SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



(Mark One)





|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | 
|- | --------------------------------------------------------------------------------------- | 





For the quarterly period ended June 30,
2012



OR





| ̈ | TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934 | 
|- | ----------------------------------------------------------------------- | 





From the transition period from ___________
to ____________.



Commission File Number 001-34715



KAIBO FOODS COMPANY LIMITED

(Exact name of small business issuer as
specified in its charter)



|Nevada                                                         |  | 26-3552213                       
|-------------------------------------------------------------- |  | ---------------------------------
|                                                               |  |                                  
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)



Rm 2102 F&G, Nan Fung Centre, 264-298
Castle Peak Rd

Tsuen Wan, N.T., Hong Kong

(Address of principal executive offices)



(852) 2412-2208

(Issuer's telephone number)



N/A

(Former name, former address and former
fiscal year, if changed since last report)



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 x    No  ̈



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



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



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



As of August 15, 2012, there were 24,003,570 shares of common
stock of the issuer outstanding.











TABLE OF CONTENTS



PART I FINANCIAL STATEMENTS



|Item 1                    | Financial Statements                                                                  | 2 
|------------------------- | ------------------------------------------------------------------------------------- | --
|                          |                                                                                       |   
|Item 2                    | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22
|                          |                                                                                       |   
|Item 3                    | Quantitative and Qualitative Disclosures About Market Risk                            | 32
|                          |                                                                                       |   
|Item 4                    | Controls and Procedures                                                               | 32
|                          |                                                                                       |   
|PART II OTHER INFORMATION
|                          |                                                                                       |   
|Item 1                    | Legal Proceedings                                                                     | 33
|                          |                                                                                       |   
|Item 1A                   | Risk Factors                                                                          | 33
|                          |                                                                                       |   
|Item 2                    | Unregistered Sales of Equity Securities and Use of Proceeds                           | 33
|                          |                                                                                       |   
|Item 3                    | Default upon Senior Securities                                                        | 33
|                          |                                                                                       |   
|Item 4                    | Mine Safety Disclosures                                                               | 33
|                          |                                                                                       |   
|Item 5                    | Other Information                                                                     | 33
|                          |                                                                                       |   
|Item 6                    | Exhibits                                                                              | 33
|                          |                                                                                       |   
|Signatures                |                                                                                       | 34











PART I. FINANCIAL INFORMATION

Item 1. Financial Statements



KAIBO FOODS COMPANY LIMITED

CONSOLIDATED BALANCE
SHEETS

(US dollars in thousands,
except share data)



|                                                                                                                                                         |  | December 31, |         |  | June 30,    |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- |  | ----------- | -
|                                                                                                                                                         |  | 2011         |         |  | 2012        |  
|                                                                                                                                                         |  |              |         |  | (Unaudited) |  
|ASSETS                                                                                                                                                   |  |              |         |  |             |  
|                                                                                                                                                         |  |              |         |  |             |  
|Current assets:                                                                                                                                          |  |              |         |  |             |  
|Cash                                                                                                                                                     |  | $            | 62,971  |  |             | $
|Trade accounts receivable                                                                                                                                |  |              | 20,045  |  |             |  
|Inventories                                                                                                                                              |  |              | 1,315   |  |             |  
|Prepayments and other receivables                                                                                                                        |  |              | 303     |  |             |  
|                                                                                                                                                         |  |              |         |  |             |  
|Total current assets                                                                                                                                     |  |              | 84,634  |  |             |  
|Property, plant and equipment, net                                                                                                                       |  |              | 7,227   |  |             |  
|Deposits on property, plant and equipment                                                                                                                |  |              | 11,744  |  |             |  
|                                                                                                                                                         |  |              |         |  |             |  
|Total assets                                                                                                                                             |  | $            | 103,605 |  |             | $
|                                                                                                                                                         |  |              |         |  |             |  
|LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                                     |  |              |         |  |             |  
|                                                                                                                                                         |  |              |         |  |             |  
|Current liabilities:                                                                                                                                     |  |              |         |  |             |  
|Trade accounts payable                                                                                                                                   |  | $            | 446     |  |             | $
|Accruals and other payables                                                                                                                              |  |              | 3,328   |  |             |  
|Taxes payable                                                                                                                                            |  |              | 3,000   |  |             |  
|Short-term borrowings                                                                                                                                    |  |              | 3,577   |  |             |  
|Derivative instruments                                                                                                                                   |  |              | 5       |  |             |  
|Due to shareholders                                                                                                                                      |  |              | 9,442   |  |             |  
|                                                                                                                                                         |  |              |         |  |             |  
|Total current liabilities                                                                                                                                |  |              | 19,798  |  |             |  
|Long-term debt                                                                                                                                           |  |              | -       |  |             |  
|                                                                                                                                                         |  |              |         |  |             |  
|Total liabilities                                                                                                                                        |  |              | 19,798  |  |             |  
|                                                                                                                                                         |  |              |         |  |             |  
|Commitments and contingencies                                                                                                                            |  |              |         |  |             |  
|                                                                                                                                                         |  |              |         |  |             |  
|Shareholders’ equity:                                                                                                                                    |  |              |         |  |             |  
|Preferred stock, no par value; 2,000,000 shares authorized; none issued and outstanding on December 31, 2011 and June 30, 2012                           |  |              | -       |  |             |  
|Common stock, par value $0.001 per share; 600,000,000 shares authorized; issued and outstanding 24,003,570 shares on December 31, 2011 and June 30, 2012 |  |              | 24      |  |             |  
|Additional paid in capital                                                                                                                               |  |              | 9,526   |  |             |  
|Statutory reserve                                                                                                                                        |  |              | 5,425   |  |             |  
|Retained earnings                                                                                                                                        |  |              | 60,123  |  |             |  
|Accumulated other comprehensive income                                                                                                                   |  |              | 8,709   |  |             |  
|Total shareholders’ equity                                                                                                                               |  |              | 83,807  |  |             |  
|                                                                                                                                                         |  |              |         |  |             |  
|Total liabilities and shareholders’ equity                                                                                                               |  | $            | 103,605 |  |             | $
|                                                                                                                                                         |  |              |         |  |             |  



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



2







KAIBO FOODS COMPANY LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS

THREE AND SIX MONTHS ENDED JUNE 30, 2011
AND 2012

(UNAUDITED)

(US dollars in thousands)



|                                                                                      |  | Three Months Ended June 30, |            |   | Six Months Ended June 30, |  
|------------------------------------------------------------------------------------- |  | --------------------------- | ---------- | - | ------------------------- | -
|                                                                                      |  | 2011                        |            |   | 2012                      |  
|                                                                                      |  |                             |            |   |                           |  
|Sales                                                                                 |  | $                           | 11,411     |   |                           | $
|Cost of sales                                                                         |  |                             | (8,124     | ) |                           |  
|                                                                                      |  |                             |            |   |                           |  
|Gross margin                                                                          |  |                             | 3,287      |   |                           |  
|Operating expenses                                                                    |  |                             | (1,036     | ) |                           |  
|Income from operations                                                                |  |                             | 2,251      |   |                           |  
|                                                                                      |  |                             |            |   |                           |  
|Interest expense and other                                                            |  |                             | (83        | ) |                           |  
|Interest income and other                                                             |  |                             | 49         |   |                           |  
|                                                                                      |  |                             | (34        | ) |                           |  
|                                                                                      |  |                             |            |   |                           |  
|Income before income taxes                                                            |  |                             | 2,217      |   |                           |  
|Income tax expense                                                                    |  |                             | -          |   |                           |  
|                                                                                      |  |                             |            |   |                           |  
|Net income                                                                            |  | $                           | 2,217      |   |                           | $
|                                                                                      |  |                             |            |   |                           |  
|Net income per share:                                                                 |  |                             |            |   |                           |  
|Basic                                                                                 |  | $                           | 0.09       |   |                           | $
|                                                                                      |  |                             |            |   |                           |  
|Diluted                                                                               |  | $                           | 0.09       |   |                           | $
|                                                                                      |  |                             |            |   |                           |  
|Weighted average shares outstanding used  in the calculation of net income per share: |  |                             |            |   |                           |  
|                                                                                      |  |                             |            |   |                           |  
|Basic                                                                                 |  |                             | 23,742,768 |   |                           |  
|                                                                                      |  |                             |            |   |                           |  
|Diluted                                                                               |  |                             | 24,003,570 |   |                           |  





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



3







KAIBO FOODS COMPANY LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME

THREE AND SIX MONTHS ENDED JUNE 30, 2011
AND 2012

(UNAUDITED)

(US dollars in thousands)



|                                         |  | Three Months Ended June 30, |       |  | Six Months Ended June 30, |  
|---------------------------------------- |  | --------------------------- | ----- |  | ------------------------- | -
|                                         |  | 2011                        |       |  | 2012                      |  
|                                         |  |                             |       |  |                           |  
|Net income                               |  | $                           | 2,217 |  |                           | $
|Other comprehensive income:              |  |                             |       |  |                           |  
|Foreign currency translation adjustments |  |                             | 759   |  |                           |  
|                                         |  |                             |       |  |                           |  
|Total comprehensive income               |  | $                           | 2,976 |  |                           | $



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



4









KAIBO FOODS COMPANY LIMITED

CONSOLIDATED STATEMENT OF SHAREHOLDERS’
EQUITY

SIX MONTHS ENDED JUNE 30, 2012

(UNAUDITED)

(US dollars in thousands, except share
data)



|                                         |  | Common stock |            |  | Additional paid in
    capital |   |    | Statutory reserve |  |   | Retained earnings |  |  | Accumulated other comprehensive
    income |       |  | Total |  
|---------------------------------------- |  | ------------ | ---------- |  | ------------------------------ | - | -- | ----------------- |  | - | ----------------- |  |  | ------------------------------------------ | ----- |  | ----- | -
|                                         |  | Shares       |            |  | Amount                         |   |    |                   |  |   |                   |  |  |                                            |       |  |       |  
|                                         |  |              |            |  |                                |   |    |                   |  |   |                   |  |  |                                            |       |  |       |  
|Balances at January 1, 2012              |  |              | 24,003,570 |  |                                | $ | 24 |                   |  | $ | 9,526             |  |  | $                                          | 5,425 |  |       | $
|                                         |  |              |            |  |                                |   |    |                   |  |   |                   |  |  |                                            |       |  |       |  
|Net income                               |  |              | -          |  |                                |   | -  |                   |  |   | -                 |  |  |                                            | -     |  |       |  
|                                         |  |              |            |  |                                |   |    |                   |  |   |                   |  |  |                                            |       |  |       |  
|Foreign currency translation adjustments |  |              | -          |  |                                |   | -  |                   |  |   | -                 |  |  |                                            | -     |  |       |  
|                                         |  |              |            |  |                                |   |    |                   |  |   |                   |  |  |                                            |       |  |       |  
|Balances at June 30, 2012                |  |              | 24,003,570 |  |                                | $ | 24 |                   |  | $ | 9,526             |  |  | $                                          | 5,425 |  |       | $



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



5







KAIBO FOODS COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2011 AND 2012

(UNAUDITED)

(US dollars in thousands)



|                                                                                  |  | Six Months Ended June 30, |       
|--------------------------------------------------------------------------------- |  | ------------------------- | ------
|                                                                                  |  | 2011                      |       
|                                                                                  |  |                           |       
|Operating activities:                                                             |  |                           |       
|Net income                                                                        |  | $                         | 9,327 
|                                                                                  |  |                           |       
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                           |       
|Depreciation and amortization                                                     |  |                           | 518   
|Fair value change on derivative instruments                                       |  |                           | 93    
|                                                                                  |  |                           |       
|Changes in operating assets and liabilities:                                      |  |                           |       
|Trade accounts receivable                                                         |  |                           | 22,374
|Inventories                                                                       |  |                           | 1,345 
|Prepayments and other receivables                                                 |  |                           | (53   
|Trade accounts payable                                                            |  |                           | (241  
|Accruals and other payables                                                       |  |                           | (2,227
|                                                                                  |  |                           |       
|Net cash provided by operating activities                                         |  |                           | 31,136
|                                                                                  |  |                           |       
|Investing activities:                                                             |  |                           |       
|Deposits for property, plant and equipment                                        |  |                           | (7,669
|Acquisitions of property, plant and equipment                                     |  |                           | (82   
|Net cash used in investing activities                                             |  |                           | (7,751
|                                                                                  |  |                           |       
|Financing activities:                                                             |  |                           |       
|Proceeds from short-term debt                                                     |  |                           | 766   
|Proceeds from long-term debt                                                      |  |                           | -     
|Payments on short-term debt                                                       |  |                           | (1,532
|Advances from shareholders                                                        |  |                           | 2,814 
|Repayment of advances from shareholders                                           |  |                           | -     
|                                                                                  |  |                           |       
|Net cash provided by financing activities                                         |  |                           | 2,048 
|                                                                                  |  |                           |       
|Increase in cash                                                                  |  |                           | 25,433
|Effect of exchange rates on changes in cash                                       |  |                           | 790   
|Cash, beginning of period                                                         |  |                           | 27,374
|                                                                                  |  |                           |       
|Cash, end of the period                                                           |  | $                         | 53,597
|                                                                                  |  |                           |       
|Supplemental disclosure of cash flow information:                                 |  |                           |       
|Cash paid during the period for:                                                  |  |                           |       
|Interest                                                                          |  | $                         | 190   
|Income taxes                                                                      |  | $                         | -     
|                                                                                  |  |                           |       
|Non-cash investing and financing activities                                       |  |                           |       
|Transfer of deposits to property, plant and equipment                             |  | $                         | -     
|Conversion of convertible note and other payable into common stock                |  | $                         | 425   



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



6







KAIBO FOODS COMPANY LIMITED

NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS

THREE AND SIX MONTHS ENDED JUNE, 2011
AND 2012

(UNAUDITED)

(US dollars in thousands)



| | 1. | ORGANIZATION AND BUSINESS OF THE COMPANY
| | -- | ----------------------------------------



| | (a) | Organization:
| | --- | -------------



Kaibo Foods Company Limited
(the “Company”) was incorporated in the State of Nevada on December 10, 2007 in the former name of CFO Consultants,
Inc (“CFO Consultants”). On March 10, 2011, the Company changed its name from “CFO Consultants, Inc.” to
“Kaibo Foods Company Limited”. The Company is primarily engaged in the business of processing potatoes and selling
potato starch products in the People’s Republic of China (the “PRC”).





| | (b) | Recapitalization and reorganization:
| | --- | ------------------------------------



On October 21, 2010 (the “Closing
Date”), CFO Consultants, a U.S. public shell company (now known as the Company) completed a stock exchange transaction (the
“Share Exchange”) with the stockholders of Hong Kong Waibo International Limited (“Waibo”), whereby 22,493,475
shares of CFO Consultants’ common stock were agreed to be issued to stockholders of Waibo in exchange for 100% of their outstanding
capital stock in Waibo, equal to 96% of all of the Company’s outstanding common stock, after giving effect to the conversion
of an outstanding convertible note of the Company held by Millennium Group, Inc. (“Millennium”), in the principal amount
of $25.  The note was convertible into 586,804 shares of the Company’s common stock.



On the Closing Date, CFO Consultants
did not have sufficient authorized shares to complete the issuance of the entire amount of these shares, therefore only 2,361,716
shares were issued to the designee of the shareholders of Waibo at the Closing Date, and no shares were issued to Millennium.  After
the Closing Date, these shares represented approximately 87% of the total issued and outstanding shares of the Company. On March
10, 2011 the Company increased the total number of authorized shares of common stock.  On May 27, 2011 the Company issued
the remaining 20,131,759 shares of common stock issuable pursuant to the stock exchange transaction to the designee of the former
shareholders of Waibo and issued 586,804 shares of common stock to Millennium in full satisfaction of the convertible note.



On the Closing Date, Waibo
became a wholly-owned subsidiary of the Company. The Share Exchange has been accounted for as a reverse acquisition and recapitalization
whereby Waibo is deemed to be the accounting acquirer (legal acquiree) and the Company is deemed to be the accounting acquiree
(legal acquirer). Accordingly, Waibo’s historical financial statements for the periods prior to the reverse acquisition became
those of the Company retroactively restated for, and giving effect to, the number of shares received in the Share Exchange.  The
assets and liabilities, and revenues and expenses of the Company are included in the accompanying financial statements effective
from the Closing Date.  The total net liabilities assumed by Waibo as of the Closing Date were $25.  The Company
is deemed to be a continuation of the business of Waibo.



7







KAIBO FOODS COMPANY LIMITED

NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS

THREE AND SIX MONTHS ENDED JUNE, 2011
AND 2012

(UNAUDITED)

(US dollars in thousands)



| | 1. | ORGANIZATION AND BUSINESS OF THE COMPANY (Continued)
| | -- | ----------------------------------------------------



| | (c) | Business:
| | --- | ---------



The Company mainly focuses
on serving the local market in the PRC.  Currently, the Company’s products are sold to customers in twelve provinces
and four municipalities in the PRC.  Sales of the Company’s products are generated using a combination of direct
sales and distributor agreements. The Company created the “Weibao” and “Jiabao” brands with emphasis on
high quality, purity, whiteness and consistency.  The Weibao brand is targeted at industrial users such as food and pharmaceutical
manufacturers, while the Jiabao brand is targeted at food service operators such as restaurants, caterers and the customer retail
market.



8







KAIBO FOODS COMPANY LIMITED

NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS

THREE AND SIX MONTHS ENDED JUNE, 2011
AND 2012

(UNAUDITED)

(US dollars in thousands)



| | 2. | BASIS OF PRESENTATION
| | -- | ---------------------



The accompanying interim consolidated
financial statements have been prepared by management without audit. Pursuant to the rules and regulations of the United States
Securities and Exchange Commission (the “SEC”), certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”)
have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction
with the financial statements and the notes thereto included in the Company’s annual audited financial statements for the
year ended December 31, 2011, which are included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2011, filed with the SEC on April 16, 2012. Amounts as of December 31, 2011 are derived from those audited consolidated financial
statements.



The preparation of financial statements
in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from these estimates.



In the opinion of the management,
all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position of the Company
as of June 30, 2012, and the results of their operations and cash flows for the six months ended June 30, 2011 and 2012, have been
made. The Company’s operations are seasonal; therefore, the results of operations for the six months ended June 30, 2012,
are not necessarily indicative of the operating results for the full year.



The Company generally halts its
production process from May through July for its production facilities located in the Yunnan and Guizhou provinces. The potato
planting season typically begins in March, and potatoes are harvested from early July until the end of December. The harvested
potatoes can typically be stored up to four months in cellars by farmers, allowing the facilities in Yunnan and Guizhou to expand
their production period through April of each year.



The Company’s production
facility in Gansu is located in a colder region in the PRC and typically halts production from January through February and resumes
production from March to May. However, during the first quarter of 2012, the weather was colder than in prior years. As a result,
production in Gansu was suspended for the entire first quarter of 2012.  The Gansu facility also halts production from
June through July and resumes production in August.



During the off season, the production
facilities perform routine maintenance on their production lines.



9







KAIBO FOODS COMPANY LIMITED

NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS

THREE AND SIX MONTHS ENDED JUNE, 2011
AND 2012

(UNAUDITED)

(US dollars in thousands)



| | 3. | SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING POLICIES
| | -- | ---------------------------------------------------



Information about the organization
of the Company, significant accounting policies, and recent accounting standards are included in the Company’s December 31,
2011 consolidated financial statements. However, certain selected accounting policies are described below:



| | (a) | Allowance for doubtful accounts
| | --- | -------------------------------



An allowance for doubtful accounts
is provided based on an evaluation of the collectability of accounts receivable, and other receivables. This evaluation primarily
consists of an analysis based on current information available about the customer or borrower. Receivable losses are charged against
the allowance when the Company believes the uncollectability of the receivable is confirmed. Subsequent recoveries, if any, are
credited to the allowance. No allowance for doubtful accounts was deemed necessary as of December 31, 2011 and June 30, 2012.



| | (b) | Inventories
| | --- | -----------



Inventory is stated at the lower
of cost or market. Inventory is valued using the weighted-average method, which approximates actual cost. Capitalized costs include
materials, labor and manufacturing overhead related to the purchase and production of inventories. Excess and obsolete inventory
reserves are established based upon the Company’s evaluation of the quantity of inventory on hand relative
to demand. No reserve for obsolete inventory was deemed necessary as of December 31, 2011 and June 30, 2012.



10







KAIBO FOODS COMPANY LIMITED

NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS

THREE AND SIX MONTHS ENDED JUNE, 2011
AND 2012

(UNAUDITED)

(US dollars in thousands)



| | 3. | SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING POLICIES
(Continued)
| | -- | ---------------------------------------------------------------



| | (c) | Property, plant and equipment
| | --- | -----------------------------



Property, plant and equipment
are stated at cost less accumulated depreciation. Expenditures for routine repairs and maintenance are expensed as incurred.



Depreciation is calculated on
the straight-line basis over each asset’s estimated useful life down to the estimated residual value of each asset. Estimated
useful lives are as follows:



|Land use rights     |  | 52-55 years
|------------------- |  | -----------
|Buildings           |  | 20 years   
|Motor vehicles      |  | 5 years    
|Plant and machinery |  | 10 years   
|Other equipment     |  | 5 years    



The Company reviews and evaluates
its property, plant and equipment for impairment when events or changes in circumstances indicate that the related carrying amounts
may not be recoverable. Recoverability is measured by comparing the total estimated future cash flows on an undiscounted basis
to the carrying amount of the assets. If such assets are considered to be impaired, an impairment loss is measured and recorded
based on discounted estimated future cash flows. The Company’s estimates of future cash flows are based on numerous assumptions,
and it is possible that actual future cash flows will be significantly different than the estimates which are subject to significant
risks and uncertainties. Management believes that there is no impairment to property, plant and equipment as of December 31, 2011
and June 30, 2012.



11







KAIBO FOODS COMPANY LIMITED

NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS

THREE AND SIX MONTHS ENDED JUNE, 2011
AND 2012

(UNAUDITED)

(US dollars in thousands)



| | 3. | SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING POLICIES
(Continued)
| | -- | ---------------------------------------------------------------



| | (d) | Fair value accounting
| | --- | ---------------------



Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) No. 820-10 (“FASB ASC 820-10”) establishes
a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements). As required by FASB ASC 820-10, assets are classified in their entirety
based on the lowest level of input that is significant to the fair value measurement. The three levels of the fair value hierarchy
under FASB ASC 820-10 are described below:



| | Level 1 | Unadjusted quoted prices in active markets that are accessible
at the measurement date for identical, unrestricted assets or liabilities;
| | ------- | -----------------------------------------------------------------------------------------------------------------------------------------



| | Level 2 | Quoted prices in markets that are not active, or inputs
that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
| | ------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Level 3 | Prices or valuation techniques that require inputs that
are both significant to the fair value measurement and unobservable (supported by little or no market activity).
| | ------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As of June 30, 2012, derivative
instruments are measured at fair value on a recurring basis within Level 2 (See Note 10). The Company did not have any assets or
liabilities measured on a recurring basis within Level 1 or Level 3.



The carrying value of financial
instruments including cash, trade accounts receivable and payable, convertible notes and short-term borrowings approximate fair
value due to their short maturities. The fair value of long-term debt bears interest rates commensurate with market rates and therefore
management believes carrying value approximates fair value. The fair value of amounts due to shareholders is not practicable to
estimate, due to the related party nature of the underlying transactions.



| | (e) | Revenue recognition
| | --- | -------------------



The Company generates its revenues
from the selling of potato starch products.



Revenues from product sales are
recognized only when persuasive evidence of an arrangement exists; delivery has occurred and any necessary customer acceptance
has been received; the price to the customer is fixed or determinable, and collectability is reasonably assured. Generally, these
criteria are met upon shipment of products and transfer of title to customers.



12







KAIBO FOODS COMPANY LIMITED

NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS

THREE AND SIX MONTHS ENDED JUNE, 2011
AND 2012

(UNAUDITED)

(US dollars in thousands)



| | 3. | SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING POLICIES
(Continued)
| | -- | ---------------------------------------------------------------



| | (f) | Income taxes
| | --- | ------------



Income tax expense is recognized
for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized
for expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities,
and for operating losses and tax credit carry forwards. Deferred taxes are measured by applying enacted tax rates expected to
apply to the taxable income in the years in which those temporary differences are expected to be recovered or settled.



The Company recognizes the financial
statement impact of a tax position taken or expected to be taken in a tax return in its consolidated financial statements when
it is more-likely-than-not that the position will be sustained upon examination by tax authorities. A recognized tax position is
then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.



The Company files income tax returns
in various foreign jurisdictions. Various foreign jurisdiction tax years remain open to examination; however, the Company believes
any additional assessment, if any, will be immaterial to its consolidated financial statements. The Company does not believe there
will be any material changes in its tax positions over the next 12 months. Interest and penalties accrued on any unrecognized tax
benefits, if any, will be recognized as a component of income tax expense. As of June 30, 2012 the Company did not have any accrued
interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the six months
ended June 30, 2011 and 2012.



| | (g) | Foreign currency translation
| | --- | ----------------------------



The functional currency of the
Company’s wholly-owned subsidiary, Waibo, is the Hong Kong Dollar (“HK$”). The functional currency of the Company’s
wholly-owned PRC subsidiaries is the Chinese Renminbi Yuan, (“RMB”). The RMB is not freely convertible into foreign
currencies. The Company’s Hong Kong and PRC subsidiaries’ financial statements are maintained in their respective functional
currencies. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the
functional currency at rates of exchange prevailing at the balance sheet date. Transactions denominated in currencies other than
the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions.
Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective
periods, which were not significant during six months ended June 30, 2011 or 2012.



13







KAIBO FOODS COMPANY LIMITED

NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS

THREE AND SIX MONTHS ENDED JUNE, 2011
AND 2012

(UNAUDITED)

(US dollars in thousands)



| | 3. | SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING POLICIES
(Continued)
| | -- | ---------------------------------------------------------------



| | (g) | Foreign currency translation (Continued)
| | --- | ----------------------------------------



For financial reporting purposes,
the consolidated financial statements of the Company have been translated into United States dollars (“US$”). Assets
and liabilities are translated at exchange rates at the balance sheet dates, revenue and expenses are translated at average exchange
rates, and shareholders’ equity is translated at historical exchange rates. Any resulting translation adjustments are not
included in determining net income but are included as a foreign currency translation adjustment to other comprehensive income,
a component of shareholders’ equity.



The exchange
rates applied are as follows:



|                               |  | Six Months |      |  | Twelve Months |  |      | Six Months | 
|------------------------------ |  | ---------- | ---- |  | ------------- |  | ---- | ---------- | 
|                               |  | June 30,   |      |  | December 31,  |  |      | June  30,  | 
|                               |  | 2011       |      |  | 2011          |  |      | 2012       | 
|Conversion from HK$ into US$:  |  |            |      |  |               |  |      |            | 
|Period end exchange rate       |  |            | 7.78 |  |               |  | 7.77 |            | 
|Average periodic exchange rate |  |            | 7.78 |  |               |  | 7.78 |            | 
|                               |  |            |      |  |               |  |      |            | 
|Conversion from RMB into US$:  |  |            |      |  |               |  |      |            | 
|Period end exchange rate       |  |            | 6.46 |  |               |  | 6.29 |            | 
|Average periodic exchange rate |  |            | 6.53 |  |               |  | 6.45 |            | 



| | (h) | Earnings per share
| | --- | ------------------



ASC 260 “Earnings Per
Share” requires dual presentation of basic and diluted earnings per share (“EPS”) with a reconciliation of the
numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS
excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings
of the Company.



Earnings per basic share of
common stock is based on the weighted average number of shares of common stock outstanding during each respective period. Earnings
per diluted share of common stock adds to basic weighted shares the weighted average number of shares issuable under convertible
securities and warrants outstanding during each respective period, using the if-converted and treasury-stock methods (See Note
8).



| | 4. | INVENTORIES
| | -- | -----------



Inventories consist of:



|               |  | December 31, |       |  | June 30,    |  
|-------------- |  | ------------ | ----- |  | ----------- | -
|               |  | 2011         |       |  | 2012        |  
|               |  |              |       |  | (Unaudited) |  
|               |  |              |       |  |             |  
|Raw materials  |  | $            | 369   |  |             | $
|Finished goods |  |              | 946   |  |             |  
|               |  |              |       |  |             |  
|               |  | $            | 1,315 |  |             | $



14







KAIBO FOODS COMPANY LIMITED

NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS

THREE AND SIX MONTHS ENDED JUNE, 2011
AND 2012

(UNAUDITED)

(US dollars in thousands)



| | 5. | PROPERTY, PLANT AND EQUIPMENT
| | -- | -----------------------------



Property, plant and equipment consist of:



|                              |  | December 31, |        |   | June 30,    |  
|----------------------------- |  | ------------ | ------ | - | ----------- | -
|                              |  | 2011         |        |   | 2012        |  
|                              |  |              |        |   | (Unaudited) |  
|At cost:                      |  |              |        |   |             |  
|Land use rights               |  | $            | 747    |   |             | $
|Buildings                     |  |              | 2,281  |   |             |  
|Motor vehicles                |  |              | 334    |   |             |  
|Plant and machinery           |  |              | 10,020 |   |             |  
|Other equipment               |  |              | 95     |   |             |  
|Construction in progress      |  |              | 184    |   |             |  
|                              |  |              | 13,661 |   |             |  
|Less accumulated depreciation |  |              | (6,434 | ) |             |  
|                              |  |              |        |   |             |  
|                              |  | $            | 7,227  |   |             | $



| |  | At December 31, 2011 and June 30, 2012, property and equipment with carrying amounts of $5.4
million and $5.8 million, respectively, were pledged as collateral for bank facilities granted to the Company (Note 6). Depreciation
expense for the six months ended June 30, 2011 and 2012 was approximately $0.5 million for each period.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



15







KAIBO FOODS COMPANY LIMITED

NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS

THREE AND SIX MONTHS ENDED JUNE, 2011
AND 2012

(UNAUDITED)

(US dollars in thousands)



| | 6. | DEBT
| | -- | ----



|                            |  | December 31, |        |   | June 30,    |  
|--------------------------- |  | ------------ | ------ | - | ----------- | -
|                            |  | 2011         |        |   | 2012        |  
|                            |  |              |        |   | (Unaudited) |  
|                            |  |              |        |   |             |  
|Secured bank borrowings     |  | $            | 3,577  |   |             | $
|Less: short-term borrowings |  |              | (3,577 | ) |             |  
|                            |  |              |        |   |             |  
|Long-term debt              |  |              | -      |   |             |  



| |  | As of June 30, 2012, the Company has borrowings from banks, expiring at various dates through
                                                               May 7, 2015, primarily used to finance working capital requirements. The bank borrowings are in the form of credit facilities,
                                                               which provide for borrowings of up to $6.7 million as of June 30, 2012. All amounts available to the Company from the bank
                                                               are based on the amount of collateral pledged, of which $5.9 million banking facilities were  utilized as of June 30,
                                                               2012. Each draw on the bank facilities has a fixed term of twelve months or three years for repayment. The interest rates on
                                                               these borrowings are fixed at 6.56% to 7.15% per annum as of June 30, 2012. The weighted average short-term borrowing rate
                                                               was 5.75% and 7.12% for the six months ended June 30, 2011 and 2012, respectively. These borrowings are collateralized by
                                                               certain property, plant and equipment of the Company.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 7. | INCOME TAXES
| | -- | ------------



Pre-tax income from operations
for the three and six months ended June 30, 2011 and 2012, was taxable in the following jurisdiction:



| | (a) | United States of America
| | --- | ------------------------



No U.S. corporate income taxes are provided for
in these consolidated financial statements, as the Company did not generate any taxable income in the U.S.



| | (b) | Hong Kong
| | --- | ---------



No provision has been made for Hong Kong profits
tax as the Company did not earn income subject to Hong Kong profits tax.



16







KAIBO FOODS COMPANY LIMITED

NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS

THREE AND SIX MONTHS ENDED JUNE, 2011
AND 2012

(UNAUDITED)

(US dollars in thousands)



| | 7. | INCOME TAXES
| | -- | ------------



| | (c) | PRC
| | --- | ---



Pursuant to the circular entitled Scope of
Preliminary Processing of Agricultural Products Entitled to Preferential Enterprise Income Tax Policies (Trial Implementation) published
by Ministry of Finance (“MOF”) and State Administration of Taxation (“SAT”), the Company’s PRC subsidiaries
have been entitled to full exemption from PRC corporate income tax beginning January 1, 2008. The exemption currently is not subject
to any limitations.



A reconciliation of the PRC tax rate to the actual
provision for taxes is as follows:





|                                     |  | Three Months Ended June 30, |      |   | Six Months Ended June 30, |  
|------------------------------------ |  | --------------------------- | ---- | - | ------------------------- | -
|                                     |  | 2011                        |      |   | 2012                      |  
|                                     |  | (Unaudited)                 |      |   | (Unaudited)               |  
|                                     |  |                             |      |   |                           |  
|PRC tax rate                         |  |                             | 25   | % |                           |  
|                                     |  |                             |      |   |                           |  
|Computed expected income tax expense |  | $                           | 554  |   |                           | $
|Tax exempt income – PRC subsidiaries |  |                             | (569 | ) |                           |  
|Hong Kong holding company losses     |  |                             | 15   |   |                           |  
|                                     |  |                             |      |   |                           |  
|                                     |  | $                           | -    |   |                           | $





Pursuant to the New Tax Law, dividends declared
by the Company’s PRC subsidiaries to their parent companies incorporated in Hong Kong are subject to withholding tax. In
accordance with Caishui (2008) No. 1 (“Circular 1”) issued by State Tax Authorities in February 2008, undistributed
profits from the PRC subsidiaries up to December 31, 2007 are exempt from withholding tax when they are distributed in the future.
Therefore, during the years ended December 31, 2009 and 2010 the Company recorded a provision for dividend withholding tax on distributable
profits that were earned subsequent to January 1, 2008 resulting in an outstanding liability of $3 million as of December 31, 2011
and June 30, 2012 relating to these withholding taxes. No provision for dividend withholding tax has been provided since October
1, 2010, as our Board of Directors and management have approved a plan to reserve all profits earned after October 1, 2010 for
the Company’s business expansion in future.



No deferred tax assets or liabilities have been
recorded as there were no significant temporary differences that give rise to a deferred tax asset or liability as of December
31, 2011 and June 30, 2012.



17







KAIBO FOODS COMPANY LIMITED

NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS

THREE AND SIX MONTHS ENDED JUNE, 2011
AND 2012

(UNAUDITED)

(US dollars in thousands)



| | 8. | NET INCOME PER SHARE
| | -- | --------------------



Basic income per share is calculated
using the weighted average number of shares of common stock outstanding during the period. Diluted income per share assumes the
conversion, exercise or issuance of all potential common stock instruments, such as warrants and convertible debt, unless the effect
is anti-dilutive.



The following is a reconciliation
of the denominators for the weighted average number of shares outstanding used in the calculation of basic income per share for
the three and six months ended June 30, 2011 and 2012:



|                             |  | Three Months Ended June 30, |            |  | Six Months Ended June 30, | 
|---------------------------- |  | --------------------------- | ---------- |  | ------------------------- | 
|                             |  | 2011                        |            |  | 2012                      | 
|                             |  | (Unaudited)                 |            |  | (Unaudited)               | 
|                             |  |                             |            |  |                           | 
|Shares issued                |  |                             | 3,611,009  |  |                           | 
|Effect of reverse merger (1) |  |                             | 20,131,759 |  |                           | 
|                             |  |                             |            |  |                           | 
|                             |  |                             | 23,742,768 |  |                           | 



| | (1) | Earnings per share for periods prior to the reverse merger have been restated to reflect the equivalent number of shares to
be received pursuant to the Share Exchange by the Waibo shareholders.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following is a reconciliation
of the denominators for the weighted average number of shares outstanding used in the calculation of diluted income per share for
the three and six months ended June 30, 2011 and 2012:



|                             |  | Three Months Ended June 30, |            |  | Six Months Ended June 30, | 
|---------------------------- |  | --------------------------- | ---------- |  | ------------------------- | 
|                             |  | 2011                        |            |  | 2012                      | 
|                             |  | (Unaudited)                 |            |  | (Unaudited)               | 
|                             |  |                             |            |  |                           | 
|Shares issued                |  |                             | 23,742,768 |  |                           | 
|Effect of reverse merger (1) |  |                             | 260,802    |  |                           | 
|                             |  |                             |            |  |                           | 
|                             |  |                             | 24,003,570 |  |                           | 



As of June 30, 2011 and 2012 the
Company had warrants outstanding to purchase 171,536 shares of common stock, which were considered anti-dilutive as the exercise
prices of the warrants exceeded the average market price of the Company’s common stock



18







KAIBO FOODS COMPANY LIMITED

NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS

THREE AND SIX MONTHS ENDED JUNE, 2011
AND 2012

(UNAUDITED)

(US dollars in thousands)



| | 9. | RELATED PARTY BALANCES AND TRANSACTIONS
| | -- | ---------------------------------------



The amounts due to shareholders
as of June 30, 2011 and 2012 and transactions during the respective periods are as follows:



|                                             |  | 2011        |       |   | 2012        |  
|-------------------------------------------- |  | ----------- | ----- | - | ----------- | -
|                                             |  | (Unaudited) |       |   | (Unaudited) |  
|                                             |  |             |       |   |             |  
|Balance at January 1,                        |  | $           | 2,870 |   |             | $
|Cash advances from shareholders              |  |             | 2,814 |   |             |  
|Repayment of cash advances from shareholders |  |             | -     |   |             |  
|Exchange difference                          |  |             | (3    | ) |             |  
|                                             |  |             |       |   |             |  
|Balance at June 30,                          |  | $           | 5,681 |   |             | $



The amounts due to shareholders
are unsecured, non-interest bearing and have no fixed terms of repayment. Cash advances received from shareholders are primarily
used by the Company to finance working capital requirements.



| | 10. | DERIVATIVE INSTRUMENTS
| | --- | ----------------------

The Company has warrants outstanding in which the holder can purchase an aggregate of 171,536 shares of the Company’s common
stock at an exercise price of $5.23 per share or on a cashless exercise basis, which expire on March 10, 2014.



If at any time prior to
the exercise of the warrants, the Company enters into an agreement to issue shares of its common stock at a price less than that
obtained for the common stock and warrants which were issued in December 2010, the exercise price of the warrants will be adjusted
downward as to obtain an equivalent number of shares of common stock at the lower issuance price.  As a result, the warrants
are not considered to be indexed to the Company’s common stock and are therefore accounted for as a derivative liability
instrument in the Company’s consolidated balance sheet.   As of December 31, 2011 and June 30, 2012, the Company
valued the warrants at approximately $5 and $ Nil, respectively, using a binominal model and has reported the warrants as a liability
on its consolidated balance sheet under the caption “Derivative Instruments”.  The change in fair value of
the derivative instruments during the three and six months ended June 30, 2011 was approximately $32 and $93 respectively. The
change in fair value of the derivative instruments during the three and six months ended June 30, 2012 was approximately $ Nil
and $5 respectively. Changes to the fair value of the Derivative Instruments are reported in the Company’s statement of operations
under the caption “Interest expenses and other” and “Interest income and other” respectively.



The assumptions used in the
binominal model to estimate the fair value of the warrants are as follows:



|                        |  | December 31, |            |   | June 30,    |  
|----------------------- |  | ------------ | ---------- | - | ----------- | -
|                        |  | 2011         |            |   | 2012        |  
|                        |  |              |            |   | (Unaudited) |  
|Stock price             |  | $            | 1.00       |   |             | $
|Risk free interest rate |  |              | 1.17       | % |             |  
|Expected life           |  |              | 1.98 years |   |             |  
|Expected volatility     |  |              | 65         | % |             |  
|Expected dividend yield |  |              | 0          | % |             |  



19







KAIBO FOODS COMPANY LIMITED

NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS

THREE AND SIX MONTHS ENDED JUNE, 2011
AND 2012

(UNAUDITED)

(US dollars in thousands)



| | 11. | CONCENTRATION OF RISK
| | --- | ---------------------



Financial instruments that potentially
subject the Company to a significant concentration of credit risk consist principally of the following:



| | (a) | Cash and cash deposits
| | --- | ----------------------



The Company maintains its cash
and cash deposits primarily with various China State-owned banks and Hong Kong-based financial institutions. The Company performs
periodic evaluations of the relative credit standing of those financial institutions.



| | (b) | Trade receivables
| | --- | -----------------



The Company sells potato starch
to customers in the PRC. Management considers that the Company’s current customers are generally creditworthy and credit
is extended based on an evaluation of the customers’ financial condition. Therefore, collateral is generally not required.
The Company evaluates accounts receivable for potential credit losses based on its loss history and aging analysis. Such losses
have been within management’s expectations. At December 31, 2011 and June 30, 2012, the five largest customers accounted
for 25% and nil of trade receivables, respectively. No single customer exceeds 10% of trade receivables. For the three and six
months ended June 30, 2011 and 2012, the five largest customers accounted for 26%, 21%, 22% and 23% net of sales, respectively.



| | (c) | Commodity risk
| | --- | --------------



The cash flows and profitability
of the Company’s current operations are significantly affected by the market price of potato starch and potatoes. These commodity
prices can fluctuate widely and are affected by factors beyond the Company’s control.



| | (d) | Foreign currency risk
| | --- | ---------------------



The RMB is not freely convertible
into foreign currencies. The State Administration for Foreign Exchange, under the authority of People’s Bank of China, controls
the conversion of the RMB into foreign currencies. The value of the RMB is subject to changes in China government policies and
to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market.
All foreign exchange transactions continue to take place either through the People’s Bank of China or other banks authorized
to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China.



| | 12. | COMMITMENTS AND CONTINGENCIES
| | --- | -----------------------------



| | (a) | Capital commitments
| | --- | -------------------



In August 2010, the Company entered
into agreements with the People’s Government of the Zhaoyang District, Yunnan Province to purchase property, plant and equipment
totaling approximately $19 million related to the construction of production facilities. As of June 30, 2012, the Company has purchased
$2.2 million of property, plant and equipment under these agreements and has made $10.0 million of deposits under these agreements.
Therefore, as of June 30, 2012, the commitment has been reduced to $6.9 million. In addition, as of June 30, 2012, the Company
has contracts with vendors to purchase equipment relating to the construction of production facilities for $10.1 million.



20







KAIBO FOODS COMPANY LIMITED

NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS

THREE AND SIX MONTHS ENDED JUNE, 2011
AND 2012

(UNAUDITED)

(US dollars in thousands)



| | 12. | COMMITMENTS AND CONTINGENCIES (Continued)
| | --- | -----------------------------------------



| | (b) | Lease commitments
| | --- | -----------------



Operating lease commitments
include commitments under non-cancellable lease agreements for the Company’s office premises, as well as a land lease. The
leases expire from November 2012 through October 2042. The yearly future minimum rental payments required as of June 30, 2012 were
as follows:



|                  |  | Amount |    
|----------------- |  | ------ | ---
|2012 (six months) |  | $      | 46 
|2013              |  |        | 68 
|2014              |  |        | 24 
|2015              |  |        | 24 
|2016              |  |        | 24 
|Thereafter        |  |        | 609
|                  |  |        |    
|                  |  | $      | 795



Rent expense under operating
leases for the three and six months ended June 30, 2011 and 2012 was approximately $0.1 million for each period.



21







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



Disclaimer Regarding Forward-Looking Statements



This Quarterly Report contains forward-looking statements
within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies
for the future, which we indicate by words or phrases such as “anticipate,” “expect,” “intend,”
“plan,” “will,” “we believe,” “believes,” “management believes” and
similar language.  Except for the historical information contained herein, the matters discussed in this “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this report are forward-looking
statements that involve risks and uncertainties. The factors listed in the section captioned “Risk Factors,” as well
as any cautionary language in this report provide examples of risks, uncertainties and events that may cause our actual results
to differ materially from those projected. Except as may be required by law, we undertake no obligation to update any forward-looking
statement to reflect events after the date of this Quarterly Report.



OVERVIEW



We are a premium native potato starch manufacturer in the PRC. 
Our corporate headquarters is based in Hong Kong and our operational headquarters is based in Kunming city, Yunnan province. We
began operations in 2004 and have factories located in Yunnan, Guizhou and Gansu provinces of China.



We primarily sell our products to distributors and food processing
companies in the PRC.

Our products are currently sold under the “Wei Bao” and “Jiabao” brand names.  The Wei Bao brand is
targeted primarily to food processors and our Jiabao brand is targeted to food service operators. We believe that our company is
one of the top 5 premium starch potato processors in the PRC, with a production capacity of 91,500 metric tons per year. In 2008,
we received the “China’s Potato Starch Industry Top Ten Best Selling Products”, “China’s Potato Starch
Industry Top Ten Customer Satisfaction Product” and “China’s Potato Starch Industry Top Ten Best Brands”
awards.  Our Jiabao brand created in 2007 is gaining the acceptance of our target customers.



Reverse acquisition and reorganization



On October 21, 2010 (the “Closing Date”), CFO Consultants,
a U.S. public shell company (now known as the Company) completed a stock exchange transaction (the “Share Exchange”)
with the stockholders of Hong Kong Waibo International Limited (“Waibo”), whereby 22,493,475 shares of CFO Consultants’
common stock were agreed to be issued to stockholders of Waibo in exchange for 100% of their outstanding capital stock in Waibo,
equal to 96% of all of the Company’s outstanding common stock, after giving effect to the conversion of an outstanding convertible
note of the Company held by Millennium Group, Inc. (“Millennium”), in the principal amount of $25,000.  The
note was convertible into 586,804 shares of the Company’s common stock.



On the Closing Date, CFO Consultants did not have sufficient
authorized shares to complete the issuance of the entire amount of these shares, therefore only 2,361,716 shares were issued to
the designee of the shareholders of Waibo at the Closing Date, and no shares were issued to Millennium.  After the Closing
Date, these shares represented approximately 87% of the total issued and outstanding shares of the Company. On March 10, 2011 the
Company increased the total number of authorized shares of common stock.  On May 27, 2011 the Company issued the remaining
20,131,759 shares of common stock issuable pursuant to the stock exchange transaction to the designee of the former shareholders
of Waibo and issued 586,804 shares of common stock to Millennium in full satisfaction of the convertible note.



The Share Exchange has been accounted for as a reverse acquisition
and recapitalization, whereby Waibo is the surviving and continuing entity for financial reporting purposes and is deemed to be
the acquirer.  The Share Exchange is accounted for as a reverse acquisition and recapitalization because (i) after the
business combination the Waibo Shareholders held approximately 96% of our issued and outstanding shares of common stock and (ii)
we had no prior operations.



22







Sales



We normally enter into six-month agreements with our customers.
The agreement specifies the quantity that the customer believes they will buy during the forthcoming nine months and the negotiated
price per metric ton.  Our customers are not charged a penalty for failing to purchase the quantities set forth in our contracts.
However, historically our customers have purchased the set amount in the contracts.  In the event the market price exceeds
the 10% of the price stipulated in the contract, the agreed price stated on the agreement will be adjusted to the reflect the current
market price.



We sell premium quality native potato starch, which is usually
sold for 5-10% more than the average market price.



We have established an extensive distribution network in the
PRC. During the six months ended June 30, 2012, 43.1% and 56.9% of our products were sold to manufacturers and distributors respectively.



Revenue from sales of our native potato starch is recognized
upon delivery of our products to the railway station nearest to our respective factories at which time the significant risks and
rewards of ownership of our products are transferred to the customers.



The main factors that affect our revenue include the following:



|(a) | Competition
|--- | -----------

We expect to face competition from potato starch producers with
more than 20,000 metric tons of annual production capacity and new entrants. Our future revenue growth depends on our ability to
compete effectively against such competitors and on key considerations including the price and quality of our products.  If
we are unable to retain existing customers and secure new ones, or fail to develop new products to meet the needs of our customers,
our revenue and profitability may be adversely affected.



|(b) | Stable supply of raw materials
|--- | ------------------------------

Profitability in the potato starch industry is materially affected
by the need to maintain a sufficient supply of potatoes at stable prices from farmers. These commodity prices are determined by
supply and demand. While the potato starch industry has historically not been subject to wide fluctuations and cycles, we cannot
eliminate the risk of increased operating costs from potato price increases, and it is very difficult to predict when and if price
spiral cycles will occur.



|(c) | Alternative raw materials or production technology
|--- | --------------------------------------------------

If a new source of starch is discovered as a substitute to native
potato starch or new production technologies are developed that render our production facilities obsolete, our revenue and profitability
may be adversely affected.



|(d) | Our production capacity
|--- | -----------------------

We currently have a production capacity of 91,500 metric tons
per year for native potato starch. As of June 30, 2012, our production capacity utilization was 74.6%. We plan to establish new
production lines for native potato starch, modified potato starch and whole potato starch.  We plan to increase our production
capacity to 176,500 metric tons by 2012.  Should we able to increase our production capacity in time to meet any increase
in demand, future growth of our revenue will be significantly improved.



|(e) | Growth of native potato starch industry
|--- | ---------------------------------------

The PRC continues to experience exponential economic and population
growth. The per capita usage of potato starch in the PRC is mere 0.8kg per annum, compared to 10kg in developed regions such as
Europe and Japan.  With the increase in disposable income of the population and the per capita usage of potato starch, we
believe that the demand for our products will continue to rise and improve our revenue and profitability.



Cost of sales



Our cost of sales comprises cost of raw material, direct labor
and production overhead, which accounted for 81.5%, 2.3% and 16.2% of our cost of sales respectively for the six months ended June
30, 2012.



Potatoes are a key raw material and we source them from farmers
in Yunnan, Gansu and Guizhou provinces in the PRC.



23







Direct labor includes salaries, wages and staff related costs
of plant operators and those who are directly involved in the production of our products. Overhead consists mainly of depreciation
charges on machinery, utilities (water and electricity) and other factory related costs.



In addition to the volume of production, our costs of sales
are affected by, (i) factors affecting the costs of raw materials, namely, the market demand and supply conditions for potatoes,
and harvesting conditions; (ii) factors affecting labor costs, namely demand and supply of labor, general wage levels, and government
regulations; as well as (iii) factors affecting general manufacturing overhead, namely, our depreciation expense resulting from
capital expenditures and general prices of utilities charges.



Operating expenses



Our operating expenses consist of selling and distribution costs
and administrative expenses.



Our selling and distribution costs consisted of transportation
costs, salaries and staff welfare expenses of sales personnel, entertainment expenses and telecommunication expenses incurred by
our sales personnel. Our facilities are strategically located near railways, which we use as the main method of transporting our
products.  We only pay for shipment of our products to the railway station.  Our customers pay for the railway
transfer fee.  Transportation costs accounted for an average of 60.8% of our selling and distribution costs incurred
for the six months ended June 30, 2012.



Our administrative and other expenses consisted of salaries
and staff related expenses for administrative personnel, depreciation charges, entertainment expenses and other office related
expenses. The major components of administrative and other expenses include salaries and depreciation, which accounted for an average
of 42.1% and 4.0% of our administrative expenses incurred for the six months ended June 30, 2012.



Other non-operating income



Other non-operating income consists of government subsidies,
bank interest income and other items. All of our PRC subsidiaries are accredited with “Leading Enterprise” status,
which has entitled them to receive various forms of preferential treatment from the local and state governments including government
subsidies and infrastructural assistance. The subsidies received related to agriculture land development fund contributions, commitment
to produce high quality native potato starch and our contribution to rural agriculture development.



Interest expense



Our interest expense consists mainly of interest on bank borrowings,
which were incurred for working capital purposes.



Income tax expense



The PRC has enacted a tax policy that entitles a foreign corporation
to a full exemption from both PRC state and local corporate income tax for the first two profitable calendar years of its operations
and thereafter a 50% relief from the PRC state corporate income tax and full exemption from local corporate income tax for the
following three calendar years.  Our PRC subsidiaries, namely Yunnan WeiLi, Guizhou WeiLi and Gansu WeiBao, qualify for
such tax exemptions. The circular entitled “Scope of Preliminary Processing of Agricultural Products Entitled to Preferential
Enterprise Income Tax Policies (Trial Implementation)” published by Ministry of Finance and State Administrative of Taxation,
entitled us to a full exemption from PRC corporate income tax since January 1, 2008. Our native potato starch qualifies for this
exemption and as a result none of our subsidiaries are subject to PRC corporate income tax.



Pursuant to the New Tax Law, dividends declared by our PRC subsidiaries
to their parent company incorporated in Hong Kong are subject to withholding tax of 5% or 10%.  In accordance with Caishui
(2008) No. 1 issued by State Tax Authorities, undistributed profits from our PRC subsidiaries up to December 31, 2007 will be exempt
from withholding tax when they are distributed in the future.  As a result, a provision for dividend withholding tax
has been made starting January 1, 2008.  No provision for dividend withholding tax has been provided since October 1, 2010,
as our Board of Directors and management have adopted a plan to reserve all profits earned after October 1, 2010 for our business
expansion in the future.  As a United States public company, we do not intend to pay such dividends.



24







Seasonality



From May through July, we typically halt our production process
at our facilities located in Yunnan and Guizhou provinces.  The potato-planting season typically begins in March and
the potatoes are delivered to our facilities from August until December.  The farmers store remaining unsold potatoes
in cellars for up to four months, which allows us to expand our production period until April.



Our Gansu factory is in one of the colder regions in China and
typically halts production during January and February and resumes production from March to May.  However,
during the first quarter of 2012, the weather was colder than in prior years. As a result, production in Gansu was suspended for
the entire first quarter of 2012. It typically shuts down again during June and July and resumes production in August.
During the off-season, we spend time performing routine maintenance.



CRITICAL ACCOUNTING POLICIES AND ESTIMATES



We have identified certain accounting policies that are significant
to the preparation of the financial statements. Critical accounting policies are those that are both most important to the portrayal
of our results of operations and financial condition and require management’s most difficult, subjective, or complex judgment,
often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent
periods.  Certain accounting estimates are particularly sensitive because of their significance to financial statements and
because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments.  We
believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation
of the financial statements.



Property, plant and equipment



Property, plant and equipment are stated at cost less accumulated
depreciation. Expenditures for routine repairs and maintenance are expensed as incurred.



Depreciation is calculated on the straight-line basis over each
asset’s estimated useful life down to the estimated residual value of each asset. Estimated useful lives are as follows:



|Land use rights     | 52-55 years
|------------------- | -----------
|Buildings           | 20 years   
|Motor vehicles      | 5 years    
|Plant and machinery | 10 years   
|Other equipment     | 5 years    



We review and evaluate property, plant and equipment for impairment
when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment is considered
to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets. An
impairment loss is measured and recorded based on discounted estimated future cash flows. Our estimates of future cash flows are
based on numerous assumptions, and it is possible that actual future cash flows will be significantly different than the estimates
which are subject to significant risks and uncertainties.  Management believes that there is no impairment to property,
plant and equipment as of June 30, 2012.



Revenue recognition



We generate our revenues from the sale of native potato starch
products.  Revenues from product sales are recognized only when persuasive evidence of an arrangement exists; delivery
has occurred and the customers' acceptance has been received; the price to the customer is fixed or determinable; and collectability
is reasonably assured.  Generally, these criteria are met upon shipment of products and transfer of title to customers.



25







Inventories



Inventory is stated at the lower of cost or market. Inventory
is valued using the weighted average method, which approximates actual cost. Capitalized costs include materials, labor and manufacturing
overhead related to the purchase and production of inventories.  Excess and obsolete inventory reserves are established
based upon our evaluation of the quantity of inventory on hand relative to demand.  The total reserve for obsolete inventory
was zero as of June 30, 2012.



Allowance for Doubtful Accounts



An allowance for doubtful accounts is provided based on an evaluation
of the collectability of accounts receivable, and other receivables. An allowance for doubtful accounts is provided, when considered
necessary, primarily consisting of an analysis based on current information available about the customer or borrower. Receivable
losses are charged against the allowance when our management believes the uncollectability of the receivable is confirmed. Subsequent
recoveries, if any, are credited to the allowance. Total allowance for doubtful accounts was zero as of June 30, 2012.



Results of Operations



Comparison of the three and six months ended June 30,
2012 and 2011



Sales



|                               |  | Three Months Ended June 30,                           |        |   | Six Months Ended June 30, | 
|------------------------------ |  | ----------------------------------------------------- | ------ | - | ------------------------- | 
|                               |  | 2011                                                  |        |   | 2012                      | 
|                               |  | (Unaudited)                                           |        |   | (Unaudited)               | 
|                               |  | (Dollars in thousands except units and per unit data) |       
|                               |  |                                                       |        |   |                           | 
|Revenue                        |  |                                                       | 11,411 |   |                           | 
|Gross profit                   |  |                                                       | 3,287  |   |                           | 
|Unit sales (metric tons)       |  |                                                       | 9,901  |   |                           | 
|Selling price per unit         |  |                                                       | 1,153  |   |                           | 
|Gross profit per unit          |  |                                                       | 332    |   |                           | 
|Gross profit as a % of revenue |  |                                                       | 28.8   | % |                           | 



Due to a bumper harvest of potatoes during the third
quarter of 2011, the supply of potatoes was higher than anticipated and extended the end of our production season from mid of
April to mid of May 2012. Our sales volume for the second quarter increased by 70.9% from 9,901 metric tons in 2011 to 16,920
metric tons in 2012 accordingly. However, our Gansu factory suspended production during the whole first quarter of 2012 due
to cold weather, and the lease of our Guanghe factory in Gansu with production capacity of 20,000 metric tons of potato
starch was terminated by end of December 2011. As a result, our sales volume for the six months ended June 30, 2012
only increased slightly by 1% from 31,560 metric tons in 2011 to 31,860 metric tons in 2012. In addition, our unit selling
price decreased by 20.4% for the six months of 2012 as the price of potatoes has fallen sharply since the third quarter of
2011. As a result of these factors, our sales decreased by 19.6% from $37.1 million for the six months of 2011 to $29.8
million for the six months of 2012.



Cost of sales



Our cost of sales increased by 37.4% from $8.1 million for the
second quarter of 2011 to $11.2 million for the second quarter of 2012, primarily due to corresponding increase in sales volume
offset by decrease in average purchase price of potatoes.



Our cost of sales decreased by 21.6% from $25.8 million for
the six months of 2011 to $20.2 million for the six months of 2012, primarily due to corresponding decrease in the average purchase
price of potatoes offset by slight increase in sales volume.



26







Gross profit and gross profit margin



During second quarter of 2012, the temperature in our
production regions was higher than it was in prior years. Starch content of our potatoes was affected and lowered our output
rate of starch from potatoes. As a result, our gross profit per unit decreased by 19.6% and 15.9%, respectively, for second
quarter and six months of 2012.



Our gross profit margin remained constant for second
quarter of 2011 compared to the second quarter of 2012 while increasing from 30.6% for six months of 2011 to 32.3% for six
months of 2012 due to lower raw material cost.



Operating expenses



The operating expenses decreased by 34.5% and 30.9%,
respectively, for second quarter and six months of 2012 compared to 2011, mainly due to the termination of the lease of our Guanghe
factory in Gansu at the end of December 2011.





Interest income and other



Interest income and other increased by 747.0% and 721.0%, respectively, for second quarter and six months
of 2012 compared to 2011 mainly due to government subsidies which are given by the local governments to support businesses in the
agricultural industry, and not recurring in nature.





Income tax expense



The PRC subsidiaries have been entitled to full exemption
on enterprise income tax in the PRC since January 1, 2008.  The income tax expense is required to be recorded
for the dividend withholding tax from 5% to 10% on dividends declared by the PRC subsidiaries to their parent
company incorporated in Hong Kong.



However, our Board of Directors and management decided to
reserve all profits earned after October 1, 2010 for our business expansion in the future and therefore no provision for
dividend withholding tax has been provided since October 1, 2010.



27







LIQUIDITY AND CAPITAL RESOURCES



We have historically financed operations primarily through internally
generated cash, loans borrowed from banks and advances from shareholders. Going forward, we believe our sources of liquidity will
be satisfied by using a combination of cash provided by our operating activities and proceeds from future offerings after the reverse
merger.



The following table sets out a summary of our cash flow during
the six months ended June 30, 2011 and 2012:



|                                                   |  | Six Months Ended June 30, |       
|-------------------------------------------------- |  | ------------------------- | ------
|                                                   |  | 2011                      |       
|                                                   |  | (Dollars in thousands)    |       
|                                                   |  |                           |       
|Net cash provided by operating activities          |  | $                         | 31,136
|Net cash used in investing activities              |  |                           | (7,751
|Net cash provided by financing activities          |  |                           | 2,048 
|Net increase in cash and cash equivalents          |  |                           | 25,433
|Effect of foreign exchange rate on changes in cash |  |                           | 790   
|Cash  at beginning of year                         |  |                           | 27,374
|Cash at end of year                                |  | $                         | 53,597



Cash flow from operating activities



We derive our cash flow from operating activities principally
from receipt of payments for sales of our products.  Our cash outflow from operating activities is principally from purchases
of raw materials.



For the six months ended June 30, 2012, we had net cash generated
from operating activities of $27.8 million, which was primarily contributed by net income before working capital changes of $8.8
million and an increase, representing customer repayments, in trade accounts receivable of $20.0 million.  The increase
in trade accounts receivable payments was primarily due to seasonality of sales.



For the six months ended June 30, 2011, we had net cash generated
from operating activities of $31.1 million, which was primarily contributed by net income before working capital changes of $9.3
million and an increase, representing customer repayments, in trade accounts receivable of $22.4 million.  The increase
in trade accounts receivable payments was primarily due to seasonality of sales.



Cash flow from investing activities



Our cash outflow from investing activities is principally for
purchases of property, plant and equipment during the six months ended June 30, 2011 and 2012.



Cash flow from financing activities



We derive our cash inflow from financing activities principally
from bank borrowings and advances from shareholders.  Our cash outflow from financing activities relates primarily to
repayment of bank borrowings and advances to shareholders.



For the six months ended June 30, 2012, we had net cash provided
by financing activities of $2.4 million, which was due primarily to the proceeds received from debt of $2.4 million.



For the six months ended June 30, 2011, we had net cash
provided by financing activities of $2.0 million, which was due primarily to the net advances received from shareholders of
$1.3 million.



28







NET CURRENT ASSETS



The following table sets out our current assets and current
liabilities as at the dates indicated:



|                                  |  | December 31, |        |  | June 30, |  
|--------------------------------- |  | ------------ | ------ |  | -------- | -
|                                  |  | 2011         |        |  | 2012     |  
|Current assets:                   |  |              |        |  |          |  
|Cash                              |  | $            | 62,971 |  |          | $
|Trade accounts receivable, net    |  |              | 20,045 |  |          |  
|Inventories                       |  |              | 1,315  |  |          |  
|Prepayments and other receivables |  |              | 303    |  |          |  
|                                  |  |              | 84,634 |  |          |  
|Current liabilities:              |  |              |        |  |          |  
|Trade accounts payable            |  |              | 446    |  |          |  
|Accruals and other payables       |  |              | 3,328  |  |          |  
|Income taxes payable              |  |              | 3,000  |  |          |  
|Short term borrowings             |  |              | 3,577  |  |          |  
|Derivative instruments            |  |              | 5      |  |          |  
|Due to shareholders               |  |              | 9,442  |  |          |  
|                                  |  |              | 19,798 |  |          |  
|Net current assets                |  | $            | 64,836 |  |          | $



We had net current assets of $73.7 million as of June 30, 2012.  The
improvement in net current assets as of June 30, 2012 from December 31, 2011 of $8.8 million was primarily due to increase in cash
as a result of the cash inflow from operating activities.



Trade accounts receivable



Our trade accounts receivable represent receivables from customers
for sales of products. We had trade accounts receivable of $20.0 million and nil as of December 31, 2011 and June 30, 2012, respectively.  The
decrease in trade receivables as of June 30, 2012 was due primarily to seasonality of sales.



The table below sets out our trade accounts receivable turnover
days for the period indicated:



|                                               |  | Year Ended   |    |  | Six Months Ended | 
|---------------------------------------------- |  | ------------ | -- |  | ---------------- | 
|                                               |  | December 31, |    |  | June 30,         | 
|                                               |  | 2011         |    |  | 2012             | 
|                                               |  |              |    |  |                  | 
|Trade accounts receivable turnover days (note) |  |              | 71 |  |                  | 



|Note: | Trade accounts receivable turnover days is equal to the average trade accounts receivable divided by sales and multiplied by 365 days (181 days for the June 30, 2012 period). Average trade accounts receivable are equal to trade accounts receivable at the beginning of the year plus trade accounts receivable at the end of the year and divided by two.
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The significant drop in trade accounts receivable turnover days
for six months ended June 30, 2012 to 61 days was a result of zero trade accounts receivable being outstanding as of June 30, 2012
due to seasonality.



29







Inventories



Our inventories decreased to $0.2 million as of June 30, 2012
from $1.3 million as of December 31, 2011 due to seasonality of sales.



The following table sets out the summary of balance of our inventories
as of the dates indicated:



|               |  | December 31, |       |  | June 30, |  
|-------------- |  | ------------ | ----- |  | -------- | -
|               |  | 2011         |       |  | 2012     |  
|               |  |              |       |  |          |  
|Raw materials  |  | $            | 369   |  |          | $
|Finished goods |  |              | 946   |  |          |  
|               |  | $            | 1,315 |  |          | $



The following table sets out the inventory turnover days as
of the dates indicated:



|                        |  | Year Ended December 31, |   |  | Six Months Ended June 30 | 
|----------------------- |  | ----------------------- | - |  | ------------------------ | 
|                        |  | 2011                    |   |  | 2012                     | 
|                        |  |                         |   |  |                          | 
|Inventory turnover days |  |                         | 7 |  |                          | 



| | Note: | The calculation of inventory turnover days is based on the average inventory balances divided by cost of goods sold and multiplied by 365 days for the year (181 days for the June 30, 2012 period).  Average inventory balances are equal to inventory balance at the beginning of the year plus inventory balances at the end of the year and divided by two.
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Trade accounts payable



Our trade accounts payable primarily represented the amount
we owed to our suppliers for the purchase of raw materials, mainly potatoes, packaging materials and coal.



Due to shareholders



The balances of amount due to shareholders of $9.4 million and
$9.5 million as of December 31, 2011 and June 30, 2012 are unsecured, interest free and have no fixed terms of repayment.



30







Property, plant and equipment



Net plant and machinery and other office equipment,
amounted to $7.2 million and $8.6 million as of December 31, 2011 and June 30, 2012, respectively.  We had
approximately $2.0 million additions to property, plant and equipment, mainly for our modified starch factory, during the six
months ended June 30, 2012. Deposits of $10.0 million have been made to purchase additional property, plant and equipment
as of June 30, 2012.



Capital Expenditures



The following table sets out the historical capital expenditures
during the period indicated:



|                                         |  | Year Ended December 31, |        |  | Six Months
Ended June 30, |  
|---------------------------------------- |  | ----------------------- | ------ |  | ------------------------- | -
|                                         |  | 2011                    |        |  | 2012                      |  
|                                         |  |                         |        |  |                           |  
|Furniture, fixtures and office equipment |  | $                       | 10,937 |  |                           | $



The following table sets out our projected capital expenditures
for the three years ending December 31, 2013:



|                    |  | December 31,                 |       
|------------------- |  | ---------------------------- | ------
|                    |  | 2012                         |       
|                    |  | (for the remaining 6 months) |       
|                    |  | (Dollars in thousands)       |       
|Land use rights     |  | $                            | 7,862 
|Buildings           |  |                              | 7,862 
|Plant and machinery |  |                              | 22,013
|                    |  | $                            | 37,737



We expect that the capital expenditures for the three years
ending December 2014 will be primarily used for land use rights, buildings, and plant and machinery to establish new production
lines for native potato starch, modified potato starch and whole potato starch.



We expect to finance our projected capital expenditures mainly
by cash generated from operating activities.



COMMITMENT AND CONTINGENCIES



|(a) | Capital commitments
|--- | -------------------



In August 2010, the Company entered into
agreements with the People’s Government of the Zhaoyang District, Yunnan Province to purchase property, plant and equipment
totaling approximately $19.0 million related to the construction of production facilities. As of June 30, 2012, the Company has
purchased $2.2 million of property, plant and equipment under these agreements and has made $10.0 million of deposits under these
agreements. Therefore, as of June 30, 2012, the commitment has been reduced to $6.9 million. In addition, as of June 30, 2012,
the Company has contracts with vendors to purchase equipment relating to the construction of production facilities for $10.1 million.



31







| | (b) | Lease commitments
| | --- | -----------------



Operating lease commitments include commitments
under non-cancellable lease agreements for our office premises, as well as a land lease. The leases expire from November 2012 through
October 2042. The yearly future minimum rental payments required as of June 30, 2012 were as follows:



|                  |  | (Dollars in
 thousands) |    
|----------------- |  | ----------------------- | ---
|2012 (six months) |  | $                       | 46 
|2013              |  |                         | 68 
|2014              |  |                         | 24 
|2015              |  |                         | 24 
|2016              |  |                         | 24 
|Thereafter        |  |                         | 609
|                  |  | $                       | 795



Item 3. Quantitative and Qualitative
Disclosures About Market Risk



Not Applicable.



Item 4. Controls and Procedures



Disclosure Controls and Procedures



Under the supervision and with the participation of our management, including our principal executive
officer and principal financial officer, we have conducted an evaluation of the effectiveness, as of June 30, 2012, of the design
and operation of our disclosure controls and procedures, as defined in Rules 13a – 15(e) and 15d – 15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). A system of controls, no matter how well designed
and operated, cannot provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Based
on our evaluation, our principal executive officer and principal financial officer have concluded that, as of such date, our disclosure
controls and procedures were not effective to ensure that information required to be disclosed by us in our Exchange Act reports
is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that
information is accumulated and communicated to allow timely decisions regarding required disclosures due to the material weaknesses
in our internal control over financial reporting as described in Item 9A of the Company’s Form 10-K for the year ended December
31, 2011.



Changes in Internal Control over Financial Reporting



There has been no change in our internal control over financial
reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.



32







PART II.  OTHER INFORMATION



Item 1.  Legal Proceedings



None.



Item 1A. Risk Factors



Not applicable to smaller reporting companies.



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



None.



Item 3.  Defaults Upon Senior Securities



None.



Item 4.  Mine Safety Disclosures



Item 5.  Other Information



None.



Item 6. Exhibits.



(b)   Exhibits



|Exhibit No. |   | Description                                                                                                                                                                           
|----------- | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1        | * | Certification of Principal Executive Officer, pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002                                                                               
|            |   |                                                                                                                                                                                       
|31.2        | * | Certification of Principal Financial Officer, pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002                                                                               
|            |   |                                                                                                                                                                                       
|32.1        | * | Certification of Principal Executive Officer and Principal
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.



33







SIGNATURES



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





|                      | KAIBO FOODS COMPANY LIMITED                       
|--------------------- | --------------------------------------------------
|                      |                                                   
|                      |                                                   
|Date: August 15, 2012 | By:                                               
|                      | Joanny Kwok, Chief Executive Officer and President
|                      | (Principal Executive Officer)                     
|                      |                                                   
|Date: August 15, 2012 | By:                                               
|                      | Ken Tsang, Chief Financial Officer                
|                      | (Principal Financial Officer)                     



34







EXHIBIT INDEX



|Exhibit No. |   | Description                                                                                                                                                                           
|----------- | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1        | * | Certification of Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                               
|31.2        | * | Certification of Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                               
|32.1        | * | Certification of Principal Executive Officer and Principal 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.



35