UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





Form 10-K





x ANNUAL REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
ACT OF 1934





For the
fiscal year ended December 31, 2008





o TRANSITION REPORT
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE


ACT OF
1934





For the
transition period from
              
to
              .





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
to be registered under Section 12(b) of the Act: None




Securities
to be registered under Section 12(g) of the 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 oNo 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 xNo  ̈





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 o No x





The
aggregate market value of the voting and non-voting stock held by non-affiliates
of the registrant, as of June 30, 2008, was approximately $4,699,244. 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
March 11, 2009, there were 17,885,625 shares of the issuer's common stock,
$0.001 par value per share, issued and outstanding.





TABLE
OF CONTENTS




PagePART IItem
      1.
                      Business
                      1Item
      2.
                      Description
      of Property
                      9Item
      3.
                      Legal
      Proceedings
                      9Item
      4.
                      Submission
      of Matters to a Vote of Security Holders
                      9PART IIItem
      5.
                      Market
      for Common Equity and Related Stockholder Matters
                      9Item
      6.
                      Selected
      Financial Data
                      10Item
      7.
                      Management’s
      Discussion and Analysis
                      10Item
      8.
                      Financial
      Statements
                      13Item
      9.
                      Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                      13Item
      9A(T)
                      Controls
      and Procedures
                      14Item
      9B
                      Other
      Information
                      14PART IIIItem
      10.
                      Directors,
      Executive Officers, Promoters and Control Persons; Compliance With
      Section 16(a) of the Exchange Act.
                      14Item
      11.
                      Executive
      Compensation
                      16Item
      12.
                      Security
      Ownership of Certain Beneficial Owners and Management
                      17Item
      13.
                      Certain
      Relationships and Related Transactions
                      18Item
      14.
                      Principal
      Accountant Fees and Services
                      19Item
      14.
                      Exhibits
                      19SIGNATURES
                      23







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.


1




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.




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.


2





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 2008 is 14,425 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.




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 2006,
the Company had entered two new co-processing agreements with Huimeijia Bio-tech
Ltd. to produce nutraceutical soft capsules and Kangwei Health Foods Ltd. of
Mudanjiang City to produce cactus palm dry powder products.





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.


3




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.




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
$10,177,000 in fiscal year 2008, or about 49% of the total net
sales.





The
revenue generated from sales of cactus food, beverage and wine was approximately
$5,288,500 in year 2008, or about 26% %. The remaining 25% of the sales is
cactus raw and intermediate materials.





The
Company currently has four product categories which are nutraceuticals,
beverages, raw and intermediate materials and packaged foods. The table below
sets forth revenue derived from each product category and the percentage of
total revenue each product category accounts for in 2008:





Product Categories
                                
                                Sales revenue
                                  in 2008 (in US$)
                                
                                
                                Percentage
                                  of Total Revenue in
                                  2008Nutraceuticals
                                
                                
                                10,125,570
                                
                                
                                
                                49.9
                                %Beverages
                                
                                
                                5,395,341
                                
                                
                                
                                26.6
                                %Raw
      & Intermediate Materials
                                
                                
                                3,800,383
                                
                                
                                
                                18.7
                                %Packaged
      Foods
                                
                                
                                119,285
                                
                                
                                
                                0.6
                                %Cactus
      Feed
                                
                                
                                860,004
                                
                                
                                
                                4.2
                                %Total
      Revenue
                                
                                
                                20,300,583
                                
                                
                                
                                100
                                %





The
following table sets forth further breakdown of the Nutraceuticals by specific
products and the percentage each product accounts for in 2008:




4





Name of Nutraceutical Products
                                    
                                    Sales (in US$)
                                    
                                    
                                    Percentage
                                      of Total RevenueCactus
      Calcium Peptide Soft Capsule
                                    
                                    
                                    3,824,348
                                    
                                    
                                    
                                    37.8
                                    %Cactus
      Protein Nutrient
                                    
                                    
                                    1,785,863
                                    
                                    
                                    
                                    17.6
                                    %Cactus
      Calcium Peptide Soft Capsule for Children
                                    
                                    
                                    2,617,179
                                    
                                    
                                    
                                    25.9
                                    %Cactus
      Shuxin Capsule
                                    
                                    
                                    1,897,178
                                    
                                    
                                    
                                    18.7
                                    %Cactus
      Tang Gong Tian Bao Liquor
                                    
                                    
                                    1,002
                                    
                                    
                                    
                                    0.01
                                    %Total
                                    
                                    
                                    10,125,570
                                    
                                    
                                    
                                    100
                                    %





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 January 2005. 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.




Line
                                          
                                          Cactus Related Products
                                          
                                          Varieties
                                          
                                          Brand
                                          
                                          Sub-Brand
                                          
                                          Lunch
                                            DateNutraceutical
                                          
                                          Cactus
      Calcium Peptide Soft Capsule
                                          
                                          One
                                          
                                          Kangda Cactus
                                          
                                          Magic
      Baby
                                          
                                          Jan.
      2001Nutraceutical
                                          
                                          Cactus
      Calcium Peptide Soft Capsule for Children
                                          
                                          One
                                          
                                          Kangda
      Cactus
                                          
                                          Magic
      Baby
                                          
                                          Jan.
      2003Nutraceutical
                                          
                                          Cactus
      Shuxin Capsule
                                          
                                          One
                                          
                                          Kangda
      Cactus
                                          
                                          Magic
      Baby
                                          
                                          Jan.
      2001Nutraceutical
                                          
                                          Cactus
      Tangkang Capsule
                                          
                                          One
                                          
                                          Kangda
      Cactus
                                          
                                          Magic
      Baby
                                          
                                          Jul.
      2004Nutraceutical
                                          
                                          Cactus
      Delicious Vinegar for Noble Lady
                                          
                                          One
                                          
                                          Kangda
      Cactus
                                          
                                          Magic
      Baby
                                          
                                          Jan.
      2001Nutraceutical
                                          
                                          Cactus
      Protein Nutrient
                                          
                                          One
                                          
                                          Kangda
      Cactus
                                          
                                          Magic
      Baby
                                          
                                          Jan.
      2002Nutraceutical
                                          
                                          Cactus
      Fruit Health Oral Liquid
                                          
                                          One
                                          
                                          Kangda
      Cactus
                                          
                                          Magic
      Baby
                                          
                                          Aug.
      2004Beverage
                                          
                                          Cactus
      Prickly Pear Wine
                                          
                                          Five
                                          
                                          Kangda
      Cactus
                                          
                                          Magic
      Baby
                                          
                                          Oct.
      2003Beverage
                                          
                                          Cactus
      Overlord Scourge Flower Imperial Wine
                                          
                                          One
                                          
                                          Kangda
      Cactus
                                          
                                          Magic
      Baby
                                          
                                          Apr.
      2003Beverage
                                          
                                          Cactus
      Fruit Wine
                                          
                                          One
                                          
                                          Kangda
      Cactus
                                          
                                          Magic
      Baby
                                          
                                          Jan.
      2005Beverage
                                          
                                          Cactus
      Tang Gong Tian Bao Liquor
                                          
                                          One
                                          
                                          Kangda
      Cactus
                                          
                                          Magic
      Baby
                                          
                                          Jun.
      2004Beverage
                                          
                                          Cactus
      Double Flowers Tea
                                          
                                          Several
                                          
                                          Kangda
      Cactus
                                          
                                          Magic
      Baby
                                          
                                          Oct.
      2001




5





Beverage
                                            
                                            Cactus
      Beer
                                            
                                            One
                                            
                                            Kangda
      Cactus/ Tsingtao Co-Brand
                                            
                                            
                                            
                                            Jan.
      2005Beverage
                                            
                                            Cactus
      Juice Beverage
                                            
                                            Two
                                            
                                            Kangda
      Cactus
                                            
                                            Magic
      Baby
                                            
                                            Nov.
      2006Beverage
                                            
                                            Cactus
      Iced Black Tea
                                            
                                            One
                                            
                                            Kangda
      Cactus
                                            
                                            Magic
      Baby
                                            
                                            Jan.
      2003Beverage
                                            
                                            Cactus
      Iced Green Tea
                                            
                                            One
                                            
                                            Kangda
      Cactus
                                            
                                            Magic
      Baby
                                            
                                            Jan.
      2003Beverage
                                            
                                            Cactus
      Fruit Dry Red Wine
                                            
                                            One
                                            
                                            Kangda
      Cactus
                                            
                                            Magic
      Baby
                                            
                                            Jan.
      2005Beverage
                                            
                                            Cactus
      Fruit Juice Beverage
                                            
                                            One
                                            
                                            Kangda
      Cactus
                                            
                                            Magic
      Baby
                                            
                                            Jan.
      2006Beverage
                                            
                                            Cactus
      Honeysuckle Beverage
                                            
                                            One
                                            
                                            Kangda
      Cactus
                                            
                                            Magic
      Baby
                                            
                                            Jan.
      2003Packaged
      Food
                                            
                                            Cactus
      Noodles
                                            
                                            Several
                                            
                                            Kangda
      Cactus
                                            
                                            Magic
      Baby
                                            
                                            Sep.
      2004Packaged
      Food
                                            
                                            Cactus
      Perserved Bag Vegetables
                                            
                                            Two
                                            
                                            Kangda
      Cactus
                                            
                                            Magic
      Child
                                            
                                            Jan.
      2001R&I
      Materials
                                            
                                            Cactus
      Palm Leaves
                                            
                                            Several
                                            
                                            Kangda
      Cactus
                                            
                                            
                                            
                                            Jan.
      2001R&I
      Materials
                                            
                                            Cactus
      Dry Powder
                                            
                                            Several
                                            
                                            Kangda Cactus
                                            
                                            
                                            
                                            Jan.
      2004




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 2008 fiscal year is as follows:




US$(1)Heilongjiang
                      
                      $
                      4,119,552Jilin
                      
                      $
                      641,272Shandong
                      
                      $
                      1,766,454Beijing
                      
                      $
                      3,271,948Guangdong
                      
                      $
                      4,762,895Liaoning
                      
                      $
                      881,807Shanxi
                      
                      $
                      825,943Hunan
                      
                      $
                      1,008,800Gansu
                      
                      $
                      850,219Other
                      
                      $
                      2,171,693


6





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 19% 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 and an active research and
development department which currently holds 17 patents and is seeking 13 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. W have a total of 23 product lines
compare to our top five competitors which combined have a total of 26 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
 •
              Quality
      control monitoring
 •
              Quality
      packaging


7
 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, 2008, the Company has a total of 144 employees and generally enjoys
good employer-employee relationship. The table below sets forth the number of
our employees by department and location:





DEPARTMENT
                              
                              NUMBER
                              
                              LOCATIONAdministration
                              
                              18
                              
                              HarbinSales
                              
                              25
                              
                              HarbinProduction
                              
                              52
                              
                              HarbinBaisha
      Base (cactus crop growing and production)
                              
                              25
                              
                              TaishanShalan
      Base (cactus crop growing and production)
                              
                              12
                              
                              TaishanResearch
      and Development
                              
                              12
                              
                              HarbinTotal
                              
                              144




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.




Employees




As of
December 31, 2008, China Kangtai has 144 full-time employees. The Management of
the Company expects to continue to use consultants, attorneys, and accountants
as necessary, to complement services rendered by its employees.




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”).


8





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.




ITEM
2. DESCRIPTION OF PROPERTY.




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 in China,
production facilities and an R&D facility.





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. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.




No
matters were submitted to a vote of the security holders of the Company during
the fourth quarter of the fiscal year ended December 31, 2008.




PART II




ITEM
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS




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.


9




Year
                    
                    Quarter Ended
                    
                    High
                    
                    
                    Low2008
                    
                    December
      31
                    
                    $
                    0.51
                    
                    
                    $
                    0.12September
      30
                    
                    $
                    0.83
                    
                    
                    $
                    0.31June
      30
                    
                    $
                    0.73
                    
                    
                    $
                    0.53March
      31
                    
                    $
                    0.92
                    
                    
                    $
                    0.652007
                    
                    December
      31
                    
                    $
                    1.40
                    
                    
                    $
                    0.72September
      30
                    
                    $
                    0.95
                    
                    
                    $
                    0.60June
      30
                    
                    $
                    1.32
                    
                    
                    $
                    0.54March
      31
                    
                    $
                    1.97
                    
                    
                    $
                    1.01




Record
Holders




As March
11, 2009, there were approximately 99 shareholders of record holding a total of
17,885,625 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.





ITEM
6. SELECTED FINANCIAL DATA





Not
required.





ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.




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 10KSB 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.


10




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.




Results of
Operations




During
the period from March 31, 2004 through December 31, 2008, CKGT has
been engaged in the development and marketing of its products from Harbin,
China. CKGT expects that over the next twelve months it will continue to market
its products in Harbin, China.




Year Ended December 31,
2008 and Year Ended December 31, 2007




Sales




For the
fiscal year ended December 31, 2008, sales increased by $6,059,928 or by
42.6% to $20,300,583 from $14,240,655 for the year ended December 31, 2007.
The increase in sales is attributable to the fact that the Company’s products
are more efficiently marketed and increasingly well accepted by the domestic
market customers and the addition of cactus feed as a new product which
accounted for approximately $873,400 of our total sales.




Cost
of Sales




For the
fiscal year ended December 31, 2008, cost of sales increased by $2,678,052
or 27.8% to $12,307,303 from $9,629,251 as compared to the corresponding period
of the prior year. The increase in the cost of sales is a direct result of the
increase in our sales.


11





Selling
and Distribution Expenses




For the
fiscal year ended December 31, 2008, selling expenses decreased by $65,018
or 23.3% to $214,285 from $279,303 as compared to the corresponding period of
the prior year. The decrease is primarily attributable to the Company’s
optimization of its operating team and sales forces, allocated sales and
distribution expenses to the sales agent companies in different provinces of
China, all of which reduced the unit selling and distribution expenses of
the Company.




General
and Administrative Expenses




For the
fiscal year ended December 31, 2008, general and administrative expenses
decreased by $502,890 or 43.7% to $648,644 from $1,151,534 as compared to the
prior year. The decrease is primarily due to a decrease in outstanding accounts
receivables and a decrease in the provision for doubtful accounts in 2008 as a
result of the enhancement of our policy on collections.




Total
Operating Expenses





For the
fiscal year ended December 31, 2008, operating expenses decreased by $512,484,
or 30.9% from $1,661,113 to $1,148,629, as compared to the prior year. The
decrease is mainly attributable to a decrease in the provision for doubtful
accounts for reasons discussed above.





Net
Income




For the
fiscal year ended December 31, 2008, the net income increased by $3,413,210
or 148.4% to $5,712,910 from $2,299,700 as compared to the prior year. The
increase mainly resulted from rapid growth in the sales of the Company’s
products, the addition of cactus feed as a new product and the reduction in the
operating expenses.




Impact
of Inflation




CKGT
believes that inflation has had a negligible effect on operations over the past
three years. CKGT believes that it can offset inflationary increases in
operating costs by increasing prices.




Liquidity
and Capital Resources




For the
fiscal year ended December 31, 2008, cash flows provided by operating activities
increased by $7,546,519 or 354% to $9,676,505 from $2,129,986 as compared to the
corresponding fiscal year ended December 31, 2007. The increase is
primarily due to the increase in sales and the decrease in
inventories.




For the
fiscal year ended December 31, 2008, cash flows used for investing activities
increased by $4,553,215 or 173% to $7,184,232 from $2,631,017 as compared to the
prior year. The decrease is due to increased investments in acquiring land use
rights in 2008.




For the
fiscal year ended December 31, 2008, cash flow provided by financing
activities increased by $667,398 or 1,247% to $720,922 from $53,524 as compared
to fiscal year ended December 31, 2007. The primary factor responsible for
the increase is due to financing transactions completed in 2008 and the increase
in note payable.




The
Company’s operations for the year ended December 31, 2008 resulted in
comprehensive income of $7,022,156 . The
Company has funded its cash needs from revenue.


12




CKGT has
no defined benefit plan or contractual commitment with any of its officers or
directors.




CKGT has
no current plans for the purchase or sale of any plant or equipment, outside of
normal items to be utilized by office personnel.





CKGT has
no current plans to make any significant changes in the number of
employees.




Critical
Accounting Policies




In Note 2
to the audited consolidated financial statements for the years ended
December 31, 2008 and 2007 included in this annual report, CKGT discusses
those accounting policies that are considered to be significant in determining
the results of operations and its financial position. CKGT believes that the
accounting principles utilized by it conform to accounting principles
generally accepted in the United States of America.




The
preparation of financial statements requires management to make significant
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses. By their nature, these judgments are subject to an
inherent degree of uncertainty. On an on-going basis, we evaluate our estimates,
including those related to bad debts, inventories, intangible assets, warranty
obligations, product liability, revenue, and income taxes. CKGT bases its
estimates on historical experience and other facts and circumstances that are
believed to be reasonable, and the results form the basis for making
judgments about the carrying value of assets and liabilities. The actual results
may differ from these estimates under different assumptions or
conditions.




CKGT
applies the following critical accounting policies related to revenue
recognition in the preparation of its financial statements.




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.





Recent
Accounting Pronouncements





Certain
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.





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.


13





ITEM
9A(T).  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, 2008 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, 2007, 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, 2008. 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.





PART III




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




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


14




Name
                    
                    Age
                    
                    Positions HeldJinjiang
      Wang
                    
                    59
                    
                    President,
      Chief Executive Officer and Chairman of the Board of
    DirectorsChengzhi
      Wang
                    
                    38
                    
                    General
      Manager and a DirectorHong
      Bu
                    
                    34
                    
                    Chief
      Financial Officer and a DirectorJiping
      Wang
                    
                    47
                    
                    DirectorSong
      Yang
                    
                    34
                    
                    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
Wangwas 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.


15





Song
Yangwas 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.




Audit Committee/
Compensation Committee / Director Compensation




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




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.




Based
solely on the Company’s review of the copies of such forms it has received, and
written representations from certain reporting persons, the Company believes
that all of its executive officers and directors complied with all
Section 16(a) filing requirements applicable to them with one
exception. A Form 3 for Chengzhi Wang, a director of the Company, was
inadvertently filed a day late in connection with the Company’s reorganization
transaction occurring in June 2005.




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 2008,
2007 and 2006 concerning cash and non-cash compensation paid or accrued by the
Company to or on behalf of the chief executive officer:


16





Summary
Compensation Table




Name and Principal Position
                                    
                                    Year
                                    
                                    Salary
                                      ($)(1)
                                    
                                    Bonus
                                      ($)
                                    
                                    Stock
                                      Award(s)
                                      ($)
                                    
                                    Option
                                      Award(s)
                                      ($)
                                    
                                    Non-Equity
                                      Incentive
                                      Plan
                                      Compensation
                                      ($)
                                    
                                    Change in
                                      Pension
                                      Value and
                                      Non-qualified
                                      Compensation
                                      Earnings
                                      ($)
                                    All other
                                      Compensation
                                      ($)
                                    
                                    Total
                                      ($)Jinjiang
      Wang,
                                    
                                    2008
                                    
                                    $
                                    14,630
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    -
                                    -
                                    
                                    $
                                    14,630President,
      Chief Executive
                                    
                                    2007
                                    
                                    $
                                    7,900
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    -
                                    -
                                    
                                    $
                                    7,900Officer
      and Chairman
                                    
                                    2006
                                    
                                    $
                                    2,600
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    -
                                    -
                                    
                                    $
                                    2,600Chengzhi
      Wang,
                                    
                                    2008
                                    
                                    
                                    11,118
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    -
                                    -
                                    
                                    $
                                    11,118General
      Manager
                                    
                                    2007
                                    
                                    $
                                    6,320
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    -
                                    -
                                    
                                    $
                                    6,3202006
                                    
                                    
                                    -
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    -
                                    -
                                    
                                    
                                    -Hong
      Bu,
                                    
                                    2008
                                    
                                    
                                    11,118
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    -
                                    -
                                    
                                    $
                                    11,118Chief
      Financial Officer
                                    
                                    2007
                                    
                                    $
                                    6,320
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    -
                                    -
                                    
                                    $
                                    6,3202006
                                    
                                    
                                    -
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    -
                                    -
                                    
                                    
                                    -


(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, 2008, 2007 and 2006. In addition, members of the Board
of Directors did not receive compensation for their services during the fiscal
years ending December 31, 2008, 2007 and 2006.





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





The
following table sets forth, as of March 11, 2009, 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.





Title
      of
                            Class
                          
                          Name
      and Address of Owner
                          
                          Amount
      and Nature
                            of
      Ownership
                          
                          Percent
      of
                            Class(1)Executive
      Officers and DirectorsCommon
      Stock
                          
                          
                          Jinjiang
      Wang
                            The
      4th Group, 21st Residents’
                            Committee
      Xinhua Street, Boli Town,
                            Boli
      County Heilongjiang Province P.R.C.
                          
                          
                          4,801,390
      Direct
                          (2)
                          
                          26.8
                          %Common
      Stock
                          
                          
                          Chengzhi
      Wang
                            No.
      98 Xiangshun Street
                            Xiangfang
      District, Harbin, P.R.C.
                          
                          
                          3,892,970
      Direct
                          
                          
                          21.8
                          %Common
      Stock
                          
                          
                          Hong
      Bu
                            No.
      99 Taibei Road
                            Limin
      Economy and Technology
                            Developing
      District, Harbin, P.R.C.
                          
                          
                          750,046
      Direct
                          
                          
                          4.2
                          %




17




Common
      Stock
                
                
                Jiping
      Wang
                  No.
      99 Taibei Road
                  Limin
      Economy and Technology
                  Developing
      District, Harbin, P.R.C.
                
                
                700,734
      Direct
                
                
                3.9
                %Common
      Stock
                
                
                Song
      Yang
                  No.
      99 Taibei Road
                  Limin
      Economy and Technology
                  Developing
      District, Harbin, P.R.C.
                
                
                726,688
      Direct
                
                
                4.1
                %Common
      Stock
                
                
                All
      Directors and Executive Officers as a Group (5 persons)
                
                10,871,828
      Direct
                
                
                60.8
                %5%
      HolderCommon
      Stock
                
                
                T
      Squared Investments LLC.
                  1325
      Sixth Avenue, Floor 28
                  New
      York, NY 10019
                
                
                5,100,000
      Direct
                (3)
                
                22.2
                %







(1) Applicable
percentage ownership is based on 17,885,625 shares of common stock outstanding
as of March 11, 2009, together with securities exercisable or convertible into
shares of common stock within 60 days of March 11, 2009 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 of March 11, 2009 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 and 428,572 shares of the Company as Kangtai’s sole designee
pursuant to the Stock Purchase 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)Of
which 1,250,000 shares of common stock are issuable upon conversion of 1,250,000
shares of Series A Convertible Preferred Stock at the election of the holder at
any time and 3,850,000 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.




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.


18





ITEM
14.  PRINCIPAL ACCOUNTANT 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 2008 and 2007 were as
follows:





2008
                  
                  
                  2007Audit
      Fees
                  
                  $
                  94,000
                  
                  
                  $
                  94,000Audit-Related
      Fees
                  
                  
                  -
                  
                  
                  
                  -Total
      Audit and Audit-Related Fees
                  
                  $
                  94,000
                  
                  
                  $
                  94,000Tax
      Fees
                  
                  
                  -
                  
                  
                  
                  -All
      Other Fees
                  
                  
                  -
                  
                  
                  
                  -Total
      for independent public audit firms
                  
                  $
                  94,000
                  
                  
                  $
                  94,000





Tax Fees




The
aggregate fees billed by P. C. Liu, CPA, P.C. for tax compliance, tax
advice and tax planning were $1,000 for the fiscal years ended December 31, 2008
and $1,000 for the fiscal years ended December 31, 2007.





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, 2008. 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, 2008. 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, 2008.





ITEM
15.  EXHIBITS





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).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).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).




19





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 January 20, 2006, between the Company and Huimeijia
      Bio-tech Ltd. (incorporated by reference to the Form 10QSB filed with
      the Securities and Exchange Commission on May 16,
2007).10.11
              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).10.12
              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).10.13
              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).10.14
              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).10.15
              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).10.16
              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).10.17
              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).10.18
              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).10.19
              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).10.20
              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).10.21
              Cooperation
      Agreement between Harbin Hainan Kangda Cactus Hygienical Foods Co., Ltd
      and Party B: Harbin Meijia Bio-Tech Co., Ltd. dated October 8, 2007
      *10.22
              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).10.23
              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).10.24
              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).




20





10.25
              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).10.26
              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).10.27
              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).10.28
              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).10.29
              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).10.30
              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).10.31
              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).10.32
              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).10.33
              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).10.34
              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).10.35
              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).10.36
              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).10.37
              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).10.38
              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).10.39
              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).10.40
              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).10.41
              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).10.42
              Common
      Stock Purchase Warrant “A” (incorporated by reference to the From 8-K
      filed with the Securities and Exchange Commission on March 27,
      2008).10.43
              Common
      Stock Purchase Warrant “B” (incorporated by reference to the From 8-K
      filed with the Securities and Exchange Commission on March 27,
      2008).




21





10.44
              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)10.45
              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)10.46
              Common
      Stock Purchase Warrant “A” (incorporated by reference to the Form 8-K
      filed on July 21, 2008)10.47
              Common
      Stock Purchase Warrant “B” (incorporated by reference to the Form 8-K
      filed on July 21, 2008)21.1
              List
      of Subsidiaries (incorporated by reference to the From 10-KSB filed on
      April 15, 2008)31.1*
              Certification
      of the Chief Executive Officer pursuant to Rule 13a-14(a) or
      15d-14(a) under the Securities Exchange 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 Securities Exchange 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 Section 906 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 Section 906 of the Sarbanes-Oxley Act of
      2002.


*
            Filed
      Herewith




22


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 OfficerDate:
      April 15, 2009By:
                            /s/
      Hong Bu
                            
                            Chief
      Financial Officer and a Director and Principal Financial
                              and
      Accounting OfficerDate:
      April 15, 2009




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 OfficerDate:
      April 15, 2009By:
                                      /s/
      Chengzhi Wang
                                      
                                      General
      Manager and a DirectorDate:
      April 15, 2009By:
                                      /s/
      Hong Bu
                                      
                                      Chief
      Financial Officer and a Director and Principal Financial
                                        and
      Accounting OfficerDate:
      April 15, 2009By:
                                      /s/
      Jiping Wang
                                      
                                      DirectorDate:
      April 15, 2009By:
                                      /s/
      Song Yang
                                      
                                      DirectorDate: April 15,
      2009




23


Index
to Financial Statements




Report
      of Independent Registered Public Accounting Firm
                      F-1Consolidated
      Balance Sheets as of December 31, 2008 and 2007
                      F-2Consolidated
      Statements of Operations and Comprehensive Income for the years ended
      December 31, 2008 and 2007
                      F-3Consolidated
      Statements of Stockholders' Equity for the years ended December 31,
      2008, 2007 and 2006
                      F-4Consolidated
      Statements of Cash Flows for the years ended December 31, 2008 and
      2007
                      F-5Notes
      to Consolidated Financial Statements
                      F-6




24




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, 2008 and 2007
and the related consolidated statements of operations 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, 2008 and 2007 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.





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





Freeport,
New York


April 10,
2009




F-1




China
Kangtai Cactus Bio-Tech Inc. and Subsidiaries


Consolidated
Balance Sheets


(Expressed
in US Dollars)







December
      31,
                              
                              
                              December
      31,2008
                              
                              
                              2007(Audited)
                              
                              
                              (Audited)ASSETSCurrent
      AssetsCash
      and cash equivalents
                              
                              $
                              4,398,897
                              
                              
                              $
                              509,901Accounts
      receivable, net of allowance for returns and doubtful accounts of $979,700
      and $838,736, respectively
                              
                              
                              3,869,985
                              
                              
                              
                              4,036,169Inventories
                              
                              
                              3,376,635
                              
                              
                              
                              6,093,955Other
      receivables and prepaid expenses
                              
                              
                              1,005
                              
                              
                              
                              20,237Total
      Current Assets
                              
                              
                              11,646,522
                              
                              
                              
                              10,660,262Property
      and Equipment, net
                              
                              
                              6,236,914
                              
                              
                              
                              6,290,330Other
      AssetsIntangible
      assets, net
                              
                              
                              454,445
                              
                              
                              
                              553,038Land
      use rights, net
                              
                              
                              8,609,491
                              
                              
                              
                              1,290,141Total
      Assets
                              
                              $
                              26,947,372
                              
                              
                              $
                              18,793,771LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      LiabilitiesAccounts
      payable and accrued liabilities
                              
                              $
                              315,639
                              
                              
                              $
                              353,091Note
      payable
                              
                              
                              887,475
                              
                              
                              
                              829,437Taxes
      payable
                              
                              
                              570,855
                              
                              
                              
                              319,149Total
      current liabilities
                              
                              
                              1,773,969
                              
                              
                              
                              1,501,677Commitments
      and Contingencies
                              
                              
                              -
                              
                              
                              
                              -Stockholders'
      EquityPreferred
      stock, $0.001 par value; authorized 200,000,000 shares, issued and
      outstanding: 1,150,000 and 0 shares, respectively
                              
                              
                              1,150
                              
                              
                              
                              -Common
      stock, $0.001 par value; authorized 200,000,000 shares, issued and
      outstanding: 17,885,625 and 17,739,625 shares,
      respectively
                              
                              
                              17,886
                              
                              
                              
                              17,740Additional
      paid-in capital
                              
                              
                              8,874,869
                              
                              
                              
                              6,607,848Retained
      earningsAppropriated
                              
                              
                              2,682,345
                              
                              
                              
                              1,844,937Unappropriated
                              
                              
                              10,549,281
                              
                              
                              
                              7,082,943Accumulated
      other comprehensive income
                              
                              
                              3,047,872
                              
                              
                              
                              1,738,626Total
      stockholders' equity
                              
                              
                              25,173,403
                              
                              
                              
                              17,292,094Total
      Liabilities and Stockholders' Equity
                              
                              $
                              26,947,372
                              
                              
                              $
                              18,793,771





See
notes to consolidated financial statements.




F-2




China
Kangtai Cactus Bio-Tech Inc. and Subsidiaries


Consolidated
Statements of Operations and Comprehensive Income


(Expressed
in US Dollars)





December
      31,
                                                  
                                                  
                                                  December
      31,2008
                                                  
                                                  
                                                  2007(Audited)
                                                  
                                                  
                                                  (Audited)Net
      Sales
                                                  
                                                  $
                                                  20,300,583
                                                  
                                                  
                                                  $
                                                  14,240,655Cost
      of Sales
                                                  
                                                  
                                                  (12,307,303
                                                  )
                                                  
                                                  
                                                  (9,629,251
                                                  )Gross
      Profit
                                                  
                                                  
                                                  7,993,280
                                                  
                                                  
                                                  
                                                  4,611,404Operating
      ExpensesSelling
      expenses
                                                  
                                                  
                                                  214,285
                                                  
                                                  
                                                  
                                                  279,303General
      and administrative expenses
                                                  
                                                  
                                                  648,644
                                                  
                                                  
                                                  
                                                  1,151,534Depreciation
                                                  
                                                  
                                                  77,015
                                                  
                                                  
                                                  
                                                  70,589Amortization
      of land use rights
                                                  
                                                  
                                                  73,761
                                                  
                                                  
                                                  
                                                  35,983Amortization
      of intangible assets
                                                  
                                                  
                                                  134,924
                                                  
                                                  
                                                  
                                                  123,704Total
      operating expenses
                                                  
                                                  
                                                  1,148,629
                                                  
                                                  
                                                  
                                                  1,661,113Income
      from Operations
                                                  
                                                  
                                                  6,844,651
                                                  
                                                  
                                                  
                                                  2,950,291Other
      Income (Expenses)Interest
      income
                                                  
                                                  
                                                  838
                                                  
                                                  
                                                  
                                                  603Imputed
      interest
                                                  
                                                  
                                                  (52,326
                                                  )
                                                  
                                                  
                                                  (47,796
                                                  )Loss
      on disposal of property and equipment
                                                  
                                                  
                                                  (14,323
                                                  )
                                                  
                                                  
                                                  -Other
      income (expense) - net
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  (171
                                                  )Total
      Other Income (Expenses)
                                                  
                                                  
                                                  (65,811
                                                  )
                                                  
                                                  
                                                  (47,364
                                                  )Income
      before Income Taxes
                                                  
                                                  
                                                  6,778,840
                                                  
                                                  
                                                  
                                                  2,902,927Income
      Tax Expense
                                                  
                                                  
                                                  (1,065,930
                                                  )
                                                  
                                                  
                                                  (603,227
                                                  )Net
      Income
                                                  
                                                  
                                                  5,712,910
                                                  
                                                  
                                                  
                                                  2,299,700Deemed
      dividend relating to the beneficial conversion feature and the value of
      the warrants included in the sale of theSeries
      A preferred stock
                                                  
                                                  
                                                  (1,409,164
                                                  )
                                                  
                                                  
                                                  -Net
      income attributable to common stockholders
                                                  
                                                  $
                                                  4,303,746
                                                  
                                                  
                                                  $
                                                  2,299,700Net
      income per common shareBasic
                                                  
                                                  $
                                                  0.24
                                                  
                                                  
                                                  $
                                                  0.13Diluted
                                                  
                                                  $
                                                  0.23
                                                  
                                                  
                                                  $
                                                  0.13Weighted
      average number of common shares outstandingBasic
                                                  
                                                  
                                                  17,767,461
                                                  
                                                  
                                                  
                                                  17,739,625Diluted
                                                  
                                                  
                                                  18,597,561
                                                  
                                                  
                                                  
                                                  17,739,625Comprehensive
      income:Net
      income
                                                  
                                                  $
                                                  5,712,910
                                                  
                                                  
                                                  $
                                                  2,299,700Foreign
      currency translation adjustment
                                                  
                                                  
                                                  1,309,246
                                                  
                                                  
                                                  
                                                  1,047,589Total
                                                  
                                                  $
                                                  7,022,156
                                                  
                                                  
                                                  $
                                                  3,347,289




See
notes to consolidated financial statements.




F-3




China
Kangtai Cactus Bio-Tech Inc. and Subsidiaries


Consolidated
Statements of Stockholders' Equity


(Expressed
in US Dollars)







Preferred
      Stock $0.001 par
                                                  
                                                  
                                                  Common
      Stock $0.001 par
                                                  
                                                  
                                                  Additional
                                                  
                                                  
                                                  Unappropriated
                                                  
                                                  
                                                  Appropriated
                                                  
                                                  
                                                  Accumulated
      othervalue
                                                  
                                                  
                                                  value
                                                  
                                                  
                                                  paid-in
                                                  
                                                  
                                                  retained
                                                  
                                                  
                                                  retained
                                                  
                                                  
                                                  comprehensiveShares
                                                  
                                                  
                                                  Amount
                                                  
                                                  
                                                  Shares
                                                  
                                                  
                                                  Amount
                                                  
                                                  
                                                  capital
                                                  
                                                  
                                                  earnings
                                                  
                                                  
                                                  earnings
                                                  
                                                  
                                                  income
                                                  
                                                  
                                                  TotalBalance
      at December 31, 2006
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  
                                                  17,739,625
                                                  
                                                  
                                                  $
                                                  17,740
                                                  
                                                  
                                                  $
                                                  6,558,082
                                                  
                                                  
                                                  $
                                                  5,266,815
                                                  
                                                  
                                                  $
                                                  1,361,365
                                                  
                                                  
                                                  $
                                                  691,037
                                                  
                                                  
                                                  $
                                                  13,895,03939Imputed
      interest on note payable
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  49,766
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  49,766Transfer
      to statutory and staff welfare reserves
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (483,572
                                                  )
                                                  
                                                  
                                                  483,572
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Net
      income for the year ended December 31, 2007
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  2,299,700
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  2,299,700Currency
      translation adjustment
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  1,047,589
                                                  
                                                  
                                                  
                                                  1,047,589Balance
      at December 31, 2007
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  17,739,625
                                                  
                                                  
                                                  
                                                  17,740
                                                  
                                                  
                                                  
                                                  6,607,848
                                                  
                                                  
                                                  
                                                  7,082,943
                                                  
                                                  
                                                  
                                                  1,844,937
                                                  
                                                  
                                                  
                                                  1,738,626
                                                  
                                                  
                                                  
                                                  17,292,094Sale
      of Series A preferred stock
                                                  
                                                  
                                                  1,250,000
                                                  
                                                  
                                                  
                                                  1,250
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  719,672
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  720,922Deemed
      dividend
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  1,409,164
                                                  
                                                  
                                                  
                                                  (1,409,164
                                                  )
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  -Issuance
      of shares in consideration for the waiver of liquidated
      damages
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  46,000
                                                  
                                                  
                                                  
                                                  46
                                                  
                                                  
                                                  
                                                  26,634
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  26,680Conversion
      of Series A Preferred Stock
                                                  
                                                  
                                                  (100,000
                                                  )
                                                  
                                                  
                                                  (100
                                                  )
                                                  
                                                  
                                                  100,000
                                                  
                                                  
                                                  
                                                  100
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Stock
      option expense
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  59,225
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  59,225Imputed
      interest on note payable
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  52,326
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  52,326Transfer
      to statutory and staff welfare reserves
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (837,408
                                                  )
                                                  
                                                  
                                                  837,408
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Net
      income for the year ended December 31, 2008
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  5,712,910
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  5,712,910Currency
      translation adjustment
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  1,309,246
                                                  
                                                  
                                                  
                                                  1,309,246Balance
      at December 31, 2008
                                                  
                                                  
                                                  1,150,000
                                                  
                                                  
                                                  $
                                                  1,150
                                                  
                                                  
                                                  
                                                  17,885,625
                                                  
                                                  
                                                  $
                                                  17,886
                                                  
                                                  
                                                  $
                                                  8,874,869
                                                  
                                                  
                                                  $
                                                  10,549,281
                                                  
                                                  
                                                  $
                                                  2,682,345
                                                  
                                                  
                                                  $
                                                  3,047,872
                                                  
                                                  
                                                  $
                                                  25,173,403





See
notes to consolidated financial statements.




F-4




China
Kangtai Cactus Bio-Tech Inc. and Subsidiaries


Consolidated
Statements of Cash Flows


(Expressed
in US Dollars)








December
      31,
                                      
                                      
                                      December
      31,2008
                                      
                                      
                                      2007(Audited)
                                      
                                      
                                      (Audited)Cash
      Flows from Operating ActivitiesNet
      income
                                      
                                      $
                                      5,712,910
                                      
                                      
                                      $
                                      2,299,700Adjustmens
      to reconcile net income to net cash provided by (used for) operating
      activitiesDepreciation
      - cost of sales
                                      
                                      
                                      408,351
                                      
                                      
                                      
                                      143,937Depreciation
      - operating expenses
                                      
                                      
                                      77,015
                                      
                                      
                                      
                                      70,589Amortization
      of land use rights
                                      
                                      
                                      73,761
                                      
                                      
                                      
                                      35,983Amortization
      of intangible assets
                                      
                                      
                                      134,924
                                      
                                      
                                      
                                      123,704Issuance
      of shares in consideration for the waiver of liquidated
      damages
                                      
                                      
                                      26,680
                                      
                                      
                                      
                                      -Stock
      option expense
                                      
                                      
                                      59,225
                                      
                                      
                                      
                                      -Imputed
      interest
                                      
                                      
                                      52,326
                                      
                                      
                                      
                                      47,796Loss
      on disposal of property and equipment
                                      
                                      
                                      14,323
                                      
                                      
                                      
                                      -Changes
      in operating assets and liabilitiesAccounts
      receivable, net
                                      
                                      
                                      166,184
                                      
                                      
                                      
                                      (2,258,662
                                      )Accounts
      receivable - related party
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,924Other
      receivables and prepaid expenses
                                      
                                      
                                      19,232
                                      
                                      
                                      
                                      4,073Inventories
                                      
                                      
                                      2,717,320
                                      
                                      
                                      
                                      1,288,489Accounts
      payable and accrued liabilities
                                      
                                      
                                      (37,452
                                      )
                                      
                                      
                                      131,640Taxes
      payable
                                      
                                      
                                      251,706
                                      
                                      
                                      
                                      240,813Net
      cash provided by (used for) operating activities
                                      
                                      
                                      9,676,505
                                      
                                      
                                      
                                      2,129,986Cash
      Flows from Investing ActivitiesProceeds
      from disposals of property and equipment
                                      
                                      
                                      2,546
                                      
                                      
                                      
                                      -Purchase
      of property and equipment
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (2,631,017
                                      )Purchase
      of land use right
                                      
                                      
                                      (7,186,778
                                      )
                                      
                                      
                                      -Net
      cash provided by (used for) investing activities
                                      
                                      
                                      (7,184,232
                                      )
                                      
                                      
                                      (2,631,017
                                      )Cash
      Flows from Financing ActivitiesNote
      payable
                                      
                                      
                                      -
                                      
                                      
                                      
                                      53,524Sale
      of Series A preferred stock-net
                                      
                                      
                                      720,922
                                      
                                      
                                      
                                      -Net
      cash provided by (used for) financing activities
                                      
                                      
                                      720,922
                                      
                                      
                                      
                                      53,524Effect
      of exchange rate on cash
                                      
                                      
                                      675,801
                                      
                                      
                                      
                                      505,472Increase
      (decrease) in cash and cash equivalents
                                      
                                      
                                      3,888,996
                                      
                                      
                                      
                                      57,965Cash
      and cash equivalents, beginning of period
                                      
                                      
                                      509,901
                                      
                                      
                                      
                                      451,936Cash
      and cash equivalents, end of period
                                      
                                      $
                                      4,398,897
                                      
                                      
                                      $
                                      509,901Supplemental
      disclosures of cash flow information:Interest
      paid
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -Income
      taxes paid
                                      
                                      $
                                      814,224
                                      
                                      
                                      $
                                      610,792





See
notes to consolidated financial statements.




F-5




CHINA
KANGTAI CACTUS BIO-TECH INC. AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 
 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
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 June
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. At June 26, 2006, Taishan Kangda had not yet commenced
business operations but owned a piece of land approximating 240,000 square
metres in Guangdong Taishan used for growing cactus and a factory
property.
 
 US China
Kangtai, BVI China Kangtai, Harbin Hainan Kangda and Taishan Kangda are
hereafter collectively referred to as the “Company”.
 
 Note 2.
Summary of Significant
Accounting Policies
  Principles of
Consolidation
  The
accompanying consolidated financial statements for 2008 and 2007 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.
 
 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.
  F-6
  CHINA
KANGTAI CACTUS BIO-TECH INC. AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 
 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, and taxes 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.
  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 are translated into
United States dollars at period-end exchange rates ($0.14669 and $0.13710 at
December 31, 2008 and 2007, respectively).  Harbin Hainan Kangda and
Taishan Kangda revenues and expenses are translated into United States dollars
at weighted average exchange rates for the periods ($0.14415 and $0.13167 for
the years ended December 31, 2008 and 2007, respectively).  Resulting
translation adjustments are recorded as a component of accumulated other
comprehensive income (loss) within stockholders’ equity.
 
 Cash and Cash
Equivalents
  Cash and
cash equivalents at December 31, 2008 and 2007 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
  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. An allowance for returns and doubtful
accounts is established and recorded based on historical experience and the
aging of the related accounts receivable.
  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 lower of cost or market value, cost
being determined on a first in first out method.
  Property 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).
  F-7
  CHINA
KANGTAI CACTUS BIO-TECH INC. AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 
 Intangible and Other
Long-Lived Assets
  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 40 to 50 years. Other intangible assets consist of patents and
licenses. Patents and licenses are being amortized over their expected useful
economic life of 10 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 collectibility is deemed
probable.
  Advertising
Costs
  Advertising
costs are expensed as incurred. Advertising expenses totaled $133,133 and
$218,083 for the years ended December 31, 2008 and 2007,
respectively.
  Research and
Development
  Research
and development costs related to both present and future products are expensed
as incurred. Total expenditures on research and development charged to general
and administrative expenses for the years ended December 31, 2008 and 2007 were
$12,397 and $72,961, respectively.
  Stock-Based
Compensation
  Stock-based
compensation is accounted for at fair value in accordance with SFAS No.
123,  “Accounting for Stock-Based Compensation” and SFAS No.123(R),
“Share-Based Payment”.  No stock options or warrants are outstanding
at December 31, 2008.
  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.
  F-8
  CHINA
KANGTAI CACTUS BIO-TECH INC. AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 
 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.
 
 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 and
convertible securities) outstanding.  Dilutive securities having an
anti-dilutive effect on diluted net income per common share are excluded from
the calculation.
  Segment
Information
 
 The
Company operates in only 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.
  Recent Accounting
Pronouncements
  Certain
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.
 
 Reclassifications
  Certain
prior period amounts have been reclassified to conform to the current period
presentation.
  Note 3.
Inventories
 
 Inventories
consist of:
 
 December
      31,2008
                                  
                                  
                                  2007Cactus
      stock
                                  
                                  $
                                  2,810,861
                                  
                                  
                                  $
                                  5,512,782Other
      raw materials
                                  
                                  
                                  49,826
                                  
                                  
                                  
                                  82,872Work-in-progress
                                  
                                  
                                  -
                                  
                                  
                                  
                                  2,700Finished
      goods
                                  
                                  
                                  515,948
                                  
                                  
                                  
                                  495,601Total
                                  
                                  
                                  3,376,635
                                  
                                  
                                  
                                  6,093,955Less:
      allowance for market adjustments to inventories
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Net
                                  
                                  $
                                  3,376,635
                                  
                                  
                                  $
                                  6,093,955
  F-9
  CHINA
KANGTAI CACTUS BIO-TECH INC. AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 
 Note
4.    Property, Plant and
Equipment
 
 Property,
plant and equipment, net consist of:
 
 December
      31,2008
                            
                            
                            2007Buildings
                            
                            $
                            2,928,548
                            
                            
                            $
                            2,831,657Plant
      equipment and machinery
                            
                            
                            4,654,625
                            
                            
                            
                            4,350,191Motor
      vehicles
                            
                            
                            289,586
                            
                            
                            
                            270,654Furniture
      and office equipment
                            
                            
                            13,817
                            
                            
                            
                            14,649Total
                            
                            
                            7,886,576
                            
                            
                            
                            7,467,151Less
      accumulated depreciation
                            
                            
                            (1,649,662
                            )
                            
                            
                            (1,176,821
                            )Net
                            
                            $
                            6,236,914
                            
                            
                            $
                            6,290,330
 
 Note
5.      Intangible
Assets
 
 Intangible
assets, net consist of:
 
 December
      31,2008
                          
                          
                          2007Patents
      and licenses
                          
                          $
                          1,374,485
                          
                          
                          $
                          1,284,604Total
                          
                          
                          1,374,485
                          
                          
                          
                          1,284,604Less
      accumulated amortization
                          
                          
                          (920,040
                          )
                          
                          
                          (731,566
                          )Net
                          
                          $
                          454,445
                          
                          
                          $
                          553,038
 
 The
estimated amortization of intangible assets expense for each of the five
succeeding fiscal years ending December 31, 2009, 2010, 2011, 2012, and 2013 is
$137,448.
  Note
6.     Land Use
Rights
 
 Land use
rights, net consist of:
 
 December
      31,2008
                          
                          
                          2007Harbin
      Hainan Kangda
                          
                          $
                          8,026,397
                          
                          
                          $
                          674,994Taishan
      Kangda
                          
                          
                          873,035
                          
                          
                          
                          815,985Total
                          
                          
                          8,899,432
                          
                          
                          
                          1,490,979Less
      accumulated amortization
                          
                          
                          (289,941
                          )
                          
                          
                          (200,838
                          )Net
                          
                          $
                          8,609,491
                          
                          
                          $
                          1,290,141
 
 The
estimated amortization of land use rights expense for each of the five
succeeding fiscal years ending December
31, 2009, 2010, 2011, 2012, and 2013 is $185,016.
  F-10
  CHINA
KANGTAI CACTUS BIO-TECH INC. AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 
 Note
7.     Note
Payable
 
 Note
payable consists of:
 
 December 31,2008
                    
                    
                    2007Note
      payable to a financial institution, unsecured and due on
      demand.
                    
                    $
                    887,475
                    
                    
                    $
                    829,437
  The note
payable (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 $52,326 and $49,766 for the years ended December 31,
2008 and 2007, respectively.
  Note
8.   Stockholders’
Equity
  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 $10,185,183 and
$8,745,639 at December 31, 2008 and 2007, respectively.
 
 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’s 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’s 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 and received 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 is 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 is
not declared effective by the SEC by August 28, 2008, the Registration Rights
Agreement provides 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.
  F-11
  CHINA
KANGTAI CACTUS BIO-TECH INC. AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 
 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 (adjustable to
more shares if certain performance thresholds are not met for the six months
ending June 30, 2008 or the year ending December 30, 2008).
 
 The
Company recorded as a $1,090,500 deemed dividend and as a $1,090,500 increase in
additional paid-in capital the total of the intrinsic value of the beneficial
conversion feature ($125,000) and the estimated fair value of the A Warrants
($477,250) and the B Warrants ($488,250).
 
 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 $318,664 deemed dividend and as a $318,664 increase in additional
paid-in capital, the total of the intrinsic value of the beneficial conversion
feature ($37,084) and the estimated fair value of the warrants
($281,580).
    Note
9.   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 income taxes were provided in 2008 and 2007 since US China
Kangtai had taxable losses in those years. At December 31, 2008, US China
Kangtai had net operating loss carryforwards of approximately $773,000 which may
be available to offset future taxable income. Management has not yet determined
it to be more likely than not that a deferred tax asset of up to approximately
$270,000 attributable to the utilization of these net operating loss
carryforwards (which expire in 2028) will be realized. Accordingly, the Company
has provided a 100% valuation allowance against the deferred tax asset in the
financial statements at December 31, 2008.
 
 At
December 31, 2008, US China Kangtai has an unrecognized deferred United States
income tax liability relating to undistributed earnings of Harbin Hainan Kangda
and Taishan 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.
  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 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
provision for income taxes differs from the amount computed by applying the
statutory United States federal income tax rate to income before income taxes. A
reconciliation follows:
  F-12
  CHINA
KANGTAI CACTUS BIO-TECH INC. AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 
 Year
      EndedDecember
      31,2008
                                
                                
                                2007Expected
      tax at 35%
                                
                                $
                                2,372,594
                                
                                
                                $
                                1,016,024Tax
      effect of unutilized losses of USA China Kangtai; BVI China
      Kangtai; and Taishan Kangda
                                
                                
                                132,320
                                
                                
                                
                                75,109Tax
      effect of PRC income taxed at lower rate
                                
                                
                                (1,438,984
                                )
                                
                                
                                (487,906
                                )Acutal
      provision for income taxes
                                
                                $
                                1,065,930
                                
                                
                                $
                                603,227
 
 Note 10.
   Commitments and
Contingencies
 
 Operating
lease commitments
 
 The
Company leases office space and land for growing cactus from third parties under
operating leases. Rental expenses for all operating leases for the years ended
December 31, 2008 and 2007 were $ 12,210 and $17,371 respectively.
 
 At
December 31, 2008, future minimum rental commitments under all non-cancellable
operating leases are due as follows:
 
 2009
                    
                    $
                    8,0772010
                    
                    
                    3,9402011
                    
                    
                    3,9402012
                    
                    
                    3,9402013
                    
                    
                    3,426Thereafter
                    
                    
                    133,553Total
                    
                    $
                    156,876
 
 Concentrations
and risks
 
 During
2008 and 2007, substantially all of the Company’s assets were located in China
and 100% of the Company’s revenues were derived from companies located in
China.
  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.
  F-13
  CHINA
KANGTAI CACTUS BIO-TECH INC. AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 
 Note 11.
  Segment
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, 2008 and December 31, 2007
were located in the PRC.  Net sales for the periods presented were all
derived from PRC and Taiwan customers. During 2008, two customers accounted for
16% and 13%, respectively, of net sales.
 
 Net sales
consisted of:
 
 Year
      Ended
                          December
      31,2008
                        
                        
                        2007Finished
      goods
                        
                        $
                        16,500,200
                        
                        
                        $
                        11,901,805Cactus
      stock
                        
                        
                        3,800,383
                        
                        
                        
                        2,338,850Total
                        
                        $
                        20,300,583
                        
                        
                        $
                        14,240,655
  Note 12.
  Subsequent
Event
 
 On March
25, 2009, Harbin Hainan Kangda Entered into Asset Purchase Agreement (the
“Agreement”) with Qitaihe Kangwei T Biotechnology Co., Ltd. (“Seller”). Under
the terms of the Agreement, the Company will 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 the use life of 47
years and the development area of the first phase of 13 thousand square meters,
(ii) housing ownership of 5,606.20 square meters in Shuguang village of Xinxing
District in Qitaihe City and (iii) fixed assets consisting of machinery,
equipment and facilities (including equipment, information, file data, spare
parts and office suppliers) located on the acquired premises. The land use
rights, housing ownership and fixed assets are collectively referred to as the
“Assets”.
 
 The
purchase price for the Assets is 37,000,000 RMB (approximately $5,400,000). The
Company will pay transfer fees and taxes in connection with the registration of
the sale of the Assets. The purchase price will be paid in installments: 50%
within 5 days of signing the Agreement, 10% upon Seller completing the handover
procedure and the remaining 40% within 5 days of Seller’s completion of the
registration of the sale in the land administration and other departments in the
People’s Republic of China, which is expected to be completed within 90 days of
the payment of the first installment of the purchase price.
  F-14