred income taxes are recognized for all significant temporary differences between tax and financial
statements bases of assets and liabilities. Valuation allowances are established against net deferred tax assets when it is more
likely than not that some portion or all of the deferred tax asset will not be realized.



The Company does not have any long-term
deferred tax assets or liabilities in the PRC that will exist once the tax holiday expires. The Company does not have any significant
deferred tax asset or liabilities that relate to tax jurisdictions not covered by the tax holiday.



The Company does not accrue United States
income tax on unremitted earnings from foreign operations, as it is the Company’s intention to invest these earnings in
the foreign operations indefinitely.



Generally, years beginning after fiscal
2007, the Company is open to examination by PRC taxing authorities.  In the United States, we are open to examination from
2008 onward.



Enterprise income tax



On March 16, 2007, the PRC National People’s
Congress passed the PRC Enterprise Income Tax Law (“New EIT Law”) which became effective on January 1, 2008. 
Pursuant to the New EIT Law, a unified enterprise income tax rate of 25 percent and unified tax deduction standards will be applied
consistently to both domestic-invested enterprises and foreign-invested enterprises.  However, the New EIT Law repealed most
of the existing preferential tax rates and tax holidays.  A five-year transition period is allowed for enterprises that obtained
preferential tax treatment under the prior tax regime.  Under the prior tax regime, foreign-invested enterprises were generally
subject to a 30 percent federal tax rate plus a 3 percent local tax rate for a total tax rate of 33 percent.



CBP China secured preferential tax treatment
in the jurisdiction where it conducts its manufacturing activity, where it was granted tax exemption of 10% from the government,
for being a new and high-technology enterprise. The Company currently pays 15% enterprise income tax.



Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis. Deferred tax assets, including tax loss and credit carry forwards, and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect of deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period
in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually
classified as current and noncurrent based on their characteristics. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be
realized.



9







A provision has not been made at July
31, 2012 and October 31, 2011 for U.S. or additional foreign withholding taxes on the undistributed earnings of foreign subsidiaries
because it is the present intention of management to reinvest the undistributed earnings indefinitely in foreign operations. Generally,
such earnings become subject to U.S. tax upon the remittance of dividends and under certain other circumstances. It is not practicable
to estimate the amount of deferred tax liability on such undistributed earnings.



The Company recognizes that virtually
all tax positions in the PRC are not free of some degree of uncertainty due to tax law and policy changes by the State. However,
the Company cannot reasonably quantify political risk factors and thus must depend on guidance issued by current State officials.



Based on all known facts and circumstances
and current tax law, the Company believes that the total amount of unrecognized tax benefits as of July 31, 2012 and October 31,
2011 are not material to its results of operations, financial condition or cash flows. The Company also believes that the total
amount of unrecognized tax benefits as of July 31, 2012 and October 31, 2011, if recognized, would not have a material effect
on its effective tax rate. The Company further believes that there are no tax positions for which it is reasonably possible, based
on current Chinese tax law and policy, that the unrecognized tax benefits will significantly increase or decrease over the next
12 months producing, individually or in the aggregate, a material effect on the Company’s results of operations, financial
condition or cash flows.



Value added tax



The Provisional Regulations of The People’s
Republic of China Concerning Value Added Tax promulgated by the State Council came into effect on January 1, 1994. Under these
regulations and the Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax, value added tax is
imposed on goods sold in or imported into the PRC and on processing, repair and replacement services provided within the PRC.



Value added tax payable in The People’s
Republic of China is charged on an aggregated basis at a rate of 13% or 17% (depending on the type of goods involved) on the full
price collected for the goods sold or, in the case of taxable services provided, at a rate of 17% on the charges for the taxable
services provided, but excluding, in respect of both goods and services, any amount paid in respect of value added tax included
in the price or charges, and less any deductible value added tax already paid by the taxpayer on purchases of goods and services
in the same financial year to get the net value added tax payable in the period.



| | u. | Comprehensive Income
| | -- | --------------------



Total comprehensive income is defined
as all changes in shareholders’ equity during a period, other than those resulting from investments by and distributions
to shareholders (i.e., issuance of equity securities and dividends).  Generally, for the Company, total comprehensive income
equals net income plus or minus adjustments for currency translation. Total comprehensive income represents the activity for a
period net of related tax and was $3,399,469 and $3,348,382 for the three months ended July 31, 2012 and 2011, respectively, and
$24,232,468 and $23,553,607 for the nine months ended July 31, 2012 and 2011, respectively.



While total comprehensive income is the
activity in a period and is largely driven by net earnings in that period, accumulated other comprehensive income or loss (“AOCI”)
represents the cumulative balance of other comprehensive income as of the balance sheet date.  For the Company, AOCI is primarily
the cumulative balance related to the currency adjustments and increased overall equity by $9,440,272 and $8,620,695 as of July
31, 2012 and October 31, 2011, respectively.



10







| | v. | Earnings per share
| | -- | ------------------



Basic net earnings per common stock are
computed by dividing net earnings applicable to common shareholders by the weighted-average number of common stock outstanding
during the period. Diluted net earnings per common stock is determined using the weighted-average number of common stock outstanding
during the period, adjusted for the dilutive effect of common stock equivalents, using the treasury stock method, consisting of
shares that might be issued upon exercise of common stock warrants. In periods where losses are reported, the weighted-average
number of common stock outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.



Basic earnings per share are based on
the weighted-average number of shares of common stock outstanding.  Earnings per share, assuming dilution, is based on the
weighted-average number of shares of common stock outstanding adjusted for the effects of common stock that may be issued as a
result of the following types of potentially dilutive instruments:



| | – | warrants,                                                     
| | - | --------------------------------------------------------------
| |   |                                                               
| | – | employee stock options, and                                   
| |   |                                                               
| | – | other equity awards, which include long-term incentive awards.



The FASB ASC Topic 260, “Earnings
per Share,” requires the Company to include additional shares in the computation of earnings per share, assuming dilution. 
The additional shares included in diluted earnings per share represent the number of shares that would be issued if all of the
Company’s outstanding dilutive instruments were converted into common stock.



Diluted earnings per share are based on
the assumption that all dilutive options were converted or exercised. Dilution is computed by applying the treasury stock method.
Under this method, options are assumed to be exercised at the time of issuance, and as if funds obtained thereby were used to
purchase common stock at the average market price during the period.



| | w. | Warrants
| | -- | --------



The Company evaluates its warrants on
an ongoing basis considering the accounting guidance of FASB ASC Topic 825, which establishes standards for issuers of financial
instruments with characteristics of both liabilities and equity related to the classification and measurement of those instruments.
The warrants are evaluated considering the accounting guidance of FASB ASC Topic 815, which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities.



In accordance with accounting guidance
FASB ASC Topic 825, the Company accounts for financial instruments as a liability if it embodies an obligation to repurchase the
issuer’s equity shares, or is indexed to such an obligation, and that requires or may require the issuer to settle the obligation
by transferring assets. Freestanding financial instruments are financial instruments that are entered into separately and apart
from any of the entity’s other financial instruments or equity transactions, or that is entered into in conjunction with
some other transaction and is legally detachable and separately exercisable. The liability recorded is at fair market value per
Black-Scholes option model.



On March 25, 2010, we issued warrants
to purchase 160,000 shares of our common stock to a certain investor relation service provider. The warrants were recognized at
fair value and were recorded as liability.



NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS



In December 2011, the FASB issued ASU
No. 2011-10, “Property, Plant and Equipment (Topic 360): Derecognition of in Substance Real Estate – a Scope Clarification
(a consensus of the FASB Emerging Issues Task Force). The ASU No. 2011-10 requires that a parent deconsolidate a subsidiary if
the parent ceases to have a controlling financial interest in the subsidiary (except for a sale of in substance real estate).
However, in situations other than a sale of in substance real estate, differing views exist in practice on whether the parent
of an in substance real estate subsidiary must satisfy the criteria in Subtopic 360-20, Property, Plant, and Equipment –
Real Estate Sales, in order to derecognize the in substance real estate. For public entities, the amendments in this Update are
effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. Early adoption is permitted.
The adoption of this ASU is not expected to have a material impact on the Company’s condensed consolidated financial statements.



11







In December 2011, the FASB issued ASU
2011-11 Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities: The amendments in this Update will enhance
disclosures required by U.S. GAAP 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. This information will enable users of an entity’s financial statements to evaluate the effect or potential
effect of netting arrangements on an entity’s financial position, including the effect or potential effect of rights of
setoff associated with certain financial instruments and derivative instruments in the scope of this Update. 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.
It is not expected to have a material impact on the Company’s condensed consolidated financial statements.



In December 2011, the FASB issued ASU
2011-12 Comprehensive Income (Topic 220): In order to defer only those changes in Update 2011-05 that relate to the presentation
of reclassification adjustments, the paragraphs in this Update supersede certain pending paragraphs in Update 2011-05. The amendments
are being made to allow the Board time to redeliberate whether to present on the face of the financial statements the effects
of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income
for all periods presented. While the Board is considering the operational concerns about the presentation requirements for reclassification
adjustments and the needs of financial statement users for additional information about reclassification adjustments, entities
should continue to report 2 reclassifications out of accumulated other comprehensive income consistent with the presentation requirements
in effect before Update 2011-05. All other requirements in Update 2011-05 are not affected by this Update, 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. The adoption of this ASU is not expected to have a material impact on the Company’s condensed consolidated
financial statements.



In July 2012, the FASB issued ASU 2012-02,
Testing Indefinite-Lived Intangible Assets for Impairment, which allows an entity to first assess qualitative factors to determine
whether it is more likely than not that an indefinite-lived intangible asset, other than goodwill, is impaired. If an entity concludes,
based on an evaluation of all relevant qualitative factors, that it is not more likely than not that the fair value of an indefinite-lived
intangible asset is less than its carrying amount, it will not be required to perform a quantitative impairment test for that
asset. Entities are required to test indefinite-lived assets for impairment at least annually, and more frequently if indicators
of impairment exist. This ASU will be effective for the Company on February 3, 2013, with early adoption permitted. The adoption
of this ASU is not expected to have a significant effect on our results of operations or financial position.



Other recently issued accounting pronouncements
did not, or are not believed by management to, have a material effect on the Company’s present or future consolidated financial
statements.



NOTE 4 - CONCENTRATIONS OF BUSINESS
AND CREDIT RISK



The Company conducts all of its primary
trade in the PRC.  There can be no assurance that the Company will be able to successfully conduct its trade, and failure
to do so would have a material adverse effect on the Company’s financial position, results of operations and cash flows.
Also, the success of the Company’s operations is subject to numerous contingencies, some of which are beyond management’s
control. These contingencies include general economic conditions, price of raw material, competition, governmental and political
conditions, and changes in regulations. Because the Company is dependent on foreign trade in the PRC, the Company is subject to
various additional political, economic and other uncertainties. Among other risks, the Company’s operations will be subject
to risk of restrictions on transfer of funds, domestic and international customs, changing taxation policies, foreign exchange
restrictions, and political and governmental regulations.



(1) Cash



The Company maintains certain bank accounts
in the PRC which are not protected by FDIC insurance or other insurance. Cash balance held in PRC bank accounts amounted
to $41,308,177 and $15,283,583, as of July 31, 2012 and October 31, 2011, respectively.  No cash balances were restricted
as of July 31, 2012 and October 31, 2011.



12







As of July 31, 2012 and October 31, 2011,
substantially all of the Company’s cash were held by major financial institutions located in the PRC which management believes
are of high credit quality.



(2) Sales and trade receivables



The Company provides credit in the normal
course of business and substantially all customers are located in the PRC. The Company performs ongoing credit evaluations
of its customers and maintains allowances for doubtful accounts based on factors surrounding the credit risk of specific customers,
historical trends, and other information. Prior to deduction of sales rebates, there is one individual customer accounted
for 12% of total sales and there is none accounted for over 10% of total sales during the three months ended July 31, 2012 and
2011, respectively. This individual customer is accounted for 12% of accounting receivables as of July 31, 2012. There is one
individual customer accounted for 10% of total sales and there is none accounted for over 10% of total sales during nine months
ended July 31, 2012 and 2011, respectively. This individual customer is accounted for 12% of account receivables as of July
31, 2012.



The Company’s products are sold
throughout the PRC. For three months ended July 31, 2012 and 2011, botanical anti-depression and nerve-regulation products accounted
for 71% and 70%, respectively, of total sales. For nine months ended July 31, 2012 and 2011, botanical anti-depression and
nerve-regulation products accounted for 68% and 68%, respectively, of total sales.



(3) Foreign currency



The Company operates in the PRC, which
may give rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between
U.S. dollars and the Chinese currency RMB.



(4) Dividends



Payments of dividends may be subject to
some restrictions due to the fact that the operating activities are conducted in a subsidiary residing in the PRC.



(5) Price control



The retail prices of certain pharmaceuticals
sold in the PRC, primarily those included in the national and provincial Medical Insurance Catalogs are subject to price controls
in the form of fixed prices or price ceilings. As such, the retail prices for certain of the Company’s pharmaceutical products
can be adjusted downward or upward from time to time. Price controls did not have a material impact on the Company’s operation
during the three and nine months ended July 31, 2012 and 2011.



(6) Cost of goods sold



Cost of goods sold is subject to price
fluctuations due to various factors beyond the Company’s control, including, among other pertinent factors, inflation and
changes in governmental regulations and programs. The Company expects cost of goods sold will continue to fluctuate and be
affected by inflation in the future. The Company’s raw materials are purchased from various independent suppliers.
The Company does have long term relationships with major suppliers to ensure quality material, good service with competitive prices.
The Company maintains an updated qualified supplier list to secure the Company’s material needs in case of changing situation
from any one of our major suppliers. There are three and four individual suppliers of over 10% of total purchasing accounted for
59% and 68% of total purchasing during the three months ended July 31, 2012 and 2011, respectively. These three and four individual
suppliers are accounted for 87% and 100% of trade payable as of July 31, 2012 and October 31, 2011, respectively. There are three
and two individual suppliers of over 10% of total purchasing accounted for 43% and 36% of total purchasing during nine months
ended July 31, 2012 and 2011, respectively. These three and two individual suppliers are accounted for 87% and 75% of trade payable
as of July 31, 2012 and October 31, 2011.





13







NOTE 5 - TRADE RECEIVABLES, NET



The trade receivables amount included in the condensed consolidated
balance sheets as of July 31, 2012 and October 31, 2011 were as follows:



|                                      |  | July 31, 2012 |            |   | October 31, 2011 | 
|------------------------------------- |  | ------------- | ---------- | - | ---------------- | 
|                                      |  | US$           |            |   | US$              | 
|                                      |  |               |            |   |                  | 
|Trade receivables                     |  |               | 18,832,775 |   |                  | 
|Less: Sales rebates                   |  |               | (1,225,303 | ) |                  | 
|Less: Allowance for doubtful accounts |  |               | (477,928   | ) |                  | 
|Trade receivables, net                |  |               | 17,129,544 |   |                  | 



NOTE 6 - OTHER RECEIVABLES, NET



The other receivables amount included in the condensed consolidated
balance sheets as of July 31, 2012 and October 31, 2011 were as follows:



|                                      |  | July 31, 2012 |          |   | October 31, 2011 | 
|------------------------------------- |  | ------------- | -------- | - | ---------------- | 
|                                      |  | US$           |          |   | US$              | 
|                                      |  |               |          |   |                  | 
|Advanced Siberian Ginseng payment     |  |               | -        |   |                  | 
|Other receivables                     |  |               | 568,545  |   |                  | 
|Less: Allowance for doubtful accounts |  |               | (388,334 | ) |                  | 
|Other receivables, net                |  |               | 180,211  |   |                  | 



The Company advanced Siberian Ginseng payment to two of our
employees in our Dongfanghong branch, Mr. Zhao, Fengwu and Mr. Deng, Fujie before October 31, 2011 for the purchasing of Siberian
Ginseng raw material in the Siberian Ginseng harvest season. There was no such advance at July 31, 2012.



NOTE 7 - INVENTORY, NET



The inventory amounts included in the condensed consolidated
balance sheets for as of July 31, 2012 and October 31, 2011 comprised of:



|                          |  | July 31, 2012 |            |   | October 31, 2011 | 
|------------------------- |  | ------------- | ---------- | - | ---------------- | 
|                          |  | US$           |            |   | US$              | 
|                          |  |               |            |   |                  | 
|Raw materials             |  |               | 1,443,678  |   |                  | 
|Packaging materials       |  |               | 3,782,804  |   |                  | 
|Work-in-progress          |  |               | 8,740,389  |   |                  | 
|Finished goods            |  |               | 1,404,006  |   |                  | 
|Less: Inventory provision |  |               | (69,218    | ) |                  | 
|Inventory, net            |  |               | 15,301,659 |   |                  | 



NOTE 8 - PROPERTY AND EQUIPMENT, NET



On April 10, 2010, CBP China entered into
a Purchase Agreement with Hongxiangmingyuan of Heilongjiang Yongtai Company, to acquire two office floors for a total consideration
of $6,064,878.  Pursuant to the Purchase Agreement, a payment of $4,245,415 was made in April 2010 and recorded as deposits
on the condensed consolidated balance sheet.  Pursuant to the Purchase Agreement, final payment of $1,819,463was paid
in May 2012. The title of one office floor was transferred in May 2012, the Company reclassified $2,829,699 from deposits
to property and equipment and started depreciation over the estimated useful life of the asset. The other office floor is still
in the process of title transfer.



14







Property and equipment and related accumulated depreciation
as of July 31, 2012 and October 31, 2011 were as follows:



|                                 |  | July 31, 2012 |            |   | October 31, 2011 | 
|-------------------------------- |  | ------------- | ---------- | - | ---------------- | 
|                                 |  | US$           |            |   | US$              | 
|                                 |  |               |            |   |                  | 
|Machinery and equipment          |  |               | 3,739,492  |   |                  | 
|Office Building                  |  |               | 2,829,699  |   |                  | 
|Office equipment and furnishings |  |               | 66,874     |   |                  | 
|Motor vehicles                   |  |               | 57,206     |   |                  | 
|Total:                           |  |               | 6,693,271  |   |                  | 
|                                 |  |               |            |   |                  | 
|Less: Accumulated depreciation   |  |               | (2,438,296 | ) |                  | 
|Net book value                   |  |               | 4,254,975  |   |                  | 



The depreciation expense incurred and recognized on our condensed
consolidated statements of income and comprehensive income during the three and nine months ended July 31, 2012 and 2011 were
as follow:



|                                                    |  | For the three months
    ended July 31, |        
|--------------------------------------------------- |  | --------------------------------------- | -------
|                                                    |  | 2012                                    |        
|                                                    |  | US$                                     |        
|                                                    |  |                                         |        
|Depreciation expenses in general and administrative |  |                                         | 75,251 
|Depreciation expenses in cost of goods sold         |  |                                         | 94,418 
|Total depreciation expenses                         |  |                                         | 169,669



|                                                    |  | For the nine months ended
    July 31, |        
|--------------------------------------------------- |  | -------------------------------------- | -------
|                                                    |  | 2012                                   |        
|                                                    |  | US$                                    |        
|                                                    |  |                                        |        
|Depreciation expenses in general and administrative |  |                                        | 84,185 
|Depreciation expenses in cost of goods sold         |  |                                        | 282,988
|Total depreciation expenses                         |  |                                        | 367,173



No assets were pledged for borrowings
as of July 31, 2012 and October 31, 2011.



NOTE 9 - INTANGIBLE ASSETS, NET



Intangible assets and related accumulated amortization as of
July 31, 2012 and October 31, 2011 were as follows:



|                               |  | July 31, 2012 |            |   | October 31, 2011 | 
|------------------------------ |  | ------------- | ---------- | - | ---------------- | 
|                               |  | US$           |            |   | US$              | 
|                               |  |               |            |   |                  | 
|YiChun undergrowth resources   |  |               | 15,808,527 |   |                  | 
|Product patents                |  |               | 2,529,364  |   |                  | 
|Total                          |  |               | 18,337,891 |   |                  | 
|                               |  |               |            |   |                  | 
|Less: Accumulated amortization |  |               | (1,598,377 | ) |                  | 
|Intangible assets, net         |  |               | 16,739,514 |   |                  | 



15







The amortization expense of intangible assets incurred and
recognized on our condensed consolidated statements of income and comprehensive income during the three and nine months ended
July 31, 2012 and 2011 were as follow:



|                      |  | For the three months
    ended July 31, |        
|--------------------- |  | --------------------------------------- | -------
|                      |  | 2012                                    |        
|                      |  | US$                                     |        
|                      |  |                                         |        
|Amortization Expense: |  |                                         | 180,631



|                      |  | For the nine months ended
    July 31, |        
|--------------------- |  | -------------------------------------- | -------
|                      |  | 2012                                   |        
|                      |  | US$                                    |        
|                      |  |                                        |        
|Amortization Expense: |  |                                        | 541,380



The following table shows the estimated amortization expenses
expected to be incurred in the next five years:



|Year |                     |  | Amortization Expense |  
|---- | ------------------- |  | -------------------- | -
|     |                     |  |                      |  
|     | 2012 remaining      |  |                      | $
|     | 2013                |  |                      |  
|     | 2014                |  |                      |  
|     | 2015                |  |                      |  
|     | 2016                |  |                      |  
|     | 2017 and thereafter |  |                      |  
|     | Total               |  |                      | $



NOTE 10 - CONSTRUCTION-IN-PROGRESS



The total capital expenses in Construction-in-progress as of
July 31, 2012 and October 31, 2011 were as follows:



|                                       |  | July 31, 2012 |           |  | October 31, 2011 | 
|-------------------------------------- |  | ------------- | --------- |  | ---------------- | 
|                                       |  | US$           |           |  | US$              | 
|                                       |  |               |           |  |                  | 
|Ah City Pharmaceutical Plant phase two |  |               | 1,952,353 |  |                  | 



Plant and production lines currently under
development at the Ah City Pharmaceutical Plant Phase Two are accounted for as construction-in-progress. Construction-in-progress
is recorded at historical cost, including development expenditures, professional fees and the interest expenses capitalized during
the course of construction for the purpose of financing the project. Upon readiness for use of the project, the cost of construction-in-progress
is transferred to property and equipment, at which time depreciation will commence. The Company had no capitalized interest and
to date has funded this construction through operations without the use of outside debt financing.  The Ah City Phase
Two is expected to be completed in the end of 2013 and these amounts will be reclassified to property and equipment when it is
ready to use.



NOTE 11 - RELATED PARTY TRANSACTIONS



On October 12, 2009, we entered into a
purchase agreement with Renhuang Stock, which Mr. Shaoming Li, our chairman, chief executive officer and president, is also chairman
and a 50% shareholder of Harbin Renhuang Pharmaceutical Stock Co. Ltd (“Renhuang Stock”), to acquire the land use
right, property and plant located at our Ah City Natural and Biopharmaceutical plant for a total consideration of $25,293,644.
Pursuant to the purchase agreement, a payment of $15,808,527 was made to Renhuang Stock in October 2009 and a payment of $7,904,264
was made to Renhuang Stock in January 2011, with a final payment of $1,580,853 due by the date of receiving all the related government
transfer documents, at which time title for the assets will be transferred. Accordingly the transaction is considered incomplete
as of July 31, 2012. The Company recorded the payments under the Deposits for properties on condensed consolidated balance sheet.



16







Before the transaction is completed, the
Company is deemed to lease property and plant from Renhuang Stock. Rental expenses related to this lease, incurred and expensed
to condensed consolidated statements of income and comprehensive income, which were forgiven rental expenses and recognized to
account for the rental exemption pursuant to the purchase agreement, and the deposits for the property were reduced accordingly.
Under the purchase terms, the Company does not pay rent to Renhuang Stock for the use of the property and plant before the title
is transferred. The detailed forgiven rental expense incurred and recognized to date is explained at Note. 12.



NOTE 12 - DEPOSITS FOR PROPERTIES



Deposits for properties as of July 31,
2012 and October 31, 2011 were listed as following:



|                             |  | July 31, 2012  |            |  | October 31, 2011           |  
|---------------------------- |  | -------------- | ---------- |  | -------------------------- | -
|Name of Asset                |  | Prepaid Amount |            |  | Rent expenses
    deducted |  
|                             |  |                |            |  |                            |  
|Ah City Pharmaceutical Plant |  | $              | 23,712,791 |  |                            | $
|Office Floor                 |  |                | 3,032,439  |  |                            |  
|Product Patents              |  |                | 9,121,520  |  |                            |  
|Total                        |  | $              | 35,866,750 |  |                            | $



Forgiven rental expenses incurred and
recognized to the condensed consolidated financial statements of income and comprehensive income during the three and nine months
ended July 31, 2012 and 2011, respectively, were listed as following:



|                             |  | For the three months
    ended July 31, |        
|---------------------------- |  | --------------------------------------- | -------
|                             |  | 2012                                    |        
|                             |  | US$                                     |        
|                             |  |                                         |        
|Ah City Pharmaceutical Plant |  |                                         | 197,503
|Two Office Floor             |  |                                         | 33,805 
|Total                        |  |                                         | 231,308



|                             |  | For the nine months ended
    July 31, |        
|---------------------------- |  | -------------------------------------- | -------
|                             |  | 2012                                   |        
|                             |  | US$                                    |        
|                             |  |                                        |        
|Ah City Pharmaceutical Plant |  |                                        | 591,949
|Two Office Floor             |  |                                        | 168,703
|Total                        |  |                                        | 760,652



On April 10, 2010, the Company through
its wholly own subsidiary, CBP China, entered into a Purchase Agreement with Hongxiangmingyuan of Heilongjiang Yongtai Company,
to acquire two office floors for a total consideration of $6,064,878.  Pursuant to the Purchase Agreement, a payment
of $4,245,415 was made in April 2010 and recorded as deposits on the condensed consolidated balance sheet.  Pursuant
to the Purchase Agreement, a final payment of $1,819,463 was made in May 2012. The title of one office floor was transferred in
May 2012, the Company reclassified $2,829,699 from deposits to property and equipment and started depreciation over the estimated
useful life of the asset. The other office floor is still in the process of title transfer.



Based on the purchase agreement between
CBP China and Hongxiangmingyuan, the Company does not pay any rental fees before the title is transferred. Rental expenses related
to this lease incurred and expensed before transfer of title were forgiven rental expenses and recognized to account for the rental
exemption pursuant to the purchase agreement, and the deposits for the property were reduced accordingly.



17







In the fourth quarter of our fiscal year
2011, we entered into contracts to purchase Patent of Ingredients and preparation for Parkinson Drug, Patent of Ingredients and
preparation for Xiangdousu, etc. and deposited $11,559,878 towards the purchase. The Company decided not to purchase two other
patents and received $2,509,607 amount of deposit.



NOTE 13 - DEFERRED TAX ASSETS



Deferred tax assets as of July 31, 2012
and October 31, 2011 were listed as following:



|Deferred tax
    assets as of |                  |  | Allowance for doubtful and inventory
    provision |   |         | Temporary difference |  |   | Income tax rate |  |  | Deferred tax
    assets |   
|----------------------------- | ---------------- |  | -------------------------------------------------- | - | ------- | -------------------- |  | - | --------------- |  |  | ----------------------- | --
|                              |                  |  |                                                    |   |         |                      |  |   |                 |  |  |                         |   
|                              | July 31, 2012    |  |                                                    | $ | 935,480 |                      |  | $ | 935,480         |  |  |                         | 15
|                              | October 31, 2011 |  |                                                    | $ | 928,174 |                      |  | $ | 928,174         |  |  |                         | 15



NOTE 14 - INCOME TAX EXPENSES



Pursuant to FASB ASC Topic 740, there
is no unrecognized tax benefits included in the condensed consolidated balance sheet at July 31, 2012 and October 31, 2011 that
would, if recognized, affect the effective tax rate.



The following table reconciles the U.S.
statutory rates to the Company’s effective tax rate for the three and nine months ended July 31, 2012 and 2011:



|                             |  | The three and nine months ended |      
|---------------------------- |  | ------------------------------- | -----
|                             |  | July 31,                        |      
|                             |  |                                 | 2012 
|US statutory rates           |  |                                 | 34.00
|Foreign tax rate difference  |  |                                 | (9.0 
|Income tax holiday           |  |                                 | (10.0
|Tax per financial statements |  |                                 | 15.00



Taxation on profits earned in the PRC
has been calculated on the estimated assessable profits for the year at the rates of taxation prevailing in the PRC in which the
Company operates after taking into effect the benefits from any special tax credits or “tax holidays” allowed in the
country of operations.  If the Company did not have any tax exemption, the effects of the tax per share were as follows:



|                   |  | For the three
    months ended July 31, |         |  | For the nine
    months ended July 31, | 
|------------------ |  | --------------------------------------- | ------- |  | -------------------------------------- | 
|                   |  | 2012                                    |         |  | 2011                                   | 
|                   |  | US$                                     |         |  | US$                                    | 
|                   |  |                                         |         |  |                                        | 
|Tax savings        |  |                                         | 385,066 |  |                                        | 
|Benefit per share: |  |                                         |         |  |                                        | 
|Basic              |  |                                         | 0.01    |  |                                        | 
|Diluted            |  |                                         | 0.01    |  |                                        | 



18







Had the tax exemption not been in place
for the three and nine months ended July 31, 2012 and 2011, the Company estimates the following pro forma financial statement
impact:



|                               |  | For the three
    months ended July 31, |           |   | For the nine
    months ended July 31, | 
|------------------------------ |  | --------------------------------------- | --------- | - | -------------------------------------- | 
|                               |  | 2012                                    |           |   | 2011                                   | 
|                               |  | US$                                     |           |   | US$                                    | 
|                               |  |                                         |           |   |                                        | 
|Net income                     |  |                                         | 3,255,538 |   |                                        | 
|Less Tax savings               |  |                                         | (385,066  | ) |                                        | 
|Proforma Net income            |  |                                         | 2,870,472 |   |                                        | 
|Proforma Net income per share: |  |                                         |           |   |                                        | 
|Basic                          |  |                                         | 0.08      |   |                                        | 
|Diluted                        |  |                                         | 0.08      |   |                                        | 



NOTE 15 - EARNINGS PER SHARE



When calculating diluted earnings per
share for common stock equivalents, the Earnings per Share, FASB ASC Topic 260, requires the Company to include the potential
shares that would be outstanding if all outstanding stock options or warrants were exercised. This is offset by shares the
Company could repurchase using the proceeds from these hypothetical exercises to obtain the common stock equivalent.



The following reconciles the components of the EPS computation
for the three months ended July 31, 2012 and 2011:



|                                                    |  | Income      |           |  | Shares        |  |            | Per Share | 
|--------------------------------------------------- |  | ----------- | --------- |  | ------------- |  | ---------- | --------- | 
|                                                    |  | (Numerator) |           |  | (Denominator) |  |            | Amount    | 
|                                                    |  | US$         |           |  |               |  |            | US$       | 
|For the three months ended July 31, 2012:           |  |             |           |  |               |  |            |           | 
|Net income                                          |  |             | 3,255,538 |  |               |  |            |           | 
|Basic EPS income available to common shareholders   |  |             | 3,255,538 |  |               |  | 37,239,536 |           | 
|Effect of dilutive securities:                      |  |             |           |  |               |  |            |           | 
|Share Options                                       |  |             | -         |  |               |  | -          |           | 
|Share Warrants                                      |  |             | -         |  |               |  | -          |           | 
|Diluted EPS income available to common shareholders |  |             | 3,255,538 |  |               |  | 37,239,536 |           | 
|                                                    |  |             |           |  |               |  |            |           | 
|For the three months ended July 31, 2011:           |  |             |           |  |               |  |            |           | 
|Net income                                          |  |             | 2,519,845 |  |               |  |            |           | 
|Basic EPS income available to common shareholders   |  |             | 2,519,845 |  |               |  | 37,239,536 |           | 
|Effect of dilutive securities:                      |  |             |           |  |               |  |            |           | 
|Share Options                                       |  |             |           |  |               |  | -          |           | 
|Share Warrants                                      |  |             | -         |  |               |  | 234,375    |           | 
|Diluted EPS income available to common shareholders |  |             | 2,519,845 |  |               |  | 37,473,911 |           | 



For the three months ended July 31, 2012,
warrants of 160,000 shares and option of 284,998 shares were excluded from calculation of diluted earnings, because the exercise
prices exceeded the average price of the Company’s common stock. For the three months ended July 31, 2011, warrants of 160,000
shares and option of 270,000 shares were excluded from calculation of diluted earnings, because the exercise prices exceeded the
average price of the Company’s common stock.



19







The following reconciles the components of the EPS computation
for the nine months ended July 31, 2012 and 2011:



|                                                    |  | Income      |            |  | Shares        |  |            | Per Share | 
|--------------------------------------------------- |  | ----------- | ---------- |  | ------------- |  | ---------- | --------- | 
|                                                    |  | (Numerator) |            |  | (Denominator) |  |            | Amount    | 
|                                                    |  | US$         |            |  |               |  |            | US$       | 
|For the nine months ended July 31, 2012:            |  |             |            |  |               |  |            |           | 
|Net income                                          |  |             | 23,412,891 |  |               |  |            |           | 
|Basic EPS income available to common shareholders   |  |             | 23,412,891 |  |               |  | 37,239,536 |           | 
|Effect of dilutive securities:                      |  |             |            |  |               |  |            |           | 
|Share Options                                       |  |             |            |  |               |  | -          |           | 
|Share Warrants                                      |  |             | -          |  |               |  | -          |           | 
|Diluted EPS income available to common shareholders |  |             | 23,412,891 |  |               |  | 37,239,536 |           | 
|                                                    |  |             |            |  |               |  |            |           | 
|For the nine months ended July 31, 2011:            |  |             |            |  |               |  |            |           | 
|Net income                                          |  |             | 20,549,196 |  |               |  |            |           | 
|Basic EPS income available to common shareholders   |  |             | 20,549,196 |  |               |  | 37,239,536 |           | 
|Effect of dilutive securities:                      |  |             |            |  |               |  |            |           | 
|Share Options                                       |  |             |            |  |               |  | -          |           | 
|Share Warrants                                      |  |             | -          |  |               |  | 510,051    |           | 
|Diluted EPS income available to common shareholders |  |             | 20,549,196 |  |               |  | 37,749,587 |           | 



For the nine months ended July 31, 2012,
warrants of 160,000 shares and option of 284,998 shares were excluded from calculation of diluted earnings, because the exercise
prices exceeded the average price of the Company’s common stock. For the nine months ended July 31, 2011, warrants of 160,000
shares and option of 270,000 shares were excluded from calculation of diluted earnings, because the exercise prices exceeded the
average price of the Company’s common stock.



NOTE 16 - EMPLOYEE BENEFITS



The full-time employees of the Company’s
subsidiary that is incorporated in the PRC are entitled to staff welfare benefits, including medical care, welfare subsidies,
unemployment insurance and pension benefits. The PRC companies are required to accrue for these benefits based on certain percentages
of the employees’ salaries in accordance with the relevant regulations, and to make contributions to the state-sponsored
pension and medical plans out of the amounts accrued for medical and pension benefits. The total amounts expensed to the condensed
consolidated statements of income and comprehensive income for such employee benefits amounted to approximately $257,207 and $99,183
for the three months ended July 31, 2012 and 2011, respectively, and $509,246 and $357,569 for the nine months ended July 31,
2012 and 2011, respectively.



NOTE 17 - ASSETS AND LIABILITIES MEASURED AT FAIR
VALUE



On March 25, 2010, the Company issued
warrants (the “Warrants”) for 160,000 common shares to an investor relation service provider that have an exercise
price of $2.00 per share and a contractual life of 3 years.  The terms of the Warrant agreement include the following factors
that in accordance with FASB ASC Topic 815, requires that the Warrants be classified at their fair value to liabilities in each
reporting period.



20







| | · | The
                                                                                                               holder of the Warrants
                                                                                                               (the “Holder”)
                                                                                                               is entitled to
                                                                                                               the benefits of
                                                                                                               Rule 144 promulgated
                                                                                                               under the Securities
                                                                                                               Act of 1933, as
                                                                                                               amended and any
                                                                                                               other rule or regulation
                                                                                                               of the SEC that
                                                                                                               may at any time
                                                                                                               permit the Holder
                                                                                                               to sell securities
                                                                                                               of the Company
                                                                                                               to the public without
                                                                                                               registration. 
                                                                                                               Noncompliance with
                                                                                                               such rules and
                                                                                                               regulations could
                                                                                                               result in the Company
                                                                                                               having to settle
                                                                                                               the Warrant obligation
                                                                                                               in cash.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The
                                                                                                               exercise price
                                                                                                               and number of shares
                                                                                                               issuable upon exercise
                                                                                                               of the Warrants
                                                                                                               (the “Warrant
                                                                                                               Shares”)
                                                                                                               are subject to
                                                                                                               adjustment for
                                                                                                               standard dilutive
                                                                                                               events, including
                                                                                                               the issuance of
                                                                                                               common stock, or
                                                                                                               securities convertible
                                                                                                               into or exercisable
                                                                                                               for shares of common
                                                                                                               stock, that will
                                                                                                               adversely affect
                                                                                                               the Holder’s
                                                                                                               rights under the
                                                                                                               Warrants. 
                                                                                                               There were no dilutive
                                                                                                               events for the
                                                                                                               three and nine
                                                                                                               months ended July
                                                                                                               31, 2012 and 2011,
                                                                                                               which would have
                                                                                                               resulted in an
                                                                                                               adjustment to the
                                                                                                               exercise price
                                                                                                               or number of Warrant
                                                                                                               Shares.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company had no assets measured at fair value at July 31,
2012 and October 31, 2011. The Company had the following warrant liability measured at fair value on July 31, 2012 and October
31, 2011:

|                                    |  | Fair value measurement                              |  
|----------------------------------- |  | --------------------------------------------------- | -
|                                    |  | Quoted prices in active markets of identical assets |  
|                                    |  | (Level 1)                                           |  
|July 31, 2012
 Warrants liability   |  |                                                     | -
|October 31, 2011
Warrants liability |  |                                                     | -



The Company used the Black-Scholes valuation
model to estimate the fair value of the Warrants.  The valuation of warrants liability on July 31, 2012 was based on the
assumptions noted in the following table.



|Expected volatility      |  |  | 68.96      | %
|------------------------ |  |  | ---------- | -
|Expected dividends       |  |  | 0          | %
|Expected term (in years) |  |  | 0.65 years |  
|Risk-free rate           |  |  | 0.30       | %



NOTE 18 - PREFERRED STOCK, COMMON
STOCK AND EQUITY TRANSACTIONS



(1)  Preferred Stock



The Company’s articles of incorporation
provide that our board of directors will be authorized to issue from time to time, without further stockholder approval, up to
1,000,000 additional shares of preferred stock in one or more series and to fix or alter the designations, preferences, rights
and any qualifications, limitations or restrictions of the shares of each series, including the dividend rights, dividend rates,
conversion rights, voting rights, rights of redemption, including sinking fund provisions, redemption price or prices, liquidation
preferences and the number of shares constituting any series or designations of any series. Such shares of preferred stock
could have preferences over our common stock with respect to dividends and liquidation rights. As of July 31, 2012 and October
31, 2011, there was no preferred stock outstanding.



(2) Common Stock and Equity Transactions



On May 15, 2009, the Company issued an
aggregate of 2,142,856 shares of the Company’s common stock and 1,071,428 warrants with an exercise price of $0.875 per
share to Allied Merit International Investments, Inc. and Griffin Ventures Ltd. Total consideration of the issuance was $ 1,500,000.
The warrants expired on May 15, 2012 and there was no warrants exercised by the expire date.



21







The fair value of the warrants is estimated
on the date of grant using the Black-Scholes option valuation model to be $496,732. The valuation was based on the assumptions
noted in the following table.



|Expected volatility      |  |  | 175.80  | %
|------------------------ |  |  | ------- | -
|Expected dividends       |  |  | 0       | %
|Expected term (in years) |  |  | 3 years |  
|Risk-free rate           |  |  | 1.375   | %



The risk-free interest rate is based on
the U.S. Treasury yield curve in effect for the expected term of the warrants at the time of grant.  The dividend yield
on our common stock is assumed to be zero since we do not pay dividends and have no current plans to pay them in the future.  The
market price volatility of our common stock was based on historical volatility since May 15, 2008.  Our methodology
is consistent with prior period volatility assumptions.  The expected life of the warrants is based upon our anticipated
expectations of exercise behavior since no options have been exercised in the past to provide relevant historical data.



NOTE 19 - OPTIONS AND WARRANTS



Share-based compensation amounted to $22,877
and $36,182 for the three months ended July 31, 2012 and 2011, respectively, and $71,493 and $96,981, respectively, for the nine
months ended July 31, 2012 and 2011.



(1)  2003 Omnibus Plan



On February 28, 2003, our board of directors
approved the Renhuang Pharmaceuticals, Inc. 2003 Omnibus Securities Plan (the “2003 Plan”), which was approved by
our shareholders on April 11, 2003. The 2003 Plan offers selected employees, directors, and consultants opportunities to acquire
our common stock, and serves to encourage such persons to remain employed by us and to attract new employees. The 2003 Plan allows
for the award of stock and options, up to 25,000 (after giving effect to the 1-for-30 reverse stock split in 2006) shares of our
common stock. On May 1, of each year, the number of shares in the 2003 Securities Plan is automatically adjusted to an amount
equal to ten percent of our outstanding stock on October 31, of the immediately preceding year. As of July 31, 2012 and October
31, 2011, there were 3,723,954 shares available for issuing subject to the 2003 Omnibus Securities Plan.



a) On
December 14, 2010, we appointed Mr. Weiqiu Dong as our chief financial officer. Based on the employment agreement, Mr. Dong received,
on December 14, 2010, an option to purchase 200,000 shares of the Company's common stock with an exercise price of $2.15 per share,
under the 2003 Omnibus Plan. The option vests 60,000 shares on the first anniversary of the date of grant and 70,000 shares
on each of the second and third anniversaries of the date of grant. The Option is conditioned upon continued employment on such
date, and has a contractual life of 3 years.



The fair value of the option
award is estimated on the date of grant using the Black-Scholes option valuation model to be $259,251, of which $20,040 and $62,982
were recorded as compensation expenses for the three and nine months ended July 31, 2012. The valuation was based on the assumptions
noted in the following table.



|Expected volatility      |  |  | 96.46   | %
|------------------------ |  |  | ------- | -
|Expected dividends       |  |  | 0.00    | %
|Expected term (in years) |  |  | 3 years |  
|Risk-free rate           |  |  | 1.06    | %



The risk-free interest rate is
based on the U.S. Treasury yield curve in effect for the expected term of the option at the time of grant.  The dividend
yield on our common stock is assumed to be zero since we do not pay dividends and have no current plans to pay them in the future.  The
market price volatility of our common stock was based on historical volatility since December 13, 2009.  Our methodology
is consistent with prior period volatility assumptions.  The expected life of the options is based upon our anticipated
expectations of exercise behavior since no options have been exercised in the past to provide relevant historical data.



b)
On October 15, 2011, we entered into an independent director agreement with Mr. Pan, who became our director on October 15, 2011.
The agreement provides that Mr. Pan, the Chair of our Audit Committee, will receive (i) a fee of $2,500 per month, (ii) options
to purchase 50,000 shares of common stock under the 2003 Plan, at an exercise price of $0.80 per share, which is equal to the
closing price of the Company’s common stock on October 15, 2011, subject to vesting on a quarterly basis (4,166 shares of
option to vest on the first 11 quarter anniversaries of the grant and 4,174 shares of option to vest on the 12th quarter anniversary
of the grant with the initial 4,166 shares of option vesting to commence on January 15, 2012), and with all vesting conditional
upon continued service as a director of the Company as of each such anniversary; and (iii) a reimbursement of out-of pocket expenses
incidental to his services on the Board. The agreement expires on the earlier of (i) the date Mr. Pan ceases to be a member of
the board, or (ii) the date of termination of the Agreement.



22







The fair value of the option
award is estimated on the date of grant using the Black-Scholes option valuation model to be $34,042, of which $2,837 and $8,511
were recorded as compensation expenses for the three and nine months ended July 31, 2012.  The valuation was based on
the assumptions noted in the following table.



|Expected volatility      |  |  | 127.76  | %
|------------------------ |  |  | ------- | -
|Expected dividends       |  |  | 0.00    | %
|Expected term (in years) |  |  | 3 years |  
|Risk-free rate           |  |  | 1.12    | %



The risk-free interest rate
is based on the U.S. Treasury yield curve in effect for the expected term of the option at the time of grant.  The dividend
yield on our common stock is assumed to be zero since we do not pay dividends and have no current plans to pay them in the future.  The
market price volatility of our common stock was based on historical volatility since October 14, 2010.  Our methodology
is consistent with prior period volatility assumptions.  The expected life of the options is based upon our anticipated
expectations of exercise behavior since no options have been exercised in the past to provide relevant historical data.



(2)  2007 Non-Qualified Company Stock Grant and
Option Plan



On March 19, 2007, our board of directors
approved the 2007 Non-Qualified Company Stock Grant and Option Plan (the “2007 Plan”).   The 2007 Plan
is intended to serve as an incentive to and to encourage stock ownership by our  directors, officers, and employees,
and certain persons rendering service to us, so that such persons may acquire or increase their proprietary interest in our success,
and to encourage them to remain in our service.  Under the 2007, up to 200,000 shares of our common stock may be subject
to options.



(3)  Option Activity and Status



A summary of option activity and movement during the three
and nine months ended at July 31, 2012 and 2011, respectively, are as follow:



|                                         |  | Options |         |  | Weighted average
    exercise price |   |      | Aggregate intrinsic value |  |   | Weighted average
    remaining contractual term | 
|---------------------------------------- |  | ------- | ------- |  | ----------------------------------- | - | ---- | ------------------------- |  | - | ----------------------------------------------- | 
|                                         |  |         |         |  |                                     |   |      |                           |  |   |                                                 | 
|For the three months ended July 31, 2012 |  |         |         |  |                                     |   |      |                           |  |   |                                                 | 
|Outstanding at May 1, 2012               |  |         | 284,998 |  |                                     | $ | 1.96 |                           |  | $ | 381,886                                         | 
|Granted                                  |  |         | -       |  |                                     |   | -    |                           |  |   | -                                               | 
|Exercised                                |  |         | -       |  |                                     |   | -    |                           |  |   | -                                               | 
|Forfeited or expired                     |  |         | -       |  |                                     |   | -    |                           |  |   | -                                               | 
|Outstanding at July 31, 2012             |  |         | 284,998 |  |                                     | $ | 1.96 |                           |  | $ | 381,886                                         | 
|                                         |  |         |         |  |                                     |   |      |                           |  |   |                                                 | 
|For the three months ended July 31, 2011 |  |         |         |  |                                     |   |      |                           |  |   |                                                 | 
|Outstanding at May 1, 2011               |  |         | 270,000 |  |                                     | $ | 2.26 |                           |  | $ | 426,083                                         | 
|Granted                                  |  |         | -       |  |                                     |   | -    |                           |  |   | -                                               | 
|Exercised                                |  |         | -       |  |                                     |   | -    |                           |  |   | -                                               | 
|Forfeited or expired                     |  |         | -       |  |                                     |   | -    |                           |  |   | -                                               | 
|Outstanding at July 31, 2011             |  |         | 270,000 |  |                                     | $ | 2.26 |                           |  | $ | 426,083                                         | 



23













|                                        |  | Options |         |  | Weighted  average exercise  price |   |      | Aggregate  intrinsic  value |  |   | Weighted average  remaining  contractual term | 
|--------------------------------------- |  | ------- | ------- |  | --------------------------------- | - | ---- | --------------------------- |  | - | --------------------------------------------- | 
|                                        |  |         |         |  |                                   |   |      |                             |  |   |                                               | 
|For the nine months ended July 31, 2012 |  |         |         |  |                                   |   |      |                             |  |   |                                               | 
|Outstanding at November 1, 2011         |  |         | 284,998 |  |                                   | $ | 1.96 |                             |  | $ | 381,886                                       | 
|Granted                                 |  |         | -       |  |                                   |   | -    |                             |  |   | -                                             | 
|Exercised                               |  |         | -       |  |                                   |   | -    |                             |  |   | -                                             | 
|Forfeited or expired                    |  |         | -       |  |                                   |   | -    |                             |  |   | -                                             | 
|Outstanding at July 31, 2012            |  |         | 284,998 |  |                                   | $ | 1.96 |                             |  | $ | 381,886                                       | 
|                                        |  |         |         |  |                                   |   |      |                             |  |   |                                               | 
|For the nine months ended July 31, 2011 |  |         |         |  |                                   |   |      |                             |  |   |                                               | 
|Outstanding at November 1, 2010         |  |         | 70,000  |  |                                   | $ | 2.57 |                             |  | $ | 166,832                                       | 
|Granted                                 |  |         | 200,000 |  |                                   |   | 2.15 |                             |  |   | 259,251                                       | 
|Exercised                               |  |         | -       |  |                                   |   | -    |                             |  |   | -                                             | 
|Forfeited or expired                    |  |         | -       |  |                                   |   | -    |                             |  |   | -                                             | 
|Outstanding at July 31, 2011            |  |         | 270,000 |  |                                   | $ | 2.26 |                             |  | $ | 426,083                                       | 



A summary of the status of the Company’s non-vested options
as of July 31, 2012 and 2011, respectively, and movements during the three and nine months then ended are as follow:



|                                         |  | Options |         |   | Weighted average  granted date fair value |  
|---------------------------------------- |  | ------- | ------- | - | ----------------------------------------- | -
|                                         |  |         |         |   |                                           |  
|For the three months ended July 31, 2012 |  |         |         |   |                                           |  
|Non-vested at May 1, 2012                |  |         | 181,668 |   |                                           | $
|Granted                                  |  |         | -       |   |                                           |  
|Vested                                   |  |         | (4,166  | ) |                                           |  
|Forfeited or expired                     |  |         | -       |   |                                           |  
|Non-vested at July 31, 2012              |  |         | 177,502 |   |                                           | $
|                                         |  |         |         |   |                                           |  
|For the three months ended July 31, 2011 |  |         |         |   |                                           |  
|Non-vested at May 1, 2011                |  |         | 240,835 |   |                                           | $
|Granted                                  |  |         | -       |   |                                           |  
|Vested                                   |  |         | -       |   |                                           |  
|Forfeited or expired                     |  |         | -       |   |                                           |  
|Non-vested at July 31, 2011              |  |         | 240,835 |   |                                           | $



24







|                                        |  | Options |         |   | Weighted average granted  date fair value |  
|--------------------------------------- |  | ------- | ------- | - | ----------------------------------------- | -
|                                        |  |         |         |   |                                           |  
|For the nine months ended July 31, 2012 |  |         |         |   |                                           |  
|Non-vested at November 1, 2011          |  |         | 250,000 |   |                                           | $
|Granted                                 |  |         | -       |   |                                           |  
|Vested                                  |  |         | (72,498 | ) |                                           |  
|Forfeited or expired                    |  |         | -       |   |                                           |  
|Non-vested at July 31, 2012             |  |         | 177,502 |   |                                           | $
|                                        |  |         |         |   |                                           |  
|For the nine months ended July 31, 2011 |  |         |         |   |                                           |  
|Non-vested at November 1, 2010          |  |         | 58,334  |   |                                           | $
|Granted                                 |  |         | 200,000 |   |                                           |  
|Vested                                  |  |         | (17,499 | ) |                                           |  
|Forfeited or expired                    |  |         | -       |   |                                           |  
|Non-vested at July 31, 2011             |  |         | 240,835 |   |                                           | $



The unrecognized compensation costs related
to non-vested share-based compensation granted under the Company’s option plan were $142,931 and $333,836 on July 31, 2012
and 2011, respectively.



(4) Warrants



A summary of warrant activity and movement during the three
and nine months ended at July 31, 2012 and 2011, respectively, are as follow:



|                                         |  | Warrants |           |  | Average exercise
    price |  
|---------------------------------------- |  | -------- | --------- |  | -------------------------- | -
|                                         |  |          |           |  |                            |  
|For the three months ended July 31, 2012 |  |          |           |  |                            |  
|Outstanding warrants at May 1, 2012      |  |          | 1,231,428 |  |                            | $
|Warrants granted                         |  |          | -         |  |                            |  
|Exercised                                |  |          | -         |  |                            |  
|Expired/cancelled                        |  |          | 1,071,428 |  |                            |  
|Outstanding warrants at July 31, 2012    |  |          | 160,000   |  |                            | $
|                                         |  |          |           |  |                            |  
|For the three months ended July 31, 2011 |  |          |           |  |                            |  
|Outstanding warrants at May 1, 2011      |  |          | 1,231,428 |  |                            | $
|Warrants granted                         |  |          | -         |  |                            |  
|Exercised                                |  |          | -         |  |                            |  
|Expired/cancelled                        |  |          | -         |  |                            |  
|Outstanding warrants at July 31, 2011    |  |          | 1,231,428 |  |                            | $



25







|                                         |  | Warrants |           |  | Average exercise price |  
|---------------------------------------- |  | -------- | --------- |  | ---------------------- | -
|                                         |  |          |           |  |                        |  
|For the nine months ended July 31, 2012  |  |          |           |  |                        |  
|Outstanding warrants at November 1, 2011 |  |          | 1,231,428 |  |                        | $
|Warrants granted                         |  |          | -         |  |                        |  
|Exercised                                |  |          | -         |  |                        |  
|Expired/cancelled                        |  |          | 1,071,428 |  |                        |  
|Outstanding warrants at July 31, 2012    |  |          | 160,000   |  |                        | $
|                                         |  |          |           |  |                        |  
|For the nine months ended July 31, 2011  |  |          |           |  |                        |  
|Outstanding warrants at November 1, 2010 |  |          | 1,231,428 |  |                        | $
|Warrants granted                         |  |          | -         |  |                        |  
|Exercised                                |  |          | -         |  |                        |  
|Expired/cancelled                        |  |          | -         |  |                        |  
|Outstanding warrants at July 31, 2011    |  |          | 1,231,428 |  |                        | $



Information regarding the warrants outstanding at July 31, 2012
and 2011 are summarized as below:





|                                      |  | Warrants Outstanding |           |  | Weighted average  remaining contractual  life(years) |  |      | Weighted average exercise price | 
|------------------------------------- |  | -------------------- | --------- |  | ---------------------------------------------------- |  | ---- | ------------------------------- | 
|                                      |  |                      |           |  |                                                      |  |      |                                 | 
|Warrants outstanding at July 31, 2012 |  |                      | 160,000   |  |                                                      |  | 0.65 |                                 | 
|                                      |  |                      |           |  |                                                      |  |      |                                 | 
|                                      |  |                      | 1,071,428 |  |                                                      |  | 0.79 |                                 | 
|                                      |  |                      | 160,000   |  |                                                      |  | 1.65 |                                 | 
|Warrants outstanding at July 31, 2011 |  |                      | 1,231,428 |  |                                                      |  | 0.90 |                                 | 







NOTE 20 - RESERVES



(1) Statutory reserves



Pursuant to the relevant laws and regulations
of the PRC, the Company is required to annually transfer 10% of its after tax profit as reported on condensed consolidated financial
statements prepared under the accounting principles of the PRC to a statutory surplus reserve fund until the balance reaches 50%
of the registered share capital.  This reserve can be used to make up any losses incurred or to increase share capital.  Except
for reducing losses incurred, any other application may not result in this reserve balance falling below 25% of the registered
capital.



(2) Public welfare funds



Prior to January 1, 2007, the Company was
required each year to transfer 5% of its after tax profit as reported on condensed consolidated financial statements prepared under
the accounting principles of the PRC to the public welfare funds.  This reserve was restricted to capital expenditure
for employees’ collective welfare facilities that are owned by the Company.  The public welfare funds are not available
for distribution to the stockholders (except in liquidation).  Once capital expenditures for staff welfare facilities
have been made, an equivalent amount must be transferred from the public welfare funds to the discretionary common reserve funds.  Due
to a change in PRC law, appropriation of profit to the public welfare funds is no longer required.



26







The reserve funds as of July 31, 2012 and October 31, 2011 were
comprised of the following:



|                          |  | 2012 |           |  | 2011 | 
|------------------------- |  | ---- | --------- |  | ---- | 
|                          |  | US$  |           |  | US$  | 
|                          |  |      |           |  |      | 
|Statutory surplus reserve |  |      | 3,090,320 |  |      | 
|Public welfare fund       |  |      | 282,377   |  |      | 
|Total                     |  |      | 3,372,697 |  |      | 



NOTE 21 - COMMITMENTS AND CONTINGENCIES



The Company has various purchase commitments
for materials, supplies and services incident to the ordinary conduct of business, generally for quantities required for the Company’s
business and at prevailing market prices. No material annual loss is expected from these commitments and there are no minimum purchase
commitments.



The Company and its subsidiaries are self-insured,
and they do not carry any property insurance, general liability insurance, or any other insurance that covers the risks of their
business operations. As a result any material loss or damage to its properties or other assets, or personal injuries arising from
its business operations would have a material adverse effect on the Company’s financial condition and operations.



The Company is not involved in any legal
matters arising in the normal course of business. While incapable of estimation, in the opinion of the management, the individual
regulatory and legal matters in which it might involve in the future are not expected to have a material adverse effect on the
Company’s financial position, results of operations, or cash flows.



(1)  Operating lease arrangements



We currently have no operating lease agreement
with any company.



(2)  Capital commitments



On October 12, 2009, we entered into a
purchase agreement with Harbin Renhuang Pharmaceutical Stock Co. Ltd (“Renhuang Stock”) to acquire the land use right,
property and plant located at our Ah City Natural and Biopharmaceutical plant for a total consideration of $25,293,644. Pursuant
to the purchase agreement, a payment of $15,808,527 was made to Renhuang Stock in October 2009 and a payment of $7,904,264 was
made to Renhuang Stock in January 2011, with a final payment of $1,580,853 will be paid once we received all the related title
transfer documents from local government, at which time title for the assets will be transferred. According to the agreement, we
were exempted from lease payments for the underlying assets starting from May 1, 2010.



|Name of Fixed Asset          |  | Purchase Date |  | Prepaid Amount |            |  | Remaining Amount |   |           | Total Amount | 
|---------------------------- |  | ------------- |  | -------------- | ---------- |  | ---------------- | - | --------- | ------------ | 
|Ah City Pharmaceutical Plant |  | October 2009  |  | $              | 23,712,791 |  |                  | $ | 1,580,853 |              | 



In January 2011, CBP China started its
Ah City Phase Two project for Siberian Ginseng products development and industrialization and entered into a Construction and Engineering
Design Contract (the “Contract”) with Heilongjiang Medical Architecture Design Institute (the “Institute”)
for architectural design. A few payments have been made to Institute and relevant local government departments for design and start
up fees and we recorded $1,952,353 as Construction-in-progress for Ah City Phase Two project. The estimated total investment for
Ah City Phase Two is $18,970,232. The project is anticipated to be finished in the year of 2013.



27







|Name of Construction-in-Progress                               |  | Start Date |              |  | Paid Amount |   |           | Remaining Amount |  |   | Projected Total  Amount | 
|-------------------------------------------------------------- |  | ---------- | ------------ |  | ----------- | - | --------- | ---------------- |  | - | ----------------------- | 
|Ah City Phase Two (Siberian Ginseng Product Industrialization) |  |            | January 2011 |  |             | $ | 1,952,353 |                  |  | $ | 17,017,879              | 



On January 11, 2011, CBP China entered
into an Exclusive Licensing Agreement for Harbin Renhuang Pharmaceutical Co., Ltd. to Use Forest Resources
under Yichun Red Star Forestry Bureau (the “Agreement”)with Yichun Red Star Forestry Bureau of Heilongjiang
Province (the “Forestry Bureau”) which provides us with 30 years exclusive license right
to use approximately 6,667 hectares of undergrowth resources including approximately 67 hectares of Siberian Ginseng GAP cultivation
base in Heilongjiang Province. Pursuant to the Agreement, a payment of $7,904,264 was made to Forestry Bureau in January
2011, second payment of $6,323,411 was made in October 2011 and the final amount of $1,580,853 will be paid by receiving all the
required material from local government authorities. Siberian Ginseng is a plant with medically-established anti-depressant and
mood regulation qualities and is also an active ingredient in our market-leading line of all-natural anti-depressant medications.
We will be responsible for continued maintenance and protection of wild resources to make this area a professional Siberian Ginseng
base.



As of July 31, 2012, the Company has the
following intangible assets which need our future capital commitments:



|Name of Intangible Assets                                |  | Purchase Date  |  | Paid Amount |            |  | Remaining Amount |   |            | Total Amount | 
|-------------------------------------------------------- |  | -------------- |  | ----------- | ---------- |  | ---------------- | - | ---------- | ------------ | 
|Patent of Ingredients and preparation for Parkinson Drug |  | August 2011    |  | $           | 1,359,533  |  |                  | $ | 1,359,533  |              | 
|Patent of Ingredients and preparation for XiangDousu     |  | August 2011    |  |             | 1,343,725  |  |                  |   | 1,343,725  |              | 
|Patent of Mudouye Extract                                |  | September 2011 |  |             | 1,897,023  |  |                  |   | 1,897,023  |              | 
|Patent of Hongdoushan Extract                            |  | September 2011 |  |             | 2,387,088  |  |                  |   | 2,387,088  |              | 
|Patent of Ingredients and preparation for Jizhi Pills    |  | October 2011   |  |             | 2,134,151  |  |                  |   | 2,134,151  |              | 
|Yichun Undergrowth Resource Exclusive Using right        |  | January 2011   |  |             | 14,227,675 |  |                  |   | 1,580,853  |              | 
|Total                                                    |  |                |  | $           | 23,349,195 |  |                  | $ | 10,702,373 |              | 



On January 24, 2012, the Company entered into an advertising
contract with Harbin Weishi Advertising Company to advertise its products from February 1, 2012 to January 31, 2013 as shown on
the following table.



|Advertising Contract                 |  | Contract Date |  | Paid Amount |           |  | Remaining Amount |  |           | Total Amount | 
|------------------------------------ |  | ------------- |  | ----------- | --------- |  | ---------------- |  | --------- | ------------ | 
|                                     |  |               |  |             | US$       |  |                  |  | US$       |              | 
|Harbin TV Weishi Advertising Company |  | January 2012  |  |             | 3,604,344 |  |                  |  | 3,604,344 |              | 



As of July 31, 2012, the Company has capital
commitments for purchase of Ah City Nature and Pharmaceutical Plant, undergrowth resources right, product patents, advertising
contract and Ah City Phase Two construction-in-progress of approximately $32,905,449. The amounts to be paid in the future years
are as follows:



|Year  |  |   | Payment for properties | 
|----- |  | - | ---------------------- | 
|2012  |  | $ | 14,085,398             | 
|2013  |  |   | 18,820,051             | 
|Total |  | $ | 32,905,449             | 



NOTE 22 - SUBSEQUENT EVENT



Management has evaluated subsequent events
through the date these condensed consolidated financial statements were issued and has concluded no events need to be reported
during this period.



28







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



The following discussion and analysis
of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial
statements and related notes appearing elsewhere in this Quarterly Report.  In addition to historical financial information,
the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs.  Our actual results
could differ materially from those discussed in the forward-looking statements.  Factors that could cause or contribute to
these differences include those discussed below and elsewhere in this Quarterly Report. See also Risk Factors contained in our
Form 10-K for the year ended October 31, 2011.



Overview



We are a high-tech enterprise engaged in
the research, development, manufacture, and distribution of botanical products, bio-pharmaceutical products, and traditional Chinese
medicines, or TCM, in the People’s Republic of China (“PRC” or “China”). We have three “Good
Manufacturing Practice” or GMP certified production facilities - Ah City Natural and Biopharmaceutical plant, Dongfanghong
pharmaceutical plant and Qingyang natural extraction plant - capable of producing 18 dosage forms and over 200 different products.
Our products include but are not limited to (i) botanical anti-depression and nerve-regulation products, (ii) biopharmaceutical
products, and (iii) botanical antibiotic and traditional over-the-counter (“OTC”) Chinese medicines. Botanical anti-depression
and nerve-regulation products account for approximately 70% of our revenues and we intend to strengthen our development in this
area. We have entered into sales agency agreements with our sales agents. Through our sales agent, we have sold our products to
over 3,000 distributors and over 70 sales centers across 24 provinces in the PRC.



Recent Developments



Schisandra Lignin Extraction Method Patent. On
July 4, 2012, we were granted a patent by the State Intellectual Property Office of the PRC (“SIPO”) for our proprietary
Schisandra lignin extraction method developed by our research and development department. Research in China suggests that Schisandra
is a wild plant with significant medical and health benefits. Schisandra has been found to prevent liver damage and is an effective
sedative for treating insomnia and central nervous system depression. Additionally, research indicates Lignin compounds are a good
source of powerful anti-oxidants with promising benefits in fighting major conditions, including HIV, cancer and high blood pressure.
Our proprietary Schisandra lignin extraction method enables us to obtain higher purity of lignin and remove impurities from the
plant, resulting in extract with over 50% lignin, which may substantially enhance the efficacy of medicines produced from these
compounds. The patent is good for a period of 20 years from the patent application date of Feb. 2010.



Tax Treatment of Subsidiary



As a recipient of the PRC’s State
High-Tech Enterprise certificate, Harbin Renhuang Pharmaceutical Co. LTD (“CBP China”) is eligible for a number of
national and local government support programs, including preferential tax treatment.  In order to receive these benefits
CBP China must, on an annual basis, pass a High-Tech Enterprise assessment.  CBP China passed this assessment in February
2012 and, as a result, pays a reduced enterprise income tax rate of 15% in the year of 2012 compared with statutory enterprise
income tax rate of 25%.



Critical Accounting Policies



The unaudited condensed consolidated financial
statements include the financial statements of the Company and our subsidiaries.  All transactions and balances among
us and our subsidiaries have been eliminated upon consolidation.



29







Accounting Judgments and Estimates



Certain amounts included in or affecting
our unaudited condensed consolidated financial statements and related disclosures must be estimated, requiring us to make certain
assumptions with respect to values or conditions that cannot be known with certainty at the time the condensed consolidated financial
statements are prepared. These estimates and assumptions affect the amounts we report for assets and liabilities and our disclosure
of contingent assets and liabilities at the date of our condensed consolidated financial statements. We routinely evaluate these
estimates, utilizing historical experience, consulting with experts and other methods we consider reasonable in the particular
circumstances. Nevertheless, actual results may differ significantly from our estimates. Any effects on our business, financial
position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that
give rise to the revision become known.



We believe that certain accounting policies
are of more significance in our unaudited condensed consolidated financial statement preparation process than others, which policies
are discussed below. See also Note 2 to the unaudited condensed consolidated financial statements for a summary of our significant
accounting policies.



Estimates of allowances for bad debts
– We must periodically review our trade and other receivables to determine if all are collectible or whether an allowance
is required for possible uncollectible balances.



Estimate of the useful lives of property
and equipment – We must estimate the useful lives and proper salvage values of our property and equipment. We must also
review property and equipment for possible impairment.



Estimate of the useful lives of intangible
assets – We must estimate the useful lives of our intangible assets. We must also review intangible assets for possible
impairment.



Estimate of share-based compensation
– We must estimate the fair value of share-based compensation.



Estimate of noncash rental expenses
–We must estimate the noncash rental expenses.



Inventory – We must determine
whether we have any obsolete or impaired inventory.



Revenue recognition – Revenue
from the sale of goods is recognized on the transfer of risks and rewards of ownership, which generally coincides with the time
when the goods are shipped to customers and the title has passed.



Please refer to the notes to the unaudited
condensed consolidated financial statements included elsewhere in this filing for a complete summary of all of our significant
accounting policies.



Factors Affecting our Results of Operations



Our operating results are primarily affected by the following
factors:



| | · | Pharmaceutical Industry Growth.
We believe the market for pharmaceutical products in the PRC is growing rapidly driven by the PRC’s economic growth, increased
pharmaceutical expenditure, an aging population, increased lifestyle-related diseases, government support of the pharmaceutical
industry, as well as the increased availability of funding for medical insurance in the PRC. In particular, in January 2009, the
PRC’s State Council passed a far-reaching medical reform plan (“Health Reform”) to help provide universal primary
medical insurance coverage and increased access to medical facilities to a greater majority of its citizens. Both the central government
of the PRC and provincial governments has published Lists of Essential Medicines to regulate the market. We expect these factors
to continue to drive industry growth.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Pricing of Our Products.
Seven of our products, which accounted for 40% and 36% of our total revenues before sales rebate in the three and nine months ended
July 31, 2012, are listed on the National or Provincial List of Essential Medicines published by the Chinese government, and therefore
subject to government pricing limits. We do not believe pricing controls will influence our sales significantly and expect that
the health care reform will help increase our sales.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Production
                                                                                                               Capacity.
                                                                                                               We believe much
                                                                                                               of the pharmaceutical
                                                                                                               market in the PRC
                                                                                                               is still underserved,
                                                                                                               particularly with
                                                                                                               respect to treatment
                                                                                                               of depression,
                                                                                                               melancholy and
                                                                                                               nerve regulation.
                                                                                                               The demand for
                                                                                                               our products that
                                                                                                               treat depression,
                                                                                                               melancholy and
                                                                                                               regulate nerves,
                                                                                                               continuously increased
                                                                                                               and we were able
                                                                                                               to increase our
                                                                                                               production of such
                                                                                                               products to capture
                                                                                                               much of this growth.
                                                                                                               We believe our
                                                                                                               current facilities
                                                                                                               with the ability
                                                                                                               to manufacture
                                                                                                               18 dosage forms
                                                                                                               and over 200 products
                                                                                                               could not meet
                                                                                                               our future demand
                                                                                                               and we are building
                                                                                                               our Ah City Phase
                                                                                                               Two project, Depth
                                                                                                               Development and
                                                                                                               Industrialization
                                                                                                               of Siberian Ginseng,
                                                                                                               to produce more
                                                                                                               advanced Siberian
                                                                                                               Ginseng products
                                                                                                               and to allow us
                                                                                                               to capture future
                                                                                                               market growth and
                                                                                                               increase our revenue
                                                                                                               and market share
                                                                                                               accordingly.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



30







| | · | Perceptions
                                                                                                               of Product Quality.
                                                                                                               We believe that
                                                                                                               rising health concerns
                                                                                                               in the PRC have
                                                                                                               contributed to
                                                                                                               a greater demand
                                                                                                               for health-care
                                                                                                               products with perceived
                                                                                                               health benefits.
                                                                                                               We believe many
                                                                                                               consumers in the
                                                                                                               PRC tend to prefer
                                                                                                               natural health
                                                                                                               care products with,
                                                                                                               we believe, limited
                                                                                                               side effects. Accordingly,
                                                                                                               we believe our
                                                                                                               reputation for
                                                                                                               quality and leadership
                                                                                                               position in a number
                                                                                                               of our products
                                                                                                               allow our products
                                                                                                               to command a higher
                                                                                                               average selling
                                                                                                               price and generate
                                                                                                               higher gross margins
                                                                                                               than our competitors.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Raw
                                                                                                               Material Supply
                                                                                                               and Prices.
                                                                                                               The per unit costs
                                                                                                               of producing our
                                                                                                               products are subject
                                                                                                               to the supply and
                                                                                                               price volatility
                                                                                                               of raw materials,
                                                                                                               which are affected
                                                                                                               by various market
                                                                                                               factors such as
                                                                                                               market demands,
                                                                                                               fluctuations in
                                                                                                               production and
                                                                                                               competition.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Expenses
                                                                                                               Associated with
                                                                                                               Research and Development.
                                                                                                               In order to enhance
                                                                                                               our existing products
                                                                                                               and develop new
                                                                                                               products for the
                                                                                                               market, we have
                                                                                                               devoted significant
                                                                                                               resources to research
                                                                                                               and development.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Expenses
                                                                                                               Associated with
                                                                                                               Sales and Marketing.
                                                                                                               In order to promote
                                                                                                               our product brand
                                                                                                               and gain greater
                                                                                                               market awareness,
                                                                                                               we have devoted
                                                                                                               significant resources
                                                                                                               to sales and marketing,
                                                                                                               in particular advertising
                                                                                                               activities.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Demand
                                                                                                               for Our Products.
                                                                                                               We expect the market
                                                                                                               demand for our
                                                                                                               botanic anti-depression
                                                                                                               and nerve-regulation
                                                                                                               products will increase
                                                                                                               along with the
                                                                                                               growth of the general
                                                                                                               market for such
                                                                                                               products.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Results of Operations



Three-Month Period Ended July 31, 2012 Compared to Three-Month
Period Ended July 31, 2011



The following table sets forth certain information regarding
our results of operation.



|                                            |  | For three Months Ended July 31, |       
|------------------------------------------- |  | ------------------------------- | ------
|                                            |  | 2012                            |       
|                                            |  | ($ in thousands)                |       
|                                            |  | (Unaudited)                     |       
|Statements of Income Data                   |  |                                 |       
|Sales, net                                  |  |                                 | 15,077
|Cost of goods sold                          |  |                                 | 6,191 
|Gross profit                                |  |                                 | 8,886 
|Operating and administrative expenses       |  |                                 |       
|Sales and marketing                         |  |                                 | 1,832 
|General and administrative                  |  |                                 | 1,366 
|Research and development                    |  |                                 | 1,900 
|Other income                                |  |                                 | 44    
|Income before income tax expenses           |  |                                 | 3,832 
|Income tax expenses                         |  |                                 | 576   
|Net income                                  |  |                                 | 3,256 
|Other comprehensive income:                 |  |                                 |       
|Unrealized currency translation adjustments |  |                                 | 143   
|Total comprehensive income                  |  |                                 | 3,399 



31







Total Comprehensive Income



Total comprehensive income increased by
approximately $0.05 million, or 2%, from approximately $3.35 million for the three months ended July 31, 2011 to approximately
$3.40 million for the three months ended July 31, 2012.  This increase was primarily attributable to an increase
of approximately $2.70 million, or 22%, in net sales, and an increase of approximately $1.28 million, or 26%, in cost of goods
sold and an increase of approximately $0.27 million, or 17%, in sales and marketing expenses, an increase of approximately $0.13
million, or 11%, in general and administration expenses, an increase of approximately $0.21 million, or 13%, in research and development
expenses, and an decrease of $0.68 million, or 83%, in unrealized currency translation adjustments. Our gross profit margin decreased
from 60% for the three months ended July 31, 2011 to 59% for the three months ended July 31, 2012.



Sales



Our sales consist primarily of revenues
generated from sales of botanical anti-depression and nerve regulation products, biopharmaceutical products and botanical antibiotics
and traditional OTC Chinese medicines. Net sales increased by approximately $2.70 million, or 22%, from approximately $12.38 million
in three months ended July 31, 2011 to approximately $15.08 million in three months ended July 31, 2012. This increase in sales
was primarily attributable to strong market acceptance of our Siberian Ginseng Series products, Compound Yangjiao Tablets, Tianma
Series and Compound Honeysuckle Granules as a result of our marketing efforts.



We provide incentive sales rebates to our
sales agents. For the three months ended July 31, 2012 and 2011, the Company has deducted sales rebates in the amount of $1.41
million and $0.79 million, respectively, from total sales. Sales rebates are netted against total sales. The following table sets
forth information regarding the total sales of our principal products before sales rebates during the three months ended July 31,
2012 and 2011:





|                                       |  | Three Months Ended July 31, 2012 |            |  | Three Months Ended July 31, 2011 |  |         | Change For the Three Months Ended July 31, 2012 and 2011 | 
|-------------------------------------- |  | -------------------------------- | ---------- |  | -------------------------------- |  | ------- | -------------------------------------------------------- | 
|                                       |  | Quantity                         |            |  | Amount                           |  |         | % of                                                     | 
|Product name                           |  |                                  | (Pack’000) |  |                                  |  | ($’000) |                                                          | 
|Siberian Ginseng (Acanthopanax) Series |  |                                  | 54         |  |                                  |  | 8,109   |                                                          | 
|Tianma Series                          |  |                                  | 11         |  |                                  |  | 1,334   |                                                          | 
|Compound Yangjiao Tablets              |  |                                  | 15         |  |                                  |  | 1,845   |                                                          | 
|Shengmai Granules                      |  |                                  | 12         |  |                                  |  | 590     |                                                          | 
|Banlangen Granules                     |  |                                  | 9          |  |                                  |  | 402     |                                                          | 
|Compound Honeysuckle Granules          |  |                                  | 19         |  |                                  |  | 1,415   |                                                          | 
|QingReJieDu Oral Liquid                |  |                                  | 7          |  |                                  |  | 283     |                                                          | 
|Compound Schizandra Tablets            |  |                                  | 4          |  |                                  |  | 419     |                                                          | 
|Ginseng and Venison Extract            |  |                                  | 12         |  |                                  |  | 1,631   |                                                          | 
|Badger Oil                             |  |                                  | 2          |  |                                  |  | 446     |                                                          | 
|Total                                  |  |                                  | 145        |  |                                  |  | 16,474  |                                                          | 





32







Since the selling price of all products
increased in January 2011, we have experienced sales volume decrease from most of products in the year of 2011. After longer than
expected stable period and the effort of propagation through advertisement and promotion, and the most important, the high quality
of our products, we see our sales volume start to increase in our fiscal year of 2012.



In the third quarter of our fiscal year
2012, we introduced two new packages to the market, Siberian Ginseng Extract 50g and Siberian Ginseng 200g, which are replacing
current Siberian Ginseng Extract 100g package. We expect the two new packages bring more sales and profit for the Company.



The change in average sales price per pack,
as reflected in the following table, is primarily attributable to the change of currency translation from RMB to US Dollar and
rounding. The average selling price of each product denominated in RMB has stayed the same for the three months ended July 31,
2012 and 2011. The sales price of individual product is demonstrated in the following table, which reflects the average sales price
per pack by product for the three months ended July 31, 2012 and 2011 and the percentage changes in the sales price per pack. The
average prices per pack showing below for 2012 are calculated from exact sales and quantities before rounding.



|                                       |  | Average Price Per Pack For
 The Three Months Ended 
July 31, |     |  |      |  
|-------------------------------------- |  | ------------------------------------------------------------ | --- |  | ---- | -
|Product                                |  | 2012                                                         |     |  | 2011 |  
|Siberian Ginseng (Acanthopanax) Series |  | $                                                            | 151 |  |      | $
|Tianma Series                          |  |                                                              | 122 |  |      |  
|Compound Yangjiao Tablets              |  |                                                              | 124 |  |      |  
|Shengmai Granules                      |  |                                                              | 49  |  |      |  
|Balangen Granules                      |  |                                                              | 43  |  |      |  
|Compound Honeysuckle Granules          |  |                                                              | 73  |  |      |  
|QingReJieDu Oral Liquid                |  |                                                              | 39  |  |      |  
|Compound Schizandra Tablets            |  |                                                              | 108 |  |      |  
|Ginseng and Venison Extract            |  |                                                              | 135 |  |      |  
|Badger Oil                             |  |                                                              | 270 |  |      |  
|Total                                  |  | $                                                            | 113 |  |      | $



We expect the demand for our products will
continue increase as we continue to garner greater market acceptance, in particular the benefits of our Siberian Ginseng (Acanthopanax)
Series in treating depression and nerve-regulation. We believe that we will have a continuous and stable sales increase in these
products for fiscal year 2012. In addition, we anticipate that we will be successful in becoming one of the PRC’s essential
medicine suppliers as the PRC government moves forward with its Health Reforms in 2012.



Cost of Goods Sold



Our costs of goods sold consist primarily
of sales tax and additions, direct and indirect manufacturing costs, including production overhead costs, and handling costs for
the products sold. Costs of goods sold increased approximately $1.28 million, or 26%, from approximately $4.91 million for
the three months ended July 31, 2011 to approximately $6.19 million for the three months ended July 31, 2012.  This increase
was primarily attributable to the sales increase in Siberian Ginseng Series, Compound Yangjiao Tablet, Tianma Tablets and Compound
Honeysuckle granules, increases in average raw material prices as a result of inflation and sales tax and additions. The Siberian
Ginseng raw material purchase price has been increased 16% from our fiscal year 2011 to 2012 mainly due to higher labor cost and
transportation cost increase. Most of other material prices stayed the same in our fiscal year 2012 and 2011.



33







We anticipate that beyond 2012, our price
for raw materials and other production costs will continue to increase due to inflation. If our costs of goods increase, this may
have a negative effect on our net income because due to market conditions and competitive conditions, we may not be able to increase
the price for our products in proportion to the increase in costs of goods sold.



Operating and Administrative Expenses



Our total operating expenses consist primarily
of sales and marketing expenses, general and administrative expenses and research and development expenses. Our total operating
expenses increased by approximately $0.62 million, or 14%, from approximately $4.48 million for the three months ended July 31,
2011 to approximately $5.10 million for the three months ended July 31, 2012.



Sales and Marketing. Our
sales and marketing expenses consist primarily of advertising expenses, and other overhead expenses incurred by the Company’s
sales and marketing personnel. Sales and marketing expenses increased approximately $0.27 million, or 17%, from approximately $1.56
million for the three months ended July 31, 2011 to approximately $1.83 million for the three months ended July 31, 2012. This
increase was primarily attributable to an increase of approximately $0.30 million, or 20%, in advertising expense as the Company
intensified TV advertisements in Heilongjiang province for our botanic anti-depression series. Sales and marketing expenses are
likely to increase as we continue expanding our distribution network throughout the PRC and seek to increase our market share and
awareness of our products.



General and Administrative.
Our general and administrative expenses consist primarily of salary, travel, entertainment expenses, rental, benefits, share-based
compensation, and professional service fees. General and administrative expenses increased by approximately $0.13 million, or 11%,
from approximately $1.23 million for the three months ended July 31, 2011 to approximately $1.37 million for the three months ended
July 31, 2012. This increase was primarily attributable to an increase of approximately $0.07 million in depreciation expense and
a increase of $0.09 million in medical insurance expense. General and administrative expenses are likely to increase in the future
as we expand our production, sourcing capacity, and distribution capacity throughout the PRC.



Research and Development.
Our research and development expenses consist primarily of salary and Siberian Ginseng (Acanthopanax) cultivation related expenses.
Research and development expenses increased approximately $0.21 million, or 13%, from approximately $1.69 million for the three
months ended July 31, 2011 to approximately $1.90 million for the three months ended July 31, 2012. This increase was primarily
attributable to development of Siberian Ginseng (Acanthopanax) cultivation and extraction of effective components of the Siberian
Ginseng (Acanthopanax) plant, and development of other products, and research in cultivation techniques for Siberian Ginseng. Research
and development expenses are likely to increase as we continue to devote our resources to development of new products and enhancement
of our existing products.



Income before income tax expenses



As a result of the foregoing, our income before income tax expenses
increased by approximately $0.81 million, or 27%, from approximately $3.02 million for the three months ended July 31, 2011 to
approximately $3.83 million for the three months ended July 31, 2012.



Income Tax Expenses



We are subject to U.S. federal and state income taxes. 
For the three months ended July 31, 2012 and 2011, the Company did not incur U.S. federal and state income taxes as it is the Company’s
intention to invest these earnings in the foreign operations indefinitely. Our subsidiary registered in the PRC is subject to enterprise
income taxes. For the calendar years of 2012 and 2011, CBP China was granted a 10% tax exemption, and pays enterprise income
taxes of 15%.



34







Unrealized Currency Translation Adjustments



Our principal country of operations is the PRC and our functional
currency is the Renminbi, but our reporting currency is the U.S. dollar.  All translation adjustments resulting from the translation
of our financial statements into U.S. dollars are reported as unrealized currency translation adjustments.  Our unrealized
currency translation adjustments decreased by approximately $0.69 million, from approximately $0.83 million for the three months
ended July 31, 2011 to approximately $0.14 million for the three months ended July 31, 2012.



Nine-Month Period Ended July 31, 2012 Compared to Nine-Month
Period Ended July 31, 2011



The following table sets forth certain information regarding
our results of operation.



|                                            |  | For the Nine Months Ended July 31, |       
|------------------------------------------- |  | ---------------------------------- | ------
|                                            |  | 2012                               |       
|                                            |  | ($ in thousands)                   |       
|                                            |  | (Unaudited)                        |       
|Statements of Income Data                   |  |                                    |       
|Sales, net                                  |  |                                    | 66,239
|Cost of goods sold                          |  |                                    | 27,399
|Gross profit                                |  |                                    | 38,840
|Operating and administrative expenses       |  |                                    |       
|Sales and marketing                         |  |                                    | 5,247 
|General and administrative                  |  |                                    | 3,221 
|Research and development                    |  |                                    | 2,929 
|Other income                                |  |                                    | 109   
|Income before income tax expenses           |  |                                    | 27,551
|Income tax expenses                         |  |                                    | 4,139 
|Net income                                  |  |                                    | 23,413
|Other comprehensive income:                 |  |                                    |       
|Unrealized currency translation adjustments |  |                                    | 820   
|Total comprehensive income                  |  |                                    | 24,232



Total Comprehensive Income



Total comprehensive income increased by
approximately $0.68 million, or 3%, from approximately $23.55 million for the nine months ended July 31, 2011 to approximately
$24.23 million for the nine months ended July 31, 2012.  Our gross profit margin decreased from 60% for the nine months
ended July 31, 2011 to 59% for the nine months ended July 31, 2012.



Sales



Our sales consist primarily of revenues
generated from sales of botanical anti-depression and nerve regulation products, biopharmaceutical products and botanical antibiotics
and traditional OTC Chinese medicines. Net sales increased by approximately $12.36 million, or 23%, from approximately $53.88 million
in nine months ended July 31, 2011 to approximately $66.24 million in nine months ended July 31, 2012. This increase in sales was
primarily attributable to strong market acceptance of our Siberian Ginseng Series products, Compound Honeysuckle Granules and the
contributions from Ginseng and Venison Extract as a result of our marketing efforts.



35







We provide incentive sales rebates to our
sales agents. For the nine months ended July 31, 2012 and 2011, the Company has deducted sales rebates in the amount of $6.06 million
and $5.00 million, respectively, from total sales. Sales rebates are netted against total sales. The following table sets forth
information regarding the total sales of our principal products before sales rebate during the nine months ended July 31, 2012
and 2011:





|                                       |  | Nine Months Ended July 31, 2012 |            |  | Nine Months Ended July 31, 2011 |  |         | Change For the Nine Months Ended July 31, 2012 and 2011 | 
|-------------------------------------- |  | ------------------------------- | ---------- |  | ------------------------------- |  | ------- | ------------------------------------------------------- | 
|                                       |  | Quantity                        |            |  | Amount                          |  |         | % of                                                    | 
|Product name                           |  |                                 | (Pack’000) |  |                                 |  | ($’000) |                                                         | 
|Siberian Ginseng (Acanthopanax) Series |  |                                 | 283        |  |                                 |  | 36,332  |                                                         | 
|Tianma Series                          |  |                                 | 37         |  |                                 |  | 4,487   |                                                         | 
|Compound Yangjiao Tablets              |  |                                 | 54         |  |                                 |  | 6,653   |                                                         | 
|Shengmai Granules                      |  |                                 | 47         |  |                                 |  | 2,285   |                                                         | 
|Banlangen Granules                     |  |                                 | 37         |  |                                 |  | 1,583   |                                                         | 
|Compound Honeysuckle Granules          |  |                                 | 102        |  |                                 |  | 7,433   |                                                         | 
|QingReJieDu Oral Liquid                |  |                                 | 34         |  |                                 |  | 1,315   |                                                         | 
|Compound Schizandra Tablets            |  |                                 | 13         |  |                                 |  | 1,423   |                                                         | 
|Ginseng and Venison Extract            |  |                                 | 63         |  |                                 |  | 8,558   |                                                         | 
|Badger Oil                             |  |                                 | 8          |  |                                 |  | 2,231   |                                                         | 
|Total                                  |  |                                 | 678        |  |                                 |  | 72,300  |                                                         | 





Since the selling price of all products increased in January
2011, we have experienced sales volume decrease from most of products in the year of 2011. After longer than expected stable period
and the effort of propagation through advertisement and promotion, and the most important, the high quality of our products, we
see our sales volume start to increase in our fiscal year of 2012.



The average prices per pack showing below
for year 2012 are calculated from exact sales and quantities before rounding.



|                                       |  | Average Price Per Pack For The  Nine Months Ended July 31, |     |  |      |  
|-------------------------------------- |  | ---------------------------------------------------------- | --- |  | ---- | -
|Product                                |  | 2012                                                       |     |  | 2011 |  
|Siberian Ginseng (Acanthopanax) Series |  | $                                                          | 129 |  |      | $
|Tianma Series                          |  |                                                            | 121 |  |      |  
|Compound Yangjiao Tablets              |  |                                                            | 124 |  |      |  
|Shengmai Granules                      |  |                                                            | 49  |  |      |  
|Balangen Granules                      |  |                                                            | 43  |  |      |  
|Compound Honeysuckle Granules          |  |                                                            | 73  |  |      |  
|QingReJieDu Oral Liquid                |  |                                                            | 39  |  |      |  
|Compound Schizandra Tablets            |  |                                                            | 108 |  |      |  
|Ginseng and Venison Extract            |  |                                                            | 135 |  |      |  
|Badger Oil                             |  |                                                            | 270 |  |      |  
|Total                                  |  | $                                                          | 107 |  |      | $



36







We expect the demand for our products will
continue increase as we continue to garner greater market acceptance, in particular the benefits of our Siberian Ginseng (Acanthopanax)
Series in treating depression and nerve-regulation. We believe that we will have a continuous and stable sales increase in these
products for fiscal year 2012. In addition, we anticipate that we will be successful in becoming one of the PRC’s essential
medicine suppliers as the PRC government moves forward with its Health Reforms in 2012.



Cost of Goods Sold



Our costs of goods sold consist primarily of sales tax and additions,
direct and indirect manufacturing costs, including production overhead costs, and handling costs for the products sold.  Costs
of goods sold increased approximately $5.95 million, or 28%, from approximately $21.45 million for the nine months ended July 31,
2011 to approximately $27.40 million for the nine months ended July 31, 2012.  This increase was primarily attributable to
sales tax and additions, the sales increase in Siberian Ginseng Series and Ginseng and Venison Extract products, and increases
in raw material prices as a result of inflation.



Although we anticipate that the cost of goods will increase
due to inflationary price increases, we do not believe that such increases will be material for fiscal year 2012. We anticipate
that beyond 2012, our price for raw materials and other production costs will continue to increase due to inflation. If our costs
of goods increase, this may have a negative effect on our net income because due to market conditions and competitive conditions,
we may not be able to increase the price for our products in proportion to the increase in costs of goods sold.



Operating and Administrative Expenses



Our total operating expenses consist primarily
of sales and marketing expenses, general and administrative expenses and research and development expenses. Our total operating
expenses increased by approximately $1.64 million, or 17%, from approximately $9.76 million for the nine months ended July 31,
2011 to approximately $11.40 million for the nine months ended July 31, 2012.



Sales and Marketing. Our
sales and marketing expenses consist primarily of advertising and other overhead expenses incurred by the Company’s sales
and marketing personnel. Sales and marketing expenses increased approximately $0.82 million, or 18%, from approximately $4.43 million
for the nine months ended July 31, 2011 to approximately $5.25 million for the nine months ended July 31, 2012. This increase was
primarily attributable to an increase of approximately $0.89 million, or 21%, in advertising expenses as the Company intensified
TV advertisements in Heilongjiang province for our botanic anti-depression series. Sales and marketing expenses are likely to increase
as we continue expanding our distribution network throughout the PRC and seek to increase our market share and awareness of our
products.



General and Administrative.
Our general and administrative expenses consist primarily of salary, travel, entertainment expenses, rental, benefits, share-based
compensation, and professional service fees. General and administrative expenses increased by approximately $0.48 million, or 17%,
from approximately $2.75 million for the nine months ended July 31, 2011 to approximately $3.22 million for the nine months ended
July 31, 2012. This increase was primarily attributable to an increase of approximately $0.19 million in rental expenses and an
increase of approximately $0.17 million in amortization expenses. General and administrative expenses are likely to increase as
we continue to expand our production, sourcing capacity, and distribution capacity throughout the PRC.



37







Research and Development.
Our research and development expenses consist primarily of salary, equipment rental expenses, and Siberian Ginseng (Acanthopanax)
cultivation related expenses. Research and development expenses increased approximately $0.34 million, or 13%, from approximately
$2.59 million for the nine months ended July 31, 2011 to approximately $2.93 million for the nine months ended July 31, 2012. This
increase was primarily attributable to development of Siberian Ginseng (Acanthopanax) cultivation and extraction of effective components
of the Siberian Ginseng (Acanthopanax) plant, and development of other products, and research in cultivation techniques for Siberian
Ginseng. Research and development expenses are likely to increase as we continue to devote our resources to development of new
products and enhancement of our existing products.



Income before income tax expenses



As a result of the foregoing, our income
before income tax expenses increased by approximately $4.81 million, or 21%, from approximately $22.75 million for the nine months
ended July 31, 2011 to approximately $27.55 million for the nine months ended July 31, 2012.



Income Tax Expenses



We are subject to U.S. federal and state income taxes. For
the nine months ended July 31, 2012 and 2011, the Company did not incur U.S. federal and state income taxes as it is the Company’s
intention to invest these earnings in the foreign operations indefinitely. Our subsidiary registered in the PRC is subject to enterprise
income taxes.  For the calendar years of 2012 and 2011, CBP China was granted a 10% tax exemption, and pays enterprise income
tax of 15%.



Unrealized Currency Translation Adjustments



Our principal country of operations is the PRC and our functional
currency is the Renminbi, but our reporting currency is the U.S. dollar.  All translation adjustments resulting from the translation
of our financial statements into U.S. dollars are reported as unrealized currency translation adjustments.  Our unrealized
currency translation adjustments decreased by approximately $2.18 million, from approximately $3.00 million for the nine months
ended July 31, 2011 to approximately $0.82 million for the nine months ended July 31, 2012.



Liquidity and Capital Resources



We had retained earnings of approximately
$102.79 million and $79.38 million as of July 31, 2012 and October 31, 2011, respectively.  As of July 31, 2012 and October
31, 2011, we had cash of approximately $41.31 million and $15.28 million, respectively, total current assets of approximately $73.92
million and $51.07 million, respectively. As of July 31, 2012 and October 31, 2011, we had a working capital surplus of approximately
$67.06 million and $40.84 million, respectively. With the anticipated income from 2012, we believe our cash are adequate to satisfy
our working capital needs and sustain our ongoing operations for the next twelve months.



Our summary of cash flow information is
as follows:



|                                |  | Nine months ended July 31, |           
|------------------------------- |  | -------------------------- | ----------
|Net cash provided by (used in): |  | 2012                       |           
|                                |  |                            |           
|Operating activities            |  | $                          | 25,157,384
|Investing activities            |  | $                          | 708,859   



38







Net Cash Provided by Operating Activities



Net cash provided by operating activities
decreased approximately $1.27 million, from net cash provided by operating activities of approximately $26.42 million for the nine
months ended July 31, 2011 to net cash provided by operating activities of approximately $25.16 million for the nine months ended
July 31, 2012. This decrease was primarily attributable to an increase in trade receivables of approximately $2.31 million, an
increase in inventory of approximately $4.00 million, a decrease in tax payable of approximately $5.56 million and offset by a
decrease in other receivables of approximately $6.80 million, an increase in net income of approximately of $2.86 million.



Net Cash Provided by (Used in) Investing
Activities



Net cash provided by
investing activities increased approximately $17.85 million, from approximately $17.14 million used during the nine months
ended July 31, 2011 to approximately $0.71 million provided during the nine months ended July 31, 2012. This increase
was primarily attributable to the deposit of land use right, final payment made on one office floor and refund from
cancellation of two patents purchased.



Net Cash Provided by Financing Activities



We did not incur any financing activities
during the nine months ended July 31, 2012 and 2011.



Trade Receivables



The net trade receivables decreased approximately
$4.42 million from approximately $21.55 million on October 31, 2011 to approximately $17.13 million on July 31, 2012. The trade
receivable payment term is 90 days. This decrease in net trade receivable was primarily attributable to the decrease in net
sales of approximately $3.76 million from approximately $18.84 million for the three months ended October 31, 2011 to approximately
$15.08 million for the three month ended July 31, 2012. The third quarter of our fiscal year is always the slowest quarter in the
year in term of sales.



Inventory



Inventory amounts increased approximately
$7.88 million from approximately $7.42 million on October 31, 2011 to approximately $15.30 million on July 31, 2012. This increase
was primarily attributable to an increase of $0.50 million in raw materials from approximately $0.95 million on October 31, 2011
to $1.44 million on July 31, 2012, an increase of $1.89 million in packaging materials from $1.90 million on October 31, 2011 to
$3.78 million on July 31, 2012 and an increase of $5.53 million in work-in-progress from $3.21 million on October 31, 2011 to $8.74
million on July 31, 2012. The increase in inventory is mainly due to our actual sales lower than our original forecasted sales
during the nine months ended July 31, 2012 and our Siberian Ginseng stem purchased during the beginning of our fiscal year 2012
were based on our original sales forecast.



Other Receivables



Other receivables decreased by $6.64 million
from approximately $6.82 million at October 31, 2011 to $0.18 million at July 31, 2012. The decrease was primarily attributable
to the advanced Siberian Ginseng payments in October 2011 for the purchase of Siberian Ginseng raw material. The Company received
Siberian Ginseng raw material in the first quarter of 2012.



Outstanding Long-Term Indebtedness



None



Expansion Strategy



We believe the market for pharmaceutical
products in the PRC is growing.  Our growth strategy involves capturing as much of this market as possible during this
growth phase.  To implement this strategy we plan to strengthen our dominant position in the Siberian Ginseng (Acanthopanax)
market, expand our Siberian Ginseng (Acanthopanax) cultivating bases and improving the quality standards of Siberian Ginseng (Acanthopanax),
and extend our distribution network through internal distribution channels reforms. Our expansion strategy will require the continued
retention and investment of our earnings from operations and, we believe, additional funding from private debt and equity financing.  In
general, the commitment of funds to research and development, or acquisition or construction of plant and equipment tends to impair
liquidity.  However, we believe that because of the upward trend in our revenues in recent years, even if this trend
levels off, our income from continuing operations coupled with such additional financing, if required, should provide sufficient
liquidity to meet our expansion needs.



39







Contractual Obligations



Please refer to Note 21. COMMITMENTS AND CONTINGENCIES.



Off-balance Sheet Arrangements



We do not have any off-balance sheet arrangements.



Item 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK



Because we are a smaller reporting company,
this Item 3 is not applicable.



Item 4. Controls
and Procedures



Evaluation of Disclosure Controls and Procedures



The Company is required to maintain disclosure
controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), such as this Quarterly Report, is recorded, processed, summarized
and reported within the periods specified by or pursuant to the Exchange Act, and that such information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions
regarding required disclosure.



Management evaluated the effectiveness
of our disclosure controls and procedures for the quarter ended July 31, 2012 under the supervision and with the participation
of our Chief Executive Officer and Chief Financial Officer. During fiscal year ended October 31, 2011, our management identified
a material weakness in our internal control over financial reporting which we view as an integral part of our disclosure controls
and procedures. Consequently, our Chief Executive Officer and Chief Financial Officer concluded that our internal control over
financial reporting was not effective at October 31, 2011, because we had insufficient accounting personnel with appropriate knowledge
of US GAAP. We are still in the process of remediating this material weakness, which substantially influenced the conclusion of
our Chief Executive Officer and Chief Financial Officer that our disclosure controls and procedures were not effective as of July
31, 2012.



Changes in Internal Controls over Financial Reporting



Since the third quarter of our 2009 fiscal
year, we have begun the implementation of remedial measures including hiring chief financial officers since January 2010, appointing
three independent directors to our board of directors in early 2010, engaging consultants to help management on the preparing and
improving internal controls over financial reporting in 2010 and 2011.



We are working on improving our internal
control over financial reporting through more rigorous policies and procedures over key controls such as journal entry approval,
reconciliation procedures and maintaining relevant supporting documentations. We do not expect that our plan will fully remediate
the material weakness identified above until at least October 31, 2013. Material weaknesses or significant deficiencies in our
internal controls over financial reporting may result in our investors losing confidence in our reported financial information,
which could lead to a decline in our stock price, limit our ability to access the capital markets in the future, and require us
to incur additional costs to further improve our internal control systems and procedures.



40







Except for the above mentioned remedial
measures, there have not been any changes in our internal control over financial reporting for the nine months ended July 31, 2012
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



PART II OTHER INFORMATION



Item 1. Legal Proceedings



The Company was not a party to pending legal proceedings during
the period ended July 31, 2012.



Item 1A. Risk Factors



Because we are a smaller reporting company, this Item 1A is
not applicable.



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



None.



Item 3.  
Defaults upon Senior Securities



In the three-month period ended July 31,
2012, and subsequent period through the date hereof, we did not default upon any senior securities.



Item 4. MINE SAFETY
DISCLOSURES



Not Applicable



Item 5.  
Other Information



None.



Item 6.  
Exhibits



|Exhibit Number |  | Description                                                                                                                                                            
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1           |  | Certification of Principal Executive Officer pursuant to Rules 13a-14 and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*             
|31.2           |  | Certification of Principal Financial Officer pursuant to Rules 13a-14 and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*             
|32.1           |  | Certification of Principal Executive and Financial Officers
        pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
|101.INS        |  | XBRL Instance Document (1)                                                                                                                                             
|101.SCH        |  | XBRL Taxonomy Extension Schema (1)                                                                                                                                     
|101.CAL        |  | XBRL Taxonomy Extension Calculation Linkbase (1)                                                                                                                       
|101.DEF        |  | XBRL Taxonomy Extension Definition Linkbase (1)                                                                                                                        
|101.LAB        |  | XBRL Taxonomy Extension Label Linkbase (1)                                                                                                                             
|101.FRE        |  | XBRL Taxonomy Extension Presentation Linkbase (1)                                                                                                                      

_____________

|*   | Filed herewith                                                                                                                                                                
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | XBRL Interactive Data File will be filed by amendment to this Form 10-Q within 30 days of the filing date of this Form 10-Q as permitted by Rule 405(f) (3) of Regulation S-T.



41







SIGNATURES



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



|Date: September 19, 2012 | CHINA BOTANIC PHARMACEUTICAL INC.
|------------------------ | ---------------------------------
|                         |                                  
|                         | By:                              
|                         |                                  
|                         |                                  
|                         |                                  
|Date: September 19, 2012 | By:                              
|                         |                                  
|                         |                                  



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