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UNITED STATES SECURITIES AND EXCHANGE
COMMISSIONWashington, D.C. 20549

FORM 10-K/A(Amendment No. 1)

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

For the fiscal year ended: December 31, 2010

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

For the transition period from ________ to ________

Commission File Number: 000-32253

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

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

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

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

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

Securities  registered under Section 12(g) of the












Exchange Act:
Common Stock, $.001 par value

Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [_]     No [X]

Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [_]     No [X]

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

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes [_]     No [_]

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

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

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

Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Act). Yes [_]     No [X]

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

As of March 24, 2011, there were 22,305,527 shares of the
issuer's common stock, $0.001 par value per share, issued and outstanding.

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EXPLANATORY NOTE

We are amending our annual report on Form 10-K for the year
ended December 31, 2010 filed on March 31, 2011 (the "Original Filing") to
correct the following errors due to typographical or formatting technical
errors, none of which has had any impact on the actual consolidated financial
position or results of operations of the Company:

|(1) | The typographical
    error in Part I, Item 1, Business, under Overview, the Companys annual
    production capability of edible cacti in 2010 is 11,976 tons. The Original
    Filing erroneously listed as 19,184 tons.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(2) | The suppression of the first digit of
    numbers on several lines in the current years financial statements (2010)
    column, as follows: "Retained earnings-Unappropriated" of $21,322,790 in the
    Consolidated Balance Sheets was incorrectly presented as $1,322,790; "Income
    from Operations" of $11,316,576 was incorrectly presented as $1,316,576 in
    the Consolidated Statements of Income and Comprehensive Income;
    "Depreciation-cost of sales" of $396,028 was incorrectly presented as
    $96,028, "Amortization of land use rights-cost of sales" of $343,456 was
    incorrectly presented as $43,456, and "Amortization of intangible assets" of
    $498,034 was incorrectly presented as $98,034 in the Consolidated Statement
    of Cash Flows.;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(3) | The correction of the Companys "Total
    Assets" in our Consolidated Balance Sheet at December 31, 2010 to reflect the
    actual mathematical total of $48,467,635. The Consolidated Balance Sheet
    contained in the Original Filing incorrectly reflected Total Assets of
    $8,752,826 based undetected incorrect math.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(4) | The correction of the amount reflected
    in our Consolidated Statement of Cash Flows under "Operating Activities" for
    the (Gain) from revaluation of Series A Preferred Stock and A, B, C, and D
    warrants with characteristics of liabilities at fair value" to match the
    $3,586,155 for that item appearing in the Consolidated Statement of Income
    and Comprehensive Income for the year ended December 31, 2010 instead of the
    $3,562,822 that was presented in the Original Filing  with the difference
    reflected by increasing the "Effect of exchange rate changes on cash and
    cash equivalents" from $702,309 as originally filed to $725,642 as now
    reported. The effect of the aforementioned correction resulted in the "Net
    cash provided by operating activities" for the year ended December 31, 2010
    as now reported being $10,648,228 versus the amount reported in the original
    filing of $10,671,561. This correction did change the amount reported for
    the "Decrease in cash and cash equivalents of $(288,033) for the year ended
    December 31, 2010. Cash Flows from both "Investing Activities" and
    "Financing Activities" were also not affected by the correction.




    In Part II, Item 7 Management's Discussion and Analysis under "Liquidity and Capital
    Resources" in the second paragraph, the amount of  net cash flows provided by
    operating activities for the year ended December 31, 2010 of $10,671,561 as
    originally reported has also been corrected to be $10,648,228.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(5) | The correction for trademarks related
    amortization amounts in Note 8 in the table of expected amortization in the
    succeeding 5 years to correctly reflect the 10-year life, which was
    originally incorrectly reported as based on a 7-year asset life of the Dadi
    acquisition trademarks discussed in the last paragraph of Note 3. In addition,
    a paragraph is added in Note 3 that describes the Dadi
    related trademarks expiration dates and the Companys plans to apply for
    timely renewals of them for another 10 years after their expiration in
    September 2014.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | In accordance with Rule 12b-15 under
    the Exchange Act, each item of the Original Filing that is amended by this
    Amended Filing is also restated in its entirety, and this Amended Filing is
    accompanied by currently dated certifications on Exhibits 31.1, 31.2, 32.1
    and 32.2 by the Companys Chief Executive Officer and Chief Financial
    Officer. Except as described above, this Amended Filing does not amend,
    update, or change any items, financial statements, or other disclosures in
    the Original Filing, and does not reflect events occurring after the filing
    of the Original Filing, including as to any exhibits to the Original Filing
    affected by subsequent events. Information not affected by the changes
    described above is unchanged and reflects the disclosures made at the time
    of the Original Filing. Accordingly, this Amended Filing should be read in
    conjunction with the Original Filing and our other SEC filings subsequent to
    the filing of the Original Filing, including any amendments to those
    filings. Capitalized letters not defined in the Amended Filing are as
    defined by the Original Filing.                                                                                                                                                                                                                                                                                                                                                                              

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TABLE OF CONTENTS

|Page      
|----------
|PART I    
|Item 1.   
|Item 1A   
|Item 1B   
|Item 2.   
|Item 3.   
|Item 4.   
|PART II   
|Item 5.   
|Item 6.   
|Item 7.   
|Item 7A.  
|Item 8.   
|Item 9.   
|Item 9A   
|Item 9B   
|          
|PART III  
|Item 10.  
|Item 11.  
|Item 12.  
|Item 13.  
|Item 14.  
|          
|PART IV   
|Item 15.  
|          
|SIGNATURES

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PART I

ITEM 1. BUSINESS.

Corporate History

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

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

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

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

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

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

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.

1

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

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

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

Overview

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

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

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

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

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

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

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

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

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

2

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

Cactus Protein Nutrient

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

Cactus Calcium Peptide Soft Capsule

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

A) Several nutritional components that can be easily absorbed;
and

B) It contains an albumen peptide of soybean which can enhance
the absorption of calcium, phosphor and other mineral elements, consequently
raising the calcium in the body and fighting fatigue.

Cactus Shuxin Capsule

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

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

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

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

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

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

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

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

3

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

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

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

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

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

4

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

Competition

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

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

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

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

|Control from the source:        
|--------------------------------
|•                               
|•                               
|•                               
|•                               
|•                               
|•                               
|                                
|Product innovation and research:
|•                               
|•                               
|•                               
|•                               
|                                
|Manufacturing and production:   
|•                               
|•                               
|•                               
|•                               
|                                
|Sales and distribution:         
|•                               
|•                               
|•                               
|•                               

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.

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Employees

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

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|DEPARTMENT                                             |  | NUMBER |  | LOCATION
|------------------------------------------------------ |  | ------ |  | --------
|Administration                                         |  | 18     |  | Harbin  
|Sales                                                  |  | 25     |  | Harbin  
|Production                                             |  | 47     |  | Harbin  
|Baisha Base (cactus crop growing and production)       |  | 25     |  | Taishan 
|Shalan Base (cactus crop growing and
      production) |  | 10     |  | Taishan 
|Research and Development                               |  | 7      |  | Harbin  
|Total                                                  |  | 132    |  |         

Administrative Offices

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

Reports to Security Holders

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

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

Governmental Regulations

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

ITEM 1A. RISK FACTORS

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

Risks Related To Our Business

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

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

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

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

7

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

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

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

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

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

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

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

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

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

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

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

8

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

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

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

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

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

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

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

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

9

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Risks Related to Conducting Business in the PRC

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

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

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

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

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

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

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

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

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

10

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

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

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

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

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

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

Our ability to pay dividends is restricted by PRC
laws.

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

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

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

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

11

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

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

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

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

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

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

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

12

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

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

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

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

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

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

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

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

13

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

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

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

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

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

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

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

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

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

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

14

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

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

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

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

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

Risks Relating to Investment in Our Securities

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

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

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

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

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

15

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

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

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

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

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

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

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

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

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

16

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES.

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

ITEM 3. LEGAL PROCEEDINGS.

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

ITEM 4. Removed and Reserved

PART II

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

Market for Common Stock

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

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

Record Holders

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

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

Dividends

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

Stock Re-Purchases

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

17

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ITEM 6. SELECTED FINANCIAL DATA

Not required.

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

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

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

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

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

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

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

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

Results of Operations

Comparison of Sales for the Years Ended December 31, 2010
and 2009

|                             |   |            |  |   |            |  |  | % of    | 
|---------------------------- | - | ---------- |  | - | ---------- |  |  | ------- | 
|Sales by Categories          |   | 2010       |  |   | 2009       |  |  | changes | 
|                             |   |            |  |   |            |  |  |         | 
|Nutraceuticals               | $ | 12,989,289 |  | $ | 10,722,568 |  |  | 21%     | 
|Beverages                    |   | 12,588,707 |  |   | 9,318,655  |  |  | 35%     | 
|Cactus Feed                  |   | 4,583,599  |  |   | 2,309,059  |  |  | 99%     | 
|Raw & intermediate materials |   | 2,947,646  |  |   | 3,485,604  |  |  | -15%    | 
|Cactus cigarettes            |   | 2,910,622  |  |   | 317,133    |  |  | 818%    | 
|Packaged foods               |   | -          |  |   | 384,337    |  |  | -100%   | 

|Other       |   | 9,687      |  |   |            |  |  | --% | 
|----------- | - | ---------- |  | - | ---------- |  |  | --- | 
|Total Sales | $ | 36,029,550 |  | $ | 26,537,356 |  |  | 36% | 

18

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

Cost of Sales

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

Operating Expenses

Operating expenses for the year ended December 31, 2010 totaled
$2,237,959, an increase of $1,244,567, or 125%, compared to $993,392 in 2009.
The increase in operating expenses was mainly due to an increase of $141,830 in
research and development expense; an increase of $360,807 in amortization of
intangible assets; and an increase of $929,935 in other general and
administrative expenses. Other general and administrative expenses consist of
advertising, rent and utilities, salaries and wages, professional fees, US
public company related expenses and other expenses. The increase in other
general and administrative expenses was attributable to an increase of $97,274
in advertising expense, $315,489 in legal fees, and $268,219 in consulting fees.

Other Income and Expenses

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

Income from Operations

Income from operations totaled $11,316,576 in 2010, an increase
of $1,789,046, or 19%, compared to $9,527,530 in 2009. The increase in our
income from operations resulted mainly from the increase in sales.

Net Income

Net income totaled $11,790,975 for the year ended December 31,
2010, an increase of $11,310,850, compared to $480,125 in 2009. The increase in
net income was caused partially by the income and loss from revaluation of
Series A Preferred Stock and A, B, C, and D warrants with characteristics of
liabilities at fair values. Absent the gain of $3,586,155 in 2010, the Company
would have had a net income of $8,204,820 and basic and diluted earnings per
common share would have been $0.39 and $0.39 for the year ended December 31,
2010. Absent the revaluation loss of $7,926,182 in 2009, the Company would have
had a net income of $8,406,307, and basic and diluted earnings per common share
would have been $0.46 and $0.43 for the year ended December 31, 2009.

Liquidity and Capital Resources

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

19

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Net cash provided by operating activities was $10,648,228 and
$7,749,649 for the years ended December 31, 2010 and 2009, respectively. The
increase in net cash provided by operating activities in 2010 was due to the
increase in revenues and the $7,495,852 positive change in other receivables
($3,747,926 increase in 2009; $3,747,926 decrease in 2010), offset partially by
the $6,663,197 negative change in accounts receivable ($1,532,934 decrease in
2009; $5,130,263 increase in 2010).

Net cash used in investing activities was $13,275,539 and
$9,460,214 for the year ended December 31, 2010 and 2009, respectively. During
2010, the Company purchased a livestock feed patent in the amount of $8,199,158
(RMB 54,112,700), tobacco trademarks of $1,698,842 (RMB 11,212,000), land use
rights of $1,159,237 (RMB 7,650,720) and property, plant and equipment in the
amount of $2,462,438 (RMB 16,251,568). The amount used in investing activities
was offset by the collection of $244,136 from related party.  During 2009, the Company purchased Taishan Basha land use rights in the amount of $9,710,926 (RMB 66,376,800).

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

Note Payable to a Financial Institution

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

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

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

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

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

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

20

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

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

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

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

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

Critical Accounting Policies and Estimates

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

21

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General

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

Revenue Recognition

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

Fair Value of Financial Instruments

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

22

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Foreign Currency Translation

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

Recently Adopted Accounting Standards

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

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

Recently Issued Accounting Standards

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

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

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

23

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Off-Balance Sheet Arrangements

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

Not Required.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA

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

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure controls and Procedures

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

Management’s Annual Report On Internal Control Over
Financial Reporting

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

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

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

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

ITEM 9B. OTHER INFORMATION

None.

24

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PART III

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

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

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

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

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

Biographical Information

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

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

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

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

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

Board Leadership Structure

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

25

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Family Relationships

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

Involvement in Certain Legal Proceedings

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

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

Board Committees

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

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

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

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

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

Code of Ethics

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

26

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ITEM 11. EXECUTIVE COMPENSATION.

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

27

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Summary Compensation Table

|                                                                     |  |           |  |    |              |  |  |       |  |  |          |  |  |          |  |  |                  |  |  | Change in     |  |  |              |  |    |              | 
|-------------------------------------------------------------------- |  | --------- |  | -- | ------------ |  |  | ----- |  |  | -------- |  |  | -------- |  |  | ---------------- |  |  | ------------- |  |  | ------------ |  | -- | ------------ | 
|                                                                     |  |           |  |    |              |  |  |       |  |  |          |  |  |          |  |  |                  |  |  | Pension       |  |  |              |  |    |              | 
|                                                                     |  |           |  |    |              |  |  |       |  |  |          |  |  |          |  |  | Non-Equity       |  |  | Value and     |  |  |              |  |    |              | 
|                                                                     |  |           |  |    |              |  |  |       |  |  |          |  |  |          |  |  | Incentive        |  |  | Non-qualified |  |  |              |  |    |              | 
|                                                                     |  |           |  |    |              |  |  |       |  |  | Stock    |  |  | Option   |  |  | Plan             |  |  | Compensation  |  |  | All other    |  |    |              | 
|Name and Principal                                                   |  |           |  |    | Salary       |  |  | Bonus |  |  | Award(s) |  |  | Award(s) |  |  | **Compensation** |  |  | Earnings      |  |  | Compensation |  |    | Total        | 
|Position                                                             |  | Year      |  |    | **($)(1)**   |  |  | ($)   |  |  | ($)      |  |  | ($)      |  |  | ($)              |  |  | ($)           |  |  | ($)          |  |    | ($)          | 
|Jinjiang Wang, President, Chief
      Executive Officer and Chairman |  | 2010 2009 |  | $$ | 32,35817,556 |  |  | - -   |  |  |          |  |  | - -      |  |  | - -              |  |  | - -           |  |  | - -          |  | $$ | 32,35817,556 | 
|Chengzhi Wang, General Manager                                       |  | 2010 2009 |  | $$ | 26,33614,045 |  |  | - -   |  |  |          |  |  | - -      |  |  | - -              |  |  | - -           |  |  | - -          |  | $$ | 26,33614,045 | 
|Hong Bu, Chief Financial Officer                                     |  | 2010 2009 |  | $$ | 26,33614,045 |  |  | - -   |  |  |          |  |  | - -      |  |  | - -              |  |  | - -           |  |  | - -          |  | $$ | 26,33614,045 | 

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

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

Director Compensation

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

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

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

|Title ofClass                          |  | Name and Address of Owner                                                                                                             |  | Amount and Natureof Ownership |  | Percent ofClass(1)
|-------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- |  | ------------------
|Executive Officers and
      Directors |  |                                                                                                                                       |  |                               |  |                   
|Common Stock                           |  | Jinjiang Wang The 4th Group, 21st
      Residents’ Committee Xinhua Street, Boli Town, Boli County
      Heilongjiang Province P.R.C. |  | 4,372,818 Direct(2)           |  | 19.6%             
|Common Stock                           |  | Chengzhi Wang No. 98
      Xiangshun Street Xiangfang District, Harbin, P.R.C.                                                        |  | 3,892,970 Direct              |  | 17.5%             
|Common Stock                           |  | Hong Bu No. 99 Taibei Road Limin
      Economy and Technology Developing District, Harbin, P.R.C.                                     |  | 750,046 Direct                |  | 3.3%              
|Common Stock                           |  | Jiping Wang No. 99 Taibei
      Road Limin Economy and Technology Developing District, Harbin,
      P.R.C.                           |  | 700,734 Direct                |  | 3.1%              
|Common Stock                           |  | Song Yang No. 99 Taibei Road Limin
      Economy and Technology 
    Developing District, Harbin, P.R.C.                              |  | 126,688 Direct                |  | *                 
|Common Stock                           |  | All
      Directors and Executive Officers as a Group (5 persons)                                                                     |  | 9,843,256 Direct              |  | 44.1%             
|5% Holder                             
|Common Stock                           |  | T
      Squared Investments LLC 
    1325
      Sixth Avenue, Floor 28 
    New York, NY 10019                                        |  | 1,850,000 Direct(3)           |  | 8.2%              

*Less than 1%

28

---

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

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

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

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

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

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

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

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

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

Tax Fees

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

Audit Committee Pre-Approval

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

29

---

PART IV.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

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

|3.1   | Articles of Incorporation (incorporated by reference from
      Registration Statement on Form SB-2/A filed with the Securities and
      Exchange Commission on October 18, 2000).                                                                                                                                 
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.2   | Amended Articles of Incorporation (incorporated by
      reference to the Form 10QSB filed with the Securities and Exchange
      Commission on November 3, 2003)                                                                                                                                                   
|3.3   | Amended and Restated Articles of Incorporation
      (incorporated by reference to the Form 10KSB filed with the Securities and
      Exchange Commission April 17, 2006.                                                                                                                                           
|3.4   | Bylaws (incorporated by reference from Registration
      Statement on Form SB-2/A filed with the Securities and Exchange Commission
      on October 18, 2000).                                                                                                                                                    
|3.5   | Certificate of Designations of Preferences, Rights and
      Limitations of Series A Convertible Preferred Stock as filed with the
      Secretary of State of Nevada on March 21, 2008 (incorporated by reference
      to the From 8-K filed with the Securities and Exchange Commission on March
      27, 2008).
|3.6   | First Amended and Restated Certificate of Designations of
      Preferences, Rights and Limitations of Series A Convertible Preferred
      Stock as filed with the Secretary of State of Nevada on July 16, 2008.
      (incorporated by reference to the Form 8-K filed on July 21, 2008)                         
|10.1  | Distribution Agreement Between China Kangtai Cactus
      Bio-tech, Inc and Hunan Tianxiang Trading Company, Ltd (incorporated by
      reference to the Form 10QSB filed with the Securities and Exchange
      Commission on November 19, 2007).                                                                  
|10.2  | Distribution Agreement Between China Kangtai Cactus
      Bio-tech, Inc and Jinan Qitai Economic and Trading Center (incorporated by
      reference to the Form 10QSB filed with the Securities and Exchange
      Commission on November 19, 2007).                                                               
|10.3  | Distribution Agreement Between China Kangtai Cactus
      Bio-tech, Inc and Lanzhou Xinhui Economic and Trading Company, Ltd.
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on November 19, 2007).                                                     
|10.4  | Distribution Agreement Between China Kangtai Cactus
      Bio-tech, Inc and Qingdao Furui Economic and Trading Company, Ltd.
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on November 19, 2007).                                                      
|10.5  | Distribution Agreement Between China Kangtai Cactus
      Bio-tech, Inc and Shanxi Anyang Food Distribution Company (incorporated by
      reference to the Form 10QSB filed with the Securities and Exchange
      Commission on November 19, 2007).                                                               
|10.6  | Processing Agreement dated January 8, 2006, between the
      Company and Shandong Tsingtao Beer Inc. Harbin subsidiary (incorporated by
      reference to the Form 10QSB filed with the Securities and Exchange
      Commission on May 16, 2007).                                                                
|10.7  | Processing Agreement dated January 20, 2006, between the
      Company and Harbin Ice Lantern Noodle Factory (incorporated by reference
      to the Form 10QSB filed with the Securities and Exchange Commission on May
      16, 2007).                                                                           
|10.8  | Processing Agreement dated March 30, 2005, between the
      Company and Harbin Diwang Pharmacy Co. Ltd. (incorporated by reference to
      the Form 10QSB filed with the Securities and Exchange Commission on May
      16, 2007).                                                                               
|10.9  | Processing Agreement dated July 10, 2005, between the
      Company and Harbin Bin County HuaLan Dairy Factory (incorporated by
      reference to the Form 10QSB filed with the Securities and Exchange
      Commission on May 16, 2007).                                                                         
|10.10 | Processing Agreement dated March 2, 2006, between the
      Company and Kangwei Health Foods Ltd. Of Mudanjiang City (incorporated by
      reference to the Form 10QSB filed with the Securities and Exchange
      Commission on May 16, 2007).                                                                   
|10.11 | Distributions Agreement dated February 15, 2007, with
      Jilin Yanji Economic and Trading Company, Ltd. (incorporated by reference
      to the Form 10QSB filed with the Securities and Exchange Commission on May
      16, 2007).                                                                             
|10.12 | Distributions Agreement dated January 16, 2007, with
      Liaoning Shenneng Trading and Development Ltd. (incorporated by reference
      to the Form 10QSB filed with the Securities and Exchange Commission on May
      16, 2007).                                                                              
|10.13 | Distributions Agreement dated February 9, 2007, with
      Jianshuang Zhang - Hubei (incorporated by reference to the Form 10QSB
      filed with the Securities and Exchange Commission on May 16, 2007).                                                                                                          
|10.14 | Distributions Agreement, dated February 3, 2007, with
      Hunan Green Food Distribution Company, Ltd. (incorporated by reference to
      the Form 10QSB filed with the Securities and Exchange Commission on May
      16, 2007).                                                                                
|10.15 | Distributions Agreement dated January 29, 2007, with
      Harbin Huadingwei Trading Company, Ltd. (incorporated by reference to the
      Form 10QSB filed with the Securities and Exchange Commission on May 16,
      2007).                                                                                     
|10.16 | Distributions Agreement dated February 6, 2007, with
      Hangzhou Hesheng Economic and Trading Company, Ltd. (incorporated by
      reference to the Form 10QSB filed with the Securities and Exchange
      Commission on May 16, 2007).                                                                         
|10.17 | Distributions Agreement dated January 16, 2007, with
      Guangdong Jinpei Lin (incorporated by reference to the Form 10QSB filed
      with the Securities and Exchange Commission on May 16, 2007).                                                                                                              
|10.18 | Distributions Agreement dated January 9, 2007, with
      Fujian Tianyi Economic and Trading Company Ltd (incorporated by reference
      to the Form 10QSB filed with the Securities and Exchange Commission on May
      16, 2007).                                                                               
|10.19 | Distributions Agreement, Dated January 20, 2007, With
      Beijing Yaping Liu (incorporated by reference to the Form 10QSB filed with
      the Securities and Exchange Commission on May 16, 2007).                                                                                                               
|10.20 | Cooperation Agreement between Harbin Hainan Kangda Cactus
      Hygienical Foods Co., Ltd and Party B: Harbin Meijia Bio-Tech Co., Ltd.
      dated October 8, 2007.                                                                                                                                                
|10.21 | Contract of Termination of Lease, dated January 10, 2006,
      by and between the Company and the Lijia Village, Tongling Town Jixi City (incorporated by reference to the Form
      10QSB filed with the Securities and Exchange Commission on May 15, 2006).                                                    

30

---

|10.22 | Contract of Termination of Lease, dated January 18, 2006,
      by and between the Company and Lindian Cactus Farming Base (incorporated
      by reference to the Form 10QSB filed with the Securities and Exchange
      Commission on May 15, 2006).                                                                  
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.23 | Contract of Termination of Lease, dated January 9, 2006,
      by and between the Company and the Qiqihar Angangxi Green Park
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on May 15, 2006).                                                               
|10.24 | Contract of Termination of Lease, dated January 13, 2006,
      by and between the Company and the Beian Huashengnongfeng Planting Base
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on May 15, 2006).                                                     
|10.25 | Contract of Termination of Lease, dated January 6, 2006,
      by and between the Company and the Hongqi Jinxing Planting Base
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on May 15, 2006).                                                              
|10.26 | Contract of Termination of Lease, dated January 17, 2006,
      by and between the Company and the Hailin Luming Planting Base
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on May 15, 2006).                                                              
|10.27 | Contract of Termination of Lease, dated January 5, 2006,
      by and between the Company and the Dalian River Planting Base
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on May 15, 2006).                                                                
|10.28 | Contract of Termination of Lease, dated January 23, 2006,
      by and between the Company and the Wanbao Planting Base (incorporated by
      reference to the Form 10QSB filed with the Securities and Exchange
      Commission on May 15, 2006).                                                                     
|10.29 | Transfer Agreement for Greenhouse, dated January 13,
      2006, by and between the Company and the Lijia Village, Tongling Town Jixi
      City (incorporated by reference to the Form 10QSB filed with the
      Securities and Exchange Commission on May 15, 2006).                                                  
|10.30 | Transfer Agreement for Greenhouse, dated January 18,
      2006, by and between the Company and the Lindian Cactus Farming Base.
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on May 15, 2006).                                                            
|10.31 | Transfer Agreement for Greenhouse, dated January 9, 2006,
      by and between the Company and the Qiqihar Angangxi Green Park
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on May 15, 2006).                                                              
|10.32 | Transfer Agreement for Greenhouse, dated January 11,
      2006, by and between the Company and the Beian Huashengnongfeng Planting
      Base (incorporated by reference to the Form 10QSB filed with the
      Securities and Exchange Commission on May 15, 2006).                                                    
|10.33 | Transfer Agreement for Greenhouse, dated January 6, 2006,
      by and between the Company and the Hongqi Jinxing Planting Base
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on May 15, 2006).                                                             
|10.34 | Transfer Agreement for Greenhouse, dated January 17,
      2006, by and between the Company and the Hailin Luming Planting Base
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on May 15, 2006).                                                             
|10.35 | Transfer Agreement for Greenhouse, dated January 5, 2006,
      by and between the Company and the Dalian River Planting Base
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on May 15, 2006).                                                               
|10.36 | Transfer Agreement for Greenhouse, dated January 23,
      2006, by and between the Company and the Wanbao Planting Base
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on May 15, 2006).                                                                    
|10.37 | Transfer Agreement for Greenhouse, dated January 24,
      2006, by and between the Company and the Daqing Ranghulu Hi-tech Zone
      (incorporated by reference to the Form 10QSB filed with the Securities and
      Exchange Commission on May 15, 2006).                                                            
|10.38 | Preferred Stock Purchase Agreement dated as of March 21,
      2008 by and between the Company and T Squared Investments LLC
      (incorporated by reference to the From 8-K filed with the Securities and
      Exchange Commission on March 27, 2008).                                                                
|10.39 | Registration Rights Agreement dated as of March 21, 2008
      by and between the Company and the Investors named therein (incorporated
      by reference to the From 8-K filed with the Securities and Exchange
      Commission on March 27, 2008).                                                                   
|10.40 | Common Stock Purchase Warrant “A” (incorporated by
      reference to the From 8-K filed with the Securities and Exchange
      Commission on March 27, 2008).                                                                                                                                                           
|10.41 | Common Stock Purchase Warrant “B” (incorporated by
      reference to the From 8-K filed with the Securities and Exchange
      Commission on March 27, 2008).                                                                                                                                                           
|10.42 | Form of Preferred Stock Purchase Agreement dated as of
      July 16, 2008 by and between the Company and T Squared Investments LLC.
      (incorporated by reference to the Form 8-K filed on July 21, 2008)                                                                                                            
|10.43 | Common Stock Purchase Warrant “A” (incorporated by
      reference to the Form 8-K filed on July 21, 2008)                                                                                                                                                                                                               
|10.44 | Common Stock Purchase Warrant “B” (incorporated by
      reference to the Form 8-K filed on July 21, 2008)                                                                                                                                                                                                               
|10.45 | Asset Purchase Agreement dated as of March 25, 2009,
      between Harbin Hainan Kangda Cactus Health Food Co., Ltd., a wholly owned
      subsidiary of China Kangtai Cactus Bio-Tech, Inc., and Qitaihe Kangwei
      Biotechnology Co., Ltd. (incorporated by reference to the Form 8-K filed
      on March 30, 2009)
|10.46 | Form of Common Stock Purchase Agreement by and between
      China Kangtai Cactus Bio-Tech, Inc. and Seaside 88, LP, dated as of
      November 5, 2009 (incorporated by reference to the Form 8-K filed on
      November 9, 2009)                                                                                      
|10.47 | Agreement by and between Harbin Hainan Kangda Cactus
      Health Food Co., Ltd. and City of Qitaihe, China dated January 27, 2010
      (incorporated by reference to the Form 8-K filed on January 28, 2010)                                                                                                           
|10.48 | Termination Agreement by and between China Kangtai Cactus
      Bio-Tech, Inc. and Seaside 88, LP dated April 30, 2010 (incorporated by
      reference to the Form 8-K filed on May 3, 2010)                                                                                                                            
|10.49 | Asset Purchase Agreement by and between Raoping County
      Dadi Tobacco Trade Center and Harbin Hainan Kangda Cacti Hygienical Foods
      Co., Ltd. dated June 28, 2010 (incorporated by reference to the Form 8-K
      filed on July 2, 2010)                                                                       
|10.50 | Investment Agreement by and between China Kangtai Cactus
      Bio-Tech, Inc. and Kodiak Capital Group, LLC dated July 9, 2010
      (incorporated by reference to Form 8-K filed on July 13, 2010)                                                                                                                      

31

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|10.51 | Registration Rights Agreement by and between China
      Kangtai Cactus Bio-Tech, Inc. and Kodiak Capital Group, LLC dated July 9,
      2010 (incorporated by reference to Form 8-K filed on July 13, 2010)                                                                     
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.52 | Asset Purchase Agreement of Land Use Right by and between
      The People’s Government and Baishea Town Taishan City and Harbin Hainan
      Kangda Cacti Hygiencial Foods Co., Ltd. dated August 25, 2009
      (incorporated by reference on Form S-1 filed on July 30, 2010) 
|10.53 | Patent Transfer Agreement of Land Use Right by and
      between The People’s Government and Baishea Town Taishan City and Harbin
      Hainan Kangda Cacti Hygiencial Foods Co., Ltd. dated August 25, 2009
      (incorporated by reference on Form S-1 filed on July 30, 2010)
|10.54 | Contract of Employment between China Kangtai Biotech Inc.
      and Chengzhi Wang dated June 3, 2010 (incorporated by reference on Form
      S-1 filed on July 30, 2010)                                                                                                        
|10.55 | Contract of Employment between China Kangtai Biotech Inc.
      and Hong Bu dated June 3, 2010 (incorporated by reference on Form S-1
      filed on July 30, 2010)                                                                                                              
|21.1  | List of Subsidiaries (incorporated by reference to the
      Form 10-KSB filed on April 15, 2008)                                                                                                                                                                                
|23.1  | Consent of Independent Registered Public Accounting Firm
      dated August 26, 2010 (incorporated by reference on Form S-1/A filed on
      July 30, 2010)                                                                                                                      
|23.2  | Consent of Independent Registered Public Accounting Firm
      dated July 30, 2010 (incorporated by reference on Form S-1 filed on August
      27, 2010)                                                                                                                        
|31.1* | Certification of the Chief Executive Officer pursuant to
      Rule 13a-14(a) or 15d-14(a) under the 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                                                                                                                                                                                                                                                                   

32

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SIGNATURES

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

CHINA KANGTAI CACTUS BIO-TECH INC.

|By:                    | /s/ Jinjiang Wang | President (CEO) and a Director and Principal
      Executive Officer
|---------------------- | ----------------- | --------------------------------------------------------------------
|                       | Jinjiang Wang     |                                                                     
|Date: : April 15, 2011 |                  
|                       |                   |                                                                     
|By:                    | /s/ Hong Bu       | Chief Financial Officer and a Director and
      Principal Financial
|                       | Hong Bu           | and Accounting Officer                                              
|Date: : April 15, 2011 |                  

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

|By:                                    | /s/ Jinjiang Wang | President (CEO) and a Director and Principal
      Executive Officer
|-------------------------------------- | ----------------- | --------------------------------------------------------------------
|                                       | Jinjiang Wang     |                                                                     
|Date: April 15, 2011                   |                  
|                                       |                   |                                                                     
|By:                                    | /s/ Chengzhi Wang | General Manager and a Director                                      
|                                       | Chengzhi Wang     |                                                                     
|Date: :












    April 15, 2011 |                  
|                                       |                   |                                                                     
|By:                                    | /s/ Hong Bu       | Chief Financial Officer and a Director and
      Principal Financial
|                                       | Hong Bu           | and Accounting Officer                                              
|Date: :












    April 15, 2011 |                  
|                                       |                   |                                                                     
|By:                                    | /s/ Jiping Wang   | Director                                                            
|                                       | Jiping Wang       |                                                                     
|Date:












    April 15, 2011   |                  
|                                       |                   |                                                                     
|By:                                    | /s/ Song Yang     | Director                                                            
|                                       | Song Yang         |                                                                     
|Date: :












    April 15, 2011 |                  

33

---

Index to Financial Statements

|Report of Independent Registered Public
      Accounting Firm                                                   | F-1
|--------------------------------------------------------------------------------------------------------------- | ---
|Consolidated Balance Sheets as of December 31, 2010 and
      2009                                              | F-2
|Consolidated Statements of Income and
      Comprehensive Income for the years ended December 31, 2010 and 2009 | F-3
|Consolidated Statements of Stockholders' Equity for the
    years ended December 31, 2010 and 2009              | F-4
|Consolidated Statements of Cash Flows for
      the years ended December 31, 2010 and 2009                      | F-5
|Notes to Consolidated Financial Statements                                                                      | F-6

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

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

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

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

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

Freeport, New York 
March 31, 2011

F-1

---

China Kangtai Cactus Bio-Tech Inc. and Subsidiaries
Consolidated Balance Sheets As of December 31, 2010 and 2009

|                                                                                                                                                                                                                                                  |   | 2010       |  |   | 2009       | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------- |  | - | ---------- | 
|ASSETS                                                                                                                                                                                                                                            |  
|Current Assets                                                                                                                                                                                                                                    |   |            |  |   |            | 
|Cash and cash equivalents                                                                                                                                                                                                                         | $ | 2,630,035  |  | $ | 2 ,918,068 | 
|Accounts receivable, net of allowances for doubtful accounts
      of $1,004,027 and $1,006,597, respectively                                                                                                                                     |   | 7,416,090  |  |   | 2,283,257  | 
|Inventories                                                                                                                                                                                                                                       |   | 1,385,531  |  |   | 2,440,904  | 
|Prepaid expenses                                                                                                                                                                                                                                  |   | 1,644      |  |   | 1,265      | 
|Other receivables                                                                                                                                                                                                                                 |   | 500        |  |   | 3,992,562  | 
|Total Current Assets                                                                                                                                                                                                                              |   | 11,433,800 |  |   | 11,636,056 | 
|Property, plant and equipment, net of
      accumulated depreciation of $2,637,629 and $2,112,093, respectively                                                                                                                                   |   | 7,928,050  |  |   | 5,750,876  | 
|                                                                                                                                                                                                                                                  |   |            |  |   |            | 
|Other Assets                                                                                                                                                                                                                                      |   |            |  |   |            | 
|Land use rights, net of accumulated
      amortization of $881,720 and $473,151, respectively                                                                                                                                                     |   | 19,390,976 |  |   | 17,981,834 | 
|Intangible assets, net of accumulated
      amortization of $1,601,418 and $1,054,531, respectively                                                                                                                                               |   | 9,714,809  |  |   | 316,300    | 
|Total Assets                                                                                                                                                                                                                                      | $ | 48,467,635 |  | $ | 35,685,066 | 
|LIABILITIES AND STOCKHOLDERS'
      EQUITY                                                                                                                                                                                                        |  
|Current Liabilities                                                                                                                                                                                                                               |   |            |  |   |            | 
|Accounts payable and
      accrued liabilities                                                                                                                                                                                                    | $ | 306,025    |  | $ | 311,417    | 
|Note payable                                                                                                                                                                                                                                      |   | 916,696    |  |   | 885,115    | 
|Taxes payable                                                                                                                                                                                                                                     |   | 1,551,198  |  |   | 789,141    | 
|Other payable                                                                                                                                                                                                                                     |   | -          |  |   | 5,042      | 
|Total Current Liabilities                                                                                                                                                                                                                         |   | 2,773,919  |  |   | 1,990,715  | 
|                                                                                                                                                                                                                                                  |   |            |  |   |            | 
|Estimated liability for equity-based
      financial instruments with characteristics of liabilities:                                                                                                                                             |   |            |  |   |            | 
|Designated as Series A
      convertible Preferred Stock (50,000 shares issued and
      outstanding           at
      December 31, 2010 and 2009, respectively)                                                                                 |   | 51,500     |  |   | 135,500    | 
|Warrants                                                                                                                                                                                                                                          |   | 469,705    |  |   | 4,922,860  | 
|Total                                                                                                                                                                                                                                             |   | 521,205    |  |   | 5,058,360  | 
|Total Liabilities                                                                                                                                                                                                                                 |   | 3,295,124  |  |   | 7,049,075  | 
|Commitments and Contingencies                                                                                                                                                                                                                     |   | -          |  |   | -          | 
|                                                                                                                                                                                                                                                  |   |            |  |   |            | 
|Stockholders' Equity                                                                                                                                                                                                                              |   |            |  |   |            | 
|Preferred stock, par
      value $.001 per share; authorized 200,000,000 shares; issued and
      outstanding:                                                                                                                                    |   |            |  |   |            | 
|50,000 and 50,000 shares, respectively                                                                                                                                                                                                            |   | -          |  |   | -          | 
|Common stock,
      par value $.001 per share; authorized 200,000,000
      shares,           issued
      or issuable and outstanding: 22,255,527 and 20,024,024 shares, at December
      31, 2010
      and           2009,
      respectively |   | 22,256     |  |   | 20,024     | 
|Additional paid-in capital                                                                                                                                                                                                                        |   | 14,259,777 |  |   | 11,003,276 | 
|Retained earnings                                                                                                                                                                                                                                 |   |            |  |   |            | 
|Appropriated                                                                                                                                                                                                                                      |   | 5,253,700  |  |   | 3,881,804  | 
|Unappropriated                                                                                                                                                                                                                                    |   | 21,322,790 |  |   | 10,903,711 | 
|Accumulated other comprehensive income (Foreign currency translation
      adjustments)                                                                                                                                                           |   | 4,313,988  |  |   | 2,827,176  | 
|Total stockholders' equity                                                                                                                                                                                                                        |   | 45,172,511 |  |   | 28,635,991 | 
|Total Liabilities
      and Stockholders' Equity                                                                                                                                                                                                  | $ | 48,467,635 |  | $ | 35,685,066 | 

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

F-2

---

China Kangtai Cactus Bio-Tech Inc. and Subsidiaries
Consolidated Statements of Income and Comprehensive Income For the Years
Ended December 31, 2010 and 2009

|                                                                                                                                                                         |   | 2010        |   |   | 2009        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | - | ----------- | - | - | ----------- | -
|Net Sales                                                                                                                                                                | $ | 36,029,550  |   | $ | 26,537,356  |  
|Cost of Sales                                                                                                                                                            |   | (22,475,015 | ) |   | (16,016,434 | )
|Gross Profit                                                                                                                                                             |   | 13,554,535  |   |   | 10,520,922  |  
|                                                                                                                                                                         |   |             |   |   |             |  
|Operating Expenses                                                                                                                                                       |   |             |   |   |             |  
|Selling expenses                                                                                                                                                         |   | 117,615     |   |   | 249,083     |  
|(Reduction) in
      provision for reserve for allowances, returns and doubtful accounts                                                                                 |   | (29,708     | ) |   | 26,897      |  
|Research and development                                                                                                                                                 |   | 141,830     |   |   | -           |  
|General and
      administrative expenses                                                                                                                                |   | 1,394,632   |   |   | 464,697     |  
|Depreciation                                                                                                                                                             |   | 77,097      |   |   | 77,323      |  
|Amortization of land
      use rights                                                                                                                                    |   | 38,459      |   |   | 38,165      |  
|Amortization of intangible assets                                                                                                                                        |   | 498,034     |   |   | 137,227     |  
|Total operating expenses                                                                                                                                                 |   | 2,237,959   |   |   | 993,392     |  
|Income from
      Operations                                                                                                                                             |   | 11,316,576  |   |   | 9,527,530   |  
|Other Income (Expense)                                                                                                                                                   |   |             |   |   |             |  
|Interest income                                                                                                                                                          |   | 687         |   |   | 69          |  
|Imputed interest
      expense                                                                                                                                           |   | (53,630     | ) |   | (53,219     | )
|Income (expense) from
      revaluation of Series A Preferred Stock and
      A,           B,
      C, and D warrants with characteristics of liabilities at fair values |   | 3,586,155   |   |   | (7,926,182  | )
|Net (loss) gain on disposal of
      property and equipment                                                                                                              |   | (1,666      | ) |   | 495,348     |  
|Total Other Income (Expenses)                                                                                                                                            |   | 3,531,546   |   |   | (7,483,984  | )
|Income before Income Tax                                                                                                                                                 |   | 14,848,122  |   |   | 2,043,546   |  
|Income tax expense                                                                                                                                                       |   | (3,057,147  | ) |   | (1,563,421  | )
|Net Income Attributable to Common Stockholders                                                                                                                           | $ | 11,790,975  |   | $ | 480,125     |  
|                                                                                                                                                                         |   |             |   |   |             |  
|Net Income Per Common Share                                                                                                                                              |   |             |   |   |             |  
|Basic                                                                                                                                                                    | $ | 0.56        |   | $ | 0.03        |  
|Diluted                                                                                                                                                                  | $ | 0.56        |   | $ | 0.02        |  
|                                                                                                                                                                         |   |             |   |   |             |  
|Weighted Average Number of Common Shares
      Used to Compute Earnings per Common Share:                                                                                |   |             |   |   |             |  
|Basic                                                                                                                                                                    |   | 20,987,497  |   |   | 18,304,775  |  
|Diluted                                                                                                                                                                  |   | 21,188,102  |   |   | 19,469,714  |  
|                                                                                                                                                                         |   |             |   |   |             |  
|Comprehensive Income:                                                                                                                                                    |   |             |   |   |             |  
|Net income                                                                                                                                                               | $ | 11,790,975  |   | $ | 480,125     |  
|Foreign currency translation
      adjustment                                                                                                                            |   | 1,486,812   |   |   | (220,696    | )
|Comprehensive Income                                                                                                                                                     | $ | 13,277,787  |   | $ | 259,429     |  

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

F-3

---

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

|                                                                                                                                                                                                                                                         |  |                                  |   |   |                         |   |  |            |  |   |        |  |   |            |   |   |                                 |   |   |              |  |   |               |   |   |            |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | - | - | ----------------------- | - |  | ---------- |  | - | ------ |  | - | ---------- | - | - | ------------------------------- | - | - | ------------ |  | - | ------------- | - | - | ---------- | -
|                                                                                                                                                                                                                                                         |  | Preferred Stock $0.001 par value |   |   | Common Stock $0.001 par |   |  |            |  |   |        |  |   |            |   |   | Accumulated                     |   |   |              | 
|                                                                                                                                                                                                                                                         |  |                                  |   |   |                         |   |  |            |  |   | value  |  |   | Additional |   |   | Unappropriat












    ed |   |   | Appropriated |  |   | other         |   |   |            |  
|                                                                                                                                                                                                                                                         |  |                                  |   |   |                         |   |  |            |  |   |        |  |   | paid-in    |   |   | retained                        |   |   | retained     |  |   | comprehensive |   |   |            |  
|                                                                                                                                                                                                                                                         |  | Shares                           |   |   | Amount                  |   |  | Shares     |  |   | Amount |  |   | capital    |   |   | earnings                        |   |   | earnings     |  |   | income        |   |   | Total      |  
|                                                                                                                                                                                                                                                         |  |                                  |   |   |                         |   |  |            |  |   |        |  |   |            |   |   |                                 |   |   |              |  |   |               |   |   |            |  
|Balance at December 31, 2008                                                                                                                                                                                                                             |  | 1,150,000                        |   | $ | 1,150                   |   |  | 17,885,625 |  | $ | 17,886 |  | $ | 7,819,865  |   | $ | 11,604,285                      |   | $ | 2,682,345    |  | $ | 3,047,872     |   | $ | 25,173,403 |  
|January 1, 2009 cumulative effect of Change in
      accounting principle: Reclassification of Series A Preferred Stock
      and A, B, C, and D Warrants from stockholder's equity to
      liabilities, including revaluation at fair value of $18,760 |  | (1,150,000                       | ) |   | (1,150                  | ) |  |            |  |   |        |  |   | (688,850   | ) |   | 18,760                          |   |   |              |  |   |               |   |   | (671,240   | )
|Balance at January 1, 2009
      after cumulative effect adjustment                                                                                                                                                                                      |  | -                                |   |   | -                       |   |  | 17,885,625 |  |   | 17,886 |  |   | 7,131,015  |   |   | 11,623,045                      |   |   | 2,682,345    |  |   | 3,047,872     |   |   | 24,502,163 |  
|Conversion of Series A preferred stock                                                                                                                                                                                                                   |  | -                                |   |   | -                       |   |  | 1,100,000  |  |   | 1,100  |  |   | 1,948,067  |   |   | -                               |   |   | -            |  |   | -             |   |   | 1,949,167  |  
|Cashless exercise of A
      warrants                                                                                                                                                                                                                    |  | -                                |   |   | -                       |   |  | 598,006    |  |   | 598    |  |   | 1,290,630  |   |   | -                               |   |   | -            |  |   | -             |   |   | 1,291,228  |  
|Cash exercise of A warrants                                                                                                                                                                                                                              |  | -                                |   |   | -                       |   |  | 333,334    |  |   | 333    |  |   | 548,334    |   |   | -                               |   |   | -            |  |   | -             |   |   | 548,667    |  
|Exercise of stock option                                                                                                                                                                                                                                 |  | -                                |   |   | -                       |   |  | 107,059    |  |   | 107    |  |   | 32,011     |   |   | -                               |   |   | -            |  |   | -             |   |   | 32,118     |  
|Imputed interest on note payable                                                                                                                                                                                                                         |  | -                                |   |   | -                       |   |  | -          |  |   | -      |  |   | 53,219     |   |   | -                               |   |   | -            |  |   | -             |   |   | 53,219     |  
|Transfer to statutory and
      staff welfare reserves                                                                                                                                                                                                   |  | -                                |   |   | -                       |   |  | -          |  |   | -      |  |   | -          |   |   | (1,199,459                      | ) |   | 1,199,459    |  |   | -             |   |   | -          |  
|Net income for the year ended December
      31, 2009                                                                                                                                                                                                    |  | -                                |   |   | -                       |   |  | -          |  |   | -      |  |   | -          |   |   | 480,125                         |   |   | -            |  |   | -             |   |   | 480,125    |  
|Currency translation adjustment                                                                                                                                                                                                                          |  | -                                |   |   | -                       |   |  | -          |  |   | -      |  |   | -          |   |   | -                               |   |   | -            |  |   | (220,696      | ) |   | (220,696   | )
|Balance at
      December 31, 2009                                                                                                                                                                                                                       |  | -                                |   |   | -                       |   |  | 20,024,024 |  |   | 20,024 |  |   | 11,003,276 |   |   | 10,903,711                      |   |   | 3,881,804    |  |   | 2,827,176     |   |   | 28,635,991 |  
|Stock issued in connection
      with                                                                                                                                                                                                                    |  |                                  |   |   |                         |   |  |            |  |   |        |  |   |            |   |   |                                 |   |   |              |  |   |               |   |   |            |  
|investment agreement (Note 15)                                                                                                                                                                                                                           |  | -                                |   |   | -                       |   |  | 1,000,000  |  |   | 1,000  |  |   | 784,678    |   |   | -                               |   |   | -            |  |   | -             |   |   | 785,678    |  
|Cost incurred relating to
      stock issued in connection with investment agreement (Note15)                                                                                                                                                            |  | -                                |   |   | -                       |   |  | -          |  |   | -      |  |   | (42,000    | ) |   | -                               |   |   | -            |  |   | -             |   |   | (42,000    | )
|Stock issued for financing cost                                                                                                                                                                                                                          |  | -                                |   |   | -                       |   |  | 15,000     |  |   | 15     |  |   | 13,035     |   |   | -                               |   |   | -            |  |   | -             |   |   | 13,050     |  
|Cashless exercise of stock
      options                                                                                                                                                                                                                 |  | -                                |   |   | -                       |   |  | 238,503    |  |   | 239    |  |   | (239       | ) |   | -                               |   |   | -            |  |   | -             |   |   | -          |  
|Stock issued for consulting services                                                                                                                                                                                                                     |  | -                                |   |   | -                       |   |  | 103,000    |  |   | 103    |  |   | 231,997    |   |   | -                               |   |   | -            |  |   | -             |   |   | 232,100    |  
|Exercise of B warrants                                                                                                                                                                                                                                   |  | -                                |   |   | -                       |   |  | 750,000    |  |   | 750    |  |   | 1,700,250  |   |   | -                               |   |   | -            |  |   | -             |   |   | 1,701,000  |  
|Exercise of $1.00 stock options                                                                                                                                                                                                                          |  | -                                |   |   | -                       |   |  | 125,000    |  |   | 125    |  |   | 124,875    |   |   | -                               |   |   | -            |  |   | -             |   |   | 125,000    |  
|Stock option expense                                                                                                                                                                                                                                     |  | -                                |   |   | -                       |   |  | -          |  |   | -      |  |   | 390,275    |   |   | -                               |   |   | -            |  |   | -             |   |   | 390,275    |  
|Imputed interest on note payable                                                                                                                                                                                                                         |  | -                                |   |   | -                       |   |  | -          |  |   | -      |  |   | 53,630     |   |   | -                               |   |   | -            |  |   | -             |   |   | 53,630     |  
|Transfer to statutory and
      staff welfare reserves                                                                                                                                                                                                   |  | -                                |   |   | -                       |   |  | -          |  |   | -      |  |   | -          |   |   | (1,371,896                      | ) |   | 1,371,896    |  |   | -             |   |   | -          |  
|Net income for the years ended                                                                                                                                                                                                                           |  |                                  |   |   |                         |   |  |            |  |   |        |  |   |            |   |   |                                 |   |   |              |  |   |               |   |   |            |  
|December 31, 2010                                                                                                                                                                                                                                        |  | -                                |   |   | -                       |   |  | -          |  |   | -      |  |   | -          |   |   | 11,790,975                      |   |   | -            |  |   | -             |   |   | 11,790,975 |  
|Currency translation adjustment                                                                                                                                                                                                                          |  | -                                |   |   | -                       |   |  | -          |  |   | -      |  |   | -          |   |   | -                               |   |   | -            |  |   | 1,486,812     |   |   | 1,486,812  |  
|Balance at December 31, 2010                                                                                                                                                                                                                             |  | -                                |   | $ | -                       |   |  | 22,255,527 |  | $ | 22,256 |  | $ | 14,259,777 |   | $ | 21,322,790                      |   | $ | 5,253,700    |  | $ | 4,313,988     |   | $ | 45,172,511 |  

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

F-4

---

China Kangtai Cactus Bio-Tech Inc. and Subsidiaries
Consolidated Statements of Cash Flows For the Years Ended December 31,
2010 and 2009

|                                                                                                                                                                                        |   | 2010        |   |   | 2009       |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | - | - | ---------- | -
|Cash Flows from Operating Activities                                                                                                                                                    |   |             |   |   |            |  
|Net income                                                                                                                                                                              | $ | 11,790,975  |   | $ | 480,125    |  
|Adjustments
      to reconcile net
      income           to
      net cash provided by operating activities:                                                                           |   |             |   |   |            |  
|(Gain)
      expense from revaluation of Series A Preferred Stock
      and                           A,

      B, C, and D warrants with characteristics of liabilities at fair
values |   | (3,586,155  | ) |   | 7,926,182  |  
|Issuance of shares in consideration for various services                                                                                                                                |   | 245,150     |   |   | -          |  
|Issuance of
      options in consideration for legal services                                                                                                                           |   | 390,275     |   |   | -          |  
|Cashless exercise of stock options charged to operations                                                                                                                                |   | -           |   |   | 32,118     |  
|Imputed
      interest                                                                                                                                                                  |   | 53,630      |   |   | 53,219     |  
|Provision for (reduction in) allowances, returns and doubtful
      accounts                                                                                                            |   | (29,708     | ) |   | 26,897     |  
|Net loss
      (gain) on disposal of property, plant and equipment                                                                                                                      |   | -           |   |   | (495,348   | )
|Depreciation - cost of sales                                                                                                                                                            |   | 396,028     |   |   | 392,999    |  
|Depreciation - operating expenses                                                                                                                                                       |   | 77,097      |   |   | 77,322     |  
|Amortization of land use rights -cost of sales                                                                                                                                          |   | 343,456     |   |   | 146,200    |  
|Amortization of land use rights- operating expenses                                                                                                                                     |   | 38,459      |   |   | 38,165     |  
|Amortization of intangible assets                                                                                                                                                       |   | 498,034     |   |   | 137,227    |  
|Loss on
      disposal of property and equipment                                                                                                                                        |   | 1,665       |   |   | -          |  
|Changes in operating
      assets and liabilities:                                                                                                                                      |   |             |   |   |            |  
|(Increase)
      decrease in accounts receivable                                                                                                                                        |   | (5,130,263  | ) |   | 1,532,934  |  
|Decrease in inventories                                                                                                                                                                 |   | 1,055,373   |   |   | 935,731    |  
|Increase in
      prepaid expenses                                                                                                                                                      |   | (379        | ) |   | (260       | )
|Decrease (increase) in other receivables                                                                                                                                                |   | 3,747,926   |   |   | (3,747,926 | )
|Decrease in
      accounts payable and accrued liabilities                                                                                                                              |   | (5,392      | ) |   | (4,222     | )
|Increase
      in taxes payable                                                                                                                                                         |   | 762,057     |   |   | 218,286    |  
|Net cash
      provided by operating activities                                                                                                                                         |   | 10,648,228  |   |   | 7,749,649  |  
|Cash Flows from Investing Activities                                                                                                                                                    |   |             |   |   |            |  
|Purchase of intangible assets                                                                                                                                                           |   | (9,898,000  | ) |   | -          |  
|Purchase of land use
      rights                                                                                                                                                       |   | (1,159,237  | ) |   | (9,710,926 | )
|Purchase of property, plant and
      equipment                                                                                                                                         |   | (2,462,438  | ) |   | -          |  
|Net proceeds from
      disposals of property, plant and equipment                                                                                                                      |   | -           |   |   | 495,348    |  
|Collection from (advance to) related party                                                                                                                                              |   | 244,136     |   |   | (244,636   | )
|Net cash (used for) investing activities                                                                                                                                                |   | (13,275,539 | ) |   | (9,460,214 | )
|Cash Flows from Financing Activities                                                                                                                                                    |   |             |   |   |            |  
|Proceeds from related
      party                                                                                                                                                       |   | -           |   |   | 5,042      |  
|Proceeds from investor                                                                                                                                                                  |   | 785,678     |   |   | -          |  
|Cost in connection with
      investment                                                                                                                                                |   | (42,000     | ) |   | -          |  
|Repayment to related party                                                                                                                                                              |   | (5,042      | ) |   | -          |  
|Cash exercise of
      options                                                                                                                                                          |   | 125,000     |   |   | 250,000    |  
|Exercise of B warrants                                                                                                                                                                  |   | 750,000     |   |   | -          |  
|Net cash provided by financing activities                                                                                                                                               |   | 1,613,636   |   |   | 255,042    |  
|Effect of
      exchange rate changes on cash and cash equivalents                                                                                                                      |   | 725,642     |   |   | (25,306    | )
|Decrease in cash and cash
      equivalents                                                                                                                                             |   | (288,033    | ) |   | (1,480,829 | )
|Cash and cash
      equivalents, beginning of period                                                                                                                                    |   | 2,918,068   |   |   | 4,398,897  |  
|Cash and cash equivalents, end of period                                                                                                                                                | $ | 2,630,035   |   | $ | 2,918,068  |  
|                                                                                                                                                                                        |   |             |   |   |            |  
|Supplemental disclosures of cash flow
      information:                                                                                                                                |   |             |   |   |            |  
|Interest paid                                                                                                                                                                           | $ | -           |   | $ | -          |  
|Income taxes paid                                                                                                                                                                       | $ | 2,367,469   |   | $ | 1,419,189  |  

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

F-5

---

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

NOTE 1 - ORGANIZATION AND BUSINESS OPERATIONS

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

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

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

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

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

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

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

Use of estimates

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

Fair Value of Financial Instruments

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

F-6

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

Foreign Currency Translation

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

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

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

Cash and Cash Equivalents

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

Accounts receivable

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. A reserve for allowances
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 the lower of
cost or market value, cost being determined on a first in, first out method.

Property, plant and equipment

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

Intangible and Other Long-Lived Assets

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

F-7

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

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

Revenue Recognition

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

Advertising Costs

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

Research and Development

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

Stock-Based Compensation

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

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

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

Income Taxes

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

F-8

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

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, warrants, and convertible preferred stock) outstanding. Dilutive
securities having an anti-dilutive effect on diluted net income per common share
are excluded from the calculation.

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

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

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

Segment Information

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

Statement of Cash Flows

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

Reclassifications

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

Recently Adopted Accounting Standards

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

F-9

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

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

Recently Issued Accounting Standards

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

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

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

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

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

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

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

F-10

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

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

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

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

NOTE 4 - INVENTORIES

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

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

NOTE 5 - OTHER RECEIVABLES

Other receivables at December 31, 2010 and 2009 consisted of:

|                                     |   | 2010 |  |   | 2009      | 
|------------------------------------ | - | ---- |  | - | --------- | 
|                                     |   |      |  |   |           | 
|Land Center of Qitaihe               | $ | -    |  | $ | 3,116,843 | 
|QitaiheTianhe Pharmaceutical Co. Ltd |   | -    |  |   | 631,083   | 
|Due from related party               |   | 500  |  |   | 244,636   | 
|Total                                | $ | 500  |  | $ | 3,992,562 | 

Disposal of property, plant and equipment

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

On December 19, 2009, the Company entered into a draft
agreement with the Government of Qitaihe City and agreed to give up all the
rights acquired from the above purchase to the Qitaihe local government for
rebuilding the city of Qitaihe. In return for forfeiting the properties purchased, the Company received a total of RMB
36,304,461 (approximately US$5.3 million) as compensation from the City of
Qitaihe. The agreement of forfeiting was signed on January 27, 2010.

F-11

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

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

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

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

Due from related party

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

NOTE 6 - PROPERTY, PLANT AND EQUIPMENT

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

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

Depreciation expense was $473,125 and $470,321 for the years
ended December 31, 2010 and 2009, respectively, of which $396,028 and $392,999
were included in cost of sales, respectively.

NOTE 7 - LAND USE RIGHTS

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

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

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

F-12

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

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

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

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

NOTE 8 - INTANGIBLE ASSETS

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

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

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

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

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

F-13

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

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

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

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

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

NOTE 9 - NOTE PAYABLE

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

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

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

NOTE 10 – TAXES PAYABLE

Taxes payable consist of:

F-14

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

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

NOTE 11 – ESTIMATED LIABILITY FOR EQUITY-BASED FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF LIABIILTIES

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

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

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

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

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

F-15

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

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

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

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

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

NOTE 12 - SERIES A CONVERTIBLE PREFERRED STOCK

On March 21, 2008, the Company entered into a
Preferred Stock
Purchase Agreement (the “Purchase Agreement”) with T Squared Investments
 LLC
(the “Investor”) to sell in a private placement to the Investor for an
aggregate
purchase price of $500,000, (i) 833,333 shares of the Company’s newly
designated
Series A Convertible Preferred Stock, par value $0.001 per share (the
“Series A
Preferred Stock”) for $0.60 per share (the “Shares”), (ii) warrants to
purchase
up to 1,250,000 shares of Company common stock exercisable for a period
of three
years at an exercise price of $0.75 per share (the “A Warrants”) or an
aggregate
exercise price of $937,500 if all of the A Warrants were exercised, and
(iii)
warrants to purchase up to 1,500,000 shares of Company common stock
exercisable
for a period of three years at an exercise price of $1.00 per share (the
 “B
Warrants”), or an aggregate exercise price of $1,500,000 if all the B
Warrants were exercised. The Company issued the Shares, the A Warrants
and B Warrants on the same day. Westernking Financial Service acted as
the sole
placement agent in the transaction for a fee of $30,000 (6% of the gross
proceeds).

F-16

---

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

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

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

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

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

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

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

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

F-17

---

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

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

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

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

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

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

Options and Warrants

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

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

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

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

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

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

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

F-18

---

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

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

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

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

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

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

There are no stock options outstanding as of December 31, 2010.

Warrants outstanding at December 31, 2010 consist of:

|Date           |  | Number      |  |  | Number      |  |   | Exercise |  |  | Expiration     | 
|-------------- |  | ----------- |  |  | ----------- |  | - | -------- |  |  | -------------- | 
|Granted        |  | Outstanding |  |  | Exercisable |  |   | Price    |  |  | Date           | 
|               |  |             |  |  |             |  |   |          |  |  |                | 
|March 21, 2008 |  | 750,000     |  |  | 750,000     |  | $ | 1.0000   |  |  | March 21, 2011 | 
|July 16, 2008  |  | 500,000     |  |  | 500,000     |  | $ | 0.9375   |  |  | July 16, 2011  | 
|July 16, 2008  |  | 600,000     |  |  | 600,000     |  | $ | 1.2500   |  |  | July 16, 2011  | 
|               |  |             |  |  |             |  |   |          |  |  |                | 
|Total          |  | 1,850,000   |  |  | 1,850,000   |  |   |          |  |  |                | 

Other Common Stock Issuances

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

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

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

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

F-19

---

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

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

NOTE 14 - RESTRICTED NET ASSETS

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

NOTE 15 - INCOME TAXES

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

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

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

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

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

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

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

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

F-20

---

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

|                                                                                                                                                                                  |   | 2010       |   |   | 2009       |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                                                                                                                                                  |   |            |   |   |            |  
|Expected tax at 35%                                                                                                                                                               | $ | 5,196,843  |   | $ | 715,241    |  
|(Non-taxable income) nondeductible expense from
      revaluation of Series A Preferred Stock and A, B, C, and D
      warrants with characteristics of liabilities at fair value |   | (1,255,154 | ) |   | 2,774,164  |  
|Tax effect of unutilized losses of US China
      Kangtai and BVI China Kangtai                                                                                                   |   | 289,618    |   |   | 63,797     |  
|Tax effect of PRC income taxed at lower rate                                                                                                                                      |   | (1,174,160 | ) |   | (1,989,781 | )
|Actual provision for income taxes                                                                                                                                                 | $ | 3,057,147  |   | $ | 1,563,421  |  

F-21

---

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

NOTE 16 - COMMITMENTS AND CONTINGENCIES

Operating lease commitments

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

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

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

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

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

Consulting Agreements

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

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

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

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

F-22

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

Investment agreement

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

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

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

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

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

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

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

F-23

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

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

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

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

Concentrations and risks

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

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

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

NOTE 17 - SEGMENT AND OTHER INFORMATION

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

Net sales consisted of:

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

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

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

F-24

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

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

NOTE 19 - SUBSEQUENT EVENTS

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

F-25

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