---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-K/A(Amendment No. 2)

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2010

[  ] TRANSITION REPORT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ________to ________

Commission File Number: 000-32253

CHINA KANGTAI CACTUS BIO-TECH
INC.(Name of small business issuer in its charter)

|Nevada                                             | 000-33097                | 87-0650263                              
|-------------------------------------------------- | ------------------------ | ----------------------------------------
|(State or other
    jurisdiction of incorporation) | (Commission File Number) | (IRS Employer
    Identification Number)

99 Taibei Road 
Limin Economic and Technological Development Zone 
Harbin,
Heilongjiang Province, Peoples Republic China 
Zip Code: 150025(Address of principal executive offices)

Issuers telephone number: (86) 451-57351189 ext 126

Securities registered under Section 12(b) of the Exchange Act:
None

Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value

Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.

Yes [  ]       No [X]

Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes [  ]       No [X]

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

Yes [  ]       No [X]

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such
files).

Yes [  ]       No [X]

---

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (section 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of the registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ 
]

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

|Large accelerated filer [  ] | Accelerated filer [  ]       
|---------------------------- | -----------------------------
|Non-accelerated filer
[  ]   | Smaller reporting company [X]

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

Yes [  ] No [X]

The aggregate market value of the voting and non-voting stock
held by non-affiliates of the registrant, as of June 30, 2010, was approximately
$ 15,027,238. All executive officers and directors of the registrant have been
deemed, solely for the purpose of the foregoing calculation, to be "affiliates"
of the registrant.

As of July 18, 2012, there were 22,355,527 shares of the
issuer's common stock, $0.001 par value per share, issued and outstanding.

---

EXPLANATORY NOTE

This Amendment No. 2 on Form 10-K/A (the Amended Filing)
amends the annual report on Form 10-K for the year ended December 31, 2010,
originally filed on March 31, 2011, as amended by an Amendment No. 1 on Form
10-K/A filed on April 15, 2011 (as so amended, the "Original Filings"), of China
Kangtai Cactus Bio-tech Inc. (the Company), to make certain corrections in
response to SEC Staff comments.

As now discussed in Note 20 to the consolidated financial
statements in the Amended Filing, the Company has restated its consolidated
financial statements at December 31, 2010 and 2009 and for the years then ended
(which were previously included in the Companys Form 10-K/A filed with the SEC
on April 15, 2011) in order to correct the recording of the provisions for
reserve for allowances, returns and doubtful accounts.

Accordingly, as previously reported, the Company deferred
gross profit on sales of products estimated to be excess product in our
distribution channel by expensing the provision for reserve for allowances,
returns and doubtful accounts and increasing the balance sheet reserve for
allowances, returns and doubtful accounts (which was reflected parenthetically
on the consolidated balance sheet as a reduction of accounts receivable). As
restated, the Company has eliminated that part of the provisions for reserve for
allowances, returns, and doubtful accounts relating to estimated excess product
in our distribution channel and has adjusted the reserve to $0 at December 31,
2010 and 2009 based on the aging of the related accounts receivable and our
historical experience of inconsequential returns and bad debts.

In addition, as now discussed in Note 20 to the consolidated
financial statements in the Amended Filing, the Company has also restated its
consolidated statements of cash flows for the years ended December 31, 2010 and
2009 in order to (1) correct the presentation of the receipt of proceeds from
the December 19, 2009 sale of Qitaihe City land use rights and property, plant
and equipment and (2) correct dates stated in paragraph 3 of Note 5 of the
December 31, 2010 Form 10-K/A.

Paragraph 3 of Note 5 of the December 31, 2010 Form 10-K/A
(filed with the SEC on April 15, 2011) as originally worded incorrectly stated
that a draft agreement with the Government of Qitaihe City for sale of Qitaihe
City land use rights and property, plant and equipment was entered into December
19, 2009 and that an agreement of forfeiting was signed on January 27, 2010. In
fact, the definitive agreement was signed on November 27, 2009. On January 27,
2010, Qitaihe City unilaterally amended the payment terms, extending them from
the original 60 days to 90 days.

As a result of the revisions in Part II, Item 8 (financial
statements) of this Amended Filing, Part II, Item 7, Managements Discussion and
Analysis of Financial condition and Results of Operation, is revised to
incorporate all the revisions made to Part II, Item 8 as stated in the previous
paragraph.

In accordance with Rule 12b-15 under the Exchange Act, each
item of the Original Filings that is amended by this Amended Filing is also
restated in its entirety, and this Amended Filing is accompanied by currently
dated certifications on Exhibits 31.1, 31.2, 32.1 and 32.2 by the Companys
Chief Executive Officer and Chief Financial Officer. Except as described above,
this Amended Filing does not amend, update, or change any items, financial
statements, or other disclosures in the Original Filings, and does not reflect
events occurring after the filing of the Original Filing, including as to any
exhibits to the Original Filings affected by subsequent events. Information not
affected by the changes described above is unchanged and reflects the
disclosures made at the time of the Original Filings. Accordingly, this Amended
Filing should be read in conjunction with the Original Filings and our other SEC
filings subsequent to the filing of the Original Filings, including any
amendments to those filings. Capitalized letters not defined in the Amended
Filing are as defined by the Original Filings.

For additional detailed information regarding the
restatements affecting this report, please see the attached amended and restated
consolidated financial statement and Note 20 thereto.

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|         | TABLE OF CONTENTS                                                                                                        |     
|-------- | ------------------------------------------------------------------------------------------------------------------------ | ----
|         |                                                                                                                          |     
|         |                                                                                                                          | Page
|PART I   |                                                                                                                          |     
|Item 1.  | Business                                                                                                                 | 1   
|Item 1A. | Risk Factors                                                                                                             | 8   
|Item 1B. | Unresolved Staff Comments                                                                                                | 18  
|Item 2.  | Properties                                                                                                               | 18  
|Item 3.  | Legal Proceedings                                                                                                        | 19  
|Item 4.  | (Removed and Reserved)                                                                                                   |     
|         |                                                                                                                          |     
|PART II  |                                                                                                                          |     
|Item 5.  | Market For
      Registrants Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities | 19  
|Item 6.  | Selected Financial Data                                                                                                  | 20  
|Item 7.  | Managements Discussion and
      Analysis of Financial Condition and Results of Operations                              | 20  
|Item 7A. | Quantitative and Qualitative
      Disclosures about Market Risk                                                         | 26  
|Item 8.  | Financial Statements and
      Supplementary Data                                                                        | 26  
|Item 9.  | Changes in and Disagreements
      with Accountants on Accounting and Financial Disclosure                               | 26  
|Item 9A. | Controls and Procedures                                                                                                  | 27  
|Item 9B. | Other Information                                                                                                        | 27  
|         |                                                                                                                          |     
|PART III |                                                                                                                          |     
|Item 10. | Directors, Executive Officers,
      and Corporate Governance                                                            | 28  
|Item 11. | Executive Compensation                                                                                                   | 30  
|Item 12. | Security Ownership of Certain
      Beneficial Owners and Management and Related Stockholder Matters                     | 30  
|Item 13. | Certain Relationships and
      Related Transactions, and Director Independence                                          | 32  
|Item 14. | Principal Accounting Fees and
      Services                                                                             | 32  
|         |                                                                                                                          |     
|PART IV  |                                                                                                                          |     
|Item 15. | Exhibits, Financial Statement
      Schedules                                                                            | 32  

SIGNATURES

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PART I

ITEM 1. BUSINESS.

Corporate History

As used in this report, we, us, our, CKGT, our
Company, the Company, or China Kangtai refers to China Kangtai Cactus
Bio-Tech Inc. and all of its subsidiaries and affiliated companies.

Our Company was initially incorporated as InvestNet, Inc.
(InvestNet) on March 16, 2000 under the laws of the State of Nevada. Prior to
June 3, 2005, the Companys operations consisted of real time software and IT
solutions which the Company held through its subsidiaries, Champion Agents
Limited (which wholly owned DSI Computer Technology Company Limited) and
Interchance Limited. Due to the fact that the Company was unable to generate
sufficient cash flows from operations, obtain funding to sustain operations nor
reduce or stabilize expenses to the point where it could have realized a net
positive cash flow, management and the board of directors determined that it was
in the best interests of the stockholders to seek a strategic alternative so
that the Company could continue to operate. On May 13, 2005, InvestNet entered
into a series of agreements to effect a reverse merger transaction via a share
exchange and through the conversion of a convertible promissory note, as
described below, with China Kangtai Cactus Bio-tech Company Limited (BVI China
Kangtai), a British Virgin Islands (BVI) incorporated on November 26,
2004.

These documents included a Stock Purchase Agreement, pursuant
to which InvestNet issued 30,000,000 shares to a stockholder of BVI China
Kangtai for $300,000. Additionally, InvestNet entered into an Agreement and Plan
of Reorganization, pursuant to which the stockholders of BVI China Kangtai
exchanged 12% of BVI China Kangtais outstanding shares for 110,130,615 shares
of InvestNet. Additionally, InvestNet issued a Convertible Promissory Note to
BVI China Kangtai or its designees in the amount of $8,070,000 plus accrued
interest at a rate of 5% per annum or convertible at the option of the holder(s)
in the event that InvestNet effected a one for seventy reverse split of
InvestNets common stock into the remaining 88% of the outstanding shares of BVI
China Kangtai (the Convertible Note). The Company did effect a one for seventy
reverse split of all of its outstanding shares of Common Stock and changed its
name (to China Kangtai Cactus Bio-Tech Inc.) and trading symbol on the OTC
Bulletin Board (to CKGT) on August 25, 2005. The holders of the Convertible
Note converted the Convertible Note a day later on August 26, 2005 into
14,248,395 shares of Common Stock of the Company. As the result of the share
exchange and conversion of the Convertible Note, the Company completed a
reverse merger transaction whereby InvestNet acquired 100% of BVI China
Kangtai, which wholly owns Harbin Hainan Kangda Cacti Hygienical Foods Co., Ltd.
(Harbin Hainan Kangda).

Harbin Hainan Kangda is presently our main operating
subsidiary. Harbin Hainan Kangda is in the business of selling and producing
cactus and cactus related products in the PRC as more fully described below. In
connection with the reverse merger transaction, we completely sold all the
Companys real time software and IT solutions operations by selling all of the
stock held by the Company in its prior wholly owned subsidiaries, Champion
Agents Limited (which wholly owned DSI Computer Technology Company Limited) and
Interchance Limited to V-Capital Limited, a Republic of Mauritius corporation
which is controlled by a former director of InvestNet.

On June 3, 2005, in connection with the reorganization of the
Company and the acquisition of BVI China Kangtai and its wholly owned
subsidiary, Harbin Hainan Kangda, the Companys executive officers and directors
significantly changed. Specifically, Norman Koo resigned as a director, Chief
Executive Officer and President of the Company; Terence Ho resigned as a
director, Chief Financial Officer, and Treasurer of the Company; Vivian Szeto
resigned as a director (However, Ms. Szetos resignation from the Board of
Directors was contingent on the Company completing its filing and mailing
requirements of its Schedule 14f-1 which occurred on July 22, 2005 and so, from
June 3, 2005 to July 22, 2005 she served as the Companys sole director) and
Secretary of the Company; Johnny Lu resigned as a director of the Company; and
Mantin Lu resigned as a director of the Company.

In contemplation of the aforementioned resignations, also on
June 3, 2005, the Board of Directors appointed in accordance with Section 3.04
of the Companys Bylaws, Jinjiang Wang, Chengzhi Wang, Hong Bu, Jiping Wang
and Song Yang as members of the Companys Board of Directors, subject to the fulfillment of the filing and mailing requirements, including the 10 day waiting period of its Schedule 14f-1 that was sent to all stockholders of the Company pursuant
to section 14(f) of the Securities Exchange Act of 1934 which occurred on July 22, 2005 and appointed the following officers to serve immediately: Jinjiang Wang, President; Chengzhi Wang, General Manager; Hong Bu, Chief Financial Officer and
Treasurer; Fengxi Lang, Secretary; Changfu Wang, Vice General Manager; Zhimin Zhan, Vice General Manager; and Lixian Zhou, Assistant General Manager of the Company.

1

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On July 20, 2005, InvestNets sole director, Vivian Szeto, and a majority of the Companys stockholders unanimously approved and ratified a one for seventy reverse split (the Reverse Split) of the Companys common stock
and the amendment and restatement of the Companys Articles of Incorporation to effect a name change of the Company from Investnet, Inc. to China Kangtai Cactus Bio-Tech Inc.. The Reverse Split became effective on August
25, 2005; 20 days after the Company sent an Information Statement to all of its stockholders and after the filing of the Amended and Restated Articles of Incorporation with the Secretary of State of Nevada. As a result of the Reverse Split, the
number of issued and outstanding shares of common stock of the Company, now named China Kangtai Cactus Bio-Tech Inc., was reduced from a total of 200,000,000 shares outstanding to 2,857,143 shares outstanding. A day after the Reverse Split on August
26, 2005, the Convertible Note was converted by its holders(s) into 14,248,395 shares of the Company, which increased the total outstanding shares of the Company to 17,105,625 shares. The Companys trading symbol was changed by the OTC Bulletin
Board Stock Market (OTCBB) to CKGT to better reflect the Companys new name. The Company has also changed its Web site to www.xrz.cn.

On June 26, 2006, the Company acquired a 100% equity interest in Guangdong Taishan Kangda Cactus Hygienical Food Co., Ltd. (Taishan Kangda), a company with limited liability formed under the laws of the Peoples Republic of China
for $1,574,000 in cash. Taishan Kangdas assets include large areas of cactus plantation and production facilities in Guangdong Province in southeast China. The acquisition allows the Company to establish production facilities closer to its
existing cactus plantations in Guangdong Province in order to reduce transportation cost and to distribute its products more effectively in southeast China.

The Company currently has three 100% owned subsidiaries: China Kangtai Cactus Bio-Tech Company Limited, a British Virgin Islands company (Kangtai BVI) ; Harbin Hainan Kangda Cacti Hygienical Foods Co., Ltd., a PRC company Harbin Hainan
Kangda); and Taishan Kangda.

Kangtai BVI is a holding company and does not have any operations. Harbin Hainan Kangda handles all of the production, research and development, sales and marketing of our products derived from edible cactus plants, fruits and extracts. Taishan
Kangda handles all of the cultivation and harvest of cactus plants and the production of our cactus raw materials.

Overview

The Company is principally engaged in the production, R&D, sales and marketing of products derived from cacti. The Companys product lines include cactus nutraceuticals, cactus nutritional food and drinks, as well as cactus raw and
intermediate materials.

The Company has over 387 acres of cactus-farming bases in the Guangdong and Heilongjiang Provinces of China. The Company predominantly grows three species of cacti which are Mexican Pyramid, Mexican Milpa-Alta and Mexican Queen. Mexican Pyramid and
Queen cacti are used for cactus fruit drinks and nutraceutical products; Mexican Milpa-Alta is mainly used for cactus nutritional food products. Most of the cactus fruits are processed into cactus fruit juice, which is the raw material for cactus
nutritional drinks. Most of the harvested edible cacti are processed into dry powders, which are raw materials for cactus nutraceuticals. The Companys annual production capability of edible cacti in 2010 is 11,976 tons.

The Company engages with, by co-operative production agreements, local pharmaceutical, food and beverage manufacturers to produce its products. This strategy allows the Company to fill the orders quickly with short production runs and to reduce the
requirements in fixed assets investment. The Company currently has entered into co-production agreements with five processors in China. They are Harbin Bin County Hualan Dairy Factory, Harbin Ice Lantern Noodle Factory, Tsingtao Brewry (Harbin)
Inc., Harbin Diwang Pharmacy Co., Ltd. (a GMP certified
processor), and Mudanjiang Kangwei Health Food Company, Ltd. Pursuant to these contracts, the Company provides raw materials, quality control guidelines and technical support while the processors provide other materials, processing facilities and
labor to manufacture products for the Company. These processors are required to follow strictly the Companys guidelines and instructions for production. The Company inspects all final products. The Company currently has long term agreements
with all five processors which may be renewed at expiration in 2012.

2

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GMP or Good Manufacturing Practice certifications are awarded by the State Food and Drug Administration of China to processors which meet the safety and quality assurance standards set by the State Food and Drug Administration of China.

In October 2007, the Company has signed a new agreement with Harbin Meijia Bio-Tech Co., Ltd.

All of the above co-operative production agreements have been renewed during January and March of 2008.

The Company has also established its own cactus beverage and fruit wine production facilities. The Companys cactus beverage product category includes cactus beer, cactus fruit wine (including the brand name of Overlord Scourge Flower Imperial
Wine), cactus palm juices and cactus fruit drinks,

Cacti have been proven to contain the following elements by the Chinese Center for Disease Control and Prevention in an analysis report issued on October 29, 2003:

|1. | Protein and amino acids
|-- | -----------------------
|2. | Organic fat and acids  
|3. | Carbohydrates          
|4. | Vitamins               
|5. | Minerals               
|6. | Microelements          

The Companys nutraceutical products containing cactus extracts include Cactus Protein Nutrient, Cactus Calcium Peptide Soft Capsule, and Cactus Shuxin Capsule.

Cactus Protein Nutrient

Cactus Protein Nutrient is produced with protein and agglomerate element. It has been proven to be effective on stomachaches, tardiness gastritis, digestibility canker and duodenum canker by the Research Institute of the Traditional Chinese Medicine
of Heilongjiang Province.

Cactus Calcium Peptide Soft Capsule

Cactus Calcium Peptide Soft Capsule is made of cactus, active albumen peptide of soybean and liquid calcium. It has the following characteristics:

|A) | Several nutritional components that can be easily absorbed; and                                                                                                                               
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                               
|B) | It contains an albumen peptide of soybean which can enhance the absorption of calcium, phosphor and other
mineral elements, consequently raising the calcium in the body and fighting fatigue.

3

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Cactus Shuxin Capsule

Cactus Shuxin Capsule is made with cactus and haws extracts. It
has been proven to have an effect on raising the flow capacity of coronary
artery blood, alleviating drowsiness and improving red cells oxygen carrying
capability by the Research Institute of the Traditional Chinese Medicine of
Heilongjiang Province.

The revenue generated from sales of nutraceutical products was
approximately $12,989,289 in fiscal year 2010, or about 36% of the total net
sales.

The revenue generated from sales of cactus food, beverage and
wine was approximately $17,172,306 in year 2010, or about 47%. The remaining 17%
of the sales is cactus raw and intermediate materials.

The Company currently has five product categories which are
nutraceuticals, beverages, raw and intermediate materials, cactus feed and
cactus cigarettes. The table below sets forth revenue derived from each product
category and the percentage of total revenue each product category accounts for
in 2010:

|                             |  |                        |  |  | Percentage       | 
|---------------------------- |  | ---------------------- |  |  | ---------------- | 
|                             |  | Sales revenue          |  |  | of Total Revenue | 
|Product Categories           |  | in
      2010 (in US$) |  |  | in
      2010    | 
|Nutraceuticals               |  | 12,989,289             |  |  | 36%              | 
|Beverages                    |  | 12,588,707             |  |  | 35%              | 
|Raw & Intermediate Materials |  | 2,947,646              |  |  | 8%               | 
|Cactus Feed                  |  | 4,583,599              |  |  | 13%              | 
|Cactus cigarettes            |  | 2,910,622              |  |  | 8%               | 
|Other                        |  | 9,687                  |  |  | -                | 
|Total Revenue                |  | 36,029,550             |  |  | 100%             | 

The following table sets forth further breakdown of the
Nutraceuticals by specific products and the percentage each product accounts for
in 2010:

|                                                       |   |                |  |  | Percentage             | 
|------------------------------------------------------ | - | -------------- |  |  | ---------------------- | 
|Name of Nutraceutical Products                         |   | Sales (in US$) |  |  | of
      Total Revenue | 
|Cactus Calcium Peptide Soft Capsule                    | $ | 4,079,726      |  |  | 11%                    | 
|Cactus Protein Nutrient                                |   | 2,578,349      |  |  | 7%                     | 
|Cactus Calcium Peptide Soft Capsule for
      Children |   | 4,100,906      |  |  | 11%                    | 
|Cactus Shuxin Capsule                                  |   | 2,204,237      |  |  | 6%                     | 
|Other                                                  |   | 26,071         |  |  | 1%                     | 
|Total                                                  | $ | 12,989,288     |  |  | 36%                    | 

The Company has its own R&D facility, the Heilongjiang
Sino-Mexico Cactus Development and Utilization Institute, which is certified by
Heilongjiang Science & Technology Committee. The Institute has independently
developed many patented cactus-based nutraceuticals and nutritional food and
drink product formulas and production processes.

The Company manufactures and sells the following products
launched between January 2001 and September 2009. Currently our products have
maintained satisfactory levels of acceptance by distributors and customers. The
table below sets forth our product lines and the launch date of each product
line.

|              |                                                        |           |               |            | Launch   
|------------- | ------------------------------------------------------ | --------- | ------------- | ---------- | ---------
|Line          | Cactus
      Related Products                          | Varieties | Brand         | Sub-Brand  | Date     
|Nutraceutical | Cactus Calcium Peptide Soft
      Capsule              | One       | Kangda Cactus | Magic Baby | Jan. 2001
|Nutraceutical | Cactus Calcium Peptide Soft Capsule for
      Children | One       | Kangda Cactus | Magic Baby | Jan. 2003
|Nutraceutical | Cactus Shuxin Capsule                                  | One       | Kangda Cactus | Magic Baby | Jan. 2001
|Nutraceutical | Cactus Tangkang Capsule                                | One       | Kangda Cactus | Magic Baby | Jul. 2004

4

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|Nutraceutical | Cactus
      Delicious Vinegar for Noble Lady      | One     | Kangda Cactus       | Magic Baby             | Jan. 2001      
|------------- | -------------------------------------------------- | ------- | ------------------- | ---------------------- | ---------------
|Nutraceutical | Cactus
      Protein Nutrient                      | One     | Kangda
      Cactus | Magic
      Baby       | Jan.
      2002
|Nutraceutical | Cactus Fruit Health Oral Liquid                    | One     | Kangda Cactus       | Magic Baby             | Aug. 2004      
|Beverage      | Cactus
      Prickly Pear Wine                     | Five    | Kangda
      Cactus | Magic
      Baby       | Oct.
      2003
|Beverage      | Cactus
      Overlord Scourge Flower Imperial Wine | One     | Kangda Cactus       | Magic Baby             | Apr. 2003      
|Beverage      | Cactus
      Fruit Wine                            | One     | Kangda
      Cactus | Magic
      Baby       | Jan.
      2005
|Beverage      | Cactus
      Tang Gong Tian Bao Liquor             | One     | Kangda Cactus       | Magic Baby             | Jun. 2004      
|Beverage      | Cactus
      Double Flowers Tea                    | Several | Kangda
      Cactus | Magic
      Baby       | Oct.
      2001
|Beverage      | Cactus Beer                                        | One     | Kangda              | N/A                    | Jan. 2005      
|              |                                                    |         | Cactus/             |                        |                
|              |                                                    |         | Tsingtao Co-        |                        |                
|              |                                                    |         | Brand               |                        |                
|Beverage      | Cactus
      Juice Beverage                        | Two     | Kangda
      Cactus | Magic
      Baby       | Nov.
      2006
|Beverage      | Cactus Iced Black Tea                              | One     | Kangda Cactus       | Magic Baby             | Jan. 2003      
|Beverage      | Cactus
      Iced Green Tea                        | One     | Kangda
      Cactus | Magic
      Baby       | Jan.
      2003
|Beverage      | Cactus Fruit Dry Red Wine                          | One     | Kangda Cactus       | Magic Baby             | Jan. 2005      
|Beverage      | Cactus
      Fruit Juice Beverage                  | One     | Kangda
      Cactus | Magic
      Baby       | Jan.
      2006
|Beverage      | Cactus Honeysuckle Beverage                        | One     | Kangda Cactus       | Magic Baby             | Jan. 2003      
|Packaged Food | Cactus Noodles                                     | Several | Kangda
    Cactus   | Magic Baby             | Sep. 2004      
|Packaged Food | Cactus Perserved Bag Vegetables                    | Two     | Kangda Cactus       | Magic Child            | Jan. 2001      
|R&I Materials | Cactus Palm Leaves                                 | Several | Kangda Cactus       | Milpa-Alta and Pyramid | Jan. 2001      
|R&I Materials | Cactus Dry Powder                                  | Several | Kangda Cactus       | Milpa-Alta             | Jan. 2004      
|Animal Feed   | Cactus
      fish feed                             | One     | Kangda
      Cactus | Kang
      Tai Bao     | Jul.
      2008
|Animal Feed   | Cactus cattle feed                                 | One     | Kangda Cactus       | Kang Tai Bao           | Jul. 2008      
|Animal Feed   | Cactus
      hog feed                              | One     | Kangda
      Cactus | Kang
      Tai Bao     | Oct.
      2009
|Cigarette     | Cactus Cigarette                                   | Two     | Kangda Cactus       | Shengcao               | Sep. 2009      

We did not launch any new product lines in 2010, and have been
focusing on increasing sales of our existing products.

In order to quickly penetrate the markets in China, enhance the
efficiency of distributions, lower sales costs and administrative overheads,
starting August 2006, the Company has reformed its sales and distribution models
and gradually disposed its own domestic distribution network of approximately
200 self-owned, franchised chain and Kangtai branded stores in Harbin, Beijing,
Guangzhou and other cities in China. The Company has adopted the strategies of
distributions and sales of its products primarily through various types and
levels of provincial and municipal distributors and agents in Dalian,
Heilongjiang, Harbin, Beijing, Guangzhou, Tianjin, Shenzhen, Jilin, Hebei,
Liaoning, Shanxi, Hunan, Gansu and Shandong in China. The Companys major
revenue breakdown by region in China for the 2010 fiscal year is as follows:

|             |   |               |  |  | Percentage in | 
|------------ | - | ------------- |  |  | ------------- | 
|Region       |   | Sales( in     |  |  | Revenue       | 
|             |   | U.S. Dollars) |  |  |               | 
|Heilongjiang | $ | 9,866,031     |  |  | 27%           | 
|Jilin        | $ | 755,375       |  |  | 2%            | 
|Shandong     | $ | 1,291,733     |  |  | 4%            | 
|Beijing      | $ | 5,001,193     |  |  | 14%           | 
|Guangdong    | $ | 4,724,854     |  |  | 13%           | 
|Liaoning     | $ | 1,177,811     |  |  | 3%            | 
|Shanxi       | $ | 1,393,739     |  |  | 4%            | 
|Hunan        | $ | 1,762,199     |  |  | 5%            | 
|Gansu        | $ | 1,493,667     |  |  | 4%            | 
|Other        | $ | 8,562,948     |  |  | 24%           | 
|Total        | $ | 36,029,550    |  |  | 100%          | 

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Harbin Huadingwei Trading Company, Ltd., Fujian Tianyi Economic
and Trading Company, Ltd., and Jilin Yanji Economic and Trading Company, Ltd.
are our top three distributors. Together, they account for 16% of our total
sales.

Competition

The cactus product industry in China is not highly competitive,
and no published data is available regarding China Kangtais relative position
in the markets in which it operates. Although no major competitor currently
competes against the Company across its entire product line, competitive
products are available from a number of different vendors offering features
similar to those of China Kangtais products. There can be no assurance that one
or more of these competitors will not develop products that are equal or
superior to the products the Company markets. In addition, many potential
competitors for China Kangtais products have in-house capabilities to develop
cactus products that can provide some or all of the functionality of China
Kangtais products. Our top five competitors are Anhui Haozhou Xingbang Cactus
Co., Hunan Yongzhou Sino-Mexico Cactus Development Co., Ltd., Henan Luxin Cactus
Co., Ltd., Zhengshou Milpa-Alta Cactus Co., Ltd., and Ningxia Milpa-Alta Edible
Cactus Development Co., Ltd.

The Company believes that there are distinguishing competitive
factors in the selection of its cactus products. These include price/performance
characteristics, marketing and sales expertise, R&D expertise and patents
protections, management proprietary knowledge and experiences on cactus
production, ownership of large cactus plantations, product benefit and
functions, and reliability and integration of cactus into a variety of other
products. The Company believes that it competes favorably with regard to these
factors.

A major competitive asset for the Company is that it offers
quality assurance of its products from the raw material stage all the way to the
final products stage.

We are currently the leading cactus grower and cactus related
products producer in China. We have cactus farm covering over 387 acres of land.
We are also equipped with an active research and development department which
currently holds 18 patents and is seeking 12 new ones in various product
categories. Our products are sold in supermarkets, food stores, hotels and
restaurants though our growing distribution network in 12 provinces and two
municipalities in China. We have a total of 31 product lines compare to our top
five competitors which combined have a total of about 30 product lines. In
addition, our competitive advantages include the following:

Control from the source:

- 3 species of Mexican Cacti
- Seed cloning
- Farm ownership
- Planting
- Growing without chemicals
- Harvesting

Product innovation and research:

- Strong team and advisors
- Strategic partners
- R&D Institute
- Research facilities

Manufacturing and production:

- Processing facilities
- Co-operative processing partners

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- Quality control monitoring
- Quality packaging

Sales and distribution:

- A network of regional distributors
- Third party distributors
- Seminar and conference orders
- Repeat purchase group customers

The Company believes it is in compliance in all material
respects with all laws, rules, regulations and requirements that affect its
business. Further, the Company believes that compliance with such laws, rules,
regulations and requirements does not impose a material impediment on its
ability to conduct business.

Employees

At December 31, 2010, the Company has a total of 132 full time
employees and generally enjoys good employer-employee relationship. In addition,
the Management of the Company expects to continue to use consultants, attorneys,
and accountants as necessary, to complement services rendered by its employees.
The table below sets forth the number of our full time employees by department
and location:

|DEPARTMENT                                             | NUMBER | LOCATION
|------------------------------------------------------ | ------ | --------
|Administration                                         | 18     | Harbin  
|Sales                                                  | 25     | Harbin  
|Production                                             | 47     | Harbin  
|Baisha Base (cactus crop growing and production)       | 25     | Taishan 
|Shalan Base (cactus crop growing and
      production) | 10     | Taishan 
|Research and Development                               | 7      | Harbin  
|Total                                                  |        |         

Administrative Offices

China Kangtais registered statutory office is located at CSC
Services of Nevada, Inc., 502 East John Street, Suite E, Carson City, Nevada
89706. The Companys operations office is located at 99 Taibei Road, Limin
Economic and Technological Development Zone, Harbin, Heilongjiang Province, P.
R. China. Zip Code: 150025 and its telephone number is (86) 451 57351189.

Reports to Security Holders

China Kangtai is not required to deliver an annual report to
security holders and will not automatically deliver a copy of the annual report
to its security holders unless a request is made for such delivery. The Company
files all of its required reports and other information with the Securities and
Exchange Commission (the Commission).

The public may read and copy any materials that are filed by
China Kangtai with the Commission at the Commissions Public Reference Room at
100 F Street, NE, Room 2521, Washington, D. C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The statements and forms filed by InvestNet with
the Commission have also been filed electronically and are available for viewing
or copy on the Commission maintained Internet site that contains reports, proxy
and information statements, and other information regarding issuers that file
electronically with the Commission. The Internet address for this site can be
found at http://www.sec.gov.

Governmental Regulations

The Chinese government requires all nutraceutical products
related manufacturers to obtain Food Production Permit for their nutraceutical
manufacturing facilities. China Kangtai obtained its Food Production Permit from
relevant
governmental regulatory bodies in September 2005. Other than the Food Production Permit requirements, there was no significant change in the regulatory environment in China.

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ITEM 1A. RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below and the other information contained in this report before deciding to invest in our common stock.

Risks Related To Our Business

The purchase of many of our products is discretionary, and may be particularly affected by adverse trends in the general economy; therefore challenging economic conditions may make it more difficult for us to generate revenue.

Our business is affected by global, national and local economic conditions since many of the products we sell are discretionary and we depend, to a significant extent, upon a number of factors relating to discretionary consumer spending in the PRC.
These factors include economic conditions and perceptions of such conditions by consumers, employment rates, the level of consumers' disposable income, business conditions, interest rates, consumer debt levels, availability of credit and levels of
taxation in regional and local markets in the PRC where we sell such products. There can be no assurance that consumer spending on the products we sell, will not be adversely affected by changes in general economic conditions in the PRC and
globally.

The success of our business depends on our ability to market and advertise the products we sell effectively.

Our ability to establish effective marketing and advertising campaigns is the key to our success. Our advertisements promote our corporate image, our merchandise and the pricing of such products. If we are unable to increase awareness of our brands
and our products, we may not be able to attract new customers. Our marketing activities may not be successful in promoting the products we sell or pricing strategies or in retaining and increasing our customer base. We cannot assure you that our
marketing programs will be adequate to support our future growth, which may result in a material adverse effect on our results of operations.

Certain disruptions in supply of and changes in the competitive environment for our products may adversely affect our profitability.

A significant disruption in the supply of the raw material could decrease inventory levels and sales, and materially adversely affect our business and financial results. Shortages of products or interruptions in transportation systems, labor
strikes, work stoppages, war, acts of terrorism or other interruptions or difficulties in the employment of labor or transportation in the markets in which we purchase raw materials may adversely affect our ability to maintain sufficient inventories
of our products to meet consumer demand. If we were to experience a significant or prolonged shortage of products from any of our suppliers and could not procure the products from other sources, we would be unable to meet customer demand, which, in
turn, would adversely affect our sales, margins and customer relations.

Counterfeit products sold in the PRC could negatively impact our revenues, brand reputation, business and results of operations.

The products we sell are also subject to competition from counterfeit products, which are healthcare products manufactured without proper licenses or approvals and are fraudulently mislabeled with respect to their content and/or manufacturer.
Counterfeit products are generally sold at lower prices than authentic products due to their low production costs, and in some cases are very similar in appearance to authentic products. Although the PRC government has recently been increasingly
active in policing counterfeit products, including counterfeit healthcare products, there is a lack of effective counterfeit product regulation control and enforcement systems in the PRC. The proliferation of counterfeit products has grown in recent
years and may continue to grow in the future. Despite our implementation of quality controls, we cannot assure you that we would not be distributing or selling counterfeit products inadvertently. Any accidental sale or distribution of counterfeit
products can subject our company to fines,
administrative penalties, litigation and negative publicity, which could negatively impact our revenues, brand reputation, business and results of operations. Moreover, the continued proliferation of counterfeit products and other products in recent
years may reinforce the negative image of retailers among consumers in the PRC. The continued proliferation of counterfeit products in the PRC could have a material adverse effect on our business, financial condition, and results of operation.

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If we need additional capital to fund our growing operations, we may not be able to obtain sufficient capital and may be forced to limit the scope of our operations.

If adequate additional financing is not available on reasonable terms, we may not be able to undertake our expansion plan, purchase additional equipment for our operations and we would have to modify our business plans accordingly. There is no
assurance that additional financing will be available to us.

In connection with our growth strategies, we may experience increased capital needs and accordingly, we may not have sufficient capital to fund our future operations without additional capital investments. Our capital needs will depend on numerous
factors, including (i) our profitability; (ii) the release of competitive products by our competitors; (iii) the level of our investment in research and development; and (iv) the amount of our capital expenditures, including acquisitions. We cannot
assure you that we will be able to obtain capital in the future to meet our needs.

If we cannot obtain additional funding, we may be required to: (i) limit our investments in research and development; (ii) limit our marketing efforts; and (iii) decrease or eliminate capital expenditures. Such reductions could materially adversely
affect our business and our ability to compete.

Even if we do find a source of additional capital, we may not be able to negotiate terms and conditions for receiving the additional capital that are acceptable to us. Any future capital investments could dilute or otherwise materially and adversely
affect the holdings or rights of our existing shareholders. In addition, new equity or convertible debt securities issued by us to obtain financing could have rights, preferences and privileges senior to our common stock. We cannot give you any
assurance that any additional financing will be available to us, or if available, will be on terms favorable to us.

We are dependent on certain key personnel and loss of these key personnel could have a material adverse effect on our business, financial condition and results of operations.

Our success is, to a certain extent, attributable to the management, sales and marketing, and operational and technical expertise of certain key personnel. In addition, we will require an increasing number of experienced and competent executives and
other members of senior management to implement our growth plans. We do not maintain key-man insurance for members of our management team because it is not a customary practice in the PRC. If we lose the services of any member of our senior
management, we may not be able to locate suitable or qualified replacements, and may incur additional expenses to recruit and train new personnel, which could severely disrupt our business and prospects.

We are dependent on a trained workforce and any inability to retain or effectively recruit such employees, particularly distribution personnel and regional retail managers for our business, could have a material adverse effect on our business,
financial condition and results of operations.

We must attract, recruit and retain a sizeable workforce of qualified and trained staff to operate our business. Our ability to implement effectively our business strategy and expand our operations will depend upon, among other factors, the
successful recruitment and retention of highly skilled and experienced distribution personnel, regional retail managers and other technical and marketing personnel. There is significant competition for qualified personnel in our business and we may
not be successful in recruiting or retaining sufficient qualified personnel consistent with our current and future operational needs.

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Our Chinese operating companies maintained their books and records in accordance with the PRC GAAP and, as a result, it involves a risk of accuracy when our personnel convert the financial statements to U.S. GAAP.

Under PRC law, our operating companies in China are required to maintain their books and records in accordance with PRC GAAP. We do not retain an outside accounting firm or consultant to prepare our financial statements or to evaluate our internal
controls over financial reporting. Our Financial Manager prepares the U.S. GAAP financial statements and converts the financial statements prepared under PRC GAAP into U.S. GAAP. Our CFO is responsible for supervising the preparation of our
financial statements under PRC GAAP and for reviewing such financial statements to ensure their accuracy and completeness. In addition, he is responsible for reviewing the adjustments made to the financial statements to convert them into U.S. GAAP
for SEC reporting requirements. Our CFO and CEO are responsible for evaluating the effectiveness of our internal controls over financial reporting.

Our company is at the early stage of adopting necessary financial reporting concepts and practices, including strong corporate governance, internal controls and, computer, financial and other control systems. Most of our accounting and finance staff
are not educated and trained in U.S. GAAP and SEC reporting requirements, and we may have difficulty hiring new employees in the PRC with such training. As a result of these factors, we may experience difficulty in establishing management, legal and
financial controls, collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet SEC reporting requirements. Therefore, we may, in turn, experience difficulties in
implementing and maintaining adequate internal controls as required under Section 404 of the Sarbanes-Oxley Act of 2002. This may result in significant deficiencies or material weaknesses in our internal controls, which could impact the reliability
of our financial statements and prevent us from complying with SEC rules and regulations and the requirements of the Sarbanes-Oxley Act of 2002. Any such deficiencies, weaknesses or lack of compliance could have a materially adverse effect on our
business.

Our financial results may fluctuate because of many factors and, as a result, investors should not simply rely on our historical financial data as indicative of future results.

Fluctuations in operating results or the failure of operating results to meet the expectations of public market analysts and investors may negatively impact the market price of our securities. Operating results may fluctuate in the future due to a
variety of factors that could affect revenues or expenses in any particular quarter. Fluctuations in operating results could cause the value of our securities to decline. Investors should not rely on comparisons of results of operations as an
indication of future performance. As result of the factors listed below, it is possible that in future periods results of operations may be below the expectations of public market analysts and investors. This could cause the market price of our
securities to decline. Factors that may affect our quarterly results include:

- vulnerability of our business to a general economic downturn in the PRC;
- fluctuation and unpredictability of the prices of the products we sell;
- changes in the laws of the PRC that affect our operations;
- competition from other healthcare products manufacturers and distributors; and
- our ability to obtain necessary government certifications and/or licenses to conduct our business.

Risks Related to Conducting Business in the PRC

Our operations are subject to PRC laws and regulations that are sometimes vague and uncertain. Any changes in such PRC laws and regulations, or the interpretations thereof, may have a material and adverse effect on our business.

The PRC's legal system is a civil law system based on written statutes. Unlike the common law system prevalent in the United States, decided legal cases have little value as precedent in the PRC. There are substantial uncertainties regarding the
interpretation and application of PRC laws and regulations, including but not limited to, the laws and regulations governing our business, or the enforcement and performance of our arrangements with customers in the event of the imposition of
statutory liens, death, bankruptcy or criminal proceedings. The PRC government has been developing a comprehensive system of commercial laws, and considerable progress has been made in introducing
laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, because these laws and regulations are relatively new, and because of the limited volume of
published cases and judicial interpretation and their lack of authority as precedents, interpretation and enforcement of these laws and regulations involve significant uncertainties. New laws and regulations that affect existing and proposed future
businesses may also be applied retroactively.

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Our principal operating subsidiaries are regarded as foreign invested enterprises (FIEs) under PRC laws, and as a result are required to comply with PRC laws and regulations, including laws and regulations specifically governing the
activities and conduct of FIEs. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our businesses. If the relevant authorities find us in violation of PRC laws or regulations, they would have
broad discretion in dealing with such a violation, including, without limitation:

- levying fines;
- revoking our business license, other licenses or authorities;
- requiring that we restructure our ownership or operations; and
- requiring that we discontinue any portion or all of our business.

New labor law in the PRC may adversely affect our results of operations.

On January 1, 2008, the PRC government promulgated the Labor Contract Law of the PRC, or the New Labor Contract Law. The New Labor Contract Law imposes greater liabilities on employers and significantly impacts the cost of an employers
decision to reduce its workforce. Further, it may require certain terminations to be based upon seniority and not merit. In the event we decide to significantly change or decrease our workforce, the New Labor Contract Law could adversely affect our
ability to enact such changes in a manner that is most advantageous to our business or in a timely and cost effective manner, thus materially and adversely affecting our financial condition and results of operations.

We may not be able to comply with applicable Good Manufacture Practice (GMP) requirements and other regulatory requirements, which could have a material adverse effect on our business, financial condition and results of
operations.

We are required to comply with applicable GMP regulations, which include requirements relating to quality control and quality assurance as well as corresponding maintenance, record-keeping and documentation standards. Manufacturing facilities must
be approved by governmental authorities before we use them to commercially manufacture our products and are subject to inspection by regulatory agencies. If we fail to comply with applicable regulatory requirements, including following any product
approval, we may be subject to sanctions, including:

- fines;
- product recalls or seizure;
- injunctions;
- refusal of regulatory agencies to review pending market approval applications or supplements to approval applications;
- total or partial suspension of production;
- civil penalties;
- withdrawals of previously approved marketing applications; or
- criminal prosecution.

If we fail to protect our intellectual property rights, it could harm our business and competitive position.

Our business relies in part on intellectual properties to stay competitive in the market place. We rely on a combination of trademark laws, patent law, trade secrets, confidentiality procedures and contractual provisions to protect our intellectual
property rights and the obligations we have to third parties from whom we license intellectual property rights. Nevertheless, these afford only limited protection and policing unauthorized use of proprietary
technology can be difficult and expensive. In addition, intellectual property rights historically have not been enforced in the PRC to the same extent as in the United States, and intellectual property theft presents a serious risk in doing business
in the PRC. We may not be able to detect unauthorized use of, or take appropriate steps to enforce our intellectual property rights and this could have a material adverse effect on our business, operating results and financial condition.

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Under the new EIT Law, we may be classified a resident enterprise for PRC tax purposes, which may subject us to PRC enterprise income tax for any dividends we receive from our PRC Operating Entities and to PRC income tax
withholding for any dividends we pay to our non-PRC shareholders.

On March 16, 2007, the National Peoples Congress (NPC) promulgated the Law of the Peoples Republic of China on Enterprise Income Tax, and the new EIT Law as amended became effective on January 1, 2008. In accordance with the
new EIT Law, the corporate income tax rate is set at 25% for all enterprises. However, certain industries and projects, such as FIEs, may enjoy favorable tax treatment pursuant to the new EIT Law and its implementing rules.

Under the new EIT Law, an enterprise established outside of the PRC whose de facto management bodies are located in the PRC is considered a resident enterprise and is subject to the 25% enterprise income tax rate on its
worldwide income. The new EIT Law and its implementing rules are relatively new, and currently, no official interpretation or application of this new resident enterprise classification is available. Therefore, it is unclear how tax
authorities will determine the tax residency of enterprises established outside of the PRC.

Most of our management is currently based in the PRC. If the PRC tax authorities determine that our U.S. holding company is a resident enterprise for PRC enterprise income tax purposes, we may be subject to an enterprise income tax rate
of 25% on our worldwide taxable income. The resident enterprise classification also could subject us to a 10% withholding tax on any dividends we pay to our non-PRC shareholders if the relevant PRC authorities determine that such income
is PRC-sourced income. In addition to the uncertainties regarding the interpretation and application of the new resident enterprise classification, the new EIT Law may change in the future, possibly with retroactive effect. If we are
classified as a resident enterprise and we incur these tax liabilities, our net income will decrease accordingly.

Our ability to pay dividends is restricted by PRC laws.

Our ability to pay dividends is primarily dependent on receiving distributions of funds from our PRC Operating Entities. Relevant PRC statutory laws and regulations permit payments of dividends by our PRC Operating Entities only out of their
retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the financial statements prepared in accordance with United States Generally Accepted Accounting Principles
(GAAP) differ from those reflected in the statutory financial statements of our PRC Operating Entities.

The principal laws, rules and regulations governing dividends paid by our PRC Operating Entities include the Company Law of the PRC, Wholly Foreign Owned Enterprise Law and its Implementation Rules. Under these laws and regulations, our PRC
Operating Entities are required to set aside at least 10% of their after-tax profit based on PRC accounting standards each year to its statutory surplus reserve fund until the accumulative amount of such reserve reaches 50% of their respective
registered capital. These reserve funds are recorded as part of shareholders' equity but are not available for distribution to shareholders other than in the case of liquidation. As a result of this requirement, the amount of net income available
for distribution to shareholders will be limited.

Our business is subject to a variety of environmental laws and regulations. Our failure to comply with environmental laws and regulations may have a material adverse effect on our business and results of operations.

Since the beginning of the 1980s, the PRC has formulated and implemented a series of environmental protection laws and regulations. Our operations are subject to these environmental protection laws and regulations in the PRC. These laws and
regulations impose fees for the discharge of waste substances, permit the levy of fines and claims for
damages for serious environmental offences and allow the PRC government, at its discretion, to close any facility that fails to comply with orders requiring it to correct or stop operations causing environmental damage. Our operations are in
compliance with PRC environmental regulations in all material aspects. The PRC government has taken steps and may take additional steps towards more rigorous enforcement of applicable environmental laws, and towards the adoption of more stringent
environmental standards. If the PRC national or local authorities enact additional regulations or enforce current or new regulations in a more rigorous manner, we may be required to make additional expenditures on environmental matters, which could
have an adverse impact on our financial condition and results of operations. In addition, environmental liability insurance is not common in the PRC. Therefore, any significant environmental liability claims successfully brought against us would
adversely affect our business, financial condition and results of operations.

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PRC regulations relating to acquisitions of PRC companies by foreign entities may create regulatory uncertainties that could restrict or limit our ability to operate.

On August 8, 2006, the PRC Ministry of Commerce (MOFCOM), joined by the State-owned Assets Supervision and Administration Commission of the State Council, the State Administration of Taxation, the State Administration for Industry and
Commerce, the China Securities Regulatory Commission (CSRC) and the State Administration of Foreign Exchange (SAFE), released a substantially amended version of the Provisions for Foreign Investors to Merge with or Acquire
Domestic Enterprises (the "Revised M&A Regulations"), which took effect on September 8, 2006. These new rules significantly revised the PRC's regulatory framework governing onshore-to-offshore restructurings and foreign acquisitions of domestic
enterprises. These new rules signify greater PRC government attention to cross-border merger, acquisition and other investment activities, by confirming MOFCOM as a key regulator for issues related to mergers and acquisitions in the PRC and
requiring MOFCOM approval of a broad range of merger, acquisition and investment transactions. Further, the new rules establish reporting requirements for acquisition of control by foreigners of companies in key industries, and reinforce the ability
of the PRC government to monitor and prohibit foreign control transactions in key industries.

These rules may significantly affect the means by which offshore-onshore restructurings are undertaken in the PRC in connection with offshore private equity and venture capital financings, mergers and acquisitions. It is expected that such
transactional activity in the PRC in the near future will require significant case-by-case guidance from MOFCOM and other government authorities as appropriate. It is anticipated that application of the new rules will be subject to significant
administrative interpretation, and we will need to closely monitor how MOFCOM and other ministries apply the rules to ensure its domestic and offshore activities continue to comply with PRC laws. Given the uncertainties regarding interpretation and
application of the new rules, we may need to expend significant time and resources to maintain compliance. It is uncertain how our business operations or future strategy will be affected by the interpretations and implementation of the SAFE notices
and new rules. Our business operations or future strategy could be adversely affected by the SAFE notices and the new rules. For example, we may be subject to more stringent review and approval processes with respect to our foreign exchange
activities.

The foreign currency exchange rate between U.S. dollars and Renminbi (RMB) could adversely affect our reported financial results and condition.

To the extent that we need to convert U.S. dollars into RMB for our operational needs, our financial position and the price of our common stock may be adversely affected should RMB appreciate against U.S. dollar at that time. Conversely, if we
decide to convert our RMB into U.S. dollars for the operational needs or paying dividends on our common stock, the dollar equivalent of our earnings from our subsidiaries in the PRC would be reduced should U.S. dollar appreciate against RMB.

Until 1994, RMB experienced a gradual but significant devaluation against most major currencies, including dollars, and there was a significant devaluation of RMB on January 1, 1994 in connection with the replacement of the dual exchange rate system
with a unified managed floating rate foreign exchange system. Since 1994, the value of RMB relative to U.S. dollar has remained stable and has appreciated slightly against U.S. dollar. Countries, including the United States, have argued that RMB is
artificially undervalued due to the PRC's current monetary policies and have pressured the PRC to allow RMB to float freely in world markets. In July 2005, the PRC government changed its policy of pegging the value of RMB to the U.S. dollar. Under
the new policy, RMB is permitted to fluctuate within a
narrow and managed band against a basket of designated foreign currencies. While the international reaction to RMB revaluation has generally been positive, there remains significant international pressure on the PRC government to adopt an even more
flexible currency policy, which could result in further and more significant appreciation of RMB against the dollar.

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Restrictions on currency exchange may limit our ability to utilize our revenues effectively and the ability of our PRC Operating Entities to obtain financing.

Substantially all of our revenues and operating expenses are denominated in RMB. Restrictions on currency exchange imposed by the PRC government may limit our ability to utilize revenues generated in RMB to fund our business activities outside the
PRC, if any, or expenditures denominated in foreign currencies. Under current PRC regulations, RMB may be freely converted into foreign currency for payments relating to current account transactions, which include among other things
dividend payments and payments for the import of goods and services, by complying with certain procedural requirements. Our PRC Operating Entities may also retain foreign exchange in their respective current account bank accounts, subject to a cap
set by SAFE or its local counterpart, for use in payment of international current account transactions.

However, conversion of RMB into foreign currencies and of foreign currencies into RMB, for payments relating to capital account transactions, which principally includes investments and loans, generally requires the approval of SAFE and
other relevant PRC governmental authorities. Restrictions on the convertibility of the RMB for capital account transactions could affect the ability of our PRC Subsidiary to make investments overseas or to obtain foreign exchange through debt or
equity financing, including by means of loans or capital contributions from us.

In August 2008, SAFE promulgated Circular 142, a notice regulating the conversion by FIEs of foreign currencies into RMB by restricting how the converted RMB may be used. Circular 142 requires that RMB converted from the foreign currency-denominated
capital of a FIE may only be used for purposes within the business scope approved by the applicable government authority and may not be used for equity investments within the PRC unless specifically provided for otherwise. In addition, SAFE
strengthened its oversight over the flow and use of RMB funds converted from the foreign currency-denominated capital of a FIE. The use of such RMB may not be changed without approval from SAFE, and may not be used to repay RMB loans if the proceeds
of such loans have not yet been used. Violations of Circular 142 may result in severe penalties, including substantial fines as set forth in the SAFE rules.

Any existing and future restrictions on currency exchange may affect the ability of our PRC Subsidiary or affiliated entity to obtain foreign currencies, limit our ability to utilize revenues generated in RMB to fund our business activities outside
the PRC that are denominated in foreign currencies, or otherwise materially and adversely affect our business.

We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption laws, and any determination that we violated these laws could have a material adverse effect on our business.

We are subject to the Foreign Corrupt Practice Act, or FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute,
for the purpose of obtaining or retaining business. We have operations, agreements with third parties and we make all of our sales in China. The PRC also strictly prohibits bribery of government officials. Our activities in China create the risk of
unauthorized payments or offers of payments by the employees, consultants, sales agents or distributors of our company and its affiliate, even though they may not always be subject to our control. It is our policy to implement safeguards to
discourage these practices by our employees, and we have implemented a policy to comply specifically with the FCPA. In spite of these efforts, our existing safeguards and any future improvements may prove to be less than effective, and the
employees, consultants, sales agents or distributors of our company and its affiliate may engage in conduct for which we might be held responsible. Violations of the FCPA or Chinese anti-corruption laws may result in severe criminal or civil
sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the U.S. government may seek to hold our company liable for successor liability FCPA
violations committed by companies in which we invest or that we acquire.

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If we make equity compensation grants to persons who are PRC citizens, they may be required to register with SAFE. We may also face regulatory uncertainties that could restrict our ability to adopt an equity compensation plan for our directors
and employees and other parties under PRC law.

On April 6, 2007, SAFE issued the Operating Procedures for Administration of Domestic Individuals Participating in the Employee Stock Ownership Plan or Stock Option Plan of An Overseas Listed Company, also known as Circular 78. It is not clear
whether Circular 78 covers all forms of equity compensation plans or only those which provide for the granting of stock options. For any plans which are so covered and are adopted by a non-PRC listed company after April 6, 2007, Circular 78 requires
all participants who are PRC citizens to register with and obtain approvals from SAFE prior to their participation in the plan. In addition, Circular 78 also requires PRC citizens to register with SAFE and make the necessary applications and filings
if they participated in an overseas listed company's covered equity compensation plan prior to April 6, 2007. We intend to adopt an equity compensation plan in the future and make option grants to our officers and directors, most of whom are PRC
citizens. Circular 78 may require our officers and directors who receive option grants and are PRC citizens to register with SAFE. We believe that the registration and approval requirements contemplated in Circular 78 will be burdensome and time
consuming. If it is determined that any of our equity compensation plans is subject to Circular 78, failure to comply with such provisions may subject us and participants of our equity incentive plan who are PRC citizens to fines and legal sanctions
and prevent us from being able to grant equity compensation to our PRC employees. In that case, our ability to compensate our employees and directors through equity compensation would be hindered and our business operations may be adversely
affected.

Any recurrence of severe acute respiratory syndrome (SARS), Avian Flu, or another widespread public health problem in the PRC could adversely affect our operations.

A renewed outbreak of SARS, Avian Flu or another widespread public health problem in the PRC, where all of our businesses are located and where all of our sales occur, could have a negative effect on our operations. Our businesses are dependent upon
our ability to continue to efficiently distribute and sell our products. Such an outbreak could have an impact on our operations as a result of:

- quarantines or closure of our distribution center, which would severely disrupt our operations,
- the sickness or death of our key officers and employees, and
- a general slowdown in the PRC economy.

Any of the foregoing events or other unforeseen consequences of public health problems could adversely affect our operations.

Adverse changes in political, economic and other policies of the PRC government could have a material adverse effect on the overall economic growth of the PRC, which could reduce the demand for our products and materially and adversely affect
our competitive position.

All of our business operations are conducted in the PRC, and all of our sales are currently made in the PRC. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and
legal developments in the PRC. The PRC economy differs from the economies of most developed countries in many respects, including:

- the extent of government involvement;
- the level of development;
- the growth rate;
- the control of foreign exchange;
- the allocation of resources;
- an evolving regulatory system; and
- lack of sufficient transparency in the regulatory process.

15

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While the PRC economy has experienced significant growth in the past 20 years, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and
guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may also have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over
capital investments or changes in tax regulations that are applicable to us.

The PRC economy has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the PRC government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of
state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of the productive assets in the PRC are still owned by the PRC government. The continued control of these assets
and other aspects of the national economy by the PRC government could materially and adversely affect our business. The PRC government also exercises significant control over PRC economic growth through the allocation of resources, controlling
payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Efforts by the PRC government to slow the pace of growth of the PRC economy could result in
decreased expenditures by the users of our products, which in turn could reduce demand for our products.

Moreover, the political relationship between the United States, Europe, or other Asian nations and the PRC is subject to sudden fluctuation and periodic tension. Changes in political conditions in the PRC and changes in the state of foreign
relations are difficult to predict and could adversely affect our operations or cause our products to become less attractive. This could lead to a decline in our profitability.

Any adverse change in the economic conditions or government policies in the PRC could have a material adverse effect on overall economic growth and the level of healthcare investments and expenditures in the PRC, which in turn could lead to a
reduction in demand for our products and consequently have a material adverse effect on our businesses.

Because our business is located in the PRC, we may have difficulty establishing adequate management, legal and financial controls, which are required in order to comply with United States securities laws.

PRC companies have historically not adopted a Western style of management and financial reporting concepts and practices, which includes strong corporate governance, internal controls and, computer, financial and other control systems. In addition,
we may have difficulty in hiring and retaining a sufficient number of qualified employees to work in the PRC. As a result of these factors, we may experience difficulty in establishing management, legal and financial controls, collecting financial
data and preparing financial statements, books of account and corporate records and instituting business practices that meet Western standards. Therefore, we may, in turn, experience difficulties in implementing and maintaining adequate internal
controls as required under Section 404 of the Sarbanes-Oxley Act of 2002. This may result in significant deficiencies or material weaknesses in our internal controls which could impact the reliability of its financial statements and prevent us from
complying with the rules and regulations promulgated by the Securities Exchange Commission (the SEC) and the requirements of the Sarbanes-Oxley Act of 2002 (SOX). Any such deficiencies, weaknesses or lack of compliance could
have a materially adverse effect on our business.

Investors may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in the PRC based upon United States laws, including the federal securities laws or other foreign laws against
us or our management.

All of our current business operations are conducted in the PRC. Moreover, all of our directors and officers are nationals and residents of the PRC. All the assets of these persons are located outside the United States and in the PRC. As a result,
it may not be possible to effect service of process within the United States or elsewhere outside the PRC upon these persons. In addition, uncertainty exists as to whether the PRC courts would recognize or enforce
judgments of United States courts obtained against us or such officers and/or directors predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or be competent to hear original actions brought
in the PRC against us or such persons predicated upon the securities laws of the United States or any state thereof.

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Risks Relating to Investment in Our Securities

The limited trading volume in our stock may cause volatility in the market price of our common stock.

Our common stock is currently traded on a limited basis on the OTCBB under the symbol, "CKGT.OB". The quotation of our common stock on the OTCBB does not assure that a meaningful, consistent and liquid trading market currently exists, and in recent
years, such market has experienced extreme price and volume fluctuations that have particularly affected the market prices of many smaller companies like us. Our common stock is thus subject to volatility. In the absence of an active trading
market:

- investors may have difficulty buying and selling or obtaining market quotations;
- market visibility for our common stock may be limited; and
- lack of visibility for our common stock may have a depressive effect on the market for our common stock.

Our stock is a penny stock. Trading of our stock may be restricted by the SEC's penny stock regulations which may limit a stockholder's ability to buy and sell our stock.

Our stock is a penny stock. The SEC has adopted Rule 15g-9 which generally defines "penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share,
subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and "accredited investors". The term
"accredited investor" refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny
stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the
nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly
account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to
effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the
broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing
the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock
rules discourage investor interest in and limit the marketability of our common stock.

NASD sales practice requirements may also limit a stockholder's ability to buy and sell our stock.

Section 15(g) of the Securities Exchange Act of 1934, as amended, and Rule 15g-2 promulgated thereunder by the SEC require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and
to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor's account.

Potential investors in our common stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed to be "penny stock." Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of
any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial
situation, investment experience and investment objectives; (ii)reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be
reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated
copy of such statement from the investor, confirming that it accurately reflects the investor's financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for holders of our
common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.

17

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Shares eligible for future sale may adversely affect the market price of our Common stock, as the future sale of a substantial amount of our restricted stock in the public marketplace could reduce the price of our common stock.

From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144, promulgated under the Securities Act ("Rule
144"), subject to certain limitations. In general, pursuant to Rule 144, a stockholder (or stockholders whose shares are aggregated) who has satisfied a one-year holding period may, under certain circumstances, sell within any three-month period a
number of securities which does not exceed the greater of 1% of the then outstanding shares of common stock or the average weekly trading -volume of the class during the four calendar weeks prior to such sale. Rule 144 also permits, under certain
circumstances, the sale of securities, without any limitations, by a non-affiliate of our company that has satisfied a two-year holding period. Any substantial sale of common stock pursuant to Rule 144 or pursuant to any resale prospectus may have
an adverse effect on the market price of our securities.

Compliance with changing regulation of corporate governance and public disclosure will result in additional expenses.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including SOX and related SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with
accessing the public markets and public reporting. Our management team will need to invest significant management time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased
general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities.

We do not foresee paying cash dividends in the near future.

We do not plan to declare or pay any cash dividends on our shares of common stock in the foreseeable future and currently intend to retain any future earnings for funding growth. As a result, investors should not rely on an investment in our
securities if they require the investment to produce dividend income.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES.

China Kangtais operations office is located at 99 Taibei Road, Limin Economic and Technological Development Zone, Harbin, Heilongjiang Province, P. R. China, Zip Code: 150025 and its telephone number is (86) 451 57351189. In addition, the
Company has over 387 acres of cactus farming bases, production facilities and an R&D facility in China. Among the 387 acres of cactus farming, 142 acres are owned by the Company, and the other 245 acres are leased and the land use rights will
expire on March 31, 2038.

18

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ITEM 3. LEGAL PROCEEDINGS.

The Company is not a party to any pending legal proceedings,
and no such proceedings are known to be contemplated. No director, officer or
affiliate of the Company and no owner of record or beneficial owner of more than
5.0% of the securities of the Company, or any associate of any such director,
officer or security holder is a party adverse to the Company or has a material
interest adverse to the Company in reference to pending litigation.

ITEM 4. Removed and Reserved

PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for Common Stock

Since August 25, 2005, our Common Stock has been quoted on the
OTC Bulletin Board under the symbol CKGT.OB. Prior to that, our Common Stock
was quoted on the OTC Bulletin Board under the symbol IVNE.OB. The following
table lists the high and low bid price for our Common Stock as quoted, in U.S.
dollars, by the OTC Bulletin Board during each quarter within the last two
fiscal years. These quotations reflect inter-dealer prices, without retail
mark-up, markdown, or commission and may not represent actual transactions.

|Year |  | Quarter Ended |  |   | High |  |   | Low  | 
|---- |  | ------------- |  | - | ---- |  | - | ---- | 
|2010 |  | December 31   |  | $ | 1.42 |  | $ | 0.00 | 
|     |  | September 30  |  | $ | 1.45 |  | $ | 0.02 | 
|     |  | June 30       |  | $ | 2.65 |  | $ | 1.10 | 
|     |  | March 31      |  | $ | 2.96 |  | $ | 1.90 | 
|     |  |               |  |   |      |  |   |      | 
|2009 |  | December 31   |  | $ | 2.71 |  | $ | 2.60 | 
|     |  | September 30  |  | $ | 1.48 |  | $ | 1.40 | 
|     |  | June 30       |  | $ | 0.75 |  | $ | 0.73 | 
|     |  | March 31      |  | $ | 0.29 |  | $ | 0.20 | 

Record Holders

As March 24, 2011 there were 80 shareholders of record holding
a total of 22,305,527 shares of common stock.

The holders of the common stock are entitled to one vote for
each share held of record on all matters submitted to a vote of stockholders.
Holders of the common stock have no preemptive rights and no right to convert
their common stock into any other securities. There are no redemption or sinking
fund provisions applicable to the common stock.

Dividends

CKGT has not declared any cash dividends since inception and
does not anticipate paying any dividends in the foreseeable future. The payment
of dividends is within the discretion of the board of directors and will depend
on CKGTs earnings, capital requirements, financial condition, and other
relevant factors. There are no restrictions that currently limit CKGTs ability
to pay dividends on its common stock other than those generally imposed by
applicable state law.

Stock Re-Purchases

We did not make any re-purchases of shares of our common stock
during the fourth quarter of fiscal 2008 and we do not currently have any
publicly-announced repurchase plans in effect.

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ITEM 6. SELECTED FINANCIAL DATA

Not required.

ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.

Certain statements in this report, including statements in the following discussion which are not statements of historical fact, are what are known as forward looking statements, which are basically statements about the future. For that
reason, these statements involve risk and uncertainty since no one can accurately predict the future. Words such as plans, intends, will, hopes, seeks, anticipates,
expects and the like often identify such forward looking statements, but are not the only indication that a statement is a forward-looking statement. Such forward looking statements include statements concerning our plans and objectives
with respect to the present and future operations of the Company, and statements which express or imply that such present and future operations will or may produce revenues, income or profits. Numerous factors and future events could cause the
Company to change such plans and objectives or fail to successfully implement such plans or achieve such objectives, or cause such present and future operations to fail to produce revenues, income or profits. Therefore, the reader is advised that
the following discussion should be considered in light of the discussion of risks and other factors contained in this report on Form 10K and in the Companys other filings with the Securities and Exchange Commission. No statements contained in
the following discussion should be construed as a guarantee or assurance of future performance or future results.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and accompanying notes and the other financial information appearing elsewhere in this report.
CKGTs fiscal year end is December 31.

CKGTs short-term strategy is to realize net cash flow from operations and financing activities to be used to expand marketing efforts in China and research and development. CKGT is committed to ensuring that its products remain at the
forefront of providing a variety of quality cactus based nutriceuticals, nutritional food from cactus, and beverages from cactus, including but not limited to beer and wine derived from cactus. The realization of net cash flows in the near term will
require a significant increase in CKGTs revenues without a substantial increase in expenses. Financing activities will focus on equity financing. Once CKGT has additional positive net cash flow, its longer-term strategy is to expand marketing
efforts beyond China into other Asian markets based on anticipated increases in marketing spending over the next several years in South Korea, Singapore, Taiwan and other southeastern Asian countries.

CKGTs business development strategy is prone to significant risks and uncertainties certain of which can have an immediate impact on its efforts to realize positive net cash flow and deter future prospects of revenue growth.

CKGTs financial condition and results of operations depend primarily on the revenue generated from the sale of its products and its ability to control the cost of sales. CKGT has a limited history of generating revenue which cannot be viewed
as an indication of continued growth and a recent historical record of incurring losses. Should CKGT be unable to consistently generate revenue through the successful implementation of its business model and reduce or stabilize expenses to the point
where it can realize a net cash flow such failure will have a short-term impact on CKGTs ability to continue its business operations.

The following discussion should be read in conjunction with our financial statements and notes thereto included in this Form 10-K/A filed with SEC.

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|Comparison of Sales for the Years Ended
      December 31, 2010 and 2009 |   |            |  |   |            |  | 
|------------------------------------------------------------------------ | - | ---------- |  | - | ---------- |  | 
|                                                                         |   |            |  |   |            |  | 
|                                                                         |   |            |  |   |            |  | 
|Sales by
      Categories                                                |   | 2010       |  |   | 2009       |  | 
|Nutraceuticals                                                           | $ | 12,989,289 |  | $ | 10,722,568 |  | 
|Beverages                                                                |   | 12,588,707 |  |   | 9,318,655  |  | 
|Cactus Feed                                                              |   | 4,583,599  |  |   | 2,309,059  |  | 
|Raw & intermediate materials                                             |   | 2,947,646  |  |   | 3,485,604  |  | 
|Cactus cigarettes                                                        |   | 2,910,622  |  |   | 317,133    |  | 
|Packaged foods                                                           |   | -          |  |   | 384,337    |  | 
|Other                                                                    |   | 9,687      |  |   |            |  | 
|Total Sales                                                              | $ | 36,029,550 |  | $ | 26,537,356 |  | 

Sales for the year ended December 31, 2010 totaled $36,029,550,
an increase of $9,492,194, or 36% compared to the sales of $26,537,356 in 2009.
The increase in sales is attributable to the fact that the Companys products
are efficiently marketed and well accepted by consumers, such in the case with
our nutraceuticals and beverages products. The sale of nutraceuticals products
was $12,989,289 in 2010, an increase of $2,266,721, or 21%, compared to
$10,722,568 in 2009. The sale of beverages products was $12,588,707 in 2010, an
increase of $3,270,052, or 35%, compared to $9,318,655 in 2009. The increase in
sales also resulted from our new acquired patents and new products. The sale of
our cactus feed products was $4,583,599 in 2010, an increase of $2,274,540, or
99%, compared to $2,309,059 in 2009. The sale of cactus cigarettes products was
$2,910,622 in 2010, an increase of $2,593,489, or 818%, compared to $317,133 in
2009. The sales from our raw and intermediate materials products was $2,947,646
in 2010, a decrease of $537,958, or 15%, compared to $3,485,604 in 2009. The
sales from our packaged products was $0 in 2010, compared to $384,337 in
2009.The decrease in raw and intermediate materials and packaged foods products
resulted from the changes in our product mix.

Cost of Sales

Cost of sales totaled $22,475,015 in 2010, an increase of
$6,458,581, or 40%, compared to $16,016,434 in 2009. The increase in cost of
sales resulted from the increase in sales. The gross profit rate was 38% for the
year ended December 31, 2010, a decrease of 2 percentage points as compared to
40% in 2009. The increase in cost of sales and decrease in gross profit rates
were primarily attributable to the increase in sales of our cactus feed
products. The gross profit rate is about 16% for cactus feed products.

Operating Expenses

Operating expenses for the year ended December 31, 2010 totaled
$2,267,667, an increase of $1,301,172, or 135%, compared to $966,495 in 2009.
The increase in operating expenses was mainly due to an increase of $141,830 in
research and development expense; an increase of $360,807 in amortization of
intangible assets; and an increase of $929,935 in other general and
administrative expenses. Other general and administrative expenses consist of
advertising, rent and utilities, salaries and wages, professional fees, US
public company related expenses and other expenses. The increase in other
general and administrative expenses was attributable to an increase of $97,274
in advertising expense, $315,489 in legal fees, and $268,219 in consulting
fees.

Other Income and Expenses

Other income (net) for the year ended December 31, 2010 totaled
$3,531,546, compared to other expenses (net) of $7,483,984 in 2009. The
increased net other income mainly resulted from the income from revaluation of
Series A Preferred Stock and A, B, C, and D warrants with characteristics of
liabilities at fair values. Such income totaled $3,586,155 in 2010, compared to
an expense of $7,926,182 from the revaluation in 2009.

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Income from Operations

Income from operations totaled $11,286,868 in 2010, an increase of $1,732,441, or 18%, compared to $9,554,427 in 2009. The increase in our income from operations resulted mainly from the increase in sales.

Net Income

Net income totaled $11,761,267 for the year ended December 31, 2010, an increase of $11,254,245, compared to $507,022 in 2009. The increase in net income was caused partially by the income and loss from revaluation of Series A Preferred
Stock and A, B, C, and D warrants with characteristics of liabilities at fair values. Absent the gain of $3,586,155 in 2010, the Company would have had a net income of $8,175,112 and basic and diluted earnings per common share would have
been $0.39 and $0.39 for the year ended December 31, 2010. Absent the revaluation loss of $7,926,182 in 2009, the Company would have had a net income of $8,433,204, and basic and diluted earnings per common share would have been
$0.46 and $0.43 for the year ended December 31, 2009.

Liquidity and Capital Resources

We had cash and cash equivalents of $2,630,035 and $2,918,068 as of December 31, 2010 and 2009, respectively. Our funds are kept in financial institutions located in China, which do not provide insurance for amounts on deposit. Moreover, we
are subject to the regulations of the PRC which restrict the transfer of cash from China, except under certain specific circumstances. Accordingly, such funds may not be readily available to us to satisfy obligations which have been incurred outside
the PRC.

The Companys accounts receivable have been an increasingly significant portion of the Companys current assets, representing $8,420,117 and $3,289,854, or 68% and 26%, of current assets, as of December 31, 2010 and 2009,
respectively. The increase in 2010 resulted mainly from the $10 million increase in the Company's sales in 2010. In addition, the Company added a new customer in 2010. If customers responsible for a significant amount of accounts receivable were
to become insolvent or otherwise unable to pay for our products, or to make payments in a timely manner, the Company's liquidity and results of operations could be materially adversely affected. An economic or industry downturn could materially
adversely affect the servicing of these accounts receivable, which could result in longer payment cycles, increased collections costs and defaults in excess of management's expectations. A significant deterioration in the Company's ability to
collect on accounts receivable could affect our cash flow and working capital position and could also impact the cost or availability of financing available to the Company.

The Company's current collections policies are formalized in writing and have been in place since May 2006. These policies presume that direct customers' payment should be settled on the day of delivery for cash on delivery, and that the normal
agent (distributors) collection period is 3 months (90 days) from the day of sale. Procedures in place require that a sales assistant should reconcile with the salesman from time to time to confirm the situation of accounts receivable, and that
financial department personnel should contact and reconcile with the customer at any time to confirm the authenticity of invoicing. In addition, the manager of the Sales Department should check the bill with a salesman at any time and press them in
collection. If there are any special conditions why the collection was not received for over 3 months (90 days) from the date the goods were delivered it is required to be reported to the general manager, and after approval from the general manager
the collection period can be appropriately extended. If collection is not received from the customer in over 90 days but less than 180 days, the salesman is required to make calls to communicate the need to cure the amount past due. If the
collection is not received from the customer for over 180 days but less than 1 year, the sales department is required to communicate with them in writing. If the collection is not received from the customer for over 1 year, the financial department
is required to communicate with them in writing, and at the same time to communicate with them to make a collection plan, or legal actions. The Company has made allowances for bad debt based on its experience and the age of its accounts receivable.

Net cash provided by operating activities was $6,900,302 and $11,497,575 for the years ended December 31, 2010 and 2009, respectively. The decrease in net cash provided by operating activities in 2010 was mainly due to a $11,512,237
negative adjustment for (Gain) expense from revaluation of Series A Preferred Stock and A, B, C, and D warrants with characteristics of liabilities at fair values ($3,586,155 decrease in 2010; $7,926,182 increase in 2009), a $6,663,197
negative change of accounts receivable ($5,130,363 increase in 2010; $1,532,934 decrease in 2009), offset partially by the $11,254,245 increase in net income ($11,761,267 in 2010; $507,022 in 2009).

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Net cash used in investing activities was $9,527,613 and
$13,184,892 for the year ended December 31, 2010 and 2009, respectively. During
2010, the Company purchased a livestock feed patent in the amount of $8,199,158
(RMB 54,112,700), tobacco trademarks of $1,698,842 (RMB 11,212,000), land use
rights of $1,159,237 (RMB 7,650,720) and property, plant and equipment in the
amount of $2,462,438 (RMB 16,251,568). The amount used in investing activities
was offset by the collection of $3,747,926 from Qitaihe City and $244,136 from a
related party. During 2009, the Company purchased Taishan Basha land use rights
in the amount of $9,710,926 (RMB 66,376,800). In 2009, the Company also
purchased land use rights, plant and equipment in the amount of $5,423,830 and
received $2,194,500 compensation proceeds from Qitaihe City due to a Government
eminent domain proceeding. The remaining balance of $3,747,926 was paid in
2010.

Net cash provided by financing activities was $1,613,636 and
$255,042 for the years ended December 31, 2010 and 2009, respectively. During
2010, the Company received net proceeds of $125,000 from the cash exercise of
stock options, net proceeds of $750,000 from the exercise of B warrants, and net
proceeds of $743,678 from the sale of common stock to an investor. The Company
repaid $5,042 to a related party. During 2009, the Company received proceeds of
$250,000 from the exercise of 333,334 A warrants and $5,042 from a related
party.

Note Payable to a Financial Institution

The note payable $916,696 (6,050,000 RMB) is due to a PRC
provincial government financial institution which made the loan to the Company
to promote the commercial cultivation of cactus. The loan was made to the
Company on an interest-free and unsecured basis and is repayable on demand.
Imputed interest is calculated at 6% per annum on the amount due. Total imputed
interest recorded as additional paid-in capital amounted to $53,630 and $53,219
for the years ended December 31, 2010 and 2009, respectively.

Estimated Liability for Equity-Based Financial Instruments
with Characteristics of Liabilities

Effective January 1, 2009, in accordance with EITF Issue No.
07-05, Determining Whether an Instrument (or Embedded Feature) is indexed to an
Entitys Own Stock, the Company reclassified the fair values at January 1, 2009
of the outstanding Series A Convertible Preferred Stock and the warrants
comprising the March 21, 2008 and the July 16, 2008 sales of units (see
Financial Statements Note 11) from stockholders equity to liabilities, as
follows:

|                                     |   | Shares / Warrants |  |   | Fair
      Value | 
|------------------------------------ | - | ----------------- |  | - | ---------------- | 
|                                     |   |                   |  |   |                  | 
|Series A Convertible Preferred Stock | $ | 1,150,000         |  | $ | 333,500          | 
|                                     |   |                   |  |   |                  | 
|A warrants                           |   | 1,250,000         |  |   | 122,000          | 
|B warrants                           |   | 1,500,000         |  |   | 120,150          | 
|C warrants                           |   | 500,000           |  |   | 47,950           | 
|D warrants                           |   | 600,000           |  |   | 47,640           | 
|Total warrants                       |   | 3,850,000         |  |   | 337,740          | 
|                                     |   |                   |  |   |                  | 
|Total Financial Instruments          | $ | 5,000,000         |  | $ | 671,240          | 

Since at January 1, 2009 the carrying value of the outstanding
financial instruments was $690,000, the Company recognized a cumulative effect
adjustment resulting from a change in accounting principle of $18,760, or a net
of $671,240. Accordingly, the unappropriated retained earnings balance at
December 31, 2008 was increased from $11,604,285 to $11,623,045, as adjusted, on
January 1, 2009.

The characteristics which require classification of the Series
A Preferred Stock and warrants as liabilities are the Companys obligations to
reduce the conversion price of the Series A Preferred Stock and the exercise
price of the warrants in the event that the Company sells, grants, or issues any
shares, options warrants, or any convertible instrument at a price below the
$0.60 current conversion price of the Series A Preferred Stock or the current
exercise prices of the warrants. As a result, the Company remeasures the fair
values of these financial instruments each quarter, adjusts the liability balances, and reflects changes
in operations as income (expense) from revaluation of Series A Preferred Stock
and A, B, C, and D warrants with characteristics of liabilities at fair
values.

23

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At December 31, 2010 and 2009, the fair values of the financial
instruments consisted of:

|                                     |  | 2010              |  |   | 2009             | 
|------------------------------------ |  | ----------------- |  | - | ---------------- | 
|                                     |  | Shares / Warrants |  |   | Fair
      Value | 
|                                     |  |                   |  |   |                  | 
|Series A Convertible Preferred Stock |  | 50,000            |  | $ | 51,500           | 
|                                     |  |                   |  |   |                  | 
|A warrants                           |  | -                 |  |   | -                | 
|B warrants                           |  | 750,000           |  |   | 153,975          | 
|C warrants                           |  | 500,000           |  |   | 171,550          | 
|D warrants                           |  | 600,000           |  |   | 144,180          | 
|Total warrants                       |  | 1,850,000         |  |   | 469,705          | 
|                                     |  |                   |  |   |                  | 
|Total Financial Instruments          |  | 1,900,000         |  | $ | 521,205          | 

Below is a reconciliation of the change in the fair values of
the financial instruments from January 1, 2009 through December 31, 2010.

|                                                             |  | Shares / Warrants |   |   | Fair
      Value |  
|------------------------------------------------------------ |  | ----------------- | - | - | ---------------- | -
|Balance, January 1, 2009                                     |  | 5,000,000         |   | $ | 671,240          |  
|Revaluation credited to operations                           |  | -                 |   |   | (262,725         | )
|Balance, March 31, 2009                                      |  | 5,000,000         |   |   | 408,515          |  
|Revaluation charged to operations                            |  | -                 |   |   | 1,761,440        |  
|Balance, June 30, 2009                                       |  | 5,000,000         |   |   | 2,169,955        |  
|Conversion of Series A Preferred Stock to Common Stock       |  | (416,667          | ) |   | (666,667         | )
|Revaluation charged to operations                            |  | -                 |   |   | 2,738,135        |  
|Balance, September 30, 2009                                  |  | 4,583,333         |   |   | 4,241,423        |  
|Conversion of Series A Preferred Stock to
      Common Stock |  | (683,333          | ) |   | (1,282,500       | )
|Exercise of A warrants                                       |  | (1,250,000        | ) |   | (1,589,895       | )
|Revaluation charged to operations                            |  | -                 |   |   | 3,689,332        |  
|Balance, December 31,
      2009                             |  | 2,650,000         |   |   | 5,058,360        |  
|Exercise of B warrants                                       |  | (475,000          | ) |   | (612,750         | )
|Revaluation credited to operations                           |  | -                 |   |   | (1,515,915       | )
|Balance, March 31, 2010                                      |  | 2,175,000         |   |   | 2,929,695        |  
|Exercise of B warrants                                       |  | (275,000          | ) |   | (338,250         | )
|Revaluation credited to operations                           |  | -                 |   |   | (1,435,280       | )
|Balance, June 30, 2010                                       |  | 1,900,000         |   |   | 1,156,165        |  
|Revaluation credited to operations                           |  | -                 |   |   | (505,305         | )
|Balance, September 30, 2010                                  |  | 1,900,000         |   |   | 650,860          |  
|Revaluation credited to operations                           |  | -                 |   |   | (129,655         | )
|Balance, December 31,
      2010                             |  | 1,900,000         |   | $ | 521,205          |  

The Series A Convertible Preferred Stock was valued based on
the trading price of the Companys common stock. The warrants were valued using
the Black-Scholes option pricing model with a 100% expected volatility
assumption regarding the trading price of the Companys common stock.

Critical Accounting Policies and Estimates

In Note 2 to the audited consolidated financial statements for
the years ended December 31, 2010 and 2009 included in our annual report filed
with SEC, the Company discusses those accounting policies that are considered to
be
significant in determining the results of operations and its financial position. The Company believes that the accounting principles utilized by it conform to accounting principles generally accepted in the United States of America. The Company
applies the following critical accounting policies related to revenue recognition in the preparation of its financial statements.

24

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General

The Companys Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles, which require management to make estimates, judgments and assumptions that affect the reported amounts of assets,
liabilities, net revenue and expenses, and the disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates
with the Board of Directors. Management believes that the accounting estimates employed and the resulting balances are reasonable; however, actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition

Sales of products are recognized when title to the product and risk of loss transfer to the customer (which depends on the customer) provided that: there are no uncertainties regarding customer acceptance; persuasive evidence of an arrangement
exists; the sales price is fixed or determinable; and collectibility is deemed probable. Sales terms provide for passage of title either at the time shipment is made or at the time of the delivery of product and generally do not include any customer
right of return. Shipping and handling costs are included as a component of cost of sales.

Fair Value of Financial Instruments

In connection with the determination of estimated liability for equity-based financial instruments with characteristics of liabilities (see Note 11 to consolidated financial statements), the Company used the Black-Scholes option pricing model and
the following assumptions: expected volatility of 100%, and risk-free interest rate of 2%.

Foreign Currency Translation

The consolidated financial statements of the Company are translated pursuant to Accounting Standard Codification (ASC) 830, Foreign Currency Matters. The Companys subsidiaries, Harbin Hainan Kangda and Guangdong Taishan
Kangda, are located and operate in China. The Chinese Yuan is the functional currency. The financial statements of China Kangtai are translated to U.S. dollars using period-end exchange rates for assets and liabilities, and average exchange rates
for revenues, costs and expenses. Translation adjustments are recorded in accumulated other comprehensive income as a component of stockholders equity. Transaction gains or losses arising from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the consolidated results of operations.

Recently Adopted Accounting Standards

In February 2010, the Company adopted an amendment to previously adopted accounting guidance on subsequent event disclosure, which established standards of accounting for and disclosure of events or transactions that occur after the balance sheet
date but before financial statements are issued or available to be issued. Under the amended guidance, the Company is no longer required to disclose the date through which subsequent events have been evaluated. The adoption of this requirement did
not have a material impact on the Companys financial condition or results of operations.

We adopted the accounting principles established by ASU 2009-17, Consolidations: Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, effective January 1, 2010. This ASU requires an
ongoing reassessment and replaces the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a variable interest entity (VIE) with a primarily qualitative
analysis. The qualitative analysis is based on identifying the party that has both the power to direct the activities that most significantly impact the VIEs economic performance (the power criterion) and the obligation to absorb
losses from or the right to receive benefits of the VIE that could potentially be significant to the VIE (the losses/benefit criterion). The party that meets both these criteria is deemed to have a controlling financial interest. The
party with the controlling financial interest is considered to be the primary beneficiary and as a result is required to consolidate the VIE. The adoption of this new guidance did not have a material effect on our financial statements.

25

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Recently Issued Accounting Standards

In January 2010, the Financial Accounting Standards Board issued guidance which expands the required disclosures about fair value measurements. This guidance requires disclosures about transfers of investments between levels in the fair value
hierarchy and disclosures relating to the reconciliation of fair value measurements using significant unobservable inputs (level 3 investments). This guidance is effective for the Company as of January 1, 2011. The adoption of this guidance will not
have a material impact on its financial condition or results of operations.

In April 2010, the FASB issued ASU 2010-13, Compensation-Stock Compensation (Topic 718) - Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades - a
consensus of the FASB Emerging Issues Task Force, or ASU 2010-13. ASU 2010-13 provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a
substantial portion of the entitys equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it
otherwise qualifies as equity. The amendments in this update do not expand the recurring disclosures required by Topic 718. Disclosures currently required under Topic 718 are applicable to a share-based payment award, including the nature and the
term of share-based payment arrangements. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The adoption of this guidance will not have a material
impact on its financial condition or results of operations.

Certain other accounting pronouncements have been issued by the FASB and other standard setting organizations which are not yet effective and have not yet been adopted by the Company. The impact on the Companys financial position and results
of operations from adoption of these standards is not expected to be material.

Off-Balance Sheet Arrangements

We have never entered into any off-balance sheet financing arrangements and have never established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Required.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA

The information required by this Item is incorporated by reference to the financial statements beginning on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

26

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ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure controls and Procedures

An evaluation was carried out under the supervision and with the participation of the Companys management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the
Companys disclosure controls and procedures as of December 31, 2010 which was designed to provide reasonable assurance. Based on that evaluation, the CEO and CFO have concluded that the Companys disclosure controls and procedures are
effective to provide reasonable assurance that: (i) information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Companys management,
including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure by the Company; and (ii) information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. During the year ended December 31, 2010, there were no changes in the Companys internal control over
financial reporting that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

Managements Annual Report On Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the company in accordance with as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over
financial reporting is designed to provide reasonable assurance regarding the (i) effectiveness and efficiency of operations, (ii) reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles, and (iii) compliance with applicable laws and regulations. Our internal controls framework is based on the criteria set forth in the Internal Control -Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Managements assessment of the effectiveness of the small business issuers
internal control over financial reporting is as of the year ended December 31,
2010. We believe that internal control over financial reporting is effective. We
have not identified any current material weaknesses considering the nature and
extent of our current operations and any risks or errors in financial reporting
under current operations.

This annual report does not include an attestation report of the Companys registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the Companys
registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permits us to provide only managements report in this annual report.

ITEM 9B. OTHER INFORMATION

None.

27

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.

The directors and executive officers currently serving the Company are as follows:

|Name          | Age | Positions Held                                                                 
|------------- | --- | -------------------------------------------------------------------------------
|Jinjiang Wang | 62  | President, Chief Executive
      Officer and Chairman of the Board of Directors
|Chengzhi Wang | 41  | General Manager and a Director                                                 
|Hong Bu       | 37  | Chief Financial Officer and a
      Director                                   
|Jiping Wang   | 50  | Director                                                                       
|Song Yang     | 37  | Director                                                                       

The directors named above will serve until the next annual
special meeting of the Companys stockholders. Thereafter, directors will be
elected for one-year terms at the annual stockholders meeting. Officers will
hold their positions at the pleasure of the board of directors, absent any
employment agreement, of which none currently exists or is contemplated. There
is no arrangement or understanding between any of the directors or officers of
the Company and any other person pursuant to which any director or officer was
or is to be selected as a director or officer.

The directors and officers will devote their time to the
Companys affairs on an as needed basis, which, depending on the
circumstances, could amount to as little as two hours per month, or more than
forty hours per month, but more than likely will fall within the range of five
to ten hours per month. All of the Companys officers are full time employees of
the Company.

Biographical Information

Jinjiang Wang was appointed as the Chairman of the Board,
President and Chief Executive Officer of CKGT on June 3, 2005 and appointed a
director of CKGT on July 22, 2005. Since 1998 Mr. Wang has served as a director
and Chairman of the board of the Companys subsidiary, Harbin Hainan Kangda. Mr.
Wang was born in the Heilongjiang Province of the P.R.C. Mr. Wang graduated from
Northeast Agricultural University with a degree in Agriculture & Forest
Engineering. Mr. Wang has over 20 years of experience in management, production
development and sales. He is a founder of Harbin Hainan Kangda and a pioneer of
the now established edible cactus trade of China.

Chengzhi Wang was appointed as the General Manager CKGT on June
3, 2005 and appointed a director of CKGT on July 22, 2005. Mr. Wang also serves
as a director and general manager of the Companys subsidiary, Harbin Hainan
Kangda and has held these positions since 1998. Mr. Wang was born in
Heilongjiang Province of the P.R.C. Mr. Wang graduated from Architectonics
Department of Harbin Institute of Technology with an engineer degree. Mr. Wang
has over five years experience in management, production and sales. Mr. Wang is
a founder of Harbin Hainan Kangda and a pioneer in the edible cactus trade of
the P.R.C.

Hong Bu was appointed as Chief Financial Officer of CKGT on
June 3, 2005 and appointed a director of CKGT on July 22, 2005. From 1998 to
2005 Ms. Bu served as senior accountant of Harbin Hainan Kangda. Ms. Bu
graduated with a degree in Finance from the Finance and Economics Institute of
Harbin. She is a CPA (certified public accountant). Ms. Bu has over five years
of experience as Harbin Hainan Kangdas senior accountant. Ms. Bu was a founder
of Harbin Hainan Kangda and a pioneer in the edible cactus trade of the
P.R.C.

Jiping Wang was appointed as a director of CKGT on July 22,
2005. Since 1979 Ms. Wang has served as an officer of Heilongjian Food Control
and Drought Prevention Center. Ms. Wang was born in Heilongjiang Province;
P.R.C. Ms. Wang graduated from the Economic Managerial Cadres Institute of
Harbin.

Song Yang was appointed as a director of CKGT on July 22, 2005.
Ms. Yang has over 15 years of experience in the Government Administrative
Department. From 2000 to 2004 Ms. Yang served as a financing manager of
Heilongjian Securities Corporation. Ms. Yang was a founder of Harbin Hainan
Kangda and a pioneer in the edible cactus trade of the P.R.C. Ms. Yang has not
served as an officer and director of any other public companies over the last
five years.

28

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Board Leadership Structure

The Board of Directors believes that Mr. Wangs service as both Chairman of the Board and Chief Executive Officer is in the best interest of the Company and its stockholders. Mr. Wang possesses detailed and in-depth knowledge of the issues,
opportunities and challenges facing the Company and its business and is thus best positioned to develop agendas that ensure that the Boards time and attention are focused on the most critical matters. His combined role enables decisive
leadership, ensures clear accountability, and enhances the Companys ability to communicate its message and strategy clearly and consistently to the Companys shareholders, employees, customers and suppliers.

Family Relationships

Our Chairman, President and CEO, Mr. Jinjiang Wang is the father of our General Manager, Mr. Chengzhi Wang and our CFO Ms. Hong Bu is the wife of Mr. Chengzhi Wang and daughter in law of Mr. Jinjiang Wang. Other than the relationships described
above, there are no family relationships between or among any of our current directors, executive officers or persons nominated or charged by the Company to become directors or executive officers.

Involvement in Certain Legal Proceedings

None of our directors or executive officers, during the past ten years:

|a) | Had any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;                                                                                                                                                          
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                    
|b) | Has been convicted in a criminal proceeding or subject to a pending criminal proceeding;                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                    
|c) | Has been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or any federal or state authority, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities or banking activities; and
|   |                                                                                                                                                                                                                                                                                                                                                                    
|d) | Has been found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the
judgment has not been reversed, suspended, or vacated.                                                                      

Board Committees

The board of directors has established an audit committee. The audit committee is comprised of Jinjiang Wang and Chengzhi Wang. The audit committee has yet to adopt a definitive charter though it typically reviews, acts on, and reports to the board
of directors with respect to various auditing and accounting matters. The matters typically considered by CKGTs audit committee include recommendations as to the performance of its independent auditors, the scope of the annual audits, fees to
be paid to the independent auditors, and internal accounting and financial control policies and procedures. Certain stock exchanges currently require companies to adopt a formal written charter that establishes an audit committee that specifies the
scope of an audit committees responsibilities and the means by which it carries out those responsibilities. We do not have a financial expert serving on our audit committee.

In order to be listed on a stock exchange, CKGT would be required to adopt a definitive charter for its audit committee. The board of directors has not yet established a compensation committee or a nominating committee.

Compliance with Section 16(a) of the Exchange Act.

Section 16(a) of the Securities Exchange Act of 1934 requires the Companys executive officers and directors, and persons who own more that 10% of the Companys capital stock, to file reports of ownership and changes of ownership on Forms
3, 4 and 5 with the Securities and Exchange Commission. Executive officers, directors and greater than 10% shareholders are required to furnish the Company with copies of all Forms 3, 4 and 5 they file.

29

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In 2010, Jinjiang Wang, the President, CEO and a director, and
Song Yang, a director of the Company gifted a total of 428,572 and 600,000
shares, respectively to members of the Company's management team. The beneficial
ownership changes as a result of these two transactions have not been reported
under Form 4 or Form 5 as required by Section 16 of the Exchange Act.

Code of Ethics

CKGT has adopted a Code of Ethics within the meaning of Item
406(b) of Regulation S-B of the Securities Exchange Act of 1934. The Code of
Ethics applies to directors and senior officers, such as the principal executive
officer, principal financial officer, controller, and persons performing similar
functions. CKGT has filed a copy of its Code of Ethics as Exhibit 14 to its Form
10-KSB for the fiscal year ended 2003. Further, CKGTs Code of Ethics is
available in print, at no charge, to any security holder who requests such
information by contacting CKGT.

ITEM 11. EXECUTIVE COMPENSATION.

The following table provides summary compensation information
for the years 2010 and 2009 concerning cash and non-cash compensation paid or
accrued by the Company to or on behalf of the chief executive officer:

|                   |      |         |       |          |              |                  | Change in     |              |        
|------------------ | ---- | ------- | ----- | -------- | ------------ | ---------------- | ------------- | ------------ | -------
|                   |      |         |       |          |              |                  | Pension       |              |        
|                   |      |         |       |          |              | Non-Equity       | Value and     |              |        
|                   |      |         |       |          |              | Incentive        | Non-qualified |              |        
|                   |      |         |       | Stock    | Option       | Plan             | Compensation  | All other    |        
|Name and Principal |      | Salary  | Bonus | Award(s) | **Award(s)** | **Compensation** | Earnings      | Compensation | Total  
|Position           | Year | ($)(1)  | ($)   | ($)      | ($)          | ($)              | ($)           | ($)          | ($)    
|Jinjiang Wang,     | 2010 | $32,358 | -     |          | -            | -                | -             | -            | $32,358
|President, Chief   |      | $17,556 |       |          | -            |                  |               |              | $17,556
|Executive          | 2009 |         | -     |          |              | -                | -             | -            |        
|Officer and        |      |         |       |          |              |                  |               |              |        
|Chairman           |      |         |       |          |              |                  |               |              |        
|Chengzhi Wang,     | 2010 | $26,336 | -     |          | -            | -                | -             | -            | $26,336
|General Manager    | 2009 | $14,045 | -     |          | -            | -                | -             | -            | $14,045
|Hong Bu,           | 2010 | $26,336 | -     |          | -            | -                | -             | -            | $26,336
|Chief Financial    |      | $14,045 |       |          | -            |                  |               |              | $14,045
|Officer            | 2009 |         | -     |          |              | -                | -             | -            |        

(1) Converted from RMB at the exchange rate of
1RMB=US$0.1463

No executive officer received compensation in excess of
$100,000 during the fiscal years ended December 31, 2010 and 2009. In addition,
members of the Board of Directors did not receive compensation for their
services during the fiscal years ending December 31, 2010 and 2009.

Director Compensation

Directors currently are not reimbursed for out-of-pocket costs
incurred in attending meetings and no director receives any compensation for
services rendered as a director. CKGT does not anticipate adopting a provision
for compensating directors in the future.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth, as of March 24, 2011, the
number of shares of Common Stock owned of record and beneficially by executive
officers, directors and persons who hold 5.0% or more of the outstanding Common
Stock of the Company. Also included are the shares held by all executive
officers and directors as a group.

30

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|Title of Class         | Name and Address of Owner                                   | Amount and Nature of Ownership | Percent of Class(1)
|---------------------- | ----------------------------------------------------------- | ------------------------------ | -------------------
|Executive Officers and |                                                             |                                |                    
|Directors              |                                                             |                                |                    
|Common Stock           | Jinjiang Wang                                               |                                |                    
|                       | The 4th Group, 21st Residents                              |                                |                    
|                       | Committee Xinhua Street, Boli Town,                         |                                |                    
|                       | Boli County Heilongjiang Province P.R.C.                    | 4,372,818 Direct(2)            | 19.6%              
|Common Stock           | Chengzhi Wang                                               |                                |                    
|                       | No. 98 Xiangshun Street                                     |                                |                    
|                       | Xiangfang District, Harbin, P.R.C.                          | 3,892,970 Direct               | 17.5%              
|Common Stock           | Hong Bu                                                     |                                |                    
|                       | No. 99 Taibei Road                                          |                                |                    
|                       | Limin Economy and Technology                                |                                |                    
|                       | Developing District, Harbin, P.R.C.                         | 750,046 Direct                 | 3.3%               
|Common Stock           | Jiping Wang                                                 |                                |                    
|                       | No. 99 Taibei Road                                          |                                |                    
|                       | Limin Economy and Technology                                |                                |                    
|                       | Developing District, Harbin, P.R.C.                         | 700,734 Direct                 | 3.1%               
|Common Stock           | Song Yang                                                   |                                |                    
|                       | No. 99 Taibei Road                                          |                                |                    
|                       | Limin Economy and Technology                                |                                |                    
|                       | Developing District, Harbin, P.R.C.                         | 126,688 Direct                 | *                  
|Common Stock           | All Directors and Executive Officers as a Group (5 persons) | 9,843,256 Direct               | 44.1%              
|5% Holder              |                                                             |                                |                    
|Common Stock           | T Squared Investments LLC                                   |                                |                    
|                       | 1325 Sixth Avenue, Floor 28                                 |                                |                    
|                       | New York, NY 10019                                          | 1,850,000 Direct(3)            | 8.2%               
|                       |                                                             |                                |                    
|*Less than 1%          |                                                             |                                |                    

(1) Applicable percentage ownership is based on 22,305,527
shares of common stock outstanding as of March 24, 2011 together with securities
exercisable or convertible into shares of common stock within 60 days of March
24, 2011 for each stockholder. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission and generally includes
voting or investment power with respect to securities. Shares of common stock
that are currently exercisable or exercisable within 60 days March 24, 2011 are
deemed to be beneficially owned by the person holding such securities for the
purpose of computing the percentage of ownership of such person, but are not
treated as outstanding for the purpose of computing the percentage ownership of
any other person.

(2) Jinjiang Wang has been the President of the Company since
June 3, 2005. He has been and is the President of Harbin Hainan Kangda since
2000. Jinjiang Wang acquired 165,182 shares of the Company pursuant to the
Reorganization Agreement on June 3, 2005. A day after the Reverse Split on
August 26, 2005, the Convertible Note was converted by its holders(s) into
14,248,395 shares of the Company and Mr. Jinjiang Wang acquired 4,207,636 shares
from 14,248,395 shares of the Company.

(3) 1,850,000 shares of common stock are issuable upon the
exercise of warrants which are immediately exercisable. Pursuant to the
Preferred Stock Purchase Agreements and Common Stock Purchase Warrants by and
between the Company and the T Squared Investments LLC (T Squared) dated March
21, 2008 and July 16, 2008, T Squared is not entitled to exercise any warrant
which will result in beneficial ownership by T Squared and its affiliates of
more than 4.9% of the outstanding shares of the Companys common stock.

31

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ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE.

There are no transactions to which the Company was or is a
party in which the amount involved exceeds $120,000 and in which any director,
executive officer, five percent stockholder or any member of the immediate
family or any of the foregoing persons had or will have a direct or indirect
material interest.

The Board of Directors has determined that none of the
Companys current directors are independent directors within the meaning set
forth in the rules of NASDAQ as currently in effect.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

Our registered independent public accounting firm is Michael T.
Studer, C.P.A., P.C. The fees billed by Michael T. Studer, C.P.A., P.C. in 2010
and 2009 were as follows:

|                                         |   | 2010   |  |   | 2009    | 
|---------------------------------------- | - | ------ |  | - | ------- | 
|Audit Fees                               | $ | 94,000 |  | $ | 102.218 | 
|Audit-Related Fees                       |   | --     |  |   | --      | 
|Total Audit and Audit-Related Fees       | $ | 94,000 |  | $ | 102,218 | 
|Tax Fees                                 |   | --     |  |   | --      | 
|All Other Fees                           |   | --     |  |   | --      | 
|Total for independent public audit firms | $ | 94,000 |  | $ | 102,218 | 

Tax Fees

The aggregate fees billed by P. C. Liu, CPA, P.C. for tax
compliance, tax advice and tax planning were $1500 for the fiscal years ended
December 31, 2010 and $1500 for the fiscal years ended December 31, 2009.

Audit Committee Pre-Approval

The Company's Audit Committee pre-approved the engagement of
Michael T. Studer, C.P.A., P.C. to act as its independent auditor for the fiscal
year ended December 31, 2010. The Company's Audit Committee also pre-approved
Michael T. Studer, C.P.A., P.C. to provide the audit, audit related services,
and all other services described above for the fiscal year ended December 31,
2010. The Company's board of directors also pre-approved P. C. Liu, C.P.A, P.C.
to provide the tax services for the fiscal period ended December 31, 2010.

PART IV.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The Exhibits listed below are filed as part of this Annual
Report.

|3.1  | Articles of Incorporation (incorporated by reference from
      Registration Statement on Form SB-2/A filed with the Securities and
      Exchange Commission on October 18, 2000).                                                                                                                                 
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.2  | Amended Articles of Incorporation (incorporated by
      reference to the Form 10QSB filed with the Securities and Exchange
      Commission on November 3, 2003)                                                                                                                                                   
|3.3  | Amended and Restated Articles of Incorporation
      (incorporated by reference to the Form 10KSB filed with the Securities and
      Exchange Commission April 17, 2006.                                                                                                                                           
|3.4  | Bylaws (incorporated by reference from Registration
      Statement on Form SB-2/A filed with the Securities and Exchange Commission
      on October 18, 2000).                                                                                                                                                    
|3.5  | Certificate of Designations of Preferences, Rights and
      Limitations of Series A Convertible Preferred Stock as filed with the
      Secretary of State of Nevada on March 21, 2008 (incorporated by reference
      to the From 8-K filed with the Securities and Exchange Commission on March
      27, 2008).
|3.6  | First Amended and Restated Certificate of Designations of
      Preferences, Rights and Limitations of Series A Convertible Preferred
      Stock as filed with the Secretary of State of Nevada on July 16, 2008.
      (incorporated by reference to the Form 8-K filed on July 21,
  2008)                       
|10.1 | Distribution Agreement Between China Kangtai Cactus
      Bio-tech, Inc and Hunan Tianxiang Trading Company, Ltd (incorporated by
      reference to the Form 10QSB filed with the Securities and
  Exchange Commission on November 19, 2007).                                                                      

32

---

|10.2   | Distribution Agreement Between China Kangtai
      Cactus Bio-tech, Inc and Jinan Qitai Economic and Trading Center
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on November 19, 2007).                 
|------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.3   | Distribution Agreement Between
      China Kangtai Cactus Bio-tech, Inc and Lanzhou Xinhui Economic and Trading
      Company, Ltd. (incorporated by reference to the Form 10QSB filed with the
      Securities and Exchange Commission on November 19, 2007).       
|10.4   | Distribution Agreement Between China Kangtai
      Cactus Bio-tech, Inc and Qingdao Furui Economic and Trading Company, Ltd.
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on November 19, 2007).        
|10.5   | Distribution Agreement Between
      China Kangtai Cactus Bio-tech, Inc and Shanxi Anyang Food Distribution
      Company (incorporated by reference to the Form 10QSB filed with the
      Securities and Exchange Commission on November 19, 2007).                 
|10.6   | Processing Agreement dated January 8, 2006,
      between the Company and Shandong Tsingtao Beer Inc. Harbin subsidiary
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on May 16, 2007).                  
|10.7   | Processing Agreement dated
      January 20, 2006, between the Company and Harbin Ice Lantern Noodle
      Factory (incorporated by reference to the Form 10QSB filed with the
      Securities and Exchange Commission on May 16, 2007).                             
|10.8   | Processing Agreement dated March 30, 2005,
      between the Company and Harbin Diwang Pharmacy Co. Ltd. (incorporated by
      reference to the Form 10QSB filed with the Securities and Exchange
      Commission on May 16, 2007).                                 
|10.9   | Processing Agreement dated July
      10, 2005, between the Company and Harbin Bin County HuaLan Dairy Factory
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on May 16, 2007).                           
|10.10  | Processing Agreement dated March 2, 2006,
      between the Company and Kangwei Health Foods Ltd. Of Mudanjiang City
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on May 16, 2007).                     
|10.11  | Distributions Agreement dated
      February 15, 2007, with Jilin Yanji Economic and Trading Company, Ltd.
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on May 16, 2007).                               
|10.12  | Distributions Agreement dated January 16, 2007,
      with Liaoning Shenneng Trading and Development Ltd. (incorporated by
      reference to the Form 10QSB filed with the Securities and Exchange
      Commission on May 16, 2007).                                
|10.13  | Distributions Agreement dated
      February 9, 2007, with Jianshuang Zhang - Hubei (incorporated by reference
      to  the Form 10QSB filed with the Securities and Exchange
      Commission on May 16, 2007).                                                     
|10.14  | Distributions Agreement, dated February 3,
      2007, with Hunan Green Food Distribution Company, Ltd. (incorporated by
      reference to the Form 10QSB filed with the Securities and Exchange
      Commission on May 16, 2007).                                  
|10.15  | Distributions Agreement dated
      January 29, 2007, with Harbin Huadingwei Trading Company, Ltd.
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on May 16, 2007).                                       
|10.16  | Distributions Agreement dated February 6, 2007,
      with Hangzhou Hesheng Economic and Trading Company, Ltd. (incorporated by
      reference to the Form 10QSB filed with the Securities and Exchange
      Commission on May 16, 2007).                           
|10. 17 | Distributions Agreement dated
      January 16, 2007, with Guangdong Jinpei Lin (incorporated by reference to
      the Form 10QSB filed with the Securities and Exchange Commission on May
      16, 2007).                                                          
|10.18  | Distributions Agreement dated
      January 9, 2007, with Fujian Tianyi Economic and Trading Company Ltd
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on May 16, 2007).                                 
|10. 19 | Distributions Agreement, Dated
      January 20, 2007, With Beijing Yaping Liu (incorporated by reference to
      the Form 10QSB filed with the Securities and Exchange Commission on May
      16, 2007).                                                           
|10. 20 | Cooperation Agreement between
      Harbin Hainan Kangda Cactus Hygienical Foods Co., Ltd and Party B: Harbin
      Meijia Bio-Tech Co., Ltd. dated October 8, 2007.                                                                                                  
|10.21  | Contract of Termination of
      Lease, dated January 10, 2006, by and between the Company and the Lijia
      Village, Tongling Town Jixi City (incorporated by reference to the Form
      10QSB filed with the Securities and Exchange Commission on May 15, 2006).

33

---

|10.22 | Contract of Termination of Lease, dated January
      18, 2006, by and between the Company and Lindian Cactus Farming Base
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on May 15, 2006).                      
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.23 | Contract of Termination of
      Lease, dated January 9, 2006, by and between the Company and the Qiqihar
      Angangxi Green Park (incorporated by reference to the Form 10QSB filed
      with the Securities and Exchange Commission on May 15, 2006).                   
|10.24 | Contract of Termination of Lease, dated January
      13, 2006, by and between the Company and the Beian Huashengnongfeng
      Planting Base (incorporated by reference to the Form 10QSB filed with the
      Securities and Exchange Commission on May 15, 2006).         
|10.25 | Contract of Termination of
      Lease, dated January 6, 2006, by and between the Company and the Hongqi
      Jinxing Planting Base (incorporated by reference to the Form 10QSB filed
      with the Securities and Exchange Commission on May 15, 2006).                  
|10.26 | Contract of Termination of Lease, dated January
      17, 2006, by and between the Company and the Hailin Luming Planting Base
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on May 15, 2006).                  
|10.27 | Contract of Termination of
      Lease, dated January 5, 2006, by and between the Company and the Dalian
      River Planting Base (incorporated by reference to the Form 10QSB filed
      with the Securities and Exchange Commission on May 15, 2006).                    
|10.28 | Contract of Termination of Lease, dated January
      23, 2006, by and between the Company and the Wanbao Planting Base
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on May 15, 2006).                         
|10.29 | Transfer Agreement for
      Greenhouse, dated January 13, 2006, by and between the Company and the
      Lijia Village, Tongling Town Jixi City (incorporated by reference to the
      Form 10QSB filed with the Securities and Exchange Commission on May 15,
      2006).
|10.30 | Transfer Agreement for Greenhouse, dated
      January 18, 2006, by and between the Company and the Lindian Cactus
      Farming Base. (incorporated by reference to the Form 10QSB filed with the
      Securities and Exchange Commission on May 15, 2006).                
|10.31 | Transfer Agreement for
      Greenhouse, dated January 9, 2006, by and between the Company and the
      Qiqihar Angangxi Green Park (incorporated by reference to the Form 10QSB
      filed with the Securities and Exchange Commission on May 15, 2006).                  
|10.32 | Transfer Agreement for Greenhouse, dated
      January 11, 2006, by and between the Company and the Beian
      Huashengnongfeng Planting Base (incorporated by reference to the Form
      10QSB filed with the Securities and Exchange Commission on May 15, 2006).        
|10.33 | Transfer Agreement for
      Greenhouse, dated January 6, 2006, by and between the Company and the
      Hongqi Jinxing Planting Base (incorporated by reference to the Form 10QSB
      filed with the Securities and Exchange Commission on May 15, 2006).                 
|10.34 | Transfer Agreement for Greenhouse, dated
      January 17, 2006, by and between the Company and the Hailin Luming
      Planting Base (incorporated by reference to the Form 10QSB filed with the
      Securities and Exchange Commission on May 15, 2006).                 
|10.35 | Transfer Agreement for
      Greenhouse, dated January 5, 2006, by and between the Company and the
      Dalian River Planting Base (incorporated by reference to the Form 10QSB
      filed with the Securities and Exchange Commission on May 15, 2006).                   
|10.36 | Transfer Agreement for Greenhouse, dated
      January 23, 2006, by and between the Company and the Wanbao Planting Base
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on May 15, 2006).                        
|10.37 | Transfer Agreement for
      Greenhouse, dated January 24, 2006, by and between the Company and the
      Daqing Ranghulu Hi-tech Zone (incorporated by reference to the Form 10QSB
      filed with the Securities and Exchange Commission on May 15, 2006).                
|10.38 | Preferred Stock Purchase Agreement dated as of
      March 21, 2008 by and between the Company and T Squared Investments LLC
      (incorporated by reference to the From 8-K filed with the Securities and
      Exchange Commission on March 27, 2008).                    
|10.39 | Registration Rights Agreement
      dated as of March 21, 2008 by and between the Company and the Investors
      named therein (incorporated by reference to the From 8-K filed with the
      Securities and Exchange Commission on March 27, 2008).                       
|10.40 | Common Stock Purchase Warrant A (incorporated
      by reference to the From 8-K filed with the Securities and Exchange
      Commission on March 27, 2008).                                                                                                               

---

|10.41 | Common Stock
      Purchase Warrant B (incorporated by reference to the From 8-K filed with
      the Securities and Exchange Commission on March 27, 2008).                                                                                                                                                           
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.42 | Form of Preferred Stock Purchase
      Agreement dated as of July 16, 2008 by and between the Company and T
      Squared Investments LLC. (incorporated by reference to the Form 8-K filed
      on July 21, 2008)                                                                                                      
|10.43 | Common Stock
      Purchase Warrant A (incorporated by reference to the Form 8-K filed on
      July 21, 2008)                                                                                                                                                                                                         
|10.44 | Common Stock Purchase Warrant B
      (incorporated by reference to the Form 8-K filed on July 21,
    2008)                                                                                                                                                                                                           
|10.45 | Asset Purchase
      Agreement dated as of March 25, 2009, between Harbin Hainan Kangda Cactus
      Health Food Co., Ltd., a wholly owned subsidiary of China Kangtai Cactus
      Bio-Tech, Inc., and Qitaihe Kangwei Biotechnology Co., Ltd. (incorporated
      by reference to the Form 8-K filed on March 30, 2009)
|10.46 | Form of Common Stock Purchase
      Agreement by and between China Kangtai Cactus Bio-Tech, Inc. and Seaside
      88, LP, dated as of November 5, 2009 (incorporated by reference to the
      Form 8-K filed on November 9, 2009)                                                                                      
|10.47 | Agreement by and
      between Harbin Hainan Kangda Cactus Health Food Co., Ltd. and City of
      Qitaihe, China dated January 27, 2010 (incorporated by reference to the
      Form 8-K filed on January 28, 2010)                                                                                                     
|10.48 | Termination Agreement by and
      between China Kangtai Cactus Bio-Tech, Inc. and Seaside 88, LP dated April
      30, 2010 (incorporated by reference to the Form 8-K filed on May 3, 2010)                                                                                                                            
|10.49 | Asset Purchase
      Agreement by and between Raoping County Dadi Tobacco Trade Center and
      Harbin Hainan Kangda Cacti Hygienical Foods Co., Ltd. dated June 28, 2010
      (incorporated by reference to the Form 8-K filed on July 2, 2010)                                                                       
|10.50 | Investment Agreement by and
      between China Kangtai Cactus Bio-Tech, Inc. and Kodiak Capital Group, LLC
      dated July 9, 2010 (incorporated by reference to Form 8-K filed on July
      13, 2010)                                                                                                                
|10.51 | Registration
      Rights Agreement by and between China Kangtai Cactus Bio-Tech, Inc. and
      Kodiak Capital Group, LLC dated July 9, 2010 (incorporated by reference to
      Form 8-K filed on July 13, 2010)                                                                                                       
|10.52 | Asset Purchase Agreement of Land
      Use Right by and between The Peoples Government and Baishea Town Taishan
      City and Harbin Hainan Kangda Cacti Hygiencial Foods Co., Ltd. dated
      August 25, 2009 (incorporated by reference on Form S-1 filed on July 30,
      2010)                                   
|10.53 | Patent Transfer
      Agreement of Land Use Right by and between The Peoples Government and
      Baishea Town Taishan City and Harbin Hainan Kangda Cacti Hygiencial Foods
      Co., Ltd. dated August 25, 2009 (incorporated by reference on Form S-1
      filed on July 30, 2010)                                  
|10.54 | Contract of Employment between
      China Kangtai Biotech Inc. and Chengzhi Wang dated June 3, 2010
      (incorporated by reference on Form S-1 filed on July 30, 2010)                                                                                                                                                
|10.55 | Contract of
      Employment between China Kangtai Biotech Inc. and Hong Bu dated June 3,
      2010 (incorporated by reference on Form S-1 filed on July 30, 2010)                                                                                                                                                      
|21.1  | List of Subsidiaries (incorporated
      by reference to the Form 10-KSB filed on April 15, 2008)                                                                                                                                                                                                                        
|23.1  | Consent of
      Independent Registered Public Accounting Firm dated August 26, 2010
      (incorporated by reference on Form S-1/A filed on July 30, 2010)                                                                                                                                                              
|23.2  | Consent of Independent Registered
      Public Accounting Firm dated July 30, 2010 (incorporated by reference on
      Form S-1 filed on August 27, 2010)                                                                                                                                                                
|31.1* | Certification
      of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a)
      under the SecuritiesExchange Act of 1934, as amended and adopted
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                       
|31.2* | Certification of the Chief
      Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the
      SecuritiesExchange Act of 1934, as amended and adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                       
|32.1* | Certification
      of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as
      adopted pursuant to Section906 of the Sarbanes-Oxley Act of
      2002.                                                                                                                                                   
|32.2* | Certification of the Chief
      Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to Section906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                        

* Filed Herewith

---

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

CHINA KANGTAI CACTUS BIO-TECH INC.

|By:/s/ Jinjiang Wang | President (CEO) and a Director and Principal
      Executive Officer
|-------------------- | --------------------------------------------------------------------
|Jinjiang Wang        |                                                                     
|Date: July 23, 2012  |                                                                     



|By: /s/ Hong Bu       | Chief Financial Officer and a Director and
      Principal Financial
|--------------------- | --------------------------------------------------------------------
|Hong Bu               | and Accounting Officer                                              
|Date: : July 23, 2012 |                                                                     

In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|By:/s/ Jinjiang Wang | President (CEO) and a Director and Principal
      Executive Officer
|-------------------- | --------------------------------------------------------------------
|Jinjiang Wang        |                                                                     
|Date: July 23, 2012  |                                                                     

|                      |                                                                     
|--------------------- | --------------------------------------------------------------------
|By:/s/ Chengzhi Wang  | General Manager and a Director                                      
|Chengzhi Wang         |                                                                     
|Date: : July 23, 2012 |                                                                     
|                      |                                                                     
|By: /s/ Hong Bu       | Chief Financial Officer and a Director and
      Principal Financial
|Hong Bu               | and Accounting Officer                                              
|Date: : July 23, 2012 |                                                                     
|                      |                                                                     
|By:/s/ Jiping Wang    | Director                                                            
|Jiping Wang           |                                                                     
|Date: July 23, 2012   |                                                                     
|                      |                                                                     
|By: /s/ Song Yang     | Director                                                            
|Song Yang             |                                                                     
|Date: : July 23, 2012 |                                                                     

36

---

|Index to Financial Statements                                                                                  
|---------------------------------------------------------------------------------------------------------------
|                                                                                                               
|Report of Independent Registered Public
      Accounting Firm                                                  
|Consolidated Balance Sheets as of December 31, 2010 and
      2009                                             
|Consolidated Statements of Income and
      Comprehensive Income for the years ended December 31, 2010 and 2009
|Consolidated Statements of Stockholders' Equity for the
      years ended December 31, 2010 and 2009           
|Consolidated Statements of Cash Flows for
      the years ended December 31, 2010 and 2009                     
|Notes to Consolidated Financial Statements                                                                     

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of China Kangtai
Cactus Bio-Tech Inc.

I have audited the accompanying consolidated balance sheets of
China Kangtai Cactus Bio-Tech Inc. and subsidiaries (the Company) as of
December 31, 2010 and 2009 and the related consolidated statements of income and
comprehensive income, stockholders equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Companys
management. My responsibility is to express an opinion on these financial
statements based on my audits.

I conducted my audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that I plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. I believe that my
audits provide a reasonable basis for my opinion.

In my opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
China Kangtai Cactus Bio-Tech Inc. and subsidiaries as of December 31, 2010 and
2009 and the results of their operations and cash flows for the years then ended
in conformity with accounting principles generally accepted in the United
States.

As discussed in Note 20 to the consolidated financial
statements, the Company restated its consolidated financial statements for the
years ended December 31, 2010 and 2009.

/S/ Michael T. Studer CPA P.C.Michael T. Studer CPA P.C.

Freeport, New York

March 31, 2011 (except as to Note 20, which is dated as of July
23, 2012)



F-1

---

|China Kangtai Cactus Bio-Tech Inc.
      and Subsidiaries Consolidated Balance Sheets As of December 31,
      2010 and 2009                                                                               
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                           
|                                                                                                                                                                                                           
|                                                                                                                                                                                                           
|ASSETS                                                                                                                                                                                                     
|Current Assets                                                                                                                                                                                             
|Cash and cash equivalents                                                                                                                                                                                  
|                                                                                                                                                                                                           
|Accounts receivable, net of reserve for allowances, returns and
      doubtful accounts of $0 and $0,                 respectively (as
      restated in 2010 and 2009 - see Note 20)                      
|Inventories                                                                                                                                                                                                
|Prepaid expenses                                                                                                                                                                                           
|Other receivables                                                                                                                                                                                          
|Total Current Assets                                                                                                                                                                                       
|                                                                                                                                                                                                           
|Property, plant and equipment, net of accumulated
      depreciation of $2,637,629 and $2,112,093, respectively                                                                                            
|                                                                                                                                                                                                           
|Other Assets                                                                                                                                                                                               
|Land use rights, net of accumulated amortization of $881,720 and
      $473,151, respectively                                                                                                              
|Intangible assets, net of accumulated
      amortization of $1,601,418 and $1,054,531, respectively                                                                                                        
|                                                                                                                                                                                                           
|Total Assets                                                                                                                                                                                               
|                                                                                                                                                                                                           
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                                                       
|Current Liabilities                                                                                                                                                                                        
|Accounts payable
      and accrued liabilities                                                                                                                                                             
|Note payable                                                                                                                                                                                               
|Taxes payable                                                                                                                                                                                              
|Other payable                                                                                                                                                                                              
|Total Current
      Liabilities                                                                                                                                                                            
|Estimated liability for equity-based
      financial instruments with characteristics of liabilities:                                                                                                      
|                                                                                                                                                                                                           
|Designated as Series A convertible Preferred Stock (50,000 shares issued
      and outstanding at December 31, 2010 and 2009, respectively)                                                                
|Warrants                                                                                                                                                                                                   
|Total                                                                                                                                                                                                      
|                                                                                                                                                                                                           
|Total Liabilities                                                                                                                                                                                          
|                                                                                                                                                                                                           
|Commitments and Contingencies                                                                                                                                                                              
|                                                                                                                                                                                                           
|Stockholders' Equity                                                                                                                                                                                       
|Preferred stock, par value $.001 per share; authorized 200,000,000 shares;
      issued and outstanding: 50,000 and 50,000 shares, respectively                                                            
|Common stock, par value $.001 per share;
      authorized 200,000,000 shares, issued or issuable and outstanding:
      22,255,527 and 20,024,024 shares, at December 31, 2010 and 2009,
      respectively
|Additional paid-in
      capital                                                                                                                                                                           
|Retained earnings                                                                                                                                                                                          
|Appropriated                                                                                                                                                                                               
|Unappropriated (as restated in 2010 and 2009 - see
      Note 20)                                                                                                                                          
|Accumulated other
      comprehensive income (Foreign currency translation adjustments)                                                                                                                    
|(as
      restated in 2010 - see Note 20)                                                                                                                                                                  
|Total
      stockholders' equity                                                                                                                                                                           
|                                                                                                                                                                                                           
|Total Liabilities
      and Stockholders' Equity                                                                                                                                                           



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

F-2



---



|                                                                                                                                                                         
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|China Kangtai Cactus Bio-Tech Inc.
      and Subsidiaries Consolidated Statements of Income and Comprehensive
      Income For the Years Ended December 31, 2010 and 2009
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|Net Sales                                                                                                                                                                
|Cost of Sales                                                                                                                                                            
|Gross Profit                                                                                                                                                             
|Operating Expenses                                                                                                                                                       
|Selling expenses                                                                                                                                                         
|Research and development                                                                                                                                                 
|General and
      administrative expenses                                                                                                                                
|Depreciation                                                                                                                                                             
|Amortization of land
      use rights                                                                                                                                    
|Amortization of intangible assets                                                                                                                                        
|Total operating expenses (As restated in 2010 and 2009 
      See Note 20)                                                                                              
|Income from
      Operations                                                                                                                                             
|Other Income (Expense)                                                                                                                                                   
|Interest income                                                                                                                                                          
|Imputed interest
      expense                                                                                                                                           
|Income (expense) from revaluation of
      Series A Preferred Stock and A,                                                                                               
|B,
      C, and D warrants with characteristics of liabilities at fair values                                                                                            
|Net (loss) gain on disposal of property and equipment                                                                                                                    
|Total Other Income (Expenses)                                                                                                                                            
|Income before Income Tax                                                                                                                                                 
|Income tax expense                                                                                                                                                       
|Net Income Attributable to Common Stockholders                                                                                                                           
|(as restated in 2010 and 2009 - see Note 20)                                                                                                                             
|                                                                                                                                                                         
|Net Income Per Common Share (as restated in
      2010 and 2009 - see Note 20)                                                                                           
|                                                                                                                                                                         
|Basic                                                                                                                                                                    
|                                                                                                                                                                         
|Diluted                                                                                                                                                                  
|                                                                                                                                                                         
|Weighted Average Number of Common
      Shares Used to Compute Earnings per Common Share:                                                                                
|Basic                                                                                                                                                                    
|Diluted                                                                                                                                                                  
|                                                                                                                                                                         
|Comprehensive Income (as restated in 2010
      and 2009 - see Note 20):                                                                                                 
|                                                                                                                                                                         
|Net income                                                                                                                                                               
|Foreign currency translation adjustment                                                                                                                                  
|                                                                                                                                                                         
|Comprehensive
      Income                                                                                                                                               

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

F-3

---

China Kangtai Cactus Bio-Tech Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity For the Years Ended
December 31, 2010 and 2009 (As Restated - Note 20)

|                                                                                                                                                                              |  |                                  |   |   |                               |   |   |            |  |   |                |  |   |              |   |   |            |   |   |           |  |   | Accumulated   |   |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | - | - | ----------------------------- | - | - | ---------- |  | - | -------------- |  | - | ------------ | - | - | ---------- | - | - | --------- |  | - | ------------- | - | - | ---------- | -
|                                                                                                                                                                              |  | Preferred Stock $0.001 par value |   |   | Common Stock $0.001 par value |   |   | Additional |  |   | Unappropriated |  |   | Appropriated |   |   | other      |   |   |           | 
|                                                                                                                                                                              |  |                                  |   |   |                               |   |   |            |  |   |                |  |   | paid-in      |   |   | retained   |   |   | retained  |  |   | comprehensive |   |   |            |  
|                                                                                                                                                                              |  | Shares                           |   |   | Amount                        |   |   | Shares     |  |   | Amount         |  |   | capital      |   |   | earnings   |   |   | earnings  |  |   | income        |   |   | Total      |  
|                                                                                                                                                                              |  |                                  |   |   |                               |   |   |            |  |   |                |  |   |              |   |   |            |   |   |           |  |   |               |   |   |            |  
|                                                                                                                                                                              |  |                                  |   |   |                               |   |   |            |  |   |                |  |   |              |   |   |            |   |   |           |  |   |               |   |   |            |  
|Balance at December 31, 2008 (as restated -
      see Note 20) January 1, 2009 cumulative effect of change in accounting
      principle:                                     |  | 1,150,000                        |   | $ | 1,150                         |   | $ | 17,885,625 |  | $ | 17,886         |  | $ | 7,819,865    |   | $ | 12,583,985 |   | $ | 2,682,345 |  | $ | 3,047,872     |   | $ | 26,153,103 |  
|Reclassification of Series A Preferred
      Stock and A, B, C, and D Warrants from stockholder's equity to
      liabilities, including revaluation at fair value of $18,760 |  | (1,150,000                       | ) |   | (1,150                        | ) |   | -          |  |   | -              |  |   | (688,850     | ) |   | 18,760     |   |   | -         |  |   | -             |   |   | (671,240   | )
|Balance at January 1, 2009 after cumulative
      effect adjustment (as restated - see Note 20)                                                                               |  | -                                |   |   | -                             |   |   | 17,885,625 |  |   | 17,886         |  |   | 7,131,015    |   |   | 12,602,745 |   |   | 2,682,345 |  |   | 3,047,872     |   |   | 25,481,863 |  
|Conversion of Series A preferred stock                                                                                                                                        |  | -                                |   |   | -                             |   |   | 1,100,000  |  |   | 1,100          |  |   | 1,948,067    |   |   | -          |   |   | -         |  |   | -             |   |   | 1,949,167  |  
|Cashless exercise of A warrants                                                                                                                                               |  | -                                |   |   | -                             |   |   | 598,006    |  |   | 598            |  |   | 1,290,630    |   |   | -          |   |   | -         |  |   | -             |   |   | 1,291,228  |  
|Cash exercise of A warrants                                                                                                                                                   |  | -                                |   |   | -                             |   |   | 333,334    |  |   | 333            |  |   | 548,334      |   |   | -          |   |   | -         |  |   | -             |   |   | 548,667    |  
|Exercise of stock option                                                                                                                                                      |  | -                                |   |   | -                             |   |   | 107,059    |  |   | 107            |  |   | 32,011       |   |   | -          |   |   | -         |  |   | -             |   |   | 32,118     |  
|Imputed interest on note payable                                                                                                                                              |  | -                                |   |   | -                             |   |   | -          |  |   | -              |  |   | 53,219       |   |   | -          |   |   | -         |  |   | -             |   |   | 53,219     |  
|Transfer to statutory and staff welfare
      reserves                                                                                                                        |  | -                                |   |   | -                             |   |   | -          |  |   | -              |  |   | -            |   |   | (1,199,459 | ) |   | 1,199,459 |  |   | -             |   |   | -          |  
|Net income for the year ended December 31,
      2009 (as restated - see Note 20)                                                                                             |  | -                                |   |   | -                             |   |   | -          |  |   | -              |  |   | -            |   |   | 507,022    |   |   | -         |  |   | -             |   |   | 507,022    |  
|Currency translation adjustment                                                                                                                                               |  | -                                |   |   | -                             |   |   | -          |  |   | -              |  |   | -            |   |   | -          |   |   | -         |  |   | (220,696      | ) |   | (220,696   | )
|Balance at December 31, 2009                                                                                                                                                  |  | -                                |   |   | -                             |   |   | 20,024,024 |  |   | 20,024         |  |   | 11,003,276   |   |   | 11,910,308 |   |   | 3,881,804 |  |   | 2,827,176     |   |   | 29,642,588 |  
|Stock issued in connection with investment agreement
      (Note 15)                                                                                                          |  | -                                |   |   | -                             |   |   | 1,000,000  |  |   | 1,000          |  |   | 784,678      |   |   | -          |   |   | -         |  |   | -             |   |   | 785,678    |  
|Cost incurred relating to stock issued in connection with investment
      agreement (Note15)                                                                                 |  | -                                |   |   | -                             |   |   | -          |  |   | -              |  |   | (42,000      | ) |   | -          |   |   | -         |  |   | -             |   |   | (42,000    | )
|                                                                                                                                                                              |  |                                  |   |   |                               |   |   |            |  |   |                |  |   |              |   |   |            |   |   |           |  |   |               |   |   |            |  
|Stock issued for financing cost                                                                                                                                               |  | -                                |   |   | -                             |   |   | 15,000     |  |   | 15             |  |   | 13,035       |   |   | -          |   |   | -         |  |   | -             |   |   | 13,050     |  
|Cashless exercise of stock options                                                                                                                                            |  | -                                |   |   | -                             |   |   | 238,503    |  |   | 239            |  |   | (239         | ) |   | -          |   |   | -         |  |   | -             |   |   | -          |  
|Stock issued for consulting services                                                                                                                                          |  | -                                |   |   | -                             |   |   | 103,000    |  |   | 103            |  |   | 231,997      |   |   | -          |   |   | --        |  |   | -             |   |   | 232,100    |  
|Exercise of B warrants                                                                                                                                                        |  | -                                |   |   | -                             |   |   | 750,000    |  |   | 750            |  |   | 1,700,250    |   |   | -          |   |   | -         |  |   | -             |   |   | 1,701,000  |  
|Exercise of $1.00 stock options                                                                                                                                               |  | -                                |   |   | -                             |   |   | 125,000    |  |   | 125            |  |   | 124,875      |   |   | -          |   |   | -         |  |   | -             |   |   | 125,000    |  
|Stock option expense                                                                                                                                                          |  | -                                |   |   | -                             |   |   | -          |  |   | -              |  |   | 390,275      |   |   | -          |   |   | -         |  |   | -             |   |   | 390,275    |  
|Imputed interest on note payable                                                                                                                                              |  | -                                |   |   | -                             |   |   | -          |  |   | -              |  |   | 53,630       |   |   |            |   |   | -         |  |   | -             |   |   | 53,630     |  
|Transfer to statutory and staff welfare reserves                                                                                                                              |  | -                                |   |   | -                             |   |   | -          |  |   | -              |  |   | -            |   |   | (1,371,896 | ) |   | 1,371,896 |  |   | -             |   |   | -          |  
|Net income for the years ended December 31, 2010 (as restated - see
      Note 20)                                                                                            |  | -                                |   |   | -                             |   |   | -          |  |   | -              |  |   | -            |   |   | 11,761,267 |   |   | -         |  |   | -             |   |   | 11,761,267 |  
|Currency translation adjustment (as restated - see Note
      20)                                                                                                             |  | -                                |   |   | -                             |   |   | -          |  |   | -              |  |   | -            |   |   |            |   |   | -         |  |   | 1,513,950     |   |   | 1,513,950  |  
|Balance at
      December 31, 2010                                                                                                                                            |  | -                                |   | $ | -                             |   |   | 22,255,527 |  | $ | 22,256         |  | $ | 14,259,777   |   | $ | 22,299,679 |   | $ | 5,253,700 |  | $ | 4,341,126     |   | $ | 46,176,538 |  

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

F-4



---





|China Kangtai Cactus Bio-Tech Inc.
      and Subsidiaries Consolidated Statements of Cash Flows For the
      Years Ended December 31, 2010 and 2009
|----------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Cash Flows from Operating Activities                                                                                                                
|Net income (as restated in 2010 and
      2009 - see Note 20)                                                                                       
|Adjustments to
      reconcile net income                                                                                                           
|to net cash
      provided by operating activities:                                                                                                 
|(Gain) expense from revaluation of Series A Preferred Stock and                                                                                     
|A, B, C, and D warrants with characteristics of liabilities at fair
      values                                                                    
|Issuance of shares in consideration for various services                                                                                            
|Issuance of
      options in consideration for legal services                                                                                       
|Cashless exercise of stock options charged to operations                                                                                            
|Imputed
      interest                                                                                                                              
|Net gain on disposal of property, plant and equipment                                                                                               
|Depreciation - cost of sales                                                                                                                        
|Depreciation - operating expenses                                                                                                                   
|Amortization of land use rights -cost of sales                                                                                                      
|Amortization of land use rights- operating expenses                                                                                                 
|Amortization of intangible assets                                                                                                                   
|Loss on disposal of property and equipment                                                                                                          
|Changes in operating assets and
      liabilities:                                                                                                  
|(Increase) decrease in accounts receivable                                                                                                          
|Decrease in
      inventories                                                                                                                       
|Increase in prepaid expenses                                                                                                                        
|Decrease in
      accounts payable and accrued liabilities                                                                                          
|Increase
      in taxes payable                                                                                                                     
|Net cash
      provided by operating activities (as restated in 2010 and 2009 - see Note
      20)                                                  
|Cash Flows from Investing Activities                                                                                                                
|Purchase of intangible assets                                                                                                                       
|Purchase of land use
      rights                                                                                                                   
|Purchase of property, plant and
      equipment                                                                                                     
|Purchase of Qitaihe
      City land use rights and plant and equipment                                                                              
|(as restated in 2009 - see Note
      20)                                                                                                           
|Net proceeds from
      disposals of property, plant and equipment and                                                                              
|Qitaihe City land use
      rights (as restated in 2010 and 2009 - see Note 20)                                                                     
|Collection from (advance to) related
      party                                                                                                    
|Net cash (used
      for) investing activities (as restated in 2010 and 2009 - see Note 20)                                                         
|Cash Flows from Financing Activities                                                                                                                
|Proceeds from related party                                                                                                                         
|Proceeds from investor                                                                                                                              
|Cost in connection with investment                                                                                                                  
|Repayment to related
      party                                                                                                                    
|Cash exercise of options                                                                                                                            
|Exercise of B warrants                                                                                                                              
|Net cash
      provided by financing activities                                                                                                     
|                                                                                                                                                    
|Effect of
      exchange rate changes on cash and cash equivalents (as restated in 2009 -
      see Note 20)                                        
|Decrease in cash and cash
      equivalents                                                                                                         
|Cash and cash
      equivalents, beginning of period                                                                                                
|Cash and cash equivalents, end of period                                                                                                            
|Supplemental disclosures of cash flow information:                                                                                                  
|Interest paid                                                                                                                                       
|Income taxes paid                                                                                                                                   
|                                                                                                                                                    
|Non-cash investing activities (as restated in 2009 - see
      Note 20):                                                                            
|Total selling price of
      December 19, 2009 return of Qitaihe City land use rights and property,
      plant and                                 
|equipment acquired in March 2009 and
      December 20, 2009 sale of equipment                                                                      
|Net book value of
      assets sold                                                                                                                 
|Net gain on sales of assets                                                                                                                         
|                                                                                                                                                    
|                                                                                                                                                    
|Total selling price of
      December 19, 2009 return of Qitaihe City land use rights and property,
      plant and                                 
|equipment acquired in March 2009 and
      December 20, 2009 sale of equipment                                                                      
|Amount collected in
      2009                                                                                                                      
|Other receivables at December 31, 2009                                                                                                              

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

F-5



---

CHINA KANGTAI CACTUS BIO-TECH INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009

NOTE 1 - ORGANIZATION AND BUSINESS OPERATIONS

China Kangtai Cactus Bio-Tech Inc. (US China Kangtai) was
incorporated in Nevada on March 16, 2000 as InvestNet, Inc. (InvestNet).

China Kangtai Cactus Bio-tech Company Limited (BVI China
Kangtai) was incorporated in the British Virgin Islands (BVI) on November 26,
2004. Harbin Hainan Kangda Cacti Hygienical Foods Co., Ltd. (Harbin Hainan
Kangda), a company with limited liability, was incorporated in the Peoples
Republic of China (PRC) on December 30, 1998.

US China Kangtai and BVI China Kangtai are investment holding
companies and Harbin Hainan Kangdas principal activities are planting and
developing new types of cactus, producing and trading in cactus health foods and
related products in the PRC.

In 2004, BVI China Kangtai acquired Harbin Hainan Kangda. In
2005, US China Kangtai acquired BVI China Kangtai.

On September 26, 2006, Harbin Hainan Kangda acquired a 100%
equity interest in Guangdong Taishan Kangda Cactus Hygienical Food Co., Ltd.
(Taishan Kangda), a PRC company with limited liability previously owned by two
stockholders, for $1,475,000 in cash. Taishan Kangda grows and sells cactus.

US China Kangtai, BVI China Kangtai, Harbin Hainan Kangda and
Taishan Kangda are hereafter collectively referred to as the Company.

The accompanying consolidated financial statements include the
financial statements of US China Kangtai and its 100% owned subsidiaries, BVI
China Kangtai, Harbin Hainan Kangda and Taishan Kangda. All significant
inter-company accounts and transactions have been eliminated in consolidation.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States
and are expressed in US dollars.

Use of estimates

The preparation of financial statements in conformity with
accounting principles generally accepted in the Unites States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

Fair Value of Financial Instruments

The Companys financial instruments consist of cash and cash
equivalents, accounts receivable, other receivables, accounts payable and
accrued liabilities, note payable, taxes payable and other payable. The fair
value of these financial instruments approximate their carrying amounts reported
in the consolidated balance sheets due to the short term maturity of these
instruments and based on interest rates of comparable instruments.

F-6

---

CHINA KANGTAI CACTUS BIO-TECH INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009

Foreign Currency Translation

The functional currency of US China Kangtai and BVI China Kangtai is the United States dollar. The functional currency of Harbin Hainan Kangda and Taishan Kangda is the Chinese Renminbi (RMB). The reporting currency of the Company is the
United States dollar.

Harbin Hainan Kangda and Taishan Kangda assets and liabilities were translated into United States dollars at period-end exchange rates, $0.15152 and $0.14630, at December 31, 2010 and 2009, respectively. Harbin Hainan Kangda and Taishan
Kangda revenues and expenses were translated into United States dollars at weighted average exchange rates, $0.14774 and $0.14661, for the years ended December 31, 2010 and 2009, respectively. Resulting translation adjustments were recorded
as a component of accumulated other comprehensive income (loss) within stockholders equity.

Transaction gains or losses arising from exchange rate fluctuation on transactions denominated in a currency other than the functional currency are included in the consolidated results of operations. There were no material foreign currency
transaction gains or losses for the years ended December 31, 2010 and 2009.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and demand deposit accounts with banks. The Company considers all highly liquid instruments with maturities of three months or less at the time of issuance to be cash equivalents.

Accounts receivable (As Restated  See Note 20)

The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. When appropriate, a reserve for allowances and doubtful
accounts is established and recorded based on historical experience and the aging of the related accounts receivable. Past bad debts, returns, and sales adjustments have not been significant.

Harbin sells its products through 17 local distributors in the PRC. Extended payment terms are sometimes requested by customers and distributors. Extending the payment terms results in the Company bearing more risk on potential bad debt and,
therefore, the Company has made careful evaluations before extending the credit to its customers and distributors.

Inventories

Inventories of cactus stock include trees and palms whose cost consists of seeds and an allocation of fertilizers, direct labor and overhead costs such as depreciation, rent, freight and fuel, among others. Inventories of cactus stock are stated at
the lower of cost or market value, cost being calculated on the weighted average basis.

Other raw materials are stated at the lower of cost or market value, cost being determined on a first in, first out method.

Work in progress and finished goods are stated at the lower of cost or market value, cost being determined on a first in, first out method.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Expenditures for additions, major renewals and betterments are capitalized and expenditures for maintenance and repairs are charged to expense as incurred. Depreciation
is calculated on a straight-line basis over the estimated useful lives of the respective assets (40 years for buildings, 12 years for plant equipment and machinery, 10 years for motor vehicles, and 8 years for furniture and office equipment).

Intangible and Other Long-Lived Assets

F-7

---

Intangible and other long-lived assets are stated at cost, less accumulated amortization and impairments. Land use rights are being amortized on a straight-line basis over the remaining term of the related agreements, which range from 30 to 50
years. Other intangible assets consist of patents, licenses and trademarks. Patents, licenses and trademarks are amortized over their expected useful economic lives, which range from 10 to 15 years.

The Company reviews its long-lived assets for impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. The Company measures impairment by comparing the
carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows is less than the carrying amount
of the assets, the Company would recognize an impairment loss based on the fair value of the assets.

Revenue Recognition

The Company recognizes revenue upon delivery of the products, at which time title passes to the customer provided that: there are no uncertainties regarding customer acceptance; persuasive evidence of an arrangement exists; the sales price is fixed
or determinable; and collectability is deemed probable.

Advertising Costs

Advertising costs are expensed as incurred. Advertising expenses totaled $258,545 and $161,271 for the years ended December 31, 2010 and 2009, respectively.

Research and Development

Research and development costs related to both present and future products are expensed as incurred. Research and development costs totaled $141,830 and $102,627 for the years ended December 31, 2010 and 2009, respectively.

Stock-Based Compensation

Stock-based compensation is accounted for at fair value in accordance with Accounting Standards Codification (ASC) Topic 718, Compensation- Stock Compensation.

In addition to requiring supplemental disclosures, ASC 718,Compensation  Stock Compensation, addresses the accounting for share-based payment transactions in which a company receives goods or services in exchange for (a) equity
instruments of the company or (b) liabilities that are based on the fair value of the companys equity instruments or that may be settled by the issuance of such equity instruments. FASB Accounting Standards Codification (ASC) 718
focuses primarily on accounting for transactions in which a company obtains employee services in share-based payment transactions.

References to the issuances of restricted stock refer to stock of a public company issued in private placement transactions to individuals who are eligible to sell all or some of their shares of restricted Common Stock pursuant to Rule 144,
promulgated under the Securities Act of 1933 (Rule 144), subject to certain limitations. In general, pursuant to Rule 144, a stockholder who is not an affiliate and has satisfied a six-month holding period may sell all of his restricted
stock without restriction, provided that the Company has current information publicly available. Rule 144 also permits, under certain circumstances, the sale of restricted stock, without any limitations, by a non-affiliate of the Company that has
satisfied a one-year holding period.

Income Taxes

Deferred income taxes are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements by applying enacted statutory tax rates expected to apply in the years in which
those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is not more likely than not that some portion or all of the deferred tax assets will
be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.

Net Income Per Common Share

Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period.

F-8

---

Diluted net income per common share is computed on the basis of
the weighted average number of common shares and dilutive securities (such as
stock options, warrants, and convertible preferred stock) outstanding. Dilutive
securities having an anti-dilutive effect on diluted net income per common share
are excluded from the calculation.

The following table provides a reconciliation of common shares
used in the basic net income per common share and diluted net income per common
share computations for the years ended December 31, 2010 and 2009.

|                                                                |  | 2010       |  |  | 2009       | 
|--------------------------------------------------------------- |  | ---------- |  |  | ---------- | 
|                                                                |  |            |  |  |            | 
|Weighted average shares outstanding - basic                     |  | 20,987,497 |  |  | 18,304,775 | 
|Series A convertible preferred stock                            |  | 50,000     |  |  | 910,000    | 
|Incremental common shares from stock
      options and warrants |  | 150,605    |  |  | 254,939    | 
|Weighted average shares outstanding - diluted                   |  | 21,188,102 |  |  | 19,469,714 | 

The Company uses the treasury stock method to account for the
dilutive effect of unexercised stock options and warrants in diluted net income
per common share. Anti-dilutive common shares related to stock options and
warrants excluded from the computation of diluted net income per common share
were 0 and 2,350,000, respectively, for the years ended December 31, 2010 and
2009.

Segment Information

The Company operates in one segment, the sale of products made
from cactus plants. The Company sells to two customer groups; health foods
comprising cactus liquor and juice and sale of cactus powder to pharmaceutical
companies for use in medical products.

Statement of Cash Flows

In accordance with ASC Topic 230, Statement of Cash Flows,
cash flows from the Companys operations are calculated based upon the local
currencies using the average translation rates. As a result, amounts related to
assets and liabilities reported on the consolidated statements of cash flows
will not necessarily agree with changes in the corresponding balances on the
consolidated balance sheets.

Reclassifications

Certain prior period amounts have been reclassified to conform
to the current period presentation.

Recently Adopted Accounting Standards

In February 2010, the Company adopted an amendment to
previously adopted accounting guidance on subsequent event disclosure, which
established standards of accounting for and disclosure of events or transactions
that occur after the balance sheet date but before financial statements are
issued or available to be issued. Under the amended guidance, the Company is no
longer required to disclose the date through which subsequent events have been
evaluated. The adoption of this requirement did not have a material impact on
the Companys financial condition or results of operations.

We adopted the accounting principles established by ASU
2009-17,Consolidations: Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities , effective January 1, 2010. This
ASU requires an ongoing reassessment and replaces the quantitative-based risks
and rewards calculation for determining which reporting entity, if any, has a
controlling financial interest in a variable interest entity (VIE) with a
primarily qualitative analysis. The qualitative analysis is based on identifying
the party that has both the power to direct the activities that most
significantly impact the VIEs economic performance (the power criterion) and
the obligation to absorb losses from or the right to receive benefits of the VIE
that could potentially be significant to the VIE (the losses/benefit
criterion). The party that meets both these criteria is deemed to have a
controlling financial interest. The party with the controlling financial
interest is considered to be the primary beneficiary and as a result is required
to consolidate the VIE. The adoption of this new guidance did not have a
material effect on our financial statements.

Recently Issued Accounting Standards

In January 2010, the Financial Accounting Standards Board
issued guidance which expands the required disclosures about fair value
measurements. This guidance requires disclosures about transfers of investments
between levels in the fair value hierarchy and disclosures relating to the
reconciliation of fair value measurements using significant unobservable inputs
(level 3 investments). This guidance is effective for the Company as of January
1, 2011. The adoption of this guidance will not have a material impact on its
financial condition or results of operations.

F-9

---

In April 2010, the FASB issued ASU 2010-13, Compensation-Stock
Compensation (Topic 718) - Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Currency of the Market in Which the Underlying
Equity Security Trades - a consensus of the FASB Emerging Issues Task Force, or
ASU 2010-13. ASU 2010-13 provides amendments to Topic 718 to clarify that an
employee share-based payment award with an exercise price denominated in the
currency of a market in which a substantial portion of the entitys equity
securities trades should not be considered to contain a condition that is not a
market, performance, or service condition. Therefore, an entity would not
classify such an award as a liability if it otherwise qualifies as equity. The
amendments in this update do not expand the recurring disclosures required by
Topic 718. Disclosures currently required under Topic 718 are applicable to a
share-based payment award, including the nature and the term of share-based
payment arrangements. The amendments in this update are effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2010. The adoption of this guidance will not have a material impact
on its financial condition or results of operations.

Certain other accounting pronouncements have been issued by the
FASB and other standard setting organizations which are not yet effective and
have not yet been adopted by the Company. The impact on the Companys financial
position and results of operations from adoption of these standards is not
expected to be material.

NOTE 3  SIGNIFICANT ACQUISITIONS OF PROPERTY, PLANT AND
EQUIPMENT AND OTHER ASSETS

In December 2009, Haiban Hainan Kangda completed the
acquisition of land use rights for 50 years to property located in Langbei
Village Baisha Town, Guangdong Province, PRC, covering an area of 181,854 square
meters pursuant to an Asset Purchase Agreement dated August 25, 2009 with the
local government. The purchase price for the land use rights was 66,376,800 RMB
($10,057,413 translated at the December 31, 2010 exchange rate), which
commencing January 1, 2010 is being amortized on a straight line basis over the
50 years term of the rights. See Note 7.

In May 2010, Haiban Hainan Kangda completed the acquisition of
various patents relating to cactus use in manufacturing cattle, hog and fish
feed pursuant to a Patent Transfer Agreement dated January 20, 2010 with
Heilongjiang Institute of Biological Development. The purchase price for the
patents was 54,112,700 RMB ($8,199,156 translated at the December 31, 2010
exchange rate), which commencing April 10, 2010 is being amortized on a straight
line basis over the 15 year term of the patents. See Note 8.

In December 2010, Harbin Hainan Kangda completed the
acquisition of certain assets (consisting of land use rights for 50 years to
property located in Raoping County, Guangdong Province, PRC covering an area of
12,144 square meters, three buildings, machinery and equipment used in the
manufacture of cigarettes, and eight trademarks relating to cigarettes) pursuant
to an Asset Purchase Agreement dated June 28, 2010 with Dadi Tobacco Trade
Center. The total purchase price was 35,000,000 RMB ($5,303,200 translated at
the December 31, 2010 exchange rate), which the Company allocated to the assets
based on appraisals as follows:

|                                    |   | In RMB     |  |   | In USD    | 
|----------------------------------- | - | ---------- |  | - | --------- | 
|Buildings                           | ¥ | 3,643,480  |  | $ | 552,060   | 
|Plant equipment and machinery       |   | 12,493,800 |  |   | 1,893,061 | 
|Total property, plant and equipment |   | 16,137,280 |  |   | 2,445,121 | 
|Land use rights                     |   | 7,650,720  |  |   | 1,159,237 | 
|Trademarks                          |   | 11,212,000 |  |   | 1,698,842 | 
|Total                               | ¥ | 35,000,000 |  | $ | 5,303,200 | 

The trademarks expire in September 2014. The Company expects
that it will renew these trademarks in March 2014 (PRC trademark law requires
renewal of trademarks a half year earlier before the expiration date).
Accordingly, these trademarks will have another 10 year period of validity and
will expire in March of 2024.

Commencing January 1, 2011, the buildings will be depreciated
on a straight line basis over their 40 years estimated useful life, the plant
equipment and machinery will be depreciated on a straight line basis over their
12 years estimated useful life, the land use rights will be amortized on a
straight line basis over the 50 years term of the rights and the trademarks will
be amortized on a straight line basis over their 10 years expected useful lives.

NOTE 4 - INVENTORIES

At December 31, 2010 and 2009, inventories consisted of:

F-10

---

|                                                            |   | 2010      |   |   | 2009      |  
|----------------------------------------------------------- | - | --------- | - | - | --------- | -
|Cactus stock                                                | $ | 936,517   |   | $ | 2,149,643 |  
|Other raw materials and work-in-process                     |   | 38,520    |   |   | 28,158    |  
|Finished goods                                              |   | 451,307   |   |   | 311,761   |  
|Total                                                       |   | 1,426,344 |   |   | 2,489,562 |  
|Less: allowance for market adjustments to
      inventories |   | (40,813   | ) |   | (48,658   | )
|Net                                                         | $ | 1,385,531 |   | $ | 2,440,904 |  

|                                                                    |   |      |  |  
|------------------------------------------------------------------- | - | ---- |  | -
|NOTE 5 - OTHER RECEIVABLES 
      (As Restated  See Note 20)      |   |      |  |  
|                                                                    |   |      |  |  
|Other receivables at December 31,
      2010 and 2009 consisted of: |   |      |  |  
|                                                                    |   | 2010 |  |  
|                                                                    |   |      |  |  
|Land Center of Qitaihe                                              | $ | -    |  | $
|QitaiheTianhe Pharmaceutical Co. Ltd                                |   | -    |  |  
|Due from related party                                              |   | 500  |  |  
|Total                                                               | $ | 500  |  | $

Disposal of property, plant
      and equipment  (As Restated  See Note 20)

On March 25, 2009, Harbin Hainan Kangda entered into an Asset
Purchase Agreement (the Agreement) with Qitaihe Kangwei Biotechnology Co.,
Ltd. (Seller). Under the terms of the Agreement, the Company was to acquire
(i) land use rights of state-owned land located in Shuguang Village of Xinxing
District in Qitaihe City, covering an area of 49 thousand square meters, with a
use life of 43 years, (ii) housing ownership of 5,606.20 square meters in
Shuguang Village of Xinxing District in Qitaihe City, HeiLongJiang Province and
(iii) fixed assets consisting of machinery, equipment and facilities (including
equipment, information, file data, spare parts and office supplies) located on
the acquired premises. The land use rights, housing ownership and fixed assets
were collectively referred to as the Assets. Total purchase price under the
Agreement was RMB 37,000,000 ($5,413,100).

On November 27, 2009, the Company entered into an agreement
with the Government of Qitaihe City and agreed to give up all the rights
acquired from the above purchase to the Qitaihe local government for rebuilding
the city of Qitaihe. In return for forfeiting the properties purchased, the
Company received a total of RMB 36,304,461 (approximately US$5.3 million, of
which $2,194,500 was received in December 2009 and $3,116,843 was received in
the first quarter 2010) as compensation from the City of Qitaihe. On January 27,
2010, Qitaihe City unilaterally amended the payment terms for the second
payment, extending them from original 60 days to 90 days

On December 20, 2009, the Company sold certain equipment it had
previously acquired to an unrelated third party in the amount of RMB 4,313,620
(approximately $631,000).

As a result of transactions described in the preceding three
paragraphs, the Company recognized a net gain of RMB 3,378,675 ($495,348) on the
Disposal of property, plant and equipment, which was included within Other
Income (Expense) in the Statement of Operations for the year ended December 31,
2009.

The balance due from Land Center of Qitaihe and proceeds
receivable from sale of equipment were collected in the first quarter 2010.

Due from related party

At December 31, 2010 and 2009, due from related party, Mr.
Chengzhi Wang, the General Manager and Director of the Company, was $500 and
$244,636, respectively, and was interest free and due on demand.

NOTE 6 - PROPERTY, PLANT AND EQUIPMENT

At December 31, 2010 and 2009, property, plant and equipment,
net consisted of:

|                               |   | 2010       |   |   | 2009       |  
|------------------------------ | - | ---------- | - | - | ---------- | -
|                               |   |            |   |   |            |  
|Buildings                      | $ | 3,577,039  |   | $ | 2,920,766  |  
|Plant equipment and machinery  |   | 6,700,946  |   |   | 4,642,249  |  
|Motor vehicles                 |   | 277,385    |   |   | 288,816    |  
|Furniture and office equipment |   | 10,309     |   |   | 11,138     |  
|Total                          |   | 10,565,679 |   |   | 7,862,969  |  
|Less accumulated depreciation  |   | (2,637,629 | ) |   | (2,112,093 | )
|Net                            | $ | 7,928,050  |   | $ | 5,750,876  |  

F-11

---

NOTE 7 - LAND USE RIGHTS

At December 31, 2010 and 2009, land use rights, net consisted
of:

|                              |   | 2010       |   |   | 2009       |  
|----------------------------- | - | ---------- | - | - | ---------- | -
|                              |   |            |   |   |            |  
|Harbin Hainan Kangda          | $ | 19,370,887 |   | $ | 17,584,244 |  
|Taishan Kangda                |   | 901,809    |   |   | 870,741    |  
|Total                         |   | 20,272,696 |   |   | 18,454,985 |  
|Less accumulated amortization |   | (881,720   | ) |   | (473,151   | )
|Net                           | $ | 19,390,976 |   | $ | 17,981,834 |  

On August 25, 2009, Harbin Hainan Kangda entered into an Asset
Purchase Agreement (the Agreement) with the Local Government of Baisha Town,
Taishan City, Guangdong Province (Seller). Under the terms of the Agreement,
the Company was to acquire land use rights of state-owned land located in
Langbei Village, Baisha Town covering an area of 181,854 square meters, with a
useful life of 50 years starting from the issue date of the land use right
certificate. The purchase price for the Taishan Basha land use rights of
66,376,800 RMB ($10,057,413 translated at the December 31, 2010 exchange rate)
was paid in full as of December 31, 2009. Commencing January 2010, amortization
of the cost is being charged to operations.

Amortization of land use rights was $381,915 and $184,365 for
the years ended December 31, 2010 and 2009, respectively, of which $343,456 and
$146,200, respectively, were included in cost of goods sold.

The expected amortization of the above land use rights for each
of the five succeeding years ending December 31, and in the aggregate, are as
follows:

|Year Ending  |   | Amortization | 
|------------ | - | ------------ | 
|December 31, |   | Amount       | 
|2011         | $ | 414,872      | 
|2012         |   | 414,872      | 
|2013         |   | 414,872      | 
|2014         |   | 414,872      | 
|2015         |   | 414,872      | 
|Thereafter   |   | 17,316,616   | 
|Total        | $ | 19,390,976   | 

NOTE 8 - INTANGIBLE ASSETS

At December 31, 2010 and 2009, intangible assets, net consisted
of:

|                              |   | 2010       |   |   | 2009       |  
|----------------------------- | - | ---------- | - | - | ---------- | -
|                              |   |            |   |   |            |  
|Patents and licenses          | $ | 9,617,385  |   | $ | 1,370,831  |  
|Trademarks                    |   | 1,698,842  |   |   | -          |  
|Total                         |   | 11,316,227 |   |   | 1,370,831  |  
|Less accumulated amortization |   | (1,601,418 | ) |   | (1,054,531 | )
|Net                           | $ | 9,714,809  |   | $ | 316,300    |  

In January 2010, the Company purchased a group of cactus
patents for cattle, hog and fish feed for $8,199,156 (RMB 54,112,700) under a
Patent Transfer Agreement which provided for the Company to make 4 installment
payments to the transferor of the patent, as follows: 25% at the end of January
2010; 25% at the end of March 2010; 20% at the end of June 2010; and 30% at the
end of August 2010.

F-12

---

The agreement also placed certain requirements on the
Transferor concerning timely providing the materials necessary so that title to
the patent could promptly be received by the Company. In addition, the agreement
provided for penalties on the Company if it failed to make timely payments to
the transferor, whom in such event had the right to rescind the contract and
have returned all materials related to the patent. The agreement provided for
penalties on the transferor if they were tardy as well.

The Company paid $6,515,360 (RMB 43,000,000) in cash, which
amount exceeded payments required by the agreement, through March 31, 2010. The
additional payments were the result of an informal agreement between the
Transferor and the Company based upon a timely delivery of materials by the
Transferor to facilitate the transfer of title to the Company, which occurred on
April 21, 2010. The patent period granted by the PRC governmental authority
commenced on April 10, 2010 and expires on April 10, 2025. The Company paid the
remaining $1,683,796 (RMB 11,112,700) to the Transferor in May 2010. Prior to
the Patent Transfer Agreement, the Company had been using the patents on an
experimental basis since 2008.

The three patents were created pursuant to a Research and
Development Agreement entered into between the Chief Executive Officer and
Director of the Company (20.5% Company Stockholder) , the General Manager and
Director of the Company (18.3% Company Stockholder) and the Heilongjiang
Institute of Biological Development (the Institute) on March 20, 2003, whereby
the Institute completed the research to develop the patents and bore the costs
of developing them and the aforementioned Company individuals were to register
these patents and transfer their title to the Institute. That transfer took
place on September 16, 2005, with no further consideration paid by the
Institute. The Company purchased the 3 patents in 2010 from the Institute, a
privately held Chinese entity engaged in similar ongoing patent research for
other Chinese entities. The Institute has no common ownership with the Companys
Officer/Director or General Manager/Director (significant Company stockholders),
or their families, or others employed by the Company or stockholders in it.

Intangible assets amortization expense was $498,034 and
$137,227 for the years ended December 31, 2010 and 2009, respectively.

The expected amortization of the above intangible assets for
each of the five succeeding years ending December 31, and in the aggregate, is
as follows:

|Year Ending  |   | Amortization | 
|------------ | - | ------------ | 
|December 31, |   | Amount       | 
|2011         | $ | 680,660      | 
|2012         |   | 680,660      | 
|2013         |   | 680,660      | 
|2014         |   | 680,660      | 
|2015         |   | 680,660      | 
|Thereafter   |   | 6,311,509    | 
|Total        | $ | 9,714,809    | 

NOTE 9 - NOTE PAYABLE

Note payable at December 31, 2010 and 2009 consisted of:

|                                                                                          |   | 2010    |  |   | 2009    | 
|----------------------------------------------------------------------------------------- | - | ------- |  | - | ------- | 
|Note payable to a financial institution,
      interest free, unsecured and due on demand | $ | 916,696 |  | $ | 885,115 | 

The note payable $916,696 (6,050,000 RMB) is due to a PRC
provincial government financial institution which made the loan to the Company
to promote the commercial cultivation of cactus. The loan was made to the
Company on an interest-free and unsecured basis and is repayable on demand.
Imputed interest is calculated at 6% per annum on the amount due. Total imputed
interest recorded as additional paid-in capital amounted to $53,630 and $53,219
for the years ended December 31, 2010 and 2009, respectively.

NOTE 10  TAXES PAYABLE

Taxes payable consist of:

|                           |   | 2010      |  |   | 2009    | 
|-------------------------- | - | --------- |  | - | ------- | 
|                           |   |           |  |   |         | 
|PRC corporation income tax | $ | 1,216,942 |  | $ | 527,264 | 
|Value added tax payable    |   | 118,276   |  |   | 74,419  | 
|Consumption tax            |   | 213,856   |  |   | 151,751 | 
|Other taxes                |   | 2,124     |  |   | 35,707  | 
|Total                      | $ | 1,551,198 |  | $ | 789,141 | 

F-13

---

NOTE 11  ESTIMATED LIABILITY FOR EQUITY-BASED FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF LIABILITIES

Effective January 1, 2009, in accordance with EITF Issue No.
07-05, Determining Whether an Instrument (or Embedded Feature) is indexed to an
Entitys Own Stock, the Company reclassified the fair values at January 1, 2009
of the outstanding Series A Convertible Preferred Stock and the warrants
comprising the March 21, 2008 and the July 16, 2008 sales of units (see Note 12)
from stockholders equity to liabilities, as follows:

|                                     |  | Shares /  |  |   |            | 
|------------------------------------ |  | --------- |  | - | ---------- | 
|                                     |  | Warrants  |  |   | Fair Value | 
|Series A Convertible Preferred Stock |  | 1,150,000 |  | $ | 333,500    | 
|                                     |  |           |  |   |            | 
|A warrants                           |  | 1,250,000 |  |   | 122,000    | 
|B warrants                           |  | 1,500,000 |  |   | 120,150    | 
|C warrants                           |  | 500,000   |  |   | 47,950     | 
|D warrants                           |  | 600,000   |  |   | 47,640     | 
|Total warrants                       |  | 3,850,000 |  |   | 337,740    | 
|                                     |  |           |  |   |            | 
|Total Financial Instruments          |  | 5,000,000 |  | $ | 671,240    | 

Since at January 1, 2009 the carrying value of the outstanding
financial instruments was $690,000, the Company recognized a cumulative effect
adjustment resulting from a change in accounting principle of $18,760, or a net
of $671,240. Accordingly, the unappropriated retained earnings balance at
December 31, 2008 was increased from $11,604,285 to $11,623,045, as adjusted, on
January 1, 2009.

The characteristics which require classification of the Series
A Preferred Stock and warrants as liabilities are the Companys obligations to
reduce the conversion price of the Series A Preferred Stock and the exercise
price of the warrants in the event that the Company sells, grants, or issues any
shares, options, warrants, or any convertible instrument at a price below the
$0.60 current conversion price of the Series A Preferred Stock or the current
exercise prices of the warrants. As a result, the Company remeasures the fair
values of these financial instruments each quarter, adjusts the liability
balances, and reflects changes in operations as income (expense) from
revaluation of Series A Preferred Stock and A, B, C, and D warrants with
characteristics of liabilities at fair values.

At December 31, 2010 and 2009, the fair values of the financial
instruments consisted of:

|                                     |  | 2010                    |  |   | 2009       | 
|------------------------------------ |  | ----------------------- |  | - | ---------- | 
|                                     |  | Shares /
      Warrants |  |   | Fair Value | 
|Series A Convertible Preferred Stock |  | 50,000                  |  | $ | 51,500     | 
|B warrants                           |  | 750,000                 |  |   | 153,975    | 
|C warrants                           |  | 500,000                 |  |   | 171,550    | 
|D warrants                           |  | 600,000                 |  |   | 144,180    | 
|Total warrants                       |  | 1,850,000               |  |   | 469,705    | 
|Total Financial Instruments          |  | 1,900,000               |  | $ | 521,205    | 

Below is a reconciliation of the change in the fair values of
the financial instruments from January 1, 2009 through December 31, 2010.

F-14

---

|                                                             |  |            |   |   |            |  
|------------------------------------------------------------ |  | ---------- | - | - | ---------- | -
|                                                             |  | Shares /   |   |   |            |  
|                                                             |  | Warrants   |   |   | Fair Value |  
|Balance, January 1, 2009                                     |  | 5,000,000  |   | $ | 671,240    |  
|Revaluation credited to operations                           |  | -          |   |   | (262,725   | )
|Balance, March 31, 2009                                      |  | 5,000,000  |   |   | 408,515    |  
|Revaluation charged to operations                            |  | -          |   |   | 1,761,440  |  
|Balance, June 30, 2009                                       |  | 5,000,000  |   |   | 2,169,955  |  
|Conversion of Series A Preferred Stock to Common Stock       |  | (416,667   | ) |   | (666,667   | )
|Revaluation charged to operations                            |  | -          |   |   | 2,738,135  |  
|Balance, September 30, 2009                                  |  | 4,583,333  |   |   | 4,241,423  |  
|Conversion of Series A Preferred Stock to
      Common Stock |  | (683,333   | ) |   | (1,282,500 | )
|Exercise of A warrants                                       |  | (1,250,000 | ) |   | (1,589,895 | )
|Revaluation charged to operations                            |  | -          |   |   | 3,689,332  |  
|Balance, December 31, 2009                                   |  | 2,650,000  |   |   | 5,058,360  |  
|Exercise of B warrants                                       |  | (475,000   | ) |   | (612,750   | )
|Revaluation credited to operations                           |  | -          |   |   | (1,515,915 | )
|Balance, March 31, 2010                                      |  | 2,175,000  |   |   | 2,929,695  |  
|Exercise of B warrants                                       |  | (275,000   | ) |   | (338,250   | )
|Revaluation credited to operations                           |  | -          |   |   | (1,435,280 | )
|Balance, June 30, 2010                                       |  | 1,900,000  |   |   | 1,156,165  |  
|Revaluation credited to operations                           |  | -          |   |   | (505,305   | )
|Balance, September 30, 2010                                  |  | 1,900,000  |   |   | 650,860    |  
|Revaluation credited to operations                           |  | -          |   |   | (129,655   | )
|Balance, December 31, 2010                                   |  | 1,900,000  |   | $ | 521,205    |  

The Series A Convertible Preferred Stock was valued based on
the trading price of the Companys common stock. The warrants were valued using
the Black-Scholes option pricing model with a 100% expected volatility
assumption regarding the trading price of the Companys common stock.

NOTE 12 - SERIES A CONVERTIBLE PREFERRED STOCK

On March 21, 2008, the Company entered into a Preferred Stock
Purchase Agreement (the Purchase Agreement) with T Squared Investments LLC
(the Investor) to sell in a private placement to the Investor for an aggregate
purchase price of $500,000, (i) 833,333 shares of the Companys newly designated
Series A Convertible Preferred Stock, par value $0.001 per share (the Series A
Preferred Stock) for $0.60 per share (the Shares), (ii) warrants to purchase
up to 1,250,000 shares of Company common stock exercisable for a period of three
years at an exercise price of $0.75 per share (the A Warrants) or an aggregate
exercise price of $937,500 if all of the A Warrants were exercised, and (iii)
warrants to purchase up to 1,500,000 shares of Company common stock exercisable
for a period of three years at an exercise price of $1.00 per share (the B
Warrants), or an aggregate exercise price of $1,500,000 if all the B Warrants
were exercised. The Company issued the Shares, the A Warrants and B Warrants on
the same day. Westernking Financial Service acted as the sole placement agent in
the transaction for a fee of $30,000 (6% of the gross proceeds).

The Company also entered into a Registration Rights Agreement
with the Investor, pursuant to which the Company was obligated to file and have
declared effective by the SEC a registration statement registering the resale of
the Shares and Common Stock issuable upon the conversion of the Series A
Preferred Stock and the exercise of the A Warrants and B Warrants. If the
registration statement was not declared effective by the SEC by August 28, 2008,
the Registration Rights Agreement provided for the Company to issue to the
Investor as liquidated damages an additional 1,000 shares of Series A Preferred
Stock for each day thereafter not declared effective (subject to a maximum of
250,000 shares). On October 17, 2008, the SEC declared effective the Companys
registration statement on Form S-1. On October 15, 2008, the Company issued
46,000 shares of common stock to the investor in consideration for the waiver of
liquidated damages.

The Series A Preferred Stock has no voting or dividend rights,
is entitled to a liquidation preference of $0.60 per share, and each share is
convertible into one share of Company common stock at the option of the holder
(which was adjustable to more shares if certain defined EPS performance
thresholds were not met for the six months ended September 30, 2008 or the year
ended December 31, 2008; however, the performance thresholds were met). In
addition, the Investor had the right to participate in any subsequent funding by
the Company on a pro-rata basis at 100% of the offering price for a three month
period following the closing. In addition, the conversion price of the Series A
Preferred Stock and the exercise price of the warrants is to be reduced in the
event of any stock splits or stock dividends or in the event that the Company
sells, grants, or issues any shares, options, warrants, or any convertible
instrument at a price below the $0.60 current conversion price of the Series A
Preferred Stock or the current exercise prices of the warrants.

The Company recorded as a $196,500 deemed dividend and as a
$196,500 increase in additional paid-in capital, the beneficial conversion
feature allocated to the convertible preferred stock only ($196,500) based on a
relative allocation of the fair values of the convertible preferred stock
($625,000), the A warrants ($477,250) and the B warrants ($488,250) to the gross
actual proceeds received ($500,000). The fair value of the warrants was
estimated using the Black-Scholes option pricing model and the following
assumptions: stock price of $0.75 per share, exercise price of $0.75 per share
for the A warrants, exercise price of $1.00 per share for the B warrants, term
of 3 years, expected volatility of 74%, and risk-free interest rate of 4%.

F-15

---

On July 16, 2008, the Company sold the Investor, for an
aggregate purchase price of $250,000, an additional 416,667 shares of Series A
Preferred Stock, warrants to purchase up to 500,000 shares of Company common
stock exercisable for a period of three years at an exercise price of $0.9375
per share, and warrants to purchase up to 600,000 shares of Company common stock
exercisable for a period of three years at an exercise price of $1.25 per share.
The Company recorded as a $126,250 deemed dividend and as a $126,250 increase in
additional paid-in capital, the beneficial conversion feature allocated to the
convertible preferred stock only ($126,250) based on a relative allocation of
the fair values of the convertible preferred stock ($287,083) and the warrants
($281,580) to the gross actual proceeds received ($250,000). The fair value of
the warrants was estimated using the Black-Scholes option pricing model and the
following assumptions: stock price of $0.689 per share, exercise prices of
$0.9375 and $1.25 per share, term of 3 years, expected volatility of 71.4%, and
risk-free interest rate of 4%.

Below is a summary of the deemed dividends for the year ended
December 31, 2008:

|March 21, 2008 | $ | 196,500 | 
|-------------- | - | ------- | 
|July 16, 2008  |   | 126,250 | 
|Total          | $ | 322,750 | 

On October 27, 2008, the Company issued 100,000 shares of
common stock to the Investor for the conversion of 100,000 shares of Series A
Preferred Stock. On September 10, 2009, the Company issued 416,667 shares of
common stock to the Investor for the conversion of 416,667 shares of Series A
Preferred Stock. On October 22, 2009, the Company issued 433,333 shares of
common stock to the Investor for the conversion of 433,333 shares of Series A
Preferred Stock. On November 23, 2009, the Company issued 250,000 shares of
common stock to the Investor for the conversion of 250,000 shares of Series A
Preferred Stock. There were 50,000 shares of Series A Preferred Stock
outstanding at December 31, 2010 and December 31, 2009.

In November and December 2009, the Investor exercised 916,666 A
warrants in a cashless exercise and received 598,006 shares of common stock.

In October 2009, the Investor exercised 333,334 A warrants at a
price of $0.75 per share, or $250,000 total, and was issued 333,334 shares of
common stock on January 18, 2010.

In February 2010, the Investor exercised 475,000 B warrants at
a price of $1.00 per share, or $475,000 total.

During April and May 2010, the Investor exercised a total of
275,000 B warrants at a price of $1.00 per share, or $275,000 total.

NOTE 13  STOCK OPTIONS AND WARRANTS TO PURCHASE COMMON
STOCK; AND OTHER COMMON STOCK ISSUANCES

Options and Warrants

A summary of stock option and warrant activity for the years
ended December 31, 2010, 2009 and 2008 follows:

|                                 |  | Stock Options |   |  | Warrants   |  
|-------------------------------- |  | ------------- | - |  | ---------- | -
|Outstanding at January 1, 2008   |  | -             |   |  | -          |  
|Granted and issued               |  | 400,000       |   |  | 3,850,000  |  
|Exercised                        |  | -             |   |  | -          |  
|Forfeited/expired/cancelled      |  | -             |   |  | -          |  
|Outstanding at December 31, 2008 |  | 400,000       |   |  | 3,850,000  |  
|Granted and issued               |  | -             |   |  | -          |  
|Exercised                        |  | (107,059      | ) |  | (1,250,000 | )
|Forfeited/expired/cancelled      |  | (42,941       | ) |  | -          |  
|Outstanding at December 31, 2009 |  | 250,000       |   |  | 2,600,000  |  
|Granted and issued               |  | 250,000       |   |  | -          |  
|Exercised                        |  | (363,503      | ) |  | (750,000   | )
|Forfeited/expired/cancelled      |  | (136,497      | ) |  | -          |  
|Outstanding at December 31, 2010 |  | -             |   |  | 1,850,000  |  

The 400,000 stock options granted in 2008 were all issued to
the Companys law firm (Crone) for services rendered.

On March 10, 2008, the Company granted 250,000 options to
Crone, all exercisable at $1.00 per share to March 10, 2012, and expensed the
$59,225 fair value of these options at March 10, 2008 (estimated using the
Black-Scholes option pricing model and the following assumptions: stock price of $0.41 per share, exercise
price of $1.00 per share, term of 4 years, expected volatility of 100%, and
risk-free interest rate of 4%).

F-16

---

On December 31, 2008, the Company granted 150,000 options to
Crone, all exercisable at $0.30 per share to December 31, 2012, and expensed the
$31,410 fair value of these options at December 31, 2008 (estimated using the
Black-Scholes option pricing model and the following assumptions: stock price of
$0.29 per share, exercise price of $0.30 per share, term of 4 years, expected
volatility of 107%, and risk-free interest rate of 2%).

In July 2009, pursuant to a cashless exercise amendment,
107,059 options were converted by Crone into 107,059 shares of common stock and
the remaining 42,941 options were cancelled. The Company expensed the $32,118
exercise amount relating to the 107,059 shares.

On January 26, 2010, the Company issued 76,738 shares of its
common stock to Crone in a cashless exercise of 125,000 stock options
exercisable at a price of $1.00 per share and the remaining 48,262 options were
cancelled.

On February 25, 2010, the Company issued 475,000 shares of its
common stock to the Investor at a price of $1.00 per share pursuant to a cash
exercise of B warrants.

On March 3, 2010, the Company issued 125,000 shares of its
common stock to Crone pursuant to a cash exercise of 125,000 stock options at a
price of $1.00 per share.

In April 2010, the Company granted 250,000 options to Crone,
all exercisable at $0.60 per share to March 10, 2012, and expensed the $390,275
fair value of these options at April 1, 2010, included within General and
administrative expenses during the three months ended June 30, 2010 (estimated
using the Black-Scholes option pricing model and the following assumptions:
stock price of $2.10 per share, exercise price of $0.60 per share, term of 30
days, expected volatility of 100%, and risk-free interest rate of 2%).

On June 21, 2010, pursuant to a cashless exercise, 161,765
options exercisable at $0.60 per share were converted by Crone into 161,765
shares of common stock and the remaining 88,235 options were cancelled.

On April 20, 2010 and May 25, 2010, the Company issued a total
of 275,000 shares of its common stock to the Investor pursuant to cash exercises
of B warrants at a price of $1.00 per share.

|There are no stock options outstanding as of
      December 31, 2010. |  |             |  | 
|--------------------------------------------------------------------- |  | ----------- |  | 
|                                                                      |  |             |  | 
|Warrants outstanding at December 31, 2010 consist
      of:           |  |             |  | 
|                                                                      |  |             |  | 
|Date                                                                  |  | Number      |  | 
|Granted                                                               |  | Outstanding |  | 
|March 21, 2008                                                        |  | 750,000     |  | 
|July 16, 2008                                                         |  | 500,000     |  | 
|July 16, 2008                                                         |  | 600,000     |  | 
|                                                                      |  |             |  | 
|Total                                                                 |  | 1,850,000   |  | 

Other Common Stock Issuances

On February 8, 2010, the Company issued 40,000 shares of its
common stock to a consulting firm pursuant to a consulting agreement dated
September 1, 2009 (see Consulting Agreements in Note 16).

On April 20, 2010, the Company issued 50,000 shares of its
common stock to an individual for consulting services rendered. The Company
recorded the $125,000 estimated fair value of the shares (based on the market
closing price of $2.50 on April 20, 2010) as a general and administrative
expense in the three months ended June 30, 2010.

On October 1, 2010, the Company issued 13,000 shares of its
common stock to an investor relations firm for consulting services rendered. The
Company recorded the $14,300 estimated fair value of the shares (based on the
market closing price of $1.10 on October 1, 2010) as a general and
administrative expense in the three months ended December 31, 2010.

F-17

---

On December 17, 2010, the Company issued 15,000 shares of its
common stock to an investment firm for consulting services rendered pursuant to
the Investment Agreement (see Note 16). The Company recorded the $13,050
estimated fair value of the shares (based on the market closing price of $0.87
on December 31, 2010) as a general and administrative expense in the three
months ended December 31, 2010.

On December 17, 2010, the Company issued 1,000,000 shares of
its common stock to an investment firm pursuant to the Investment Agreement (see
Note 16). The Company received net proceeds from the investment firm of $742,678
($784,678 gross based on a price of $0.785678 per share, less $42,000 fees and
costs charged by the investment firm).

NOTE 14 - RESTRICTED NET ASSETS

Relevant PRC statutory laws and regulations permit payments of
dividends by Harbin Hainan Kangda and Taishan Kangda only out of their retained
earnings, if any, as determined in accordance with PRC accounting standards and
regulations. In addition, PRC laws and regulations require that annual
appropriations of after-tax income should be set aside prior to payments of
dividends as a reserve fund. As a result of these PRC laws and regulations,
Harbin Hainan Kangda and Taishan Kangda are restricted in their ability to
transfer a portion of their net assets in the form of dividends, loans or
advances, which restricted portion, amounted to $11,736,178 and $10,306,160 at
December 31, 2010 and 2009, respectively.

NOTE 15 - INCOME TAXES

The Company is subject to current income taxes on an entity
basis on taxable income arising in or derived from the tax jurisdiction in which
each entity is domiciled.

US China Kangtai was incorporated in the United States and is
subject to United States income tax. No United States income taxes were provided
in 2010 and 2009 since US China Kangtai had taxable losses in those periods.

At December 31, 2010, US China Kangtai had an unrecognized
deferred United States income tax liability relating to undistributed earnings
of Harbin Hainan Kangda. These earnings are considered to be permanently
invested in operations outside the United States. Generally, such earnings
become subject to United States income tax upon the remittance of dividends and
under certain other circumstances. Determination of the amount of the
unrecognized deferred United States income tax liability with respect to such
earnings is not practicable.

Based on managements present assessment, the Company has not
yet determined it to be more likely than not that a deferred tax asset of
approximately $350,000 ($297,500 at December 31, 2009) attributable to the
future utilization of the approximately $1,000,000 net operating loss carry
forward of US China Kangtai as of December 31, 2010 will be realized.
Accordingly, the Company has maintained a 100% allowance against the deferred
tax asset in the financial statements at December 31, 2010. The Company will
continue to review this valuation allowance and make adjustments as appropriate.
The net operating loss carry forward expires in varying amounts from year 2020
to year 2030.

Current United States income tax laws limit the amount of loss
available to be offset against future taxable income when a substantial change
in ownership occurs. Therefore, the amount available to offset future taxable
income may be limited.

BVI China Kangtai was incorporated in the BVI and is not
subject to tax on income or on capital gains.

Harbin Hainan Kangda and Taishan Kangda were incorporated in
the PRC and are subject to PRC income tax which is computed according to the
relevant laws and regulations in the PRC. Harbin Hainan Kangda located its
factories in a special economic region in Harbin, the PRC. This economic region
allows foreign owned enterprises a two-year income tax exemption beginning in
the first year after they become profitable, being 2005 and 2006, and a 50%
income tax reduction for the following three years, being 2007 to 2009. Harbin
Hainan Kangda was approved as a wholly owned foreign enterprise in March 2005.
The effective income tax rate was 15% for the years ended December 31, 2009 and
2008. The income tax rate was increased to 25% beginning from January 1, 2010.

The provision for income taxes differs from the amount computed
by applying the statutory United States federal income tax rate of 35% to income
(loss) before income taxes. The sources of the difference follow:

F-18

---

|                                                                                                                                                                                  |   |            |   |   |            |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                                                                                                                                                  |   | 2010       |   |   | 2009       |  
|Expected tax at 35% (as restated in 2010
      and 2009  Note 20)                                                                                                                | $ | 5,186,445  |   | $ | 724,655    |  
|(Non-taxable income) nondeductible expense from revaluation
      of Series A Preferred Stock and A, B, C, and D warrants with
      characteristics of liabilities at fair value |   | (1,255,154 | ) |   | 2,774,164  |  
|Tax effect of unutilized losses of US China
      Kangtai and BVI China Kangtai                                                                                                   |   | 289,618    |   |   | 63,797     |  
|Tax effect of PRC income taxed at lower rate (as restated
      in 2010 and 2009  Note 20)                                                                                       |   | (1,163,762 | ) |   | (1,999,195 | )
|Actual provision for income taxes                                                                                                                                                 | $ | 3,057,147  |   | $ | 1,563,421  |  

NOTE 16 - COMMITMENTS AND
      CONTINGENCIES

Operating lease commitments

The Company leased 10 farm sheds on April 10, 2008. The lease
payment is RMB 28,000 (approximately $4,243) per annum. The lease is to expire
on April 10, 2013.

The Company leased 1,487 mu (approximately 245 acres) land for
growing cactus from third parties under operating leases on April 1, 2008. The
lease payment is RMB 14,871 (approximately $2,253) per annum from April 1, 2008
to March 31, 2018 and RMB 23,794 (approximately $3,605) from April 1, 2018 to
March 31, 2038.

Rental expenses for all operating leases for the years ended
December 31, 2010 and 2009 were approximately $6,500 and $6,500 respectively.

At December 31, 2010, future minimum rental commitments under
all non-cancellable operating leases are due as follows:

|For the Year Ending |   |        | 
|------------------- | - | ------ | 
|December 31,        |   |        | 
|2011                | $ | 6,496  | 
|2012                |   | 6,496  | 
|2013                |   | 5,435  | 
|2014                |   | 2,253  | 
|2015                |   | 2,253  | 
|Thereafter          |   | 75,048 | 
|Total               | $ | 97,981 | 

Consulting Agreements

The Company entered into a six months investor relations
consulting contract on July 1, 2009 (which was terminated by the Company in
September 2010). Under the contract, the Company was obligated to pay the
consultant a fee of $5,000 per month, consisting of $2,500 in cash and $2,500 in
Company restricted common stock. The contract was to be automatically renewed
for six months unless either of the two parties gave 30 days written notice of
termination. On October 1, 2010, the Company issued 13,000 shares of Company
restricted common stock to this investor relations consulting firm. The stock
was valued at $1.10 per share based on the closing price on October 1, 2010.
Consequently, in addition to cash compensation, the Company accrued $14,300
consulting fees (included in general and administrative expenses) in the nine
months ended September 30, 2010.

The Company entered into a one year consulting agreement with a
consulting firm on September 1, 2009, (which expired September 30, 2010). Under
the agreement, the Company was obligated to pay the consultant a monthly cash
retainer of $2,000 paid quarterly, of which the first 3 months was due upon
signing of the contract. In addition, the Company was obligated to issue a total
of 80,000 shares of its common stock to the consultant semi-annually; the first
40,000 shares were issued February 9, 2010. As a result of the Companys
dissatisfaction with the services of the consulting firm, the Company has
advised the consulting firm that it does not expect to issue the remaining
40,000 shares.

Effective September 16, 2010, the Company entered into a
consulting agreement with another consulting firm. The agreement provides for
monthly compensation to the consultant of $5,000. The term of the agreement is 5
months, but either party may terminate the agreement on 30 days written notice
to the other party.

Consulting fees totaling $285,050 were included in general and
administrative expenses for the year ended December 31, 2010. The fees consist
of total cash payments of $52,950, a stock issuance of 40,000 shares valued at
$92,800 based on the market price of $2.32
per share, a stock issuance of 50,000 shares valued at $125,000 based on the market price of $2.50 per share, and a stock issuance of 13,000 shares valued at $14,300 based on the market price of $1.10 per share.

F-19

---

Investment agreement

On July 9, 2010, the Company entered into an Investment Agreement (the Investment Agreement) with Kodiak Capital Group, LLC (Kodiak) pursuant to which the Company has agreed to issue and sell to the Investor, and Kodiak has
agreed to purchase from the Company, up to that number of the Companys common stock having an aggregate purchase price of $1,000,000 (the Financing). Pursuant to the Investment Agreement, the price per share will be determined
once the Company submits a written notice (the Put Notice) to Kodiak stating the dollar amount in U.S. dollars the Company intends to sell to Kodiak and will be at a price equal to 83% of the volume-weighted average price of the
Companys common stock five (5) days immediately preceding the date of the Put Notice and five (5) days immediately following the date of the Put Notice. Under the Investment Agreement, the Company may not deliver the Put Notice until after the
resale of the Shares has been registered with the Securities and Exchange Commission. Additionally, provided that the Investment Agreement does not terminate earlier, the Company has a three (3) month period, beginning on the trading day immediately
following the effectiveness of the registration statement, during which it may deliver the Put Notice to the Investor (the Open Period).

As part of the consideration for the Financing, the Company has also agreed to pay Kodiak a document preparation fee of $15,000 and to issue Kodiak an additional 15,000 shares of newly-issued Company common stock at the closing of the Financing.

Under the Investment Agreement, Kodiak will only purchase shares when the Company meets the following conditions:

- a registration statement has been declared effective and remains effective for the resale of the Shares until the closing of the Financing;
- at all times during the period beginning on the date of the Put Notice and ending on the date of the
closing of the Financing, the Companys common stock has been listed on the OTC Bulletin Board and has not been suspended from trading thereon for a period of two (2) consecutive trading days during the Open Period;
- the Company has not been
notified of any pending or threatened proceeding or other action to delist or suspend the Companys common stock;
- the Company has complied with its obligations and is otherwise not in breach of or in default under the Investment Agreement,
the Registration Rights Agreement or any other agreement executed in connection therewith;
- no injunction has been issued and remains in force, and no action has been
commenced by a governmental authority which has not been stayed or abandoned,
prohibiting the purchase or the issuance of the Shares; and .
- the issuance of the Shares will not violate any shareholder approval
requirements of the market or exchange on which the Companys common stock are
principally listed.

The Investment Agreement will terminate when any of the following events occur:

- Kodiak has purchased an aggregate of $1 million of the Companys common stock;
- upon written notice from the Company to Kodiak.

Similarly, this Investment Agreement, may, at the option of the non-breaching party, terminate if Kodiak or the Company commits a material breach, or becomes insolvent or enters bankruptcy proceedings.

The Company also entered into a Registration Rights Agreement with Kodiak on July 9, 2010. Pursuant to the Registration Rights Agreement, the Company was obligated to file a registration statement registering the resale of the Shares. The Company
filed a registration statement on Form S-1 on July 30, 2010. The registration statement was declared effective on September 7, 2010.

On December 17, 2010, the Company issued 15,000 shares of its common stock to Kodiak for consulting services rendered pursuant to the Investment Agreement (see Note 13). The Company recorded the $13,050 estimated fair value of the shares (based
on the market closing price of $0.87 on December 31, 2010) as a general and administrative expense in the three months ended December 31, 2010.

On December 17, 2010, the Company issued 1,000,000 shares of its common stock to Kodiak pursuant to the Investment Agreement (see Note 13). The Company received net proceeds from Kodiak of $742,678 ($784,678 gross based on a price of
$0.785678 per share, less $42,000 fees and costs charged by Kodiak..

Concentrations and risks

Substantially all of the Companys assets are located in China and 100% of the Companys revenues have been derived from customers located in China.

F-20

---

Substantially all of Harbin Hainan Kangda and Taishan Kangdas
business operations are conducted in the PRC and governed by PRC laws and
regulations. Because these laws and regulations are relatively new, the
interpretation and enforcement of these laws and regulations involve
uncertainties.

The PRC government imposes controls on the convertibility of
RMB into foreign currencies and, in certain cases, the remittance of currency
out of the PRC. Under existing PRC foreign exchange regulations, payment of
current account items, including profit distributions, interest payments and
expenditures from the transaction, can be made in foreign currencies without
prior approval from the PRC State Administration of Foreign Exchange by
complying with certain procedural requirements. However, approval from
appropriate governmental authorities is required where RMB is to be converted
into foreign currency and remitted out of the PRC to pay capital expenses, such
as the repayment of bank loans denominated in foreign currencies. The PRC
government may also at its discretion restrict access in the future to foreign
currencies for current account transactions.

NOTE 17 - SEGMENT AND OTHER INFORMATION

The Company operates in one industry segment  the production
and sale of cactus, cactus health food, and other cactus products. Substantially
all of the Companys identifiable assets at December 31, 2010 and 2009 were
located in the PRC. Net sales for the periods presented were all derived from
PRC customers. During the year ended December 31, 2010, four customers accounted
for 14%, 9%, 9% and 8%, respectively, of net sales. During the year ended
December 31, 2009, two customers accounted for 19% and 14%, respectively, of net
sales.

|Net sales consisted of: |   |            |  |   |            | 
|----------------------- | - | ---------- |  | - | ---------- | 
|                        |   | 2010       |  |   | 2009       | 
|                        |   |            |  |   |            | 
|Finished goods          | $ | 33,430,412 |  | $ | 23,791,283 | 
|Cactus stock            |   | 2,599,138  |  |   | 2,746,073  | 
|Total                   | $ | 36,029,550 |  | $ | 26,537,356 | 

NOTE 18 - TERMINATION OF COMMON
STOCK PURCHASE AGREEMENT (LIMITED PRIVATE
PLACEMENT OFFERING WITH SEASIDE 88, LP) ENTERED INTO IN NOVEMBER
2009

On November 15, 2009, the Company entered into a Common Stock
Purchase Agreement (the Agreement) with Seaside 88, LP (Seaside) relating to
the offering and sale of up to 2,100,000 shares of Company common stock. Subject
to the limitations and qualifications set forth therein, the Agreement required
the Company to issue and sell, and Seaside to purchase, up to 150,000 shares of
common stock once every two weeks, subject to the satisfaction of customary
closing conditions. At the initial closing and at each subsequent closing, on
each 14th day thereafter for twenty-six (26) weeks, the offering price of the
Common stock was to equal 87% of the volume weighted average trading price of
the Common Stock for the ten consecutive trading days immediately preceding each
subsequent closing date. If, with respect to any subsequent closing, the volume
weighted average trading price of the Common Stock for the three trading days
immediately prior to such closing was below $1.25 per share, then the particular
subsequent closing was not to occur and the aggregate number of Shares to be
purchased was to be reduced by 150,000 shares of Common Stock, The Agreement
provided that the Company may, at its sole discretion, upon thirty (30) days
prior written notice to Seaside, terminate the Agreement after the fifth
subsequent closing. The Agreement contained representations and warranties and
covenants for each party, which must be true and have been performed at each
closing. The Agreement may have been terminated by Seaside, by written notice to
the Company, if the initial closing was not consummated on or before March 31,
2010, provided, however, if the Company receives comments from the Securities
and Exchange Commission on the registration statement covering the sale to
Seaside, or the resale by Seaside, of the Shares, this date was to be extended
until April 30, 2010.

On April 30, 2010, the Company entered into a termination
agreement (the Termination Agreement) with Seaside pursuant to which the
parties agreed to mutually terminate the Common Stock Purchase Agreement
relieving the Company of any obligations arising out of the agreement, including
liquidated damages penalties concerning shares that were to be purchased from
the Company by Seaside and registered by the Company with the Securities and
Exchange Commission.

NOTE 19 - SUBSEQUENT EVENTS

On January 24, 2011, the Company issued 50,000 shares of common
stock to the Investor in exchange for the conversion of the remaining 50,000
shares of Series A Preferred Stock outstanding.

F-21

---

NOTE 20  RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL
STATEMENTS

The Company has restated its consolidated financial statements
at December 31, 2010 and 2009 and for the years then ended (which were
previously included in the Companys Form 10-K/A filed with the SEC on April 15,
2011) in order to correct the recording of the provisions for reserve for
allowances, returns and doubtful accounts.

As previously reported, the Company deferred gross profit on
sales of products estimated to be excess product in our distribution channel by
expensing the provision for reserve for allowances, returns and doubtful
accounts and increasing the balance sheet reserve for allowances, returns and
doubtful accounts (which was reflected parenthetically on the consolidated
balance sheet as a reduction of accounts receivable). As restated, the Company
has eliminated that part of the provisions for reserve for allowances, returns,
and doubtful accounts relating to estimated excess product in our distribution
channel and has adjusted the reserve to $0 at December 31, 2010 and 2009 based
on the aging of the related accounts receivable and our historical experience of
inconsequential returns and bad debts.

The Company has also restated its consolidated statements of
cash flows for the years ended December 31, 2010 and 2009 in order to (1)
correct the presentation of the receipt of proceeds from the December 19, 2009
sale of Qitaihe City land use rights and property, plant and equipment and (2)
correct dates stated in paragraph 3 of Note 5 of the December 31, 2010 Form
10-K/A.

Paragraph 3 of Note 5 of the December 31, 2010 Form 10-K/A
(filed with the SEC on April 15, 2011) incorrectly stated that a draft agreement
with the Government of Qitaihe City for sale of Qitaihe City land use rights and
property, plant and equipment was entered into December 19, 2009 and that an
agreement of forfeiting was signed on January 27, 2010. In fact, the definitive
agreement was signed on November 27, 2009. On January 27, 2010, Qitaihe City
unilaterally amended the payment terms for the second payment, extending them
from the original 60 days to 90 days.

The effect of the restatement adjustments on the consolidated
balance sheet at December 31, 2010 follows:

BALANCE SHEET AS OF DECEMBER 31, 2010

|ASSETS                                                                                  |   |                        |     |   |             |  |   |             | 
|--------------------------------------------------------------------------------------- | - | ---------------------- | --- | - | ----------- |  | - | ----------- | 
|Current Assets                                                                          |   | As Previously Reported |     |   | Adjustments |  |   | As Restated | 
|Cash and cash equivalents                                                               | $ | 2,630,035              |     | $ | -           |  | $ | 2,630,035   | 
|Accounts receivable, net of reserve for allowances, returns
      and doubtful accounts |   | 7,416,090              | (a) |   | 1,004,027   |  |   | 8,420,117   | 
|Inventories                                                                             |   | 1,385,531              |     |   | -           |  |   | 1,385,531   | 
|Prepaid expenses                                                                        |   | 1,644                  |     |   | -           |  |   | 1,644       | 
|Other receivables                                                                       |   | 500                    |     |   | -           |  |   | 500         | 
|Total Current Assets                                                                    |   | 11,433,800             |     |   | 1,004,027   |  |   | 12,437,827  | 
|Property, plant and equipment, net Other
      Assets                                   |   | 7,928,050              |     |   | -           |  |   | 7,928,050   | 
|Land use rights, net of accumulated amortization                                        |   | 19,390,976             |     |   | -           |  |   | 19,390,976  | 
|Intangible assets, net of accumulated
      amortization                                |   | 9,714,809              |     |   | -           |  |   | 9,714,809   | 
|TOTAL ASSETS                                                                            | $ | 48,467,635             |     | $ | 1,004,027   |  | $ | 49,471,662  | 
|                                                                                        |   |                        |     |   |             |  |   |             | 
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                    |   |                        |     |   |             |  |   |             | 
|Total Liabilities                                                                       | $ | 3,295,124              |     | $ | -           |  | $ | 3,295,124   | 
|Stockholders' Equity                                                                    |   |                        |     |   |             |  |   |             | 
|Common stock                                                                            |   | 22,256                 |     |   | -           |  |   | 22,256      | 
|Additional paid-in capital                                                              |   | 14,259,777             |     |   | -           |  |   | 14,259,777  | 
|                                                                                        |   |                        |     |   |             |  |   |             | 
|Retained earnings                                                                       |   |                        |     |   |             |  |   | -           | 
|Appropriated                                                                            |   | 5,253,700              |     |   | -           |  |   | 5,253,700   | 
|Unappropriated                                                                          |   | 21,322,790             | (a) |   | 976,889     |  |   | 22,299,679  | 
|Accumulated other comprehensive income                                                  |   | 4,313,988              | (a) |   | 27,138      |  |   | 4,341,126   | 
|Total stockholders' equity                                                              |   | 45,172,511             |     |   | 1,004,027   |  |   | 46,176,538  | 
|Total Liabilities and Stockholders' Equity                                              | $ | 48,467,635             |     | $ | 1,004,027   |  | $ | 49,471,662  | 

F-22

---

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
INCOMEFOR THE YEAR ENDED DECEMBER 31, 2010

|                                           |  
|------------------------------------------ | -
|                                           |  
|                                           |  
|Net Sales                                  | $
|Cost of Sales                              |  
|Gross Profit                               |  
|                                           |  
|Operating Expenses                         |  
|Selling expenses                           |  
|(Reduction) in provision for reserve for   |  
|allowances, returns and doubtful accounts  |  
|Research and development                   |  
|General and administrative expenses        |  
|Depreciation                               |  
|Amortization of land use rights            |  
|Amortization of intangible assets          |  
|Total operating expenses                   |  
|Income from Operations                     |  
|                                           |  
|Total Other Income (Expenses)              |  
|Income before Income Tax                   |  
|Income tax expense                         |  
|Net Income Attributable to Common          |  
|Stockholders                               | $
|                                           |  
|Net Income Per Common Share:               |  
|Basic                                      | $
|Diluted                                    | $
|                                           |  
|Weighted Average Number of Common Shares   |  
|Used to Compute Earnings per Common Share: |  
|Basic                                      |  
|Diluted                                    |  
|                                           |  
|                                           |  
|Comprehensive Income:                      |  
|Net income                                 | $
|                                           |  
|Foreign currency translation adjustment    |  
|Comprehensive Income                       | $

F-23

---

The effect of the restatement adjustments on the consolidated
statement of cash flows for the year ended December 31, 2010 follows:

CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE YEAR
ENDED DECEMBER 31, 2010

|                                                                                                                                                                                                                                       |   | As Previously |      |   |             |   |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------- | ---- | - | ----------- | - | - | ----------- | -
|                                                                                                                                                                                                                                       |   | Reported      |      |   | Adjustments |   |   | As Reported |  
|Cash Flows from Operating Activities                                                                                                                                                                                                   |   |               |      |   |             |   |   |             |  
|                                                                                                                                                                                                                                       |   |               |      |   |             |   |   |             |  
|Net income                                                                                                                                                                                                                             | $ | 11,790,975    | (a)  | $ | (29,708     | ) | $ | 11,761,267  |  
|Adjustments to reconcile net income to net cash provided by
      operating activities: Income from revaluation of Series A Preferred Stock
      and A, B, C, and D warrants with characteristics of liabilities at fair
      values |   | (3,586,155    | )    |   | -           |   |   | (3,586,155  | )
|Issuance of shares in consideration for
      various                                                                                                                                                                                  |   |               |      |   |             |   |   |             |  
|services                                                                                                                                                                                                                               |   | 245,150       |      |   | -           |   |   | 245,150     |  
|Issuance of options in consideration for
      legal services                                                                                                                                                                          |   | 390,275       |      |   | -           |   |   | 390,275     |  
|Imputed interest                                                                                                                                                                                                                       |   | 53,630        |      |   | -           |   |   | 53,630      |  
|Reduction in provision for reserve for
      allowance,                                                                                                                                                                                |   |               |      |   |             |   |   |             |  
|returns and doubtful accounts                                                                                                                                                                                                          |   | (29,708       | )(a) |   | 29,708      |   |   | -           |  
|Depreciation - cost of sales                                                                                                                                                                                                           |   | 396,028       |      |   | -           |   |   | 396,028     |  
|Depreciation - operating expenses                                                                                                                                                                                                      |   | 77,097        |      |   | -           |   |   | 77,097      |  
|Amortization of land use rights -cost of
      sales                                                                                                                                                                                   |   | 343,456       |      |   | -           |   |   | 343,456     |  
|Amortization of land use rights- operating expenses                                                                                                                                                                                    |   | 38,459        |      |   | -           |   |   | 38,459      |  
|Amortization of intangible assets                                                                                                                                                                                                      |   | 498,034       |      |   | -           |   |   | 498,034     |  
|Loss on disposal of property and equipment                                                                                                                                                                                             |   | 1,665         |      |   | -           |   |   | 1,665       |  
|Changes in operating assets and
      liabilities:                                                                                                                                                                                     |   |               |      |   | -           |   |   | -           |  
|Increase in accounts receivable                                                                                                                                                                                                        |   | (5,130,263    | )    |   | -           |   |   | (5,130,263  | )
|Decrease in inventories                                                                                                                                                                                                                |   | 1,055,373     |      |   | -           |   |   | 1,055,373   |  
|Increase in prepaid expenses                                                                                                                                                                                                           |   | (379          | )    |   | -           |   |   | (379        | )
|                                                                                                                                                                                                                                       |   |               |      |   |             |   |   |             |  
|Decrease in other receivables                                                                                                                                                                                                          |   | 3,747,926     | (b)  |   | (3,747,926  | ) |   | -           |  
|Decrease in accounts payable and accrued
      liabilities                                                                                                                                                                             |   | (5,392        | )    |   | -           |   |   | (5,392      | )
|Increase in taxes payable                                                                                                                                                                                                              |   | 762,057       |      |   | -           |   |   | 762,057     |  
|Net cash provided by operating activities                                                                                                                                                                                              |   | 10,648,228    |      |   | (3,747,926  | ) |   | 6,900,302   |  
|Cash Flows from Investing Activities                                                                                                                                                                                                   |   |               |      |   |             |   |   |             |  
|Purchase of intangible assets                                                                                                                                                                                                          |   | (9,898,000    | )    |   | -           |   |   | (9,898,000  | )
|Purchase of land use rights                                                                                                                                                                                                            |   | (1,159,237    | )    |   | -           |   |   | (1,159,237  | )
|Purchase of property, plant and equipment                                                                                                                                                                                              |   | (2,462,438    | )    |   | -           |   |   | (2,462,438  | )
|Net proceeds from disposals of property, plant and                                                                                                                                                                                     |   |               |      |   |             |   |   |             |  
|equipment and Qitaihe City land use rights                                                                                                                                                                                             |   | - (b)         |      |   | 3,747,926   |   |   | 3,747,926   |  
|Collection from (advance to) related party                                                                                                                                                                                             |   | 244,136       |      |   | -           |   |   | 244,136     |  
|Net cash (used for) investing activities                                                                                                                                                                                               |   | (13,275,539   | )    |   | 3,747,926   |   |   | (9,527,613  | )
|                                                                                                                                                                                                                                       |   |               |      |   |             |   |   |             |  
|Net cash provided by financing activities                                                                                                                                                                                              |   | 1,613,636     |      |   | -           |   |   | 1,613,636   |  
|                                                                                                                                                                                                                                       |   | 725,642       |      |   | -           |   |   | 725,642     |  
|Effect of exchange rate changes on cash                                                                                                                                                                                                |   |               |      |   |             |   |   |             |  
|Decrease in cash and cash equivalents                                                                                                                                                                                                  |   | (288,033      | )    |   | -           |   |   | (288,033    | )
|                                                                                                                                                                                                                                       |   | 2,918,068     |      |   | -           |   |   | 2,918,068   |  
|Cash and cash equivalents, beginning of period                                                                                                                                                                                         |   |               |      |   |             |   |   |             |  
|                                                                                                                                                                                                                                       | $ | 2,630,035     |      | $ | -           |   | $ | 2,630,035   |  
|Cash and cash equivalents, end of period                                                                                                                                                                                               |   |               |      |   |             |   |   |             |  
|Supplemental disclosures of cash flow information:                                                                                                                                                                                     |   |               |      |   |             |   |   |             |  
|Interest paid                                                                                                                                                                                                                          | $ | -             |      | $ | -           |   | $ | -           |  
|Income taxes paid                                                                                                                                                                                                                      | $ | 2,367,469     |      | $ | -           |   | $ | 2,367,469   |  

F-24

---

CONSOLIDATED BALANCE SHEET AS OF
DECEMBER 31, 2009

|ASSETS                                           |   |                        |     |             |           |  |             |            | 
|------------------------------------------------ | - | ---------------------- | --- | ----------- | --------- |  | ----------- | ---------- | 
|                                                 |  
|Current Assets                                   |   | As Previously Reported |     | Adjustments |           |  | As Restated |           
|Cash and cash equivalents                        | $ | 2,918,068              |     | $           | -         |  | $           | 2,918,068  | 
|Accounts receivable, net of reserve for          |   |                        |     |             |           |  |             |            | 
|allowances, returns and doubtful accounts        |   | 2,283,257              | (c) |             | 1,006,597 |  |             | 3,289,854  | 
|Inventories                                      |   | 2,440,904              |     |             | -         |  |             | 2,440,904  | 
|Prepaid expenses                                 |   | 1,265                  |     |             | -         |  |             | 1,265      | 
|Other receivables                                |   | 3,992,562              |     |             | -         |  |             | 3,992,562  | 
|Total Current Assets                             |   | 11,636,056             |     |             | 1,006,597 |  |             | 12,642,653 | 
|Property, plant and equipment, net               |   | 5,750,876              |     |             | -         |  |             | 5,750,876  | 
|Other Assets                                     |   |                        |     |             |           |  |             |            | 
|Land use rights, net of accumulated amortization |   | 17,981,834             |     |             | -         |  |             | 17,981,834 | 
|Intangible assets, net of accumulated            |   |                        |     |             |           |  |             |            | 
|amortization                                     |   | 316,300                |     |             | -         |  |             | 316,300    | 
|TOTAL ASSETS                                     | $ | 35,685,066             |     | $           | 1,006,597 |  | $           | 36,691,663 | 
|                                                 |   |                        |     |             |           |  |             |            | 
|LIABILITIES AND STOCKHOLDERS'                    |   |                        |     |             |           |  |             |            | 
|EQUITY                                           |   |                        |     |             |           |  |             |            | 
|Total Liabilities                                | $ | 7,049,075              |     | $           | -         |  | $           | 7,049,075  | 
|Stockholders' Equity                             |   |                        |     |             |           |  |             |            | 
|Common stock                                     |   | 20,024                 |     |             | -         |  |             | 20,024     | 
|Additional paid-in capital                       |   | 11,003,276             |     |             | -         |  |             | 11,003,276 | 
|Retained earnings                                |   |                        |     |             |           |  |             | -          | 
|Appropriated                                     |   | 3,881,804              |     |             | -         |  |             | 3,881,804  | 
|Unappropriated                                   |   | 10,903,711             | (c) |             | 1,006,597 |  |             | 11,910,308 | 
|Accumulated other comprehensive income           |   | 2,827,176              |     |             |           |  |             | 2,827,176  | 
|Total stockholders' equity                       |   | 28,635,991             |     |             | 1,006,597 |  |             | 29,642,588 | 
|                                                 |   |                        |     |             |           |  |             |            | 
|Total Liabilities and Stockholders' Equity       | $ | 35,685,066             |     | $           | 1,006,597 |  | $           | 36,691,663 | 

The effect of the restatement adjustments on the consolidated
statement of income and comprehensive income for the year ended December 31,
2009 follows:

F-25

---

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
INCOMEFOR THE YEAR ENDED DECEMBER 31, 2009

| |  | As Previously Reported |  | Adjustments |  |  | As Restated | 
| |  | ---------------------- |  | ----------- |  |  | ----------- | 

|Net Sales                                                                | $ | 26,537,356  |   | $ | -           |   | $ | 26,537,356  |  
|------------------------------------------------------------------------ | - | ----------- | - | - | ----------- | - | - | ----------- | -
|Cost of Sales                                                            |   | (16,016,434 | ) |   | -           |   |   | (16,016,434 | )
|Gross Profit                                                             |   | 10,520,922  |   |   | -           |   |   | 10,520,922  |  
|                                                                         |   |             |   |   |             |   |   |             |  
|Operating Expenses                                                       |   |             |   |   |             |   |   |             |  
|Selling expenses                                                         |   | 249,083     |   |   | -           |   |   | 249,083     |  
|Provision for reserve for allowance,
      returns and doubtful accounts |   | 26,897      |   |   | (c) (26,897 | ) |   | -           |  
|General and administrative expenses                                      |   | 464,697     |   |   | -           |   |   | 464,697     |  
|Depreciation                                                             |   | 77,323      |   |   | -           |   |   | 77,323      |  
|Amortization of land use rights                                          |   | 38,165      |   |   | -           |   |   | 38,165      |  
|Amortization of intangible assets                                        |   | 137,227     |   |   | -           |   |   | 137,227     |  
|Total operating expenses                                                 |   | 993,392     |   |   | (26,897     | ) |   | 966,495     |  
|Income from Operations                                                   |   | 9,527,530   |   |   | 26,897      |   |   | 9,554,427   |  
|                                                                         |   |             |   |   |             |   |   |             |  
|Total Other Income (Expenses)                                            |   | (7,483,984  | ) |   | -           |   |   | (7,483,984  | )
|Income before Income Tax                                                 |   | 2,043,546   |   |   | 26,897      |   |   | 2,070,443   |  
|Income tax expense                                                       |   | (1,563,421  | ) |   | -           |   |   | (1,563,421  | )
|Net Income Attributable to Common Stockholders                           | $ | 480,125     |   | $ | 26,897      |   | $ | 507,022     |  
|                                                                         |   |             |   |   |             |   |   |             |  
|Net Income For Common Share:                                             |   |             |   |   |             |   |   |             |  
|Basic                                                                    | $ | 0.03        |   | $ | -           |   | $ | 0.03        |  
|Diluted                                                                  | $ | 0.02        |   | $ | 0.01        |   | $ | 0.03        |  
|                                                                         |   |             |   |   |             |   |   |             |  
|Weighted Average Number of Common Shares                                 |   |             |   |   |             |   |   |             |  
|Used to Compute Earnings per Common Share:                               |   |             |   |   |             |   |   |             |  
|Basic                                                                    |   | 18,304,775  |   |   | -           |   |   | 18,304,775  |  
|Diluted                                                                  |   | 19,469,714  |   |   | -           |   |   | 19,469,714  |  
|                                                                         |   |             |   |   |             |   |   |             |  
|Comprehensive Income:                                                    |   |             |   |   |             |   |   |             |  
|Net income                                                               | $ | 480,125     |   | $ | 26,897      |   | $ | 507,022     |  
|Foreign currency translation adjustment                                  |   | (220,696    | ) |   | -           |   |   | (220,696    | )
|Comprehensive Income                                                     | $ | 259,429     |   | $ | 26,897      |   | $ | 286,326     |  

The effect of the restatement adjustments on the consolidated
statement of cash flows for the year ended December 31, 2009 follows:

F-26

---

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR
ENDED DECEMBER 31, 2009

|                                                                                                                                                |  
|----------------------------------------------------------------------------------------------------------------------------------------------- | -
|                                                                                                                                                |  
|Cash Flows from Operating Activities                                                                                                            |  
|                                                                                                                                                |  
|Net income                                                                                                                                      | $
|Adjustments to reconcile net income to net cash provided by
      operating activities:                                                         |  
|Expense from revaluation of Series A
      Preferred Stock and A, B, C, and D warrants with characteristics of
      liabilities at fair values |  
|Stock option expense                                                                                                                            |  
|Imputed interest                                                                                                                                |  
|Provision for allowances, returns and doubtful accounts                                                                                         |  
|Net gain on disposal of property, plant and
      equipment                                                                                     |  
|Depreciation - cost of sales                                                                                                                    |  
|Depreciation - operating expenses                                                                                                               |  
|Amortization of land use rights -cost of sales                                                                                                  |  
|Amortization of land use rights- operating
      expenses                                                                                       |  
|Amortization of intangible assets                                                                                                               |  
|Changes in operating assets and
      liabilities:                                                                                              |  
|Decrease in accounts receivable                                                                                                                 |  
|Decrease in inventories                                                                                                                         |  
|Increase in prepaid expenses                                                                                                                    |  
|Increase in other receivables                                                                                                                   |  
|Decrease in accounts payable and accrued liabilities                                                                                            |  
|Increase in taxes payable                                                                                                                       |  
|Net cash provided by operating activities                                                                                                       |  
|Cash Flows from Investing Activities                                                                                                            |  
|Purchase of land use rights                                                                                                                     |  
|Purchase of Qitaihe City land use rights
      and property, plant and equipment                                                                |  
|Proceeds from disposals of property, plant and equipment                                                                                        |  
|Advance to related party                                                                                                                        |  
|Net cash (used for) investing activities                                                                                                        |  
|                                                                                                                                                |  
|Net cash provided by financing activities                                                                                                       |  
|Effect of exchange rate changes on cash                                                                                                         |  
|Decrease in cash and cash equivalents                                                                                                           |  
|                                                                                                                                                |  
|Cash and cash equivalents, beginning of period                                                                                                  |  
|                                                                                                                                                | $
|Cash and cash equivalents, end of period                                                                                                        |  
|                                                                                                                                                |  
|Supplemental disclosures of cash flow information:                                                                                              |  
|Interest paid                                                                                                                                   | $
|Income taxes paid                                                                                                                               | $

Legend:

|(a) | To eliminate 2010 provision for reserve for allowances
      relating to excess product and reserve for allowances relating to excess
      product.           
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                
|(b) | To reclassify the classification of 2010 proceeds
      received from the Companys 2009 Qitaihe City land use rights
    disposal.                            
|    |                                                                                                                                                                
|(c) | To eliminate 2009 provision for reserve for allowances
      relating to excess product and reserve for allowances relating to excess
      product.           
|    |                                                                                                                                                                
|(d) | To reclassify the classification of 2009 purchase and
      proceeds received from the Companys 2009 Qitaihe City land use rights
      purchase and disposal.

F-27

---