UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  Form 10-KSB  ýANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934  For the fiscal year ended December 31, 2006  oTRANSITION REPORT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934  For the transition period from                to               .  CHINA KANGTAI CACTUS BIO-TECH INC. (Name of small business issuer in its charter)  Nevada000-3309787-0650263(State or other jurisdiction of
incorporation)(Commission File Number)(IRS Employer Identification
Number)No. 99 Taibei Road, Limin Economy and Technology Developing DistrictHarbin, P. R. C. Zip Code: 150025(Address of principal executive offices)  Issuers telephone number: (86) 451-57351189 ext 126  Securities to be registered under Section 12(b) of the Act: None  Securities to be registered under Section 12(g) of the Act: Common Stock, $.001 par value  Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 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  Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. Yes     No  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No ý  State issuer’s revenue for its most recent fiscal year: $10,384,655.  The aggregate market value of the common stock of the issuer held by non-affiliates of the issuer on March 29, 2007 based on the closing price of the common stock as reported on the OTC Bulletin Board on such date was $7,760,162.  As of March 29, 2007 there were 17,739,625 outstanding shares of common stock, par value $.001 per share.  DOCUMENTS INCORPORATED BY REFERENCE: None  Transitional Small Business Disclosure Format (Check one): Yes  No ý   - 1 -   TABLE OF CONTENTS  PagePART IItem 1.Description of Business3Item 2.Description of Property6Item 3.Legal Proceedings6Item 4.Submission of Matters to a Vote of Security Holders6PART IIItem 5.Market for Common Equity and Related Stockholder Matters7Item 6.Managements Discussion and Analysis7Item 7.Financial Statements11Item 8.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure28Item 8AControls and Procedures28Item 8BOther Information28PART IIIItem 9.Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act.29Item 10.Executive Compensation31Item 11.Security Ownership of Certain Beneficial Owners and Management31Item 12.Certain Relationships and Related Transactions32Item 13.Exhibits33Item 14.Principal Accountant Fees and Services35SIGNATURES36     - 2 -   PART I  ITEM 1. DESCRIPTION OF BUSINESS.  Corporate History  As used in this report, we, us, our, CKGT, our Company or the Company 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 soledirector) 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.   - 3 -   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.  Description of Business  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 nutriceuticals, cactus nutritional food and drinks, as well as cactus raw and intermediate materials.  The Company has over 380 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 nutriceutical products; Mexican Milpa-Alta is mainly used for cactus nutritional food products. The Companys annual production capability of cactus fruits and edible cacti in 2006 is 60,000 tons. 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 powers, which are raw materials for cactus nutriceuticals.  The Company has many co-operative processing agreements with local food and beverage manufacturers to produce its products.  Two of such agreements are with Shandong Tsingtao Beer Inc (Harbin subsidiary)s Acheng Branch and Harbin Ice Lantern Noodle Factory dated March 10th, 2004. The Company has renewed these contracts on January 8thand 20th 2006 respectively. Pursuant to these contracts, the Company provides raw materials, quality control guidelines and technical support while the processors (Shandong Tsingtao Beer Inc. Acheng Branch and Harbin Ice Lantern Noodle Factory) provide other materials, processing facilities and labor. The Company inspects all of the final products.  The Company also has co-operative production agreements with two nutriceutical producers, Harbin Diwang Pharmacy Co. Ltd. (a GMP certified processor) and Harbin Bin County HuaLan Dairy Factory. Pursuant to these contracts, the Company provides raw materials, technical support and quality control guidelines while the processors (Harbin Diwang Pharmacy Co. Ltd. (a GMP certified processor) and Harbin Bin County HuaLan Dairy Factory) provide labor and production facilities.  In 2006, the Company has entered two new co-processing agreements with Huimeijia Bio-tech Ltd. to produce nutriceutical soft capsules and Kangwei Health Foods Ltd. of Mudanjiang City to produce cactus palm dry powder products.  Cacti have been proven to contain the following elements:  1.               Protein and amino acids; 2.               Organic fat; 3.               Carbohydrates; 4.               Vitamins; 5.               Microelements; and 6.               Organic acids.  The Companys nutriceutical products containing cactus extracts include Cactus Protein Nutrient, Cactus Calcium Peptide Soft Capsule, and Cactus Shuxin Capsule is products with cactus extracts.   - 4 -   Cactus Protein Nutrient  Cactus Protein Nutrient is produced with Yu lotus, protein and agglomerate element. It has been proven to be effective on stomachaches, tardiness gastritis, digestibility canker and duodenum canker.  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.  The revenue generated from sales of nutriceutical products was $7,502,913 in fiscal year 2006, or 72.25% of the total net sales.  The Company also entered co-operative production agreements on March 10th, 2004 and renewed the contracts on January 8th, 2006 with Shandong Tsingtao Beer Inc.s Harbin subsidiary to jointly produce cactus beer for long term cooperation. Pursuant to these agreements, the Company provides raw materials, recipes, technical support and quality control guidelines. Shandong Tsingtao Beer Inc. Acheng Branch provides labor and processing facilities and strictly follows the Companys guidelines and instructions for production. The Company has also established its own cactus beverage and fruit wine production facility. The Companys cactus drinks include cactus beer, cactus fruit wine (including the brand name (Overlord Scourge Flower Imperial Wine), cactus beverage and cactus fruit drink,  The revenue generated from sales of cactus food, beverage and wine was $2,881,742 in year 2006, or 27.75%.  The Company has established its own R&D institution and Sino-Mexico Cactus Institution, which is certified by Heilongjiang Science & Technology Committee. The Company independently developed many patented cactus -based nutriceutical and nutritional food and drinks.  In order to quickly penetrate the markets in China, enhance the efficiency of distributions, lower sales costs and administrative overheads, starting August 2006, the Company has reformed its sales and distribution models and gradually disposed its own domestic distribution network of approximately 200 self-owned chain stores in Harbin, Beijing, Guangzhou and other cities in China. The Company has adopted the strategies of distributions and sales of its products exclusively through various types and levels of provincial and municipal distributors and agents in Dalian, Heilongjiang, Harbin, Beijing, Guangzhou, Tianjin, Shenzhen, Jilin, Wuhan, and Shandong in China. The Companys revenue breakdown by region in China is as follows:  US$Heilongjiang$3,047,521.07Jilin$735,885.39Shandong$703,558.02Beijing$1,167,597.55Guangdong$2,021,956.07Tianjin$973,286.99Hubei$440,065.88  Competition  The cactus product industry in China is not highly competitive, and no published data is available regarding CKGTs relative position in the markets in which it operates. Although no major competitor currently competes against CKGT  - 5 -   across its entire product line, competitive products are available from a number of different vendors offering features similar to those of CKGTs products. CKGTs existing and potential competitors include companies having greater financial, marketing and technical resources than CKGT. There can be no assurance that one or more of these competitors will not develop products that are equal or superior to the products CKGT markets. In addition, many potential clients for CKGTs products have in-house capabilities to develop cactus products that can provide some or all of the functionality of CKGTs products.  CKGT believes that there are distinguishing competitive factors in the selection of its cactus products. These include price/performance characteristics, marketing and sales expertise, product benefit and functions, and reliability and integration of cactus into a variety of other products. CKGT 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.  CKGT believes it is in compliance in all material respects with all laws, rules, regulations and requirements that affect its business. Further, CKGT believes that compliance with such laws, rules, regulations and requirements does not impose a material impediment on its ability to conduct business.  Administrative Offices  CKGTs registered statutory office is located at CSC Services of Nevada, Inc., 502 East John Street, Suite E, Carson City, Nevada 89706. CKGTs operations office is located at No. 99 Taibei Road, Limin Economy and Technology Developing District Harbin, P. R. C. Zip Code: 150025 and its telephone number is (86) 451 57351189.  Employees  CKGT currently has 232 full-time employees. Management of CKGT expects to continue to use consultants, attorneys, and accountants as necessary, to complement services rendered by its employees.  Reports to Security Holders  CKGT 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. CKGT 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 CKGT 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.  ITEM 2.  DESCRIPTION OF PROPERTY.  CKGTs operations office is located at No. 99 Taibei Road, Limin Economy and Technology Developing District Harbin, P. R. C. Zip Code: 150025 and its telephone number is (86) 451 57351189.  ITEM 3.  LEGAL PROCEEDINGS.  The Company is not a party to any pending legal proceedings, and no such proceedings are known to be contemplated. No director, officer or affiliate of the Company and no owner of record or beneficial owner of more than 5.0% of the securities of the Company, or any associate of any such director, officer or security holder is a party adverse to the Company or has a material interest adverse to the Company in reference to pending litigation.  ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.  No matters were submitted to a vote of the security holders of the Company during the fourth quarter of the fiscal year ended December 31, 2006.  - 6 -   PART II  ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS  Market for Common Stock  Since August 25, 2005, our Common Stock has traded on the OTC Bulletin Board under the symbol CKGT.OB. Prior to that, our Common Stock traded on the OTC Bulletin Board under the symbol INVE.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 fiscal year. These quotations reflect inter-dealer prices, without retail mark-up, markdown, or commission and may not represent actual transactions.  YearQuarter EndedHighLow2006December 31$1.13$0.60September 30$1.65$0.81June 30$1.80$0.39March 31$1.40$0.442005December 31$1.90$0.70September 30$2.10$0.02June 30$0.03$0.02March 31$0.027$0.0262004December 31$0.16$0.08September 30$0.74$0.09June 30$1.36$0.40March 31$1.57$1.01  Record Holders  As of December 31, 2006, there were approximately 92 shareholders of record holding a total of 17,739,625 shares of common stock.  The holders of the common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders of the common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock.  Dividends  CKGT has not declared any cash dividends since inception and does not anticipate paying any dividends in the foreseeable future. The payment of dividends is within the discretion of the board of directors and will depend on CKGTs earnings, capital requirements, financial condition, and other relevant factors. There are no restrictions that currently limit CKGTs ability to pay dividends on its common stock other than those generally imposed by applicable state law.  Stock Re-Purchases  We did not make any re-purchases of shares of our common stock during the fourth quarter of fiscal 2006 and we do not currently have any publicly-announced repurchase plans in effect.  ITEM 6.  MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.  CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.  Certain statements in this report, including statements in the following discussion which are not statements of historical fact, are what are known as forward looking statements, which are basically statements about the future. For that reason, these statements involve risk and uncertainty since no one can accurately predict the future. Words such as plans, intends, will, hopes, seeks, anticipates, expects and the like often identify such forward looking statements, but  - 7 -   are not the only indication that a statement is a forward-looking statement. Such forward looking statements include statements concerning our plans and objectives with respect to the present and future operations of the Company, and statements which express or imply that such present and future operations will or may produce revenues, income or profits. Numerous factors and future events could cause the Company to change such plans and objectives or fail to successfully implement such plans or achieve such objectives, or cause such present and future operations to fail to produce revenues, income or profits. Therefore, the reader is advised that the following discussion should be considered in light of the discussion of risks and other factors contained in this report on Form 10KSB and in the Companys other filings with the Securities and Exchange Commission. No statements contained in the following discussion should be construed as a guarantee or assurance of future performance or future results.  The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and accompanying notes and the other financial information appearing elsewhere in this report. CKGTs fiscal year end is December 31.  CKGTs short-term strategy is to realize net cash flow from operations and financing activities to be used to expand marketing efforts in China and research and development. CKGT is committed to ensuring that its products remain at the forefront of providing a variety of quality cactus based nutriceuticals, nutritional food from cactus, and beverages from cactus, including but not limited to beer and wine derived from cactus. The realization of net cash flows in the near term will require a significant increase in CKGTs revenues without a substantial increase in expenses. Financing activities will focus on equity financing. Once CKGT has additional positive net cash flow, its longer-term strategy is to expand marketing efforts beyond China into other Asian markets based on anticipated increases in marketing spending over the next several years in South Korea, Singapore, Taiwan and other southeastern Asian countries.  CKGTs business development strategy is prone to significant risks and uncertainties certain of which can have an immediate impact on its efforts to realize positive net cash flow and deter future prospects of revenue growth.  CKGTs financial condition and results of operations depend primarily on the revenue generated from the sale of its products and its ability to control the cost of sales. CKGT has a limited history of generating revenue which cannot be viewed as an indication of continued growth and a recent historical record of incurring losses. Should CKGT be unable to consistently generate revenue through the successful implementation of its business model and reduce or stabilize expenses to the point where it can realize a net cash flow such failure will have a short-term impact on CKGTs ability to continue its business operations.  Results of Operations  During the period from March 31, 2004 through December 31, 2006, CKGT has been engaged in the development and marketing of its products from Harbin, China. CKGT expects that over the next twelve months it will continue to market its products in Harbin, China.  Year Ended December 31, 2006 and Year Ended December 31, 2005  Sales  For the fiscal year ended December 31, 2006, sales increased by $2,381,917 or by 29.8% to $ 10,384,655 from $8,002,738  for the year ended December 31, 2005. The increase in sales is attributable to the fact that the Companys products are efficiently marketed and increasingly well accepted by the domestic market customers.  Cost of Sales  For the fiscal year ended December 31, 2006, cost of sales increased by $906,096 or 14.7% to $7,062,280 from $6,156,184 as compared to the corresponding period of the prior year. The much smaller percentage increase in the cost of sales resulted from the increasing efficiency in the operations of the Company.  Selling and Distribution Expenses  For the fiscal year ended December 31, 2006, selling and distribution expenses decreased by $30,763 or 12.7% to $211,972 from $242,735 as compared to the corresponding period of the prior year. The decrease is primarily attributable to the Companys optimization of its operating team and sales forces, allocated sales and distribution expenses to the sales agent companies in different provinces of China, all of which reduced the cost of selling and distribution expenses of the  - 8 -   Company. Starting August 2006, the Company has also adopted a strategy of using exclusively local distributors and distribution agents, and disposed its self-owned retail outlets, hence greatly reduced its selling and distribution costs.  General and Administrative Expenses  For the fiscal year ended December 31, 2006, general and administrative expenses increased by $757,832 or 123.5% to $1,371,507 from $613,675 as compared to the corresponding period of the prior year. The primary factor responsible for the increase is a one time S-8 shares issuance for stock based compensation of $982,700. Separating that entry, this category of expenses is basically flat from 2005 to 2006.  Please note for the fiscal year ended December 31, 2006, the category of Professional Fees are included in the General and Administrative Expenses, which has also decreased due to the fact that the Company is becoming more cost-effective to managing its professional services providers, such as attorneys, accountants and auditors, and investor relations consultants.  For the fiscal year ended December 31, 2006, the net income increased by $639,154 or 80.3% to $1,434,645 from $795,491 as compared to the corresponding period of the prior year. The increase mainly resulted from rapid growth in the sales of the Companys products and the reduction in the unit cost of its products.  Impact of Inflation  CKGT believes that inflation has had a negligible effect on operations over the past three years. CKGT believes that it can offset inflationary increases in operating costs by increasing revenue and improving operating efficiencies.  Liquidity and Capital Resources  For the fiscal year ended December 31, 2006, cash flows from operating activities increased by $753,118 or 122.5% to  $138,418 from $($614,700) as compared to the corresponding fiscal year ended December 31, 2005. The increase is primarily due to the increase of net income, the decrease of accounts receivables, stock compensation, and deposit paid by a related party.  For the fiscal year ended December 31, 2006, cash flows from investing activities decreased by $717,633 or 554.5% to $(847,054) from ($129,421) as compared to the corresponding period of the prior year. The decrease is due to investments in the Companys property and equipment in 2006, in particular an acquisition of cactus plantation (Taishan Kangda) in June 2006.  For the fiscal year ended December 31, 2006, cash flow provided by financing activities decreased by $771,801 or 96.7% to $26,223 from $798,024 as compared to fiscal year ended December 31, 2004. The primary factor responsible for the decrease is due to the absence of a large due from a related party in 2005.  The Companys operations for the year ended December 31, 2006 resulted in comprehensive income of $1,993,182. The Company has funded its cash needs from revenue and debt financing in the form of loans provided by related and unrelated parties.  CKGT has no defined benefit plan or contractual commitment with any of its officers or directors.  CKGT has no current plans for the purchase or sale of any plant or equipment, outside of normal items to be utilized by office personnel.  CKGT has no current plans to make any significant changes in the number of employees.  Critical Accounting Policies  In Note 1 to the audited consolidated financial statements for the year ended December 31, 2006 and for the twelve months ended December 31, 2005 included in this Form 10-KSB, CKGT discusses those accounting policies that are considered to be significant in determining the results of operations and its financial position. CKGT believes that the accounting principles utilized by it conform to accounting principles generally accepted in the United States of America.  The preparation of financial statements requires management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. By their nature, these judgments are subject to an inherent  - 9 -   degree of uncertainty. On an on-going basis, we evaluate our estimates, including those related to bad debts, inventories, intangible assets, warranty obligations, product liability, revenue, and income taxes. CKGT bases its estimates on historical experience and other facts and circumstances that are believed to be reasonable, and the results form the basis for making judgments about the carrying value of assets and liabilities. The actual results may differ from these estimates under different assumptions or conditions.  CKGT applies the following critical accounting policies related to revenue recognition in the preparation of its financial statements.  Revenue Recognition  The Company recognizes revenue upon delivery or shipment of the products, at which time title passes to the customer provided that: there are no uncertainties regarding customer acceptance; persuasive evidence of an arrangement exists; the sales price is fixed or determinable; and collectibility is deemed probable.          - 10 -   ITEM 7.  FINANCIAL STATEMENTS.    CHINA KANGTAI CACTUS BIO-TECH INC. (PREVIOUSLY INVESTNET, INC.) AND SUBSIDIARIES  CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2006 AND 2005          - 11 -    CHINA KANGTAI CACTUS BIO-TECH INC. AND SUBSIDIARIES      CONTENTS  PagesReport of Independent Registered Public Accounting Firm13Consolidated Balance Sheets as of December 31, 2006 and 200514Consolidated Statements of Operations and Comprehensive income for the years ended December 31, 2006 and 200516Statements of Stockholders Equity for the years ended December 31, 2006 and 200517Consolidated Statements of Cash Flows for the years ended December 31, 2006 and 200518Notes to the Consolidated Financial Statements20        - 12 -    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 sheet of China Kangtai Cactus Bio-Tech Inc. and subsidiaries (the Company) as of December 31, 2006 and the related consolidated statements of operations and comprehensive income, stockholders equity, and cash flows for the year 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 audit.  I conducted my audit 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 audit provides 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, 2006 and the results of their operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.   /s/ Michael T. Studer, CPA, P.C.   Freeport, New York March 30, 2007     - 13 -   CHINA KANGTAI CACTUS BIO-TECH, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (EXPRESSED IN U.S. DOLLARS)   December 31,20062005(Audited)(Audited)ASSETSCurrent AssetsCash and cash equivalents$451,936$887,637Accounts receivable, net of allowance for doubtful accounts of $71,597 and $69,177, respectively1,777,507913,163Accounts receivable from a related party1,924204,461Inventories7,382,4444,346,262Other receivables and prepaid expenses24,310113,377Deposit paid to a related company-525,675Total Current Assets9,638,1216,990,575Property and Equipment, net of accumulated depreciation of $889,662 and $1,126,956, respectively3,444,7874,315,602Other AssetsIntangible assets, net of accumulated amortization of $564,300 and $415,942, respectively769,493714,493Land use rights, net of accumulated amortization of $152,845 and $107,945, respectively1,118,338182,084Total Assets$14,970,739$12,202,754LIABILITIES AND STOCKHOLDERS' EQUITYCurrent LiabilitiesAccounts payable$64,758$121,289Other payables and accrued liabilities156,693165,924Note payable775,913749,690Taxes payable78,336292,276Total current liabilities1,075,7001,329,179Commitments and Contingencies--Stockholders' Equity  - 14 -    Preferred stock, $0.001 par value; authorized 200,000,000 shares,none issued and outstanding--Common stock, $0.001 par value; authorized 200,000,000 shares,issued and outstanding: 17,739,625 and 17,105,625 shares, respectively17,74017,105Additional paid-in capital6,558,0825,530,435Retained earningsAppropriated1,361,365885,137Unappropriated5,266,8154,308,398Accumulated other comprehensive income691,037132,500Total stockholders' equity13,895,03910,873,575Total Liabilities and Stockholders' Equity$14,970,739$12,202,754See notes to consolidated financial statements.      - 15 -   CHINA KANGTAI CACTUS BIO-TECH, INC.AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (EXPRESSED IN U.S. DOLLARS)  Year ended December 31,20062005(Audited)(Audited)Net Sales$10,384,655$8,002,738Cost of Sales(7,062,280)(6,156,184)Gross Profit3,322,3751,846,554Operating ExpensesSelling expenses211,972242,735General and administrative expenses(including stock-based compensation of$982,700 and $300,000, respectively)1,371,507613,675Depreciation64,83659,930Amortization of land use rights32,0341,207Amortization of intangible assets118,789113,043Total operating expenses1,799,1381,030,590Income from Operations1,523,237815,964Other Income (Expenses)Government grant-24,450Interest income258356Imputed interest(45,582)(44,981)Loss on disposal of property and equipment(43,268)-Other income (expense) - net-(298)Total Other Income (Expenses)(88,592)(20,473)Income before Income Taxes1,434,645795,491Income Tax Expense--Net Income1,434,645795,491Other Comprehensive IncomeForeign currency translation gain (loss)558,537132,500Comprehensive Income1,993,182927,991Net income per common shareBasic and diluted$0.08$0.05Basic and Diluted17,440,86316,563,910See notes to consolidated financial statements.   - 16 -   CHINA KANGTAI CACTUS BIO-TECH, INC. AND SUBSIDIARIES STATEMENTS OF STOCKHOLDERS EQUITY (EXPRESSED IN U.S. DOLLARS)   Common Stock $0.001 par valueAdditionalUnappropriatedAppropriatedAccumulated otherpaid-inretainedretainedcomprehensiveDue toSharesAmountcapitalearningsearningsincomestockholdersBalance at December 31, 200415,821,69015,8215,186,7383,701,862696,182-66,400Stock issued in connectionwith recapitalization855,364855(855)----Stock issued for services428,571429299,571----Repayment to stockholders------(66,400)Imputed interest on note payable--44,981----Net income for the year---795,491---Transfer to statutory andstaff welfare reserves---(188,955)188,955--Currency translation adjustment-----132,500-Balance at December 31, 200517,105,62517,1055,530,4354,308,398885,137132,500-Stock issued for services634,000635982,065---Imputed interest on note payable--45,582---Transfer to statutory andstaff welfare reserves---(476,228)476,228--Net income for the year---1,434,645---Currency translation adjustment-----558,537-Balance at December 31, 200617,739,625$17,740$6,558,082$5,266,815$1,361,365$691,037$-See notes to consolidated financial statements.      - 17 -   CHINA KANGTAI CACTUS BIO-TECH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (EXPRESSED IN U.S. DOLLARS)  Year Ended December 31,20062005(Audited)(Audited)Cash Flows from Operating ActivitiesNet income$1,434,645$795,491Adjustments to reconcile net incometo net cash provided by (used for) operating activitiesDepreciation - cost of sales151,357276,048Depreciation - operating expenses64,83659,930Amortization of land use rights32,0341,207Amortization of intangible assets118,789113,043Loss on disposal of property and equipment43,268-Stock bonuses973,400-Stock issued for services9,300300,000Imputed interest45,58244,981Write-down of inventories661,229724,504Changes in operating assets and liabilitiesAccounts receivable, net(864,344)(483,297)Accounts receivable - related party202,537(204,461)Other receivables and prepaid expenses89,067(77,230)Inventories(3,058,380)(1,110,447)Deposit paid - related party525,675(525,675)Accounts payable(56,531)(38,682)Other payables and accrued liabilities(20,107)(116,286)Taxes payable(213,940)(373,826)Net cash provided by (used for) operating activities138,418(614,700)Cash Flows from Investing ActivitiesNet cash outflow from business combination(1,473,665)-Proceeds from disposals of property and equipment964,250-Purchase of property and equipment(33,889)(1,788)Purchase of land use rights(303,750)(127,633)Net cash provided by (used for) investing activities(847,054)(129,421)Cash Flows from Financing ActivitiesDue from a related party-845,411Due from stockholders-(66,400)Note payable26,22319,013Net cash provided by (used for) financing activities26,223798,024  - 18 -    Effect of exchange rate on cash246,712132,500Increase (decrease) in cash and cash equivalents(435,701)186,403Cash and cash equivalents, beginning of period887,637701,234Cash and cash equivalents, end of period$451,936887,637Supplemental disclosures of cash flow information:Interest paid$-$-Income taxes paid$-$-See notes to consolidated financial statements.  - 19 -   CHINA KANGTAI CACTUS BIO-TECH INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2006  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.  BVI China Kangtai is an investment holding company 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 Harbin, PRC.  During 2004, Harbin Hainan Kangdas stockholders exchanged 100% of their ownership in Harbin Hainan Kangda for 500,000 shares of BVI China Kangtai under a reorganization plan. The transfer has been accounted for as a reorganization of entities under common control as the companies were beneficially owned by closely related stockholders and share common management.  On June 3, 2005, pursuant to an Agreement for Sales of Ownership, InvestNet sold its100% owned subsidiaries, Champion Agents Limited and Interchance Limited, to a company controlled by a former director and stockholder. The sale consideration was for the purchaser to assume the liabilities of Champion Agents Limited, DSI Computer Technology Company Limited, a subsidiary of Champion Agents Limited and Interchance Limited.  On June 3, 2005, pursuant to a Stock Purchase Agreement, InvestNet issued 428,571 shares to a stockholder of BVI China Kangtai for $300,000. On the same date, InvestNet exchanged 12% of BVI China Kangtais outstanding shares for 1,573,295 shares of common stock, $0.001 par value (the Common Stock), of InvestNet pursuant to an Agreement and Plan of Reorganization it had entered into on May 13, 2005 with the stockholders of BVI China Kangtai. In addition, InvestNet issued a Convertible Promissory Note for $8,070,000 plus accrued interest at 5% per annum that was converted into 14,248,395 shares (post a one for seventy reverse split) of the Companys Common Stock (the Convertible Note) for the remaining 88% of the outstanding shares of BVI China Kangtai on August 26, 2005. After a one for seventy reverse spilt of the Companys outstanding Common Stock took place on August 25, 2005, the total number shares of the Companys outstanding Common Stock was 2,857,230 shares, and after adding the 14,248,395 shares of Common Stock following conversion of the Convertible Note on August 26, 2005, the total outstanding shares of Common Stock of the Company (now US China Kangtai) was 17,105,625 shares.  On August 25, 2005, InvestNet changed its name to China Kangtai Cactus Bio-Tech Inc.  The merger of InvestNet and BVI China Kangtai has been treated for accounting purposes as a capital transaction and recapitalization by the accounting acquirer (BVI China Kangtai) and as a reorganization by the accounting acquiree (InvestNet).  The financial statements have been prepared as if the reorganization had occurred retroactively.  On June 26, 2006 (see Note 3), 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 has not yet commenced business operations but owns a piece of land approximating 240,000 square meters in Guangdong Taishan used for growing cactus and a factory property.  US China Kangtai, BVI China Kangtai, Harbin Hainan Kangda and Taishan Kangda are hereafter collectively referred to as the Company.   Note 2. Summary of Significant Accounting Policies  Principles of Consolidation   - 20 -   The accompanying consolidated financial statements for 2006 include the financial statements of US China Kangtai and its 100% owned subsidiaries, BVI China Kangtai, Harbin Hainan Kangda and Taishan Kangda (from June 26, 2006).  The accompanying consolidated financial statements for 2005 include the financial statements of US China Kangtai (from June 3, 2005) and its 100% owned subsidiaries, BVI China Kangtai and Harbin Hainan Kangda.  All significant inter-company accounts and transactions have been eliminated in consolidation.  Basis of Presentation  The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States and are expressed in US dollars.  Use of estimates  The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount 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, accounts payable and accrued liabilities, note payable, and taxes payable.  The fair value of these financial instruments approximate their carrying amounts reported in the consolidated balance sheets due to the short term maturity of these instruments.  Foreign Currency Translation  The functional currency of US China Kangtai and BVI China Kangtai is the United States dollar.  The functional currency of Harbin Hainan Kangda and Taishan Kangda is the Chinese Renminbi (RMB).  The reporting currency of the Company is the United States dollar.  Harbin Hainan Kangda and Taishan Kangda assets and liabilities are translated into United States dollars at period-end exchange rates ($0.12825 and $0.12396 at December 31, 2006 and 2005, respectively).  Harbin Hainan Kangda and Taishan Kangda revenues and expenses are translated into United States dollars at weighted average exchange rates for the periods ($0.12557 and $0.12240 for the years ended December 31, 2006 and 2005, respectively).  Resulting translation adjustments are recorded as a component of accumulated other comprehensive income (loss) within stockholders equity.  Cash and Cash Equivalents  Cash and cash equivalents at December 31, 2006 and 2005 consist of cash on hand and a demand deposit account with a bank. The Company considers all highly liquid instruments with maturities of three months or less at the time of issuance to be cash equivalents.  Accounts receivable  The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and recorded based on managements assessment of the credit history with the customer and current relationships with them.  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.   - 21 -   Work in progress and finished goods are stated at lower of cost or market value, cost being determined on a first in first out method.  The Company provided for inventory allowances based on excess and obsolete inventories determined principally by customer demand.  Property and equipment  Property, plant and equipment are stated at cost less accumulated depreciation.  Expenditures for additions, major renewals and betterments are capitalized and expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is calculated on a straight-line basis over the estimated useful lives of the respective assets (40 years for buildings, 12 years for plant equipment and machinery, 10 years for motor vehicles, and 8 years for furniture and office equipment).  Intangible and Other Long-Lived Assets  Intangible and other long-lived assets are stated at cost, less accumulated amortization and impairments.  Land use rights are being amortized on a straight-line basis over the remaining term of the related agreements, which range from 40 to 50 years. Other intangible assets consist of goodwill, patents and licenses. Goodwill is not being amortized. Patents and licenses are being amortized over their expected useful economic life of 10 years. The Company reviews its long-lived assets for impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable.  The Company measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition.  If the sum of the expected undiscounted cash flows is less than the carrying amount of the assets, the Company would recognize an impairment loss based on the fair value of the assets.  Revenue Recognition  The Company recognizes revenue upon delivery of the products, at which time title passes to the customer provided that: there are no uncertainties regarding customer acceptance; persuasive evidence of an arrangement exists; the sales price is fixed or determinable; and collectibility is deemed probable. Advertising Costs Advertising costs are expensed as incurred. Advertising expenses totaled $ 137,874 and $128,689 for the years ended December 31, 2006 and 2005 respectively. Research and Development Research and development costs related to both present and future products are expensed as incurred. Total expenditures on research and development charged to general and administrative expenses and cost of sales for the years ended December 31, 2006 and 2005 were $11,835 and $50,019 respectively.  Stock-Based Compensation Stock-based compensation is accounted for at fair value in accordance with SFAS No. 123 (R) Accounting for Stock-Based Compensation.  No stock options or warrants were granted or issued in 2005 and 2006 and none are outstanding at December 31, 2006.  Income Taxes  Deferred income taxes are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements by applying enacted statutory tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is not more likely than not that some portion or all of the deferred tax assets will be realized.  Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.  Net Income Per Common Share   - 22 -   Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period.  Diluted net income per common share is computed on the basis of the weighted average number of common shares and dilutive securities (such as stock options and convertible securities) outstanding.  Dilutive securities having an anti-dilutive effect on diluted net income per common share are excluded from the calculation.  Segment Information  The Company operates in only one segment, the sale of products made from cactus plants. The Company sells to two customer groups; health foods comprising cactus liquor and juice and sale of cactus powder to pharmaceutical companies for use in medical products.  Recent Accounting Pronouncements   Certain accounting pronouncements have been issued by the FASB and other standard setting organizations which are not yet effective and have not yet been adopted by the Company. The impact on the Companys financial position and results of operations from adoption of these standards is not expected to be material.  Reclassifications  Certain prior period amounts have been reclassified to conform to the current period presentation.  Note 3. Business Combination  Pursuant to an agreement dated June 26, 2006, Harbin Hainan Kangda acquired a 100% equity interest in Taishan Kangda which was previously owned by two stockholders for $1,475,000 in cash. Taishan Kangda has not yet commenced business operations but owns a piece of land approximating 240,000 square metres in Guangdong Taishan used for growing cactus and a factory property.  The allocation of the net assets acquired is as follows:  Cash and cash equivalents$1,335Inventories639,031Total current assets640,366Property and equipment80,370Land use rights633,048Total assets1,353,784Less: Other payables and accrued liabilities(10,875)Net assets acquired1,342,909Consideration for acquisition1,475,000Goodwill$132,091   Analysis of the net outflow of cash and cash equivalents in respect of the business combination is as follows:   - 23 -    Cash consideration paid$1,475,000Less: cash and cash equivalents acquired(1,335)Net cash outflow$1,473,665  The acquisition of Taishan Kangda was accounted for as a purchase under SFAS No. 141, Business Combinations. Accordingly, the operating results of Taishan Kangda have been included in the consolidated statements of operations and comprehensive income of the Company from June 26, 2006 (date of acquisition) to December 31, 2006.  Note 4.     Inventories  Inventories consist of:  December 3120062005Cactus stock$5,680,089$4,715,577Other raw materials1,888,726215,791Work-in-progress228,108-Finished goods246,750139,3988,043,6735,070,766Less: allowance for excess and obsolete inventories(661,229)(724,504)$7,382,444$4,346,262   Note 5. Property, Plant and Equipment  Property, plant and equipment, net consist of:  December 31,20062005Buildings$2,648,869$3,887,142Plant equipment and machinery1,418,6931,331,854Motor vehicles253,183211,588Furniture and office equipment13,70411,974Total4,334,4495,442,558Less accumulated depreciation(889,662)(1,126,956)Net$3,444,787$4,315,602    Note 6.      Intangible Assets  Intangible assets, net consist of:  - 24 -     December 31,20062005Goodwill$132,091$-Patents and licenses1,201,7021,130,435Total1,333,7931,130,435Less accumulated amortization(564,300)(415,942)Net$769,493$714,493   The estimated amortization of intangible assets expense for each of the five succeeding fiscal years ending December 31, 2007, 2008, 2009, 2010, and 2011 is $120,170.   Note 7.     Land Use Rights  Land use rights, net consist of:  December 31,20062005Harbin Hainan Kangda$638,135$290,029Taishan Kangda633,048-Total1,271,183290,029Less accumulated amortization(152,845)(107,945)Net$1,118,338$182,084   The estimated amortization of land use rights expense for each of the five succeeding fiscal years ending December 31, 2007, 2008, 2009, 2010, and 2011 is $28,249.  Note 8.     Note Payable  Note payable consists of:  December 31,20062005Note payable to a financial institution, unsecured and due on demand.$775,913$749,690   The note payable 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 $45,582 and $44,981 for the years ended December 31, 2006 and 2005, respectively.  Note 9.   Stockholders Equity  Stock issuances   - 25 -   In June 2006, the Company issued 628,000 shares of common stock having a fair value of $973,400 to fifteen persons as stock bonuses.  In June 2006, the Company issued 6,000 shares of common stock having a fair value of $9,300 to a consultant for services provided.  Appropriated retained earnings  Relevant PRC statutory laws and regulations permit payments of dividends by Harbin Hainan 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 is restricted in its ability to transfer a portion of its net assets in the form of dividends, loans or advances, which restricted portion amounted to $1,361,365 and $885,137 at December 31, 2006 and 2005, respectively.   Note 10.   Income Taxes  The Company is subject to current income taxes on an entity basis on taxable income arising in or derived from the tax jurisdiction in which each entity is domiciled.  US China Kangtai was incorporated in the United States and is subject to United States income tax. No income taxes were provided in 2006 and 2005 since US China Kangtai had taxable losses in those years. At December 31, 2006, US China Kangtai had net operating loss carryforwards of approximately $565,000 which may be available to offset future taxable income. Management has not yet determined it to be more likely than not that a deferred tax asset of up to approximately $192,000 attributable to the utilization of these net operating loss carryforwards (which expire in 2026) will be realized. Accordingly, the Company has provided a 100% valuation allowance against the deferred tax asset in the financial statements at December 31, 2006.  At December 31, 2006, US China Kangtai has an unrecognized deferred United States income tax liability relating to undistributed earnings to 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.  BVI China Kangtai was incorporated in the BVI and is not subject to tax on income or on capital gains.  Harbin Hainan Kangda and Taishan Kangda were incorporated in the PRC and are subject to PRC income tax which is computed according to the relevant laws and regulations in the PRC. Harbin Hainan Kangda located its factories in a special economic region in Harbin, the PRC. This economic region allows foreign enterprises a two-year income tax exemption beginning in the first year after they become profitable, being 2005 and 2006 and a 50% income tax reduction for the following three years, being 2007 to 2009. Harbin Hainan Kangda was approved as a wholly owned foreign enterprise in March 2005. No income tax expense has been recorded for 2006 and 2005, as Harbin Hainan Kangda was exempt under the special economic region rules.   The provision for income taxes differs from the amount computed by applying the statutory United States federal income tax rate to income before income taxes. A reconciliation follows:  Year EndedDecember 31,20062005Expected tax at 35%$502,126$278,422Tax effect of unutilizedlosses of USA China Kangtai; BVI China Kangtai;and Taishan Kangda438,045105,000  - 26 -    Tax effect of Harbin Hainan Kangdaincome not taxed(886,447)(361,512)Tax effect of PRCincome taxed at lower rate(53,724)(21,910)Actual provision for income taxes$-$-   Note 11.   Related Party Transactions  Net sales in 2005 include $204,461 in sales of cactus to a company controlled by a related party of the Company.  Note 12.    Commitments and Contingencies  Operating lease commitments  The Company leases office space and land for growing cactus from third parties under operating leases. Rental expenses for all operating leases for the years ended December 31, 2006 and 2005 were $ 19,631 and $37,878, respectively.  At December 31, 2006, future minimum rental commitments under all non-cancelable operating leases are due as follows:  2007$16,920200816,920200916,92020105,37720112,709Thereafter120,530Total179,376  Concentrations and risks During 2006 and 2005, substantially all of the Companys assets were located in China and 100% of the Companys revenues were derived from companies located in China.  Substantially all of Harbin Hainan Kangda and Taishan Kangdas business operations are conducted in the PRC and governed by PRC laws and regulations.  Because these laws and regulations are relatively new, the interpretation and enforcement of these laws and regulations involve uncertainties.  The PRC government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of the PRC.  Under existing PRC foreign exchange regulations, payment of current account items, including profit distributions, interest payments and expenditures from the transaction, can be made in foreign currencies without prior approval from the PRC State Administration of Foreign Exchange by complying with certain procedural requirements.  However, approval from appropriate governmental authorities is required where RMB is to be converted into foreign currency and remitted out of the PRC to pay capital expenses, such as the repayment of bank loans denominated in foreign currencies.  The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions.   - 27 -    ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  As previously reported in a filing on Form 8K dated October 20, 2006, the Company dismissed Jimmy C.H. Cheung & Co, Certified Public Accountants (a member of Kreston International), of 304 Dominion Centre, 43 Queens Road East, Hong Kong (Jimmy C.H. Cheung & Co.) as its auditor for the fiscal year ending December 31, 2006, and appointed Michael T. Studer, Certified Public Accountants, P.C. of 18 East Sunrise Highway, Suite 311, Freeport, NY 11520 as its auditor for the fiscal year ending December 31, 2006. There were no disagreements with the Companys prior accountants on accounting and financial disclosure.  ITEM 8A.  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, 2006. 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 quarter ended December 31, 2006, 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.  ITEM 8B.  OTHER INFORMATION.  None.       - 28 -    PART III  ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.  The directors and executive officers currently serving the Company are as follows:  NameAgePositions HeldJinjiang Wang58President, Chief Executive Officer and Chairman of the Board of DirectorsChengzhi Wang37General Manager and a DirectorHong Bu33Chief Financial Officer and a DirectorJiping Wang46DirectorSong Yang33Director  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. 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 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. Ms. Bu graduated with a degree in Finance from the Finance and Economics Institute of Harbin. She is a CPA (certified public accountant). Ms. Bu has over five years of experience as Harbin Hainan Kangdas senior accountant. Ms. Bu was a founder of Harbin Hainan Kangda and a pioneer in the edible cactus trade of the P.R.C.  Jiping Wangwas appointed as a director of CKGT on July 22, 2005. Ms. Wang was born in Heilongjiang Province; P.R.C. Ms. Wang graduated from the Economic Managerial Cadres Institute of Harbin.  Song Yangwas appointed as a director of CKGT on July 22, 2005. Ms. Yang has over 15 years of experience in the Government Administrative Department. Ms. Wang was a founder of Harbin Hainan Kangda and a pioneer in the edible cactus trade of the P.R.C. Ms. Yang has not served as an officer and director of any other public companies over the last five years.  Audit Committee/ Compensation Committee / Director Compensation  The board of directors has established an audit committee. The audit committee is comprised of Jinjiang Wang and Chengzhi Wang. The audit committee has yet to adopt a definitive charter though it typically reviews, acts on, and reports to the board of directors with respect to various auditing and accounting matters. The matters typically considered by CKGTs audit committee include recommendations as to the performance of its independent auditors, the scope of the  - 29 -   annual audits, fees to be paid to the independent auditors, and internal accounting and financial control policies and procedures. Certain stock exchanges currently require companies to adopt a formal written charter that establishes an audit committee that specifies the scope of an audit committees responsibilities and the means by which it carries out those responsibilities. In order to be listed on any of these exchanges, CKGT would be required to adopt a definitive charter for its audit committee. The board of directors has not yet established a compensation committee. Directors currently are not reimbursed for out-of-pocket costs incurred in attending meetings and no director receives any compensation for services rendered as a director. CKGT does not anticipate adopting a provision for compensating directors in the future.  Compliance With Section 16(a) of the Exchange Act.  Section 16(a) of the Securities Exchange Act of 1934 requires the Companys executive officers and directors, and persons who own more that 10% of the Companys capital stock, to file reports of ownership and changes of ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission. Executive officers, directors and greater than 10% shareholders are required to furnish the Company with copies of all Forms 3, 4 and 5 they file.  Based solely on the Companys review of the copies of such forms it has received, and written representations from certain reporting persons, the Company believes that all of its executive officers and directors complied with all Section 16(a) filing requirements applicable to them during the Companys fiscal year ended December 31, 2006, with one exception. A Form 3 for Chengzhi Wang, the CompanysCEO and a director of the Company, was inadvertently filed a day late in connection with the Companys reorganization transaction occurring in June 2005.  Code of Ethics  CKGT has adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-B of the Securities Exchange Act of 1934. The Code of Ethics applies to directors and senior officers, such as the principal executive officer, principal financial officer, controller, and persons performing similar functions. CKGT has filed a copy of its Code of Ethics as Exhibit 14 to its Form 10-KSB for the fiscal year ended 2003. Further, CKGTs Code of Ethics is available in print, at no charge, to any security holder who requests such information by contacting CKGT.   - 30 -   ITEM 10. EXECUTIVE COMPENSATION.  The following table provides summary compensation information for the years 2006, 2005 and 2004 concerning cash and non-cash compensation paid or accrued by the Company to or on behalf of the chief executive officer:  Summary Compensation Table Change inPensionNon-EquityValue andIncentiveNon-qualifiedStockOptionPlanCompensationAll otherName andSalaryBonusAward(s)Award(s)CompensationEarningsCompensationTotalPrincipal PositionYear($)($)($)($)($)($)($)($)Jinjiang WangPresident, Chief Executive Officer and Chairman2006$ 2,600------------$ 2,6002005$90,000------------$90,0002004-------------- No executive officer received compensation in excess of $100,000 during the fiscal years ended December 31, 2006, 2005, and 2004.  In addition, members of the Board of Directors did not receive compensation for their services during the fiscal years ending December 31, 2006, 2005, and 2004.   ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.  The following table sets forth, as of the end of the Companys most recent fiscal year, the number of shares of Common Stock owned of record and beneficially by executive officers, directors and persons who hold 5.0% or more of the outstanding Common Stock of the Company. Also included are the shares held by all executive officers and directors as a group.  Title of
ClassName and Address of OwnerAmount and Nature
of OwnershipPercent of
ClassCommon StockJinjiang Wang
The 4th Group, 21st Residents
Committee Xinhua Street, Boli Town,
Boli County Heilongjiang Province P.R.C.4,801,390 Direct27.1%Common StockChengzhi Wang
No. 98 Xiangshun Street
Xiangfang District, Harbin, P.R.C.3,892,970 Direct21.9%Common StockHong Bu
No. 99 Taibei Road
Limin Economy and Technology
Developing District, Harbin, P.R.C.750,046 Direct4.2%Common StockJiping Wang
No. 99 Taibei Road
Limin Economy and Technology
Developing District, Harbin, P.R.C.700,734 Direct4.0%Common StockSong Yang
No. 99 Taibei Road
Limin Economy and Technology
Developing District, Harbin, P.R.C.726,688 Direct4.1%  - 31 -    Common StockAll Directors and Executive Officers as a Group10,871,828 Direct61.3%  (1) Percentage is based on 17,739,625 shares of Common Stock outstanding as of March 21, 2006.  (2) Jinjiang Wang has been the President of the Company since June 3, 2005. He has been and is the President of Harbin Hainan Kangda since 2000. Jinjiang Wang acquired 165,182 shares of the Company pursuant to the Reorganization Agreement on June 3, 2005 and 428,572 shares of the Company as Kangtais sole designee pursuant to the Stock Purchase Agreement on June 3, 2005. A day after the Reverse Split on August 26, 2005, the Convertible Note was converted by its holders(s) into 14,248,395 shares of the Company and Mr. Jinjiang Wang acquired 4,207,636 shares from 14,248,395 shares of the Company.   ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS  In June 2006 China Kangtai Cactus Bio-tech Inc, acquired Taishan Kangda Food Co., Ltd. and the transaction was reported in 8K and subsequent 8K/A.       - 32 -   ITEM 13.  EXHIBITS  (a)The Exhibits listed below are filed as part of this Annual Report.3(i)(a)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(i)(b)Amended Articles of Incorporation (incorporated by reference to the Form 10QSB filed with the Securities and Exchange Commission on November 3, 2003)3(i)(c)Amended Articles of Incorporation, filed herewith.3(ii)Bylaws (incorporated by reference from Registration Statement on Form SB-2/A filed with the Securities and Exchange Commission on October 18, 2000).10.1Contract of Termination of Lease, dated January 10, 2006, by and between the Company and the Lijia Village, Tongling Town Jixi City (incorporated by reference to the Form 10QSB filed with the Securities and Exchange Commission on May 15, 2006).10.2Contract 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).10.3Contract 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).10.4Contract 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).10.5Contract 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).10.6Contract 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).10.7Contract 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).10.8Contract 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).10.9Transfer 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).10.10Transfer Agreement for Greenhouse, dated January 18, 2006, by and between the Company and the Lindian Cactus Farming Base.10.11Transfer 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).  - 33 -    10.12Transfer 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).10.13Transfer 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).10.14Transfer 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).10.15Transfer 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).10.16Transfer 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).10.17Transfer 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).31.1Certification 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 2002.31.2Certification 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 2002.32.1Certification 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 2002.32.2Certification 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.    - 34 -   ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES  Audit Fees  The aggregate fees for audit of the Companys annual financial statements were $60,000 billed by Michael T. Studer, C.P.A., P.C. and $ 0 billed by Jimmy C.H. Cheung & Co. for the fiscal year ended December 31, 2006. The aggregate fees for audit of the Companys financial statements were $ 0 billed by PKF and $60,000 billed by Jimmy C.H. Cheung & Co. for the fiscal year ended December 31, 2005.  The aggregate fees billed by Michael T. Studer, C.P.A., P.C. for review of the Companys financial statements included in its quarterly reports on Form 10-QSB were $8,000 during the year ended December 31, 2006 and $0 for the period ended December 31, 2005. The aggregate fees billed by Jimmy C.H. Cheung & Co. for review of the Company's financial statements included in its quarterly reports on Form 10-QSB were $17,100 during the year ended December 31, 2006.  Audit Related-Fees  Jimmy C.H. Cheung & Co. and Michael T. Studer, C.P.A., P.C. did not bill the Company any amounts for assurance and related services that were related to their audit or review of the Company's financial statements during the fiscal periods 
ended December 31, 2006 or December 31, 2005.  Tax Fees  The aggregate fees billed by P. C. Liu, CPA, P.C. for tax compliance, tax advice and tax planning were $500 for the fiscal years ended 2005. The aggregate fees billed by Michael T. Studer, C.P.A., P.C. and Jimmy C.H. Cheung & Co. for tax compliance, tax advice and tax planning were $0 for the fiscal years ended 2006 and 2005.  All Other Fees  Michael T, Studer, C.P.A., P.C. did not bill the Company for any products and services other than the foregoing during the fiscal periods ended 2006.  Jimmy C.H. Cheung & Co. billed the Company $1,000 for issuing a consent letter for an S-8 filing and $800 for issuing a consent letter for an SB-2 filing; other than the foregoing during the fiscal periods ended 2006.  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, 2006. 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, 2006. 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, 2005. The Company's independent auditors performed all work only with their full time permanent employees.  - 35 -    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 WangPresident (CEO) and a Director and Principal Executive OfficerDate: April 2, 2007By:/s/ Hong BuChief Financial Officer and a Director and Principal Financial and Accounting OfficerDate: April 2, 2007  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 WangPresident (CEO) and a Director and Principal Executive OfficerDate: April 2, 2007By:/s/ Chengzhi WangGeneral Manager and a DirectorDate: April 2, 2007By:/s/ Hong BuChief Financial Officer and a Director and Principal Financial and Accounting OfficerDate: April 2, 2007By:/s/ Jiping WangDirectorDate: April 2, 2007By:/s/ Song YangDirectorDate: April 2, 2007    - 36 -