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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period endedJune 30, 2012

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

For the transition period from _________________ to
_________________

Commission File Number:
000-54076

FIRST CHINA PHARMACEUTICAL GROUP,
INC.(Exact name of registrant as specified in its
charter)

|Nevada                          | 74-3232809            
|------------------------------- | ----------------------
|(State or other jurisdiction of | (I.R.S. Employer      
|incorporation or organization)  | Identification Number)

Number 504, West Ren Min Road,Kunming City,
Yunnan ProvincePeoples Republic of China,
650000(Address of principal executive offices)

852-2138-1668(Registrants telephone
number, including area code)

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 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 larger accelerated filer, accelerated
filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check
one):

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

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

The number of shares outstanding of the registrants common
stock at August 15, 2012 was 59,664,480.

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INDEX

|                                         |                                                                                                                                                          | Page
|---------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|                                         |                                                                                                                                                          |     
|**PART
      I - FINANCIAL INFORMATION** |                                                                                                                                                         
|                                         |                                                                                                                                                          |     
|ITEM 1.                                  | FINANCIAL STATEMENTS                                                                                                                                     | 3   
|                                         | Condensed Consolidated Balance Sheets as of June 30,
      2012 and December 31, 2011 (unaudited)                                                        | 3   
|                                         | Condensed Consolidated Statements of
      Operations and Comprehensive Loss for the Three and Six Months Ended June
      30, 2012 and 2011 (unaudited) | 4   
|                                         | Condensed Consolidated Statement of Cash Flows for
      the Three and Six Months Ended June 30, 2012 and 2011 (unaudited)                               | 5   
|                                         | Notes to Condensed Consolidated Financial
      Statements (unaudited)                                                                                   | 6   
|ITEM 2.                                  | MANAGEMENTS DISCUSSION AND ANALYSIS
      OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                                              | 21  
|ITEM 3.                                  | QUANTITATIVE AND QUALITATIVE
      DISCLOSURES ABOUT MARKET RISK                                                                                         | 26  
|ITEM 4.                                  | CONTROLS AND PROCEDURES                                                                                                                                  | 26  
|                                         |                                                                                                                                                          |     
|**PART II - OTHER INFORMATION**          |                                                                                                                                                         
|                                         |                                                                                                                                                          |     
|ITEM 1.                                  | LEGAL PROCEEDINGS                                                                                                                                        | 28  
|ITEM 1A.                                 | RISK FACTORS                                                                                                                                             | 28  
|ITEM 2.                                  | UNREGISTERED SALES OF EQUITY SECURITIES
      AND USE OF PROCEEDS                                                                                        | 28  
|ITEM 3.                                  | DEFAULTS UPON SENIOR SECURITIES                                                                                                                          | 28  
|ITEM 4.                                  | MINE SAFETY DISCLOSURES                                                                                                                                  | 28  
|ITEM 5.                                  | OTHER INFORMATION                                                                                                                                        | 28  
|ITEM 6.                                  | EXHIBITS                                                                                                                                                 | 29  
|                                         |                                                                                                                                                          |     
|SIGNATURES                               | 30                                                                                                                                                      

i

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CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking
statements within the meaning of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Reference is made in particular to the
description of our plans and objectives for future operations, assumptions
underlying such plans and objectives, and other forward-looking statements
included in this report. Such statements may be identified by the use of
forward-looking terminology such as may, will, expect, believe,
estimate, anticipate, intend, continue, or similar terms, variations of
such terms, or the negative of such terms. Such statements are based on
managements current expectations and are subject to a number of factors and
uncertainties, which could cause actual results to differ materially from those
described in the forward-looking statements. Such statements address future
events and conditions concerning, among others, capital expenditures, earnings,
litigation, regulatory matters, liquidity and capital resources, and accounting
matters. Actual results in each case could differ materially from those
anticipated in such statements by reason of factors such as future economic
conditions, changes in consumer demand, legislative, regulatory and competitive
developments in markets in which we operate, results of litigation, and other
circumstances affecting anticipated revenues and costs, and the risk factors set
forth under the heading Risk Factors in our Transition Report on Form 10-K for
the fiscal year ended December 31, 2011 filed on May 2, 2012.

In this Quarterly Report on Form 10-Q, references to
dollars and $ are to United States dollars and, unless otherwise indicated,
references to we, our, us, the Company, FCPG, or the Registrant
refer to First China Pharmaceutical Group, Inc., a Nevada corporation and its
wholly owned subsidiaries, First China Pharmaceutical Group Limited, a Hong Kong
company, and Kun Ming Xin Yuan Tang Pharmacies Co. Ltd., a company organized
under the laws of the Peoples Republic of China.

YOU SHOULD NOT PLACE UNDUE RELIANCE ON THESE FORWARD LOOKING
STATEMENTS

The forward-looking statements made in this Quarterly Report
on Form 10-Q relate only to events or information as of the date on which the
statements are made in this Quarterly Report on Form 10-Q. Except as required by
law, we undertake no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events, or otherwise,
after the date on which the statements are made or to reflect the occurrence of
unanticipated events. You should read this report and the documents that we
reference in this report, including documents referenced by incorporation,
completely and with the understanding that our actual future results may be
materially different from what we expect or hope.

2

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PART I. FINANCIAL INFORMATION

ITEM 1.      FINANCIAL
STATEMENTS

FIRST CHINA PHARMACEUTICAL GROUP INC.CONDENSED
CONSOLIDATED BALANCE SHEETS(Unaudited)

|                                                                                                                                                                                                              |   | June 30,   |   |   | December 31, |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------- | - | - | ------------ | -
|                                                                                                                                                                                                              |   | 2012       |   |   | 2011         |  
|                                                                                                                                                                                                              |   |            |   |   | As restated  |  
|ASSETS                                                                                                                                                                                                        |   |            |   |   |              |  
|Current Assets                                                                                                                                                                                                |   |            |   |   |              |  
|Cash and cash equivalents                                                                                                                                                                                     | $ | 4,612,869  |   | $ | 3,641,120    |  
|Restricted cash                                                                                                                                                                                               |   | 3,750,258  |   |   | 1,003,545    |  
|Accounts receivable net                                                                                                                                                                                      |   | 2,169,844  |   |   | 1,776,649    |  
|Accounts receivable from a related party                                                                                                                                                                      |   | 2,716,908  |   |   | 2,240,261    |  
|Notes receivable short term - net                                                                                                                                                                            |   | -          |   |   | 125,895      |  
|Due from related parties                                                                                                                                                                                      |   | 686,909    |   |   | 2,277,647    |  
|Prepayments                                                                                                                                                                                                   |   | 2,938,365  |   |   | 867,566      |  
|Prepayments to a related party                                                                                                                                                                                |   | 2,333,036  |   |   | -            |  
|Inventories                                                                                                                                                                                                   |   | 610,258    |   |   | 707,075      |  
|Total Current Assets                                                                                                                                                                                          |   | 19,818,447 |   |   | 12,639,758   |  
|                                                                                                                                                                                                              |   |            |   |   |              |  
|Non-current Assets                                                                                                                                                                                            |   |            |   |   |              |  
|Notes receivable  long term                                                                                                                                                                                  |   | 469,694    |   |   | 119,782      |  
|Equipment, net                                                                                                                                                                                                |   | 80,587     |   |   | 63,303       |  
|Intangible assets, net                                                                                                                                                                                        |   | 4,047      |   |   | 3,379        |  
|Total Non-current Assets                                                                                                                                                                                      |   | 554,328    |   |   | 186,464      |  
|                                                                                                                                                                                                              |   |            |   |   |              |  
|Total Assets                                                                                                                                                                                                  | $ | 20,372,775 |   | $ | 12,826,222   |  
|                                                                                                                                                                                                              |   |            |   |   |              |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                                                                                         |   |            |   |   |              |  
|Current Liabilities                                                                                                                                                                                           |   |            |   |   |              |  
|Short-term borrowings                                                                                                                                                                                         | $ | 2,615,114  |   | $ | -            |  
|Accounts payable                                                                                                                                                                                              |   | 1,285,129  |   |   | 1,368,767    |  
|Other payables and accrued liabilities                                                                                                                                                                        |   | 977,544    |   |   | 1,003,634    |  
|Value added tax payable                                                                                                                                                                                       |   | 3,339,240  |   |   | 3,930,978    |  
|Advance receipts                                                                                                                                                                                              |   | 2,687,531  |   |   | 510,415      |  
|Due to shareholder                                                                                                                                                                                            |   | 72,628     |   |   | 191,630      |  
|Notes payable                                                                                                                                                                                                 |   | 7,267,511  |   |   | 2,136,600    |  
|Loans payable                                                                                                                                                                                                 |   | 71,328     |   |   | 3,604,981    |  
|Income tax payable                                                                                                                                                                                            |   | 2,666,650  |   |   | 2,174,347    |  
|Total Current Liabilities                                                                                                                                                                                     |   | 20,982,675 |   |   | 14,921,352   |  
|                                                                                                                                                                                                              |   |            |   |   |              |  
|Non-current Liabilities                                                                                                                                                                                       |   |            |   |   |              |  
|Convertible promissory notes                                                                                                                                                                                  |   | 1,070,711  |   |   | 1,045,907    |  
|Warrants derivative liability                                                                                                                                                                                |   | 1,343,053  |   |   | 639,528      |  
|Total Non-current Liabilities                                                                                                                                                                                 |   | 2,413,764  |   |   | 1,685,435    |  
|                                                                                                                                                                                                              |   |            |   |   |              |  
|Total Liabilities                                                                                                                                                                                             |   | 23,396,439 |   |   | 16,606,787   |  
|                                                                                                                                                                                                              |   |            |   |   |              |  
|Commitments and Contingencies                                                                                                                                                                                 |   |            |   |   |              |  
|                                                                                                                                                                                                              |   |            |   |   |              |  
|STOCKHOLDERS DEFICIT                                                                                                                                                                                         |   |            |   |   |              |  
|Common stock $0.001 par value; 200,000,000
      shares authorized as of June 30, 2012 and December 31, 2011;
      59,664,480 shares issued and outstanding as of June 30, 2012 and
      December 31, 2011. |   | 59,664     |   |   | 59,664       |  
|Additional paid-in capital                                                                                                                                                                                    |   | 761,440    |   |   | 727,062      |  
|Retained deficit                                                                                                                                                                                              |   | (3,948,022 | ) |   | (4,688,256   | )
|Accumulated other comprehensive income - foreign                                                                                                                                                              |   |            |   |   |              |  
|currency translation adjustments                                                                                                                                                                              |   | 103,254    |   |   | 120,965      |  
|                                                                                                                                                                                                              |   |            |   |   |              |  
|Total Stockholders Deficit                                                                                                                                                                                   |   | (3,023,664 | ) |   | (3,780,565   | )
|                                                                                                                                                                                                              |   |            |   |   |              |  
|Total Liabilities and Stockholders
      Deficit                                                                                                                                                             | $ | 20,372,775 |   | $ | 12,826,222   |  

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

3

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FIRST CHINA PHARMACEUTICAL GROUP INC.CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME(unaudited)

|                                                     |   | Six Months Ended June, 30 |   |   | Three Months Ended June, 30 |  
|---------------------------------------------------- | - | ------------------------- | - | - | --------------------------- | -
|                                                     |   | 2012                      |   |   | 2011                        |  
|                                                     |   |                           |   |   | As restated                 |  
|                                                     |   |                           |   |   |                             |  
|Net sales                                            | $ | 26,223,153                |   | $ | 19,018,642                  |  
|Cost of Sales                                        |   | 23,694,091                |   |   | 16,375,637                  |  
|                                                     |   |                           |   |   |                             |  
|Gross profit                                         |   | 2,529,062                 |   |   | 2,643,005                   |  
|                                                     |   |                           |   |   |                             |  
|Selling expenses                                     |   | 201,265                   |   |   | 694,627                     |  
|Administrative expenses                              |   | 891,148                   |   |   | 1,001,928                   |  
|                                                     |   |                           |   |   |                             |  
|Income from operations                               |   | 1,436,649                 |   |   | 946,450                     |  
|                                                     |   |                           |   |   |                             |  
|Other income                                         |   | 11,425                    |   |   | 93,796                      |  
|Derivative (loss) income                             |   | (703,525                  | ) |   | 832,845                     |  
|Interest income                                      |   | 16,863                    |   |   | 6,307                       |  
|Interest expense                                     |   | (91,390                   | ) |   | (77,797                     | )
|Reversal of value added tax                          |   | 547,606                   |   |   | 170,401                     |  
|                                                     |   |                           |   |   |                             |  
|Income before tax                                    |   | 1,217,628                 |   |   | 1,972,002                   |  
|                                                     |   |                           |   |   |                             |  
|Income tax                                           |   | 477,394                   |   |   | 581,970                     |  
|                                                     |   |                           |   |   |                             |  
|Net Income                                           |   | 740,234                   |   |   | 1,390,032                   |  
|                                                     |   |                           |   |   |                             |  
|                                                     |   |                           |   |   |                             |  
|Other Comprehensive loss                             |   |                           |   |   |                             |  
|                                                     |   |                           |   |   |                             |  
|Foreign currency translation adjustments             |   | (17,711                   | ) |   | (175,190                    | )
|                                                     |   |                           |   |   |                             |  
|Total Comprehensive Income                           | $ | 722,523                   |   | $ | 1,214,842                   |  
|                                                     |   |                           |   |   |                             |  
|Basic Earnings per Common Share                      |   |                           |   |   |                             |  
|Weighted average number of common shares outstanding |   | 59,664,480                |   |   | 57,418,241                  |  
|                                                     |   |                           |   |   |                             |  
|Earnings per share  Basic                           | $ | 0.0124                    |   | $ | 0.0242                      |  
|                                                     |   |                           |   |   |                             |  
|Diluted Earnings per Common Share                    |   |                           |   |   |                             |  
|                                                     |   |                           |   |   |                             |  
|Adjusted weighted average number of shares           |   | 59,664,480                |   |   | 57,418,241                  |  
|                                                     |   |                           |   |   |                             |  
|Earnings per share  Diluted                         | $ | 0.0124                    |   | $ | 0.0242                      |  

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

4

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FIRST CHINA PHARMACEUTICAL GROUP, INC.CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS(unaudited)

|                                                                                               |   | Six Months Ended |  
|---------------------------------------------------------------------------------------------- | - | ---------------- | -
|                                                                                               |   |                  |  
|                                                                                               |   | June 30, 2012    |  
|                                                                                               |   |                  |  
|Cash Flows from Operating Activities                                                           |   |                  |  
|Net income                                                                                     | $ | 740,234          |  
|Adjustments to reconcile net income to net cash (used)
      provided by operating activities: |   |                  |  
|Depreciation                                                                                   |   | 11,537           |  
|Derivative loss (income)                                                                       |   | 703,525          |  
|Sharebased payments expense                                                                   |   | 34,378           |  
|Changes in operating assets and liabilities:                                                   |   |                  |  
|Accounts receivable                                                                            |   | (381,036         | )
|Accounts receivable from a related party                                                       |   | (461,280         | )
|Prepayments                                                                                    |   | (2,068,237       | )
|Prepayments to a related party                                                                 |   | (2,337,222       | )
|Inventories                                                                                    |   | 102,111          |  
|Other payable and accrued liabilities                                                          |   | (29,887          | )
|Accounts payable                                                                               |   | (93,809          | )
|Advance receipts                                                                               |   | 2,177,327        |  
|Value added tax payable                                                                        |   | (621,263         | )
|Income tax payable                                                                             |   | 477,442          |  
|Net cash (used) provided by operating activities                                               |   | (1,746,180       | )
|                                                                                               |   |                  |  
|Cash Flows from Investing Activities                                                           |   |                  |  
|Notes receivable                                                                               |   | (222,640         | )
|Purchases of equipment                                                                         |   | (29,039          | )
|Net cash used in investing activities                                                          |   | (251,679         | )
|                                                                                               |   |                  |  
|Cash Flows from Financing Activities                                                           |   |                  |  
|Proceeds (repayments) / of short term borrowings,                                              |   |                  |  
|including accrued interest                                                                     |   | 2,619,528        |  
|Proceeds of note payable                                                                       |   | 5,124,647        |  
|Net proceeds from convertible notes                                                            |   | 24,804           |  
|Due from related parties                                                                       |   | 1,610,599        |  
|Due to shareholder                                                                             |   | (120,603         | )
|Net proceed from private offering units                                                        |   | -                |  
|(Repayments)/proceeds from loans payable                                                       |   | (3,566,097       | )
|Increase in restricted cash                                                                    |   | (2,744,375       | )
|Net cash provided by financing activities                                                      |   | 2,948,503        |  
|                                                                                               |   |                  |  
|Effect of foreign currency translation on cash and cash equivalents                            |   | 21,105           |  
|                                                                                               |   |                  |  
|Net increase in cash and cash equivalents                                                      |   | 971,749          |  
|                                                                                               |   |                  |  
|Cash and cash equivalents - beginning of period                                                |   | 3,641,120        |  
|                                                                                               |   |                  |  
|Cash and cash equivalents at the end of period                                                 | $ | 4,612,869        |  
|                                                                                               |   |                  |  
|Supplemental disclosures for cash flow information:                                            |   |                  |  
|Cash paid for:                                                                                 |   |                  |  
|Interest                                                                                       | $ | 61,489           |  
|Income taxes                                                                                   |   | -                |  

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

5

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FIRST CHINA PHARMACEUTICAL GROUP INC. NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2012(Unaudited)

1.ORGANIZATION AND PRINCIPAL ACTIVITIES

First China Pharmaceutical Group, Inc., (the Company), was
incorporated in Nevada as of July 31, 2007, and is a public reporting shell
company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as
amended. As of May 14, 2010, the Company amended its Articles of Incorporation
to change its name from E-Dispatch Inc. to First China Pharmaceutical Group,
Inc..

First China Pharmaceutical Group, Inc. limited (the FCPG HK)
was incorporated in Hong Kong as of April 29, 2010 under the Companies Ordinance
of Hong Kong. As of September 15, 2010, the Company issued 15,000,000 shares in
exchange for 100% of the issued and outstanding common stock of FCPG HK. The
newly issued shares represented 25% of the Companys issued and outstanding
common stock.

Kun Ming Xin Yuan Tang Pharmacies Co. Ltd. (XYT) was
established under the laws of the Peoples Republic of China (PRC) as of
November 12, 2002 with a paid-in capital of RMB 2,000,000 as of December 31,
2010. As of June 25, 2010, FCPG HK acquired XYT, which became FCPG HKs wholly
owned subsidiary.

The Company and the Subsidiaries (collectively the Group) are
principally engaged in drug logistics and distribution in Yunnan Province, China
through drug stores, medical clinics and hospitals.

On May 6, 2011, the Group's Board of Directors changed the
Groups fiscal year end from March 31 to December 31.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a)Basis of Preparation and
Presentation

The condensed consolidated financial statements include the
accounts of the Group and its wholly-owned subsidiaries. All inter-company
transactions and accounts have been eliminated in consolidation.

This basis of accounting differs in certain material respects
from that used for the preparation of the books of account of the Group, which
are prepared in accordance with the accounting principles and the relevant
financial regulations applicable to enterprises with limited liabilities
established in the PRC (PRC GAAP), the accounting standards used in the places
of their domicile. The accompanying condensed financial statements reflect
necessary adjustments recorded in the books of account of the Group to present
them in conformity with US GAAP.

The unaudited Condensed Consolidated Financial Statements
contained in this Quarterly Report have been prepared on the same basis as the
audited Consolidated Financial Statements in our Annual Report on Form 10-K for
the year ended December 31, 2011 that we filed with the Securities and Exchange
Commission (SEC) on May 1, 2012 (the 2011 Annual Report). In our opinion, we
have made all necessary adjustments (which include only normal recurring
adjustments) in order to state fairly, in all material respects, our
consolidated financial position, results of operations and cash flows as of the
dates and for the periods presented. We have condensed the Consolidated Balance
Sheet and Statement of Stockholders Equity at December 31, 2011 contained in
this Quarterly Report as compared to our audited Consolidated Financial
Statements at that date, and we have omitted certain information and footnote
disclosures (including those related to the Consolidated Balance Sheet at
December 31, 2011) normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America (GAAP). Our results of operations for the interim period ended June 30,
2012 may not be indicative of our operating results for the full year. The
Condensed Consolidated Financial Statements contained in this Quarterly Report
should be read in conjunction with our 2011 Consolidated Financial Statements
contained in our 2011 Annual Report.

In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Results shown for interim periods are not necessarily indicative
of the results to be obtained for a full year. The as consolidated balance sheet
information as of December 31, 2011 (except for restated amounts) was derived
from the audited consolidated financial statements included in Form 10-K except
the restatements included in Note 4.

6

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FIRST CHINA PHARMACEUTICAL GROUP INC. NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2012(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

b)Use of Estimates

In preparing the financial statements in conformity with
accounting principles generally accepted in the United States of America,
management makes estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the dates of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting periods. These accounts and estimates
include, but are not limited to, the valuation of due from related parties,
inventories and the estimation on useful lives of plant and machinery and
intangible assets. Actual results could differ from those estimates.

Warrants that could require cash settlement or have
anti-dilution price protection provisions are recorded as liabilities at their
estimated fair value at the date of issuance, with subsequent changes in
estimated fair value recorded in other income (expense) in our statement of loss
and comprehensive loss in each subsequent period. In general, warrants with
anti-dilution provisions are measured using the Black-Scholes valuation model.
The methodology based, in part, upon inputs for which there is little or no
observable market data, requiring the Group to develop its own assumptions. The
assumptions used in calculating the estimated fair value of the warrants
represent our best estimates, however these estimates involve inherent
uncertainties and the application of management judgment. As a result, if
factors change and different assumptions are used, the warrant liability and the
change in estimated fair value could be materially different. Also see Note 11.

c)Cash and Cash Equivalents

The Group considers all highly liquid investments with initial
maturities of six months or less to be cash equivalents. As of June 30, 2012 and
December 31, 2011, $4,132,363 and $3,112,249, respectively were held under
personal named accounts of certain officers of the Group, which are used for
cash receipts from sales and purchases of inventory.

d)Accounts Receivable

As of June 30, 2012 and December 31, 2011, the allowance for
doubtful accounts was $378,118 and $375,405, respectively.

e)Revenue Recognition

Revenue from sales of the Groups products is recognized when
the significant risks and rewards of ownership have been transferred to the
buyer at the time of delivery and the sales price is fixed or determinable and
collection is reasonably assured.

When the customers checked and accepted the products, the
collection is reasonably assured. Since the nature of the products, the type of
their customers and their distribution methods are substantially similar, the
revenue recognition policy on all products is the same.

Revenues are shown net of applicable value added tax and sales
returns.

7

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FIRST CHINA PHARMACEUTICAL GROUP INC. NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2012(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

f)Foreign Currency Translation

The Group maintains its financial statements in the functional
currency. The functional currency of the Company is US dollar (USD, $), the
functional currency of FCPG HK is Hong Kong dollar (HKD), and the functional
currency of XYT is Renminbi (RMB). 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 dates.
Transactions denominated in currencies other than the functional currency are
translated into the functional currency at the exchanges rates prevailing at the
dates of the transaction. Exchange gains or losses arising from foreign currency
transactions are included in the determination of net income for the respective
periods.

For financial reporting purposes, the financial statements of
the Company, FCPG HK and XYT which are prepared using the functional currency
have been translated into USD. Assets and liabilities are translated at the
exchange rates at the balance sheet dates and revenue and expenses are
translated at the average exchange rates and stockholders equity is translated
at historical exchange rates. Any translation adjustments resulting are not
included in determining net income but are included in foreign exchange
adjustment to other comprehensive income, a component of stockholders equity.

HKD is pegged to USD and hence there is no significant
translation adjustment impact on these financial statements.

RMB is not freely convertible into foreign currency and all
foreign exchange transactions must take place through authorized institutions.
No representation is made that the RMB amounts could have been, or could be,
converted into USD at the rates used in translation.

Rates applicable to periods presented:

June 30, 2012
    December 31, 2011
    June 30, 2011Balance SheetHKD-USD
    $ 0.13
    $ 0.13
    -RMB-USD
    $ 0.16
    $ 0.16
    -Income statementHKD-USD
    $ 0.13
    -
    $ 0.13RMB-USD
    $ 0.16
    -
    $ 0.15


g)Recent Accounting Pronouncements

In May 2011, the FASB issued ASU No. 2011-04 (ASU 2011-04),
Fair Value Measurement (ASC 820) which amends the fair value
measurement guidance and includes some enhanced disclosure requirements. The
most significant change in disclosures is an expansion of the information
required for Level 3 measurements based on unobservable inputs. The standard is
effective for fiscal years beginning after December 15, 2011. The adoption of
the guidance did not have a material impact on its consolidated financial
statements and disclosures.

In June 2011, the FASB issued ASU No. 2011-05 (ASU 2011-05),
Comprehensive Income (Topic 220), Presentation of Comprehensive Income,
which eliminates the current option to report other comprehensive income (OCI)
and its components in the statements of shareholders equity. Instead, an entity
will be required to present items of net income and OCI in one continuous
statement or in two separate, but consecutive, statements. In December 2011, the
FASB issued ASU No. 2011-12 (ASU 2011-12), Comprehensive Income (Topic 220), Deferral of the Effective
Date for Amendments to the Presentation of Reclassifications of Items Out of
Accumulated Other Comprehensive Income in Accounting Standards Update No.
2011-05. This ASU defers the ASU 2011-05 requirement that companies present
reclassification adjustments for each component of OCI in both net income and
OCI on the face of the financial statements and the requirement to report
reclassification adjustments in interim periods. The amendments in ASU 2011-05
and ASU 2011-12 should be applied retrospectively and are effective for fiscal
years and interim periods within those years, beginning after December 15, 2011,
with early adoption permitted. The adoption of the guidance did not have a
material impact on its consolidated financial statements and disclosures.

8

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FIRST CHINA PHARMACEUTICAL GROUP INC. NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2012(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

h)Business and Economic Risks

The Companys operations could be adversely affected by
significant political, economic and social uncertainties in the PRC.

i)Fair Value Measurements

Fair value is the amount that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants. As such, fair value is determined based upon assumptions that
market participants would use in pricing an asset or liability. Fair value
measurements are rated on a three-tier hierarchy as follows:

- Level 1 inputs: Quoted prices (unadjusted) for identical assets or
  liabilities in active markets;
- Level 2 inputs: Inputs, other than quoted prices included in Level 1 that
  are observable either directly or indirectly; and
- Level 3 inputs: Unobservable inputs for which there is little or no market
  data, which require the reporting entity to develop its own assumptions.

In many cases, a valuation technique used to measure fair value
includes inputs from multiple levels of the fair value hierarchy described
above. The lowest level of significant input determines the placement of the
entire fair value measurement in the hierarchy.

The following are the major categories of assets and
liabilities measured at fair value on a recurring basis during the six months
ended June 30, 2012 and the year ended December 31, 2011, using quoted prices in
active markets for identical assets (Level 1); significant other observable
inputs (Level 2); and significant unobservable inputs (Level 3)

|                                |   | Level 1:           |  |   | Level 2:    |  |   | Level 3:     |  |   | Total     | 
|------------------------------- | - | ------------------ |  | - | ----------- |  | - | ------------ |  | - | --------- | 
|                                |   |                    |  |   | Significant |  |   |              |  |   |           | 
|                                |   | Quoted Prices in   |  |   | Other       |  |   | Significant  |  |   |           | 
|                                |   | Active Markets for |  |   | Observable  |  |   | Unobservable |  |   | June 30,  | 
|Description                     |   | Identical Assets   |  |   | Inputs      |  |   | Inputs       |  |   | 2012      | 
|Derivative Liability  Warrants | $ | -                  |  | $ | -           |  | $ | 1,343,053    |  | $ | 1,343,053 | 
|Total                           | $ | -                  |  | $ | -           |  | $ | 1,343,053    |  | $ | 1,343,053 | 

|                                |   | Level 1:           |  |   | Level 2:    |  |   | Level 3:     |  |   | Total        | 
|------------------------------- | - | ------------------ |  | - | ----------- |  | - | ------------ |  | - | ------------ | 
|                                |   |                    |  |   | Significant |  |   |              |  |   |              | 
|                                |   | Quoted Prices in   |  |   | Other       |  |   | Significant  |  |   |              | 
|                                |   | Active Markets for |  |   | Observable  |  |   | Unobservable |  |   | December 31, | 
|Description                     |   | Identical Assets   |  |   | Inputs      |  |   | Inputs       |  |   | 2011         | 
|                                |   |                    |  |   |             |  |   |              |  |   |              | 
|Derivative Liability  Warrants | $ | -                  |  | $ | -           |  | $ | 639,528      |  | $ | 639,528      | 
|Total                           | $ | -                  |  | $ | -           |  | $ | 639,528      |  | $ | 639,528      | 

j)Liquidity

Cash and cash equivalents on June 30, 2012 was approximately
$4.6 million. The Group has negative working capital of approximately $1.2
million. The Group intends to meet its cash requirements through the use of
existing cash on hand and short-term borrowing.

9

---

FIRST CHINA PHARMACEUTICAL GROUP INC. NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2012(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

k)Earnings per share

Basic and diluted earnings (loss) per common share was
calculated by dividing the net income (loss) applicable to common stock for the
period by the weighted-average number of common shares outstanding during the
period. Common stock equivalents are included in the calculation of diluted
earnings per common share only if their effect is dilutive. Warrants and
convertible promissory notes were not included in the dilutive calculation
because the exercise price was less than the average market price for June 30,
2012 and 2011.

June 30, 2012
    
    
    June 30, 2011Warrants
    
    8,928,962
    
    
    8,928,962Convertible promissory notes
    
    182,021
    
    
    1,885,665Total
    
    9,110,983
    
    
    10,814,627


l)Reclassification

The Group reclassified certain items in the December 31, 2011
and June 30, 2011 condensed consolidated financial statements for comparative
purposes to conform to the current year presentation.

3.RELATED PARTIES

June 30,
    
    
    December 31,2012
    
    
    2011Accounts Receivable From a Related Party
    $
    2,716,908
    
    $
    2,240,261Prepayments to a Related Party
    $
    2,333,036
    
    $
    -Due From Related Parties
    $
    686,909
    
    $
    2,277,647Due to Shareholder
    $
    72,628
    
    $
    191,630


Accounts Receivable From a Related Party And Prepayments
to a Related Party

The Group conducts business with a medicine manufacturer
majority owned by an officer of XYT. The Group sells natural herbs as raw
materials and purchases patented Chinese drugs as finished goods from the
related party. The amount receivable from the related party represents the net
sales to the related party . The prepayments to the related party represents
prepayments for inventory. Sales to related party are as follows:

|                         |   | Six Months Ended |  |   | Three Months Ended | 
|------------------------ | - | ---------------- |  | - | ------------------ | 
|                         |   | June, 30         |  |   | June, 30           | 
|                         |   | 2012             |  |   | 2011               | 
|                         |   |                  |  |   |                    | 
|Net sales                | $ | 22,005,380       |  | $ | 19,018,642         | 
|Sales to a related party |   | 4,217,773        |  |   | -                  | 
|Total Sales              | $ | 26,223,153       |  | $ | 19,018,642         | 

Due From Related Parties

The amount due from related parties represents: 1) loans made
out to companies majority owned by an officer of XYT due on December 31, 2012
with an interest rate comparable to the prime rate set by the People's Bank of
China to be paid upon maturity; 2) loans to companies that are owned by
individuals related to a shareholder of the Group that were repaid in 2012; and
3) advances to officers of XYT to pay for purchases and operating expense during
the normal course of business.

10

---

FIRST CHINA PHARMACEUTICAL GROUP INC. NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2012(Unaudited)

3. RELATED PARTIES (CONT'D)

Due to Shareholder

The amount due to shareholder and officer represents expenses
paid by the shareholder and officer on behalf of the Group, and rent the Group
collected on behalf of the shareholder.

4.RESTATEMENTS

The unaudited financial statements for the six and three months
ended June 30, 2011 have been restated to correct the following errors:

1. The Group discovered in May 2012 that an adjustment to sales
of approximately $700,000 and cost of sales of approximately $1,500,000 was
reflected in the statement of operations for the three months ended March 31,
2011, which subsequently affected the statement of operations for six months
ended June 30, 2011. The sales and cost of sales were related to operations in
December 2010.

2. The Group discovered in April 2012 that it incorrectly
recorded warrants issued in private placement in additional-paid-in-capital. The
warrants should be treated under ASC 815-10. The Group decreased
additional-paid-in-capital by approximately $3,000,000 and increased derivative
liability by the same amount. In connection with this error, the change in fair
value of the derivative liability between grant date and June 30, 2011 was
calculated to be $832,845. As a result, the Group recorded an adjustment to
derivative gain of the same amount.

3. The Group corrected an under-accrual of income tax liability
of approximately $290,000. In addition, the Group corrected the Value Added Tax
reserve, which was offset against reversal of prior year's reserve based on the
tax certification the Group obtained from the tax bureau. The net impact was
approximately $170,000.

4. The Group discovered in April 2012 that it incorrectly
recorded a discount on convertible notes in equity. The Group corrected a
previously calculated discount on convertible notes from equity into convertible
promissory notes in the amount of $113,747.

5. The Group discovered in June 2012 that it had incorrectly
treated warrants and promissory notes as having a dilutive effect in the
earnings per share calculation for six and three months ended June 30, 2011. Due
to the average market price was more than the exercise price, those instruments
should have been excluded from the dilutive calculation.

6. The Group discovered in June 2012 that it had incorrectly
calculated the other comprehensive income for the six and three months ended
June 30, 2011 because of differing exchange rates were used. In addition, the
change in other comprehensive income should be an expense instead of an income.
Therefore, the Group corrected the change in other comprehensive income by
approximately $358,000 for the six months ended June 30, 2011 and approximately
$184,000 for the three months ended June 30, 2011.

The audited financial statements as of December 31, 2011 have
been restated to correct the following errors:

7. The Group discovered in June 2012 that it had overstated the
Value Added Tax liability for the nine months ended December 31, 2011 due to
incorrect assumptions used in estimating the Group's overall exposure. In
addition, the 2010 Value Added Tax accrual should be reversed pursuant to the
tax certificate the Group received in 2012. Therefore, the Group had reduced the
liability by approximately $7.5 million.

8. The Group discovered in June 2012 that it had incorrectly
recorded amount under Due From Shareholder due to the factor described above.
The Value Added Tax prior to 2011 was recorded under Due From Shareholder due to
consideration that the shareholder collected cash receipts on the Group's
behalf. Therefore, the Group had reduced the Due From Shareholder by
approximately $7.2 million.

9. The Group had discovered in June 2012 that the above two
restatements had a net income statement impact of approximately $300,000.

11

---

FIRST CHINA PHARMACEUTICAL GROUP INC.NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTSJUNE 30, 2012(Unaudited)

4. RESTATEMENTS (CONT'D)

|                                                     |   | Six Months Ended June 30, 2011 |  
|---------------------------------------------------- | - | ------------------------------ | -
|                                                     |   | As restated                    |  
|Net sales                                            | $ | 19,018,642                     |  
|Cost of Sales                                        |   | 16,375,637                     |  
|Gross profit                                         |   | 2,643,005                      |  
|Selling expenses                                     |   | 694,627                        |  
|Administrative expenses                              |   | 1,001,928                      |  
|Income from operations                               |   | 946,450                        |  
|Other income / (expenses)                            |   | 93,796                         |  
|Derivative income                                    |   | 832,845                        |  
|Interest income                                      |   | 6,307                          |  
|Interest expense                                     |   | (77,797                        | )
|Reversal of value added tax                          |   | 170,401                        |  
|Income before tax                                    |   | 1,972,002                      |  
|Income tax                                           |   | 581,970                        |  
|Net Income (Loss)                                    |   | 1,390,032                      |  
|Other Comprehensive income (loss)                    |   |                                |  
|Foreign currency translation adjustments             |   | (175,190                       | )
|Total Comprehensive Income                           | $ | 1,214,842                      |  
|Basic Earnings per Common Share                      |   |                                |  
|Weighted average number of common shares outstanding |   | 57,418,241                     |  
|Earnings per share - Basic                           | $ | 0.0242                         |  
|Diluted earnings per common share                    |   |                                |  
|Adjusted weighted average number of shares           |   | 57,418,241                     |  
|Earnings per share - Diluted                         | $ | 0.0242                         |  

|                                                     |   | Three Months Ended June 30, 2011 |  
|---------------------------------------------------- | - | -------------------------------- | -
|                                                     |   | As restated                      |  
|Net sales                                            | $ | 11,634,463                       |  
|Cost of Sales                                        |   | 10,292,859                       |  
|Gross profit                                         |   | 1,341,604                        |  
|Selling expenses                                     |   | 50,504                           |  
|Administrative expenses                              |   | 475,163                          |  
|Income from operations                               |   | 815,937                          |  
|Other income / (expenses)                            |   | 74,697                           |  
|Derivative income                                    |   | 1,008,400                        |  
|Interest income                                      |   | 1,005                            |  
|Interest expense                                     |   | (54,043                          | )
|Reversal of value added tax                          |   | 170,401                          |  
|Income before tax                                    |   | 2,016,397                        |  
|Income tax                                           |   | 289,487                          |  
|Net Income                                           |   | 1,726,910                        |  
|Other Comprehensive income (loss)                    |   |                                  |  
|Foreign currency translation adjustments             |   | (35,134                          | )
|Total Comprehensive Income                           | $ | 1,691,776                        |  
|Basic Earnings per Common Share                      |   |                                  |  
|Weighted average number of common shares outstanding |   | 59,510,035                       |  
|Earnings per share - Basic                           | $ | 0.0290                           |  
|Diluted earnings per common share                    |   |                                  |  
|Adjusted weighted average number of shares           |   | 59,510,035                       |  
|Earnings per share - Diluted                         | $ | 0.0290                           |  

12

---

FIRST CHINA PHARMACEUTICAL GROUP INC. NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2012(Unaudited)

4. RESTATEMENTS (CONT'D)

|                                                                                        |   | Six Months ended June 30,
      2011 |  
|--------------------------------------------------------------------------------------- | - | ------------------------------------ | -
|                                                                                        |   | As restated                          |  
|Cash Flows from Operating Activities                                                    |   |                                      |  
|Net income                                                                              | $ | 1,390,032                            |  
|Adjustments to reconcile net income to
      net cash provided by operating activities: |   |                                      |  
|Depreciation                                                                            |   | 2,932                                |  
|Provision for bad debts                                                                 |   |                                      |  
|Interest expense on convertible notes                                                   |   | -                                    |  
|Derivative loss (income)                                                                |   | (832,845                             | )
|Sharebased payments expense                                                            |   | 11,332                               |  
|Changes in operating assets and
      liabilities:                                      |   |                                      |  
|Accounts receivable                                                                     |   | 2,471,349                            |  
|Due from related parties                                                                |   | -                                    |  
|Other receivable                                                                        |   | -                                    |  
|Deferred expenses                                                                       |   | -                                    |  
|Prepayments                                                                             |   | (289,881                             | )
|Inventories                                                                             |   | 4,891,254                            |  
|Other payable and accrued liabilities                                                   |   | (892,564                             | )
|Notes payable                                                                           |   | -                                    |  
|Accounts payable                                                                        |   | 1,680,759                            |  
|Advance receipts                                                                        |   | 114,745                              |  
|Value added tax payable                                                                 |   | (6,958,519                           | )
|Income tax payable                                                                      |   | 365,849                              |  
|Net cash provided by (used in) operating activities                                     |   | 1,954,443                            |  
|                                                                                        |   |                                      |  
|Cash Flows from Investing Activities                                                    |   |                                      |  
|Notes receivable                                                                        |   | (667,066                             | )
|Additions to intangibles                                                                |   | -                                    |  
|Purchases of equipment                                                                  |   | (11,766                              | )
|Net cash used in investing activities                                                   |   | (678,832                             | )
|                                                                                        |   |                                      |  
|Cash Flows from Financing Activities                                                    |   |                                      |  
|Proceeds (repayments) / of short term
      borrowings, including accrued interest      |   | (54,470                              | )
|Proceeds of note payable                                                                |   | 1,420,605                            |  
|Net proceeds from convertible notes                                                     |   | 143,477                              |  
|Due from related parties                                                                |   | (4,837,384                           | )
|Due to related parties                                                                  |   | 126,477                              |  
|Net proceed from private offering units                                                 |   | 3,633,500                            |  
|Net (repayments)/proceeds from loans
      payable                                      |   | 1,942,472                            |  
|Increase in restricted cash                                                             |   | (568,857                             | )
|Net cash provided by financing
      activities                                         |   | 1,805,820                            |  
|Effect of foreign currency translation on cash and cash
      equivalents               |   | 10,102                               |  
|Net increase in cash and cash
      equivalents                                         |   | 3,091,533                            |  
|Cash and cash equivalents - beginning of period                                         |   | 1,125,056                            |  
|Cash and cash equivalents at the end of
      period                                    | $ | 4,216,589                            |  

13

---

FIRST CHINA PHARMACEUTICAL GROUP INC. NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2012(Unaudited)

4. RESTATEMENTS (CONT'D)

|                                                                                                                                                                                                              |   | December 31, |   |   | December 31, |   |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------ | - | - | ------------ | - | - | ---------- | -
|                                                                                                                                                                                                              |   | 2011         |   |   | 2011         |   |   |            |  
|                                                                                                                                                                                                              |   | As restated  |   |   | Reported     |   |   | Change     |  
|ASSETS                                                                                                                                                                                                        |   |              |   |   |              |   |   |            |  
|Current Assets                                                                                                                                                                                                |   |              |   |   |              |   |   |            |  
|Cash and cash equivalents                                                                                                                                                                                     | $ | 3,641,120    |   | $ | 3,641,120    |   | $ | -          |  
|Restricted cash                                                                                                                                                                                               |   | 1,003,545    |   |   | 1,003,545    |   |   | -          |  
|Accounts receivable net                                                                                                                                                                                      |   | 1,776,649    |   |   | 1,776,649    |   |   | -          |  
|Notes receivable short term - net                                                                                                                                                                            |   | 125,895      |   |   | 125,895      |   |   | -          |  
|Due from related parties                                                                                                                                                                                      |   | 2,277,647    |   |   | 9,475,094    |   |   | (7,197,447 | )
|Receivable from related party                                                                                                                                                                                 |   | 2,240,261    |   |   | 2,240,261    |   |   | -          |  
|Prepayments                                                                                                                                                                                                   |   | 867,566      |   |   | 867,566      |   |   | -          |  
|Inventories                                                                                                                                                                                                   |   | 707,075      |   |   | 707,075      |   |   | -          |  
|Total Current Assets                                                                                                                                                                                          |   | 12,639,758   |   |   | 19,837,205   |   |   | (7,197,447 | )
|                                                                                                                                                                                                              |   |              |   |   |              |   |   |            |  
|Non-current Assets                                                                                                                                                                                            |   |              |   |   |              |   |   |            |  
|Notes receivable  long term                                                                                                                                                                                  |   | 119,782      |   |   | 119,782      |   |   | -          |  
|Equipment, net                                                                                                                                                                                                |   | 63,303       |   |   | 63,303       |   |   | -          |  
|Intangible assets, net                                                                                                                                                                                        |   | 3,379        |   |   | 3,379        |   |   |            |  
|Total Non-current Assets                                                                                                                                                                                      |   | 186,464      |   |   | 186,464      |   |   | -          |  
|                                                                                                                                                                                                              |   |              |   |   |              |   |   |            |  
|Total Assets                                                                                                                                                                                                  | $ | 12,826,222   |   | $ | 20,023,669   |   |   | (7,197,447 | )
|                                                                                                                                                                                                              |   |              |   |   |              |   |   |            |  
|LIABILITIES AND STOCKHOLDERS
      DEFICIT                                                                                                                                                                   |   |              |   |   |              |   |   |            |  
|Current Liabilities                                                                                                                                                                                           |   |              |   |   |              |   |   |            |  
|Short-term borrowings                                                                                                                                                                                         | $ | -            |   | $ | -            |   |   | -          |  
|Accounts payable                                                                                                                                                                                              |   | 1,368,767    |   |   | 1,368,767    |   |   | -          |  
|Other payables and accrued liabilities                                                                                                                                                                        |   | 1,003,634    |   |   | 1,003,634    |   |   | -          |  
|Value added tax payable                                                                                                                                                                                       |   | 3,930,978    |   |   | 11,434,703   |   |   | (7,503,725 | )
|Advance receipts                                                                                                                                                                                              |   | 510,415      |   |   | 510,415      |   |   | -          |  
|Due to shareholder                                                                                                                                                                                            |   | 191,630      |   |   | 191,630      |   |   | -          |  
|Notes payable                                                                                                                                                                                                 |   | 2,136,600    |   |   | 2,136,600    |   |   | -          |  
|Loans payable                                                                                                                                                                                                 |   | 3,604,981    |   |   | 3,604,981    |   |   | -          |  
|Income tax payable                                                                                                                                                                                            |   | 2,174,347    |   |   | 2,174,347    |   |   | -          |  
|Total Current Liabilities                                                                                                                                                                                     |   | 14,921,352   |   |   | 22,425,077   |   |   | (7,503,725 | )
|                                                                                                                                                                                                              |   |              |   |   |              |   |   |            |  
|Non-current Liabilities                                                                                                                                                                                       |   |              |   |   |              |   |   |            |  
|Convertible promissory notes                                                                                                                                                                                  |   | 1,045,907    |   |   | 1,045,907    |   |   | -          |  
|Warrants derivative liability                                                                                                                                                                                |   | 639,528      |   |   | 639,528      |   |   | -          |  
|Total Non-current Liabilities                                                                                                                                                                                 |   | 1,685,435    |   |   | 1,685,435    |   |   | -          |  
|                                                                                                                                                                                                              |   |              |   |   |              |   |   |            |  
|Total Liabilities                                                                                                                                                                                             |   | 16,606,787   |   |   | 24,110,512   |   |   | (7,503,725 | )
|                                                                                                                                                                                                              |   |              |   |   |              |   |   |            |  
|Commitments and contingencies                                                                                                                                                                                 |   |              |   |   |              |   |   |            |  
|                                                                                                                                                                                                              |   |              |   |   |              |   |   |            |  
|STOCKHOLDERS DEFICIT                                                                                                                                                                                         |   |              |   |   |              |   |   |            |  
|Common stock $0.001 par value; 200,000,000 shares
      authorized as of June 30, 2012 and December 31, 2011; 59,664,480
      shares issued and outstanding as of June 30, 2012 and December 31,
      2011. |   | 59,664       |   |   | 59,664       |   |   | -          |  
|Additional paid-in capital                                                                                                                                                                                    |   | 727,062      |   |   | 727,062      |   |   | -          |  
|Retained deficit                                                                                                                                                                                              |   | (4,688,256   | ) |   | (4,991,938   | ) |   | 303,682    |  
|Accumulated other comprehensive income -
      foreign currency translation adjustments                                                                                                                       |   | 120,965      |   |   | 118,369      |   |   | 2,596      |  
|                                                                                                                                                                                                              |   |              |   |   |              |   |   |            |  
|Total Stockholders Deficit                                                                                                                                                                                   |   | (3,780,565   | ) |   | (4,086,843   | ) |   | 306,278    |  
|                                                                                                                                                                                                              |   |              |   |   |              |   |   |            |  
|Total Liabilities and Stockholders
      Deficit                                                                                                                                                             | $ | 12,826,222   |   | $ | 20,023,669   |   |   | (7,197,447 | )

14

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FIRST CHINA PHARMACEUTICAL GROUP INC. NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2012(Unaudited)

5.CONCENTRATION OF CREDIT RISK

Financial instruments that potentially expose the Group to
concentrations of credit risk consist primarily of cash and cash equivalents,
prepayments, restricted cash and due from related parties. The Group places its
cash with financial institutions with high-credit ratings and quality. The Group
conducts periodic reviews of the related party financial conditions and payment
practices.

The Group has a diverse customer base predominantly in the
Yunnan Province. For the six months ended June 30, 2012 three customers exceeded
5% of the Groups total revenues, one of which is a related party, represented
16% of total revenues. For the six months ended June 30, 2011 there were no
customers exceeding 5% of the Groups total revenues.

The Group relies on supplies from numerous vendors. For the six
months ended June 30, 2012 three vendors exceeded 5% of the Groups total
purchases, of which one is a related party, represented 20% of total purchases.
For the six months ended June 30, 2011 no vendor exceeded 5% of the Groups
total purchases.

6.PREPAYMENTS

June 30, 2012
    
    
    December 31, 2011Deposit
    $
    213,983
    
    $
    127,469Prepayments for materials purchases
    
    2,656,290
    
    
    699,186Deferred expenses
    
    -
    
    
    31,304Other prepaid
    
    68,092
    
    
    9,607Total
    $
    2,938,365
    
    $
    867,566


7.NOTES RECEIVABLE

|                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |   | June 30, |  |   | December |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | -------- |  | - | -------- | -
|                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |   | 2012     |  |   | 31, 2011 |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |   |          |  |   |          |  
|Botou City JRCC Vacuum
      Equipment Mfg., Co., uncollateralized note receivable executed on
      April 15, 2011 due on April 25, 2012. Interest rate at 7%. Principle and
      accrued interest was paid on due date.                                                                                                                                                                                                        |  | $ | -        |  | $ | 125,895  |  
|Hebei Eastern Equipment Mfg. Co.,
      uncollateralized note receivable executed on April 10, 2010 due on April
      20, 2012. It is non-interest bearing if principle was repaid on due date.                                                                                                                                                                                                                                  |  |   | -        |  |   | 251,790  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |   |          |  |   |          |  
|Other, three uncollateralized notes
      receivable due in 2012. They are non-interest bearing.                                                                                                                                                                                                                                                                                                                                  |  |   | -        |  |   | -        |  
|Subtotal - short term                                                                                                                                                                                                                                                                                                                                                                                                             |  |   | -        |  |   | 377,685  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |   |          |  |   |          |  
|Allowance for doubtful
      accounts                                                                                                                                                                                                                                                                                                                                                                                             |  |   | -        |  |   | (251,790 | )
|                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |   |          |  |   |          |  
|Short term net                                                                                                                                                                                                                                                                                                                                                                                                                   |  |   | -        |  |   | 125,895  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |   |          |  |   |          |  
|Kunming City DGTW Trading
      Co., uncollateralized note receivable executed on November 15, 2009,
      renewed on June 28, 2012, matures on June 28, 2015. The Group agreed to
      lend up to RMB 8,000,000 or approximately $1.3 million. Interest rate at
      the prevailing rate set by Peoples Bank of China of similar terms, 6.24%
      on the date of the loan. Interest will be accrued and paid upon maturity. |  |   | 469,694  |  |   | 119,782  |  
|Subtotal - long term                                                                                                                                                                                                                                                                                                                                                                                                              |  |   | 469,694  |  |   | 119,782  |  
|Total                                                                                                                                                                                                                                                                                                                                                                                                                             |  | $ | 469,694  |  | $ | 245,677  |  

15

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FIRST CHINA PHARMACEUTICAL GROUP INC. NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2012(Unaudited)

8.NOTES PAYABLE, LOANS PAYABLE AND SHORT TERM
BORROWINGS

The notes payable which were issued by XYT with bank guarantees
are secured by the restricted cash. All notes bear interest of 0.5% and are due
within three to four months. These notes payable are guaranteed by Yunnan
Yishang Guaranty Co., a non-related third party for a deposit of approximately
$215,000.

June 30,2012
    
    
    December 31,2011Guangfa Bank
    $
    -
    
    $
    1,259,000Qujing City Commercial Bank
    
    2,639,129
    
    
    -Shanghai Pufa Development Bank
    
    4,121,162
    
    
    787,000Fudian Bank
    
    507,220
    
    
    90,800Total
    $
    7,267,511
    
    $
    2,136,800


Loans payables were funds advanced from unrelated third parties
to XYT. They are non-interest bearing and generally do not include terms of
repayment. They are repaid within three months. Imputed interest was not
considered material.

June 30, 2012
    
    
    December 31, 2011Individuals
    $
    -
    
    $
    2,708,474Companies
    
    71,328
    
    
    896,507Total
    $
    71,328
    
    $
    3,604,981


The following summarizes short term borrowings at June 30, 2012
and December 31, 2011:

June 30, 2012
    
    
    December 31, 2011Yunnan Hengan Investment Co.
    $
    1,255,370
    
    $
    -Fudian Bank
    
    1,204,647
    
    
    -Belmont Group Ltd.
    
    155,097
    
    
    -Total
    $
    2,615,114
    
    $
    -


On March 19, 2012, the Group issued a promissory note to the
Belmont Group Ltd., in the principal amount of $500,000, with interest on the
unpaid principle at a rate of 12.0% simple interest per annum. The Note matures
on March 19, 2013. As of June 30, 2012, the Group has drawn $150,000 and owes
additional accrued interest of $5,097 under the Note.

On January 13, 2012, the Group executed a loan agreement with
Fudian Bank for approximately $1,200,000. The loan carries a variable interest
rate adjusted monthly based upon one hundred thirty percent of the prevailing
rate set by the Peoples Bank of China. The Group is responsible to pay interest
on a monthly basis, and the principal is due on January 6, 2013. The loan is
guaranteed by Kunming City DGTW Trading Co., a non-related third party.

On June 8, 2012, the Group entered into a lending agreement
with Yunnan Hengan Investment Co. for approximately $1,600,000 of which
$1,255,370 has been drawn down. The loan matures on December 8, 2012. Interest
rate is based on prevailing interest rate set by the Peoples Bank of China,
with comparable terms.

16

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FIRST CHINA PHARMACEUTICAL GROUP INC. NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2012(Unaudited)

9.CONVERTIBLE PROMISSORY NOTES

On October 3, 2010, the Group issued a convertible promissory
note in the principal amount of up to $400,000, with interest on the unpaid
principal at a rate of 5.0% simple interest per annum. The Note matures on
October 3, 2015. The outstanding principal and accrued but unpaid interest
thereon may be converted (1) upon a qualified debt or equity financing, in which
case the holder of the Note would receive for the same promissory note or class
and series of stock, respectively, issued in such qualified financing; (2) upon
mutual agreement by the holder and the Company, in which case the holder would
receive a number of shares of common stock based on a conversion price equal to
the trailing volume weighted average price; or (3) upon a reorganization,
consolidation or merger of the Group, in which case the holder would receive a
number of shares of common stock based on a conversion price equal to the
trailing volume weighted average price. On October 4, 2010, the note was
assigned to another party (Note I), and on January 21, 2011, the note holder
agreed to extend the total funds available to the Group to $500,000. As of June
30, 2012, the Group has drawn $495,000 under Note I and no share conversion
occurred.

On December 22, 2010, the Group issued a convertible promissory
note (Note II) in the principal amount of $500,000, with interest on the
unpaid principal at a rate of 5.0% simple interest per annum. The Note matures
on December 22, 2015. The outstanding principal and accrued but unpaid interest
thereon may be converted (1) upon a qualified debt or equity financing, in which
case the holder of the Note would receive for the same promissory note or class
and series of stock, respectively, issued in such qualified financing; (2) upon
mutual agreement by the holder and the Group, in which case the holder would
receive a number of shares of common stock based on a conversion price equal to
the trailing volume weighted average price; or (3) upon a reorganization,
consolidation or merger of the Group, in which case the holder would receive a
number of shares of common stock based on a conversion price equal to the
trailing volume weighted average price. As of June 30, 2012, the Group has drawn
$500,000 under the Note and no share conversion occurred.

The details of convertible promissory notes as of June 30, 2012
are as follows:

As of June 30, 2012Note I
      
      
      Note II
      
      
      TotalConvertible notes payable:-Par value
      $
      495,000
      
      $
      500,000
      
      $
      995,000-Accrued interest
      
      37,668
      
      
      38,043
      
      
      75,711$
      532,668
      
      $
      538,043
      
      $
      1,070,711


The details of convertible promissory notes as of December 31,
2011 are as follows:

As of December 31, 2011Note I
      
      
      Note II
      
      
      TotalConvertible notes payable:-Par value
      $
      495,000
      
      $
      500,000
      
      $
      995,000-Accrued interest
      
      25,326
      
      
      25,581
      
      
      50,907$
      520,326
      
      $
      525,581
      
      $
      1,045,907


17

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FIRST CHINA PHARMACEUTICAL GROUP INC. NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2012(Unaudited)

10.COMMON STOCK

Issuance of Private Offering Units

Between March 18, 2011 and April 15, 2011, the Group entered
into a form of Securities Purchase Agreement (the SPA) with certain accredited
investors (the Purchasers) for the issuance and sale of one hundred and fifty
four (154) Units of the Company at a purchase price of $25,000 per Unit (the
Private Offering), for aggregate consideration of $3,850,000.

Each Unit is comprised of (i) 27,778 shares of Company common
stock, $0.001 par value per share (the Common Stock, and the shares of Common
Stock offered referred to as the Shares), (ii) warrants to purchase 27,778
shares of Common Stock at an exercise price of $1.25 per share (the Series A-1
Warrants), and (iii) warrants to purchase 27,778 shares of Common Stock at an
exercise price of $2.00 per share (the Series A-2 Warrants) (the Series A-1
Warrants and the Series A-2 Warrants, collectively, the Warrants). The
Warrants expire four (4) years from the date of issuance, subject to early
termination or forfeiture in accordance with certain terms and conditions of the
Warrants.

Each of the Purchasers executed an SPA and each Purchaser
represented to the Group that such investor is an accredited investor as
defined in Rule 501(a) of Regulation D of the Securities Act of 1933. The Group
used the net proceeds of the Private Offering, totaling $3,633,500 after
deducting for certain costs and expenses of the Private Offering, for general
corporate purposes. An aggregate of 4,464,480 Shares, 4,464,480 Series A-1
Warrants and 4,464,480 Series A-2 Warrants were issued in connection with the
Private Offering.

11.STOCK PURCHASE WARRANTS

The Group has historically issued warrants to purchase shares
of the Groups common stock in connection with certain of its common stock
offerings. Warrants that have anti-dilution price protection provisions are
recorded as liabilities of the Group at the estimated fair value at the date of
issuance, with changes in estimated fair value recorded as non-cash income or
expense in the Companys statement of operations in each subsequent period. The
following warrants were outstanding as of March 31, 2012 and December 31, 2011:

| | (i)  | Series A-1 warrants to purchase an aggregate of 4,464,481
      shares of the Groups common stock, issued in March 2011, exercisable for
      a four year period commencing on the date of issuance at an exercise price
      of $1.25 per share, all of which remained outstanding as of March 31, 2012
      and December 31, 2011; and
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                             
| | (ii) | Series A-2 warrants to purchase an aggregate of 4,464,481
      shares of the Groups common stock, issued in March 2011, exercisable for
      a four year period commencing on the date of issuance at an exercise price
      of $2.00 per share, all of which remained outstanding as of March 31, 2012
      and December 31, 2011.    

All of the warrants listed above contain anti-dilution
provisions that adjust the exercise price of the warrant if the Group issues or
sells, or is deemed to have issued or sold, any shares of its common stock or
securities exercisable or convertible into shares of common stock for no
consideration or for a consideration per share less than the applicable exercise
price in effect immediately prior to the time of such issue or sale. In the
event of such a subsequent issuance of common stock of the Group, the exercise
price of the warrants would be adjusted to the price per share at which the new
shares of common stock of the Group are being issued.

The warrants are measured using the Black-Scholes valuation
model. The methodology is based, in part, upon inputs for which there is little
or no observable market data, requiring the Group to develop its own
assumptions. The assumptions used in calculating the estimated fair value of the
warrants represent the Groups best estimates, however these estimates involve
inherent uncertainties and the application of management judgment. As a result,
if factors change and different assumptions are used, the warrant liabilities
and the change in estimated fair value of the warrants could be materially
different.

18

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FIRST CHINA PHARMACEUTICAL GROUP INC. NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2012(Unaudited)

11. STOCK PURCHASE WARRANTS (CONT'D)

Inherent in the Black-Scholes valuation model are assumptions
related to expected stock-price volatility, expected life, risk-free interest
rate and dividend yield. The Group estimates the volatility of its common stock
based on historical volatility using the earliest quoted price available. The
risk-free interest rate is based on the U.S. Treasury yield with similar terms
on the balance sheet date. The expected life of the warrants is assumed to be
equivalent to their remaining contractual term. The dividend rate is based on
management estimation, and the Group anticipates to remain zero. The current
price of the stock on the grant date was determined by the closing price of the
common stock on the balance sheet date.

The Group evaluated the fair value under binomial method and
determined the result of is not significant different than Black-Scholes. The
assumptions used by the Group are summarized in the following tables for
warrants that were outstanding as of the balance sheet dates:

|                       | June 30, 2012 | December 31, 2011
|---------------------- | ------------- | -----------------
|Current price          | $0.33         | $0.18            
|Expected dividend rate | 0             | 0                
|Expected volatility    | 154%          | 115%             
|Risk free rate         | 0.51%         | 2.11%            
|Expected life          | 3.00          | 3.21             

The following table summarizes the change in the estimated fair
value of the Groups warrant liabilities:

Warrant liabilitiesAs of March 31, 2010
    $
    -Warrants issued year ended March 31, 2011
    
    2,046,353Increase in fair value
    
    175,555Fair value as of March 31, 2011
    
    2,221,908Warrants issued nine months ended
    
    827,769December 31, 2011Decrease in fair value
    
    (2,410,149
    )Fair value as of December 31, 2011
    
    639,528Increase in fair value
    
    703,525Fair value as of June 30, 2012
    $
    1,343,053


12.SHARE-BASED PAYMENT FOR CONSULTANT SERVICE

As of May 6, 2011, the Group entered into a Board Advisory
Agreement (the Agreement) with Jack Zwick, whereby Mr. Zwick consented to
serve as a director of the Group. Pursuant to the Agreement, Mr. Zwick will
receive two hundred thousand (200,000) shares of Group common stock, vesting
monthly over a period of two years, in addition to his service fee of $2,000 per
month. The share-based award was valued on May 6, 2011 using the ending market
price of common stock. Expense related to the share-based compensation for the
six months ended June 30, 2012 and June 30, 2011 was approximately $34,000 and
$10,000, respectively.

The Group had added two new board members. They were each
awarded 100,000 shares over two years in connection with their service as of
June 26, 2012. No expense was recorded for six months ended June 30, 2012. The
Group valued the share-based award using the ending market price of common stock
as of June 26, 2012. The Group anticipates the monthly expense to be
approximately $2,000.

19

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FIRST CHINA PHARMACEUTICAL GROUP INC. NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2012(Unaudited)

13.TAX

Corporate Income Tax (CIT)

The Group has fully reserved against deferred tax asset, and
the income tax expense for the six months ended June 30, is summarized as
follows:

|                                                            |   | June 30, 2012 |   |   | June 30, 2011 |  
|----------------------------------------------------------- | - | ------------- | - | - | ------------- | -
|Expected tax expense at the
      PRC statutory rate of 25% | $ | 304,407       |   | $ | 493,000       |  
|Change in valuation allowance                               |   | 325,053       |   |   | 151,220       |  
|Permanent differences                                       |   | (152,066      | ) |   | (62,250       | )
|Tax expense                                                 | $ | 477,394       |   | $ | 581,970       |  

Value Added Tax (VAT)

Enterprises or individuals, who sell commodities, engage in
repair and maintenance or import or export goods in the PRC are subject to a
value added tax in accordance with Chinese Laws. The value added tax standard
rate is 17% of the gross sale price, and the Group records its revenue net of
VAT. A credit is available whereby VAT paid on the purchase of inventory can be
used to offset the VAT on the sales. In addition, the Group had estimated a VAT
liability based on sales that excluded small scale taxpayors. The liability is
relieved upon receiving a tax bureau certification indicating the Group's tax
status is current.

14.COMMITMENTS AND CONTINGENCIES

The Group had established financing for four of its customers
to improve their ability to purchase products from the Group. The Group serves
as the guarantor, with additional collateral provided by Kunming City DGTW
Trading Co., a non-related third party. The maximum amount for each loan is RMB
1,000,000. In accordance with the agreements, the Group maintains a deposit of
RMB 200,000 for each loan at the lending financial institution.

Due to city-wide reconstruction and expansion of space, the
Group entered into a lease agreement effective September 1, 2012. The future
minimum annual payment will be approximately RMB 900,000, or approximately
$143,000. The lease expires on August 30, 2013.

Rent Expense for the six months ended June 30, 2012 and 2011
was approximately $25,000 and $15,000 respectively.

15.RETIREMENT PLAN

The Group contributes on a monthly basis to defined
contribution retirement benefit plans organized by relevant municipal and
provincial governments. The municipal and provincial governments assume the
retirement benefit obligations payable to all existing and future retired
employees under these plans. The Group has no further obligation for
post-retirement benefits beyond the contributions made. Expenses for six months
ended June 30, 2012 and 2011 was approximately $10,000 and $22,000,
respectively.

16.SUBSEQUENT EVENT

In August 2012, the Group entered into a loan agreement with
the Bank of Communications for RMB 12,000,000 or approximately $2,000,000 to
purchase inventory. The loan carries an annual interest rate of 9.17% with
monthly interest payment. The principal is due within one year.

20

---

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with
our financial statements and notes thereto included elsewhere in this quarterly
report. Forward-looking statements are statements not based on historical
information and which relate to future operations, strategies, financial
results, or other developments. Forward-looking statements are based upon
estimates, forecasts, and assumptions that are inherently subject to significant
business, economic, and competitive uncertainties and contingencies, many of
which are beyond our control and many of which, with respect to future business
decisions, are subject to change. These uncertainties and contingencies can
affect actual results and could cause actual results to differ materially from
those expressed in any forward-looking statements made by us, or on our behalf.
We disclaim any obligation to update forward-looking statements.

Overview

First
China Pharmaceutical Group, Inc. (FCPG or the Company), formerly known as
E-Dispatch Inc., was incorporated under the laws of the State of Nevada on July
31, 2007. On September 15, 2010, we closed a voluntary share exchange
transaction pursuant to a Share Exchange Agreement, dated August 23, 2010 (the
Exchange Transaction), by and among FCPG, First China Pharmaceutical Group
Limited, a Hong Kong company (FCPG HK), and Kun Ming Xin Yuan Tang Pharmacies
Co. Ltd., a company organized under the laws of the Peoples Republic of China
(PRC) and wholly-owned subsidiary of FCPG HK (XYT). As a result of the
Exchange Transaction, the FCPG HK stockholder acquired approximately 25% of our
issued and outstanding common stock, FCPG HK and XYT became our wholly-owned
subsidiaries, and we acquired the business and operations of FCPG HK and XYT.

As a result of the Exchange Transaction, through our wholly-owned subsidiary, XYT, we engage in drug logistics and distribution in Yunnan Province, China. We distribute medicines to local distributors, pharmacies, hospitals, and clinics. XYT carries approximately 7,500 products, of which approximately 1,500 are over-the-counter drugs, approximately 1,500 are prescription drugs, approximately 3,000 are Chinese patent medicines, and approximately 1,500 are supplements.  Currently, XYT services approximately 5,800 customers through a sales network that covers the entire Yunnan Province of China.  XYT has a strategic advantage over its competitors in Yunnan Province because XYT obtained government approval to conduct business over the internet. XYT received the License of Internet Drug Information Service issued by the Yunnan Food and Drug Administration in October 2009.  This license enables XYT to bypass municipal and county pharmaceutical distributors, market XYT’s product line, provide pricing information and provide products directly to retailers.  Bypassing these layers of distribution enables XYT to offer products to its customers at a significantly lower price than its major competitors while maintaining its margins.  In October 2011, we were awarded the IDTSL, a key national license which permits us to accept orders and transact payments over the internet.  The new license complements our existing Internet Drug Information Service License that enables us to market and advertise our products, along with accepting orders and transacting payments, over the internet.

We
are focused to expand our customer base within Yunnan province and to expand of
our product selection. We will grow our customer base through leveraging our
online platform. The IDTSL offers us broad national exposure to an audience that
for the first time can now directly access, submit orders and transact payments
for purchases from our product catalogue over the internet. We will expand our
inventory through short term financing. The additional inventory will allow XYT
to not only sell more products to our existing customers, but also attract more
customers that currently do not purchase from XYT.

Key
factors affecting our results of operations include revenues, cost of revenues,
operating expenses and income and taxation.

Comparison of the Six Months Ended June 30, 2012 and 2011

The
following table sets forth certain information regarding our results of
operations.

|                              |   | Six Months Ended June 30 | 
|----------------------------- | - | ------------------------ | 
|                              |   | 2012                     | 
|Statements of Operations Data |   |                          | 
|Sales                         | $ | 26,223,153               | 
|Cost of Sales                 |   | 23,694,091               | 
|Gross Profit                  |   | 2,529,062                | 

21

---

|Selling and administrative expense |  | 1,092,412 |   |  | 1,696,555 |  
|---------------------------------- |  | --------- | - |  | --------- | -
|Other income & (expenses), net     |  | (63,103   | ) |  | 22,307    |  
|Derivative (gain) loss             |  | 703,525   |   |  | (832,845  | )
|Reversal of value added tax        |  | 547,606   |   |  | 170,401   |  
|Income tax                         |  | 477,394   |   |  | 581,970   |  
|Net Income                         |  | 740,234   |   |  | 1,390,032 |  

Sales

Sales
increased from $19.0 million for the six months ended June 30, 2011 to $26.2
million for the six months ended June 30, 2012, representing an increase of $7.2
million or 38%. The majority of our sales remain in patented Chinese herbal
medicine. The increase can be attributed to three factors. Our internet platform
enables existing customers to place more orders more frequently. In addition,
our customers ordered more products from us due to our expanded inventory. The
number of sales orders we processed increased by 100% for the six months in 2012
compare to 2011. Lastly, our Chinese natural herb product line in 2012 was more
mature than 2011.

Cost of sales

Cost
of sales increased from $16.4 million for the six months ended June 30, 2011 to
$23.7 million for the six months ended June 30, 2012, representing an increase
of $7.3 million or 45%. Cost of sales consists primarily of material cost which
is directly attributable to the selling of pharmaceutical products. This
increase in cost of goods is directly related to the increase in sales.

We
anticipate that through 2012 and beyond, our price for materials and other
production costs will continue to increase. This may have a negative effect on
our net income if it cannot be offset by volume purchases due to market
conditions and competitive conditions, we may not be able to increase the
price for our products in proportion to the increase in costs of goods sold.

Gross profit

Gross profit decreased from $2.6 million for the six months ended June 30, 2011 to $2.5 million for the six months ended June 30, 2012, representing a decrease of approximately $100,000 or 4%.  The decrease in gross margin is attributed to two factors. The Chinese government is going through medical reform with one of the goals is to control retail drug prices. It had negatively impacted our margin because the ceiling placed on our retailer customer base. In addition, in 2012, the Company is focusing to increase net income through volume instead of high margin products. Two factors drove our gross margin down amid an increase in sales.

Selling, general and administrative expenses

Selling,
general and administrative expenses  decreased by 31% to $1 million
for the six months ended June 30, 2012 from $1.7 million for the six months
ended June 30, 2011. The decrease was due to professional fees incurred in 2011
related to the private placement.

Derivative gain/ (loss)

Derivative loss was approximately $703,000 for the six months ended June 30, 2012 compared to approximately $832,000 gain for the six months ended June 30, 2011. It is the result of the Black-Scholes derivative valuation of the warrants issued by the Company in relation to the private placement in April 2011. The valuation of these warrants is required by US GAAP and can produce either a non cash gain or loss; depending upon the fair market value of the common stock. This is a non cash transaction and does not affect the Company’s working capital.

Value added tax

The value added tax reserve was approximately $547,000 for the six months ended June 30, 2012 compared to approximately $170,000 for the six months ended June 30, 2011. The Company establishes a reserve for the current period VAT, while offsetting it with prior period  reserve reversals. The reversal of prior reserves occurs once the Company obtains  tax bureau certifications that indicates the Company is current with its VAT tax. For the six months ended June 30, 2012 and 2011, the reversal of value added tax exceeded current period accrual, which resulted in a source of income.

Income tax expense

Income
tax expense for the six months ended June 30, 2012 was $477,000 compared to
income tax expense of $582,000 for the six months ended June 30, 2011. The provision for income tax represents income tax owed in China. The decrease is due to decreased income before tax of XYT. In addition, our effective rate changed from 30% for the six months ended June 30, 2012 to 38% for the six months ended June 30, 2011 due to change in our valuation allowance for the deferred tax asset for loss carryforwards of FCPG HK and FCPG.

Net income/(loss)

22

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Our net income for the six months ended June 30, 2012 was approximately $740,000, a decrease of 47%, from net income of approximately $1,390,000 for the six months ended June 30, 2011. The decrease is attributed to the fluctuation of derivative liability.

Comparison of the Three Months Ended June 30, 2012 and
2011

|                                    |   | Three Months Ended June 30 |  
|----------------------------------- | - | -------------------------- | -
|                                    |   | 2012                       |  
|Statements of Operations Data       |   |                            |  
|Sales                               | $ | 14,031,808                 |  
|Cost of Sales                       |   | 12,565,810                 |  
|Gross Profit                        |   | 1,465,998                  |  
|Selling and administrative expenses |   | 303,514                    |  
|Other income & (expenses), net      |   | (61,789                    | )
|Derivative gain                     |   | 538,467                    |  
|Reversal of value added tax         |   | 941,692                    |  
|Income tax                          |   | 280,572                    |  
|Net Income                          |   | 2,300,282                  |  

Sales

Sales
increased from $11.6 million for the three months ended June 30, 2011 to $14.0
million for the three months ended June 30, 2012, representing an increase of
$2.4 million or 21%. The increase for this quarter was not as significant as the
increase in the first quarter of 2012. The main reason that limited the
Company's ability to expand sales in the second quarter was due to changes in
the regulations. In April 2012, the State Food and Drug Administration (SFDA)
issued a standard for the allowable level of chromium contained in medicine
capsules. The pharmaceutical industry had to adjust the existing process to
conform to the new standard. In addition, in May 2012, SFDA began a
nationwide quality and safety test of medicine capsules. Both contributed to the
uncertainty within the pharmaceutical market. As a result, the sales growth in
the second quarter was not as significant as the first quarter.

Cost of sales

Cost
of sales increased from $10.3 million for the three months ended June 30, 2011
to $12.6 million for the three months ended June 30, 2012, representing an
increase of $2.3 million or 22%. Cost of sales consists primarily of material
cost which is directly attributable to the selling of pharmaceutical products.
This increase in cost of goods is proportional to the increase in sales. Sales
rose by 21% and the cost of goods had a corresponding increase of 22%.

Gross profit

Gross
profit increased from $1.34 million for the three months ended June 30, 2011 to
$1.47 million for the three months ended June 30, 2012, representing an increase
of approximately $124,000 or 9%. The increase is primarily due to increase in
sales while maintaining our gross margin. Our gross margin for 2012 was 10%
compared to 12% in 2011. The decrease in gross margin was due to government
medical reform and our focus on volume versus high margin products. We
anticipate the margin to be in the range of 8% - 10% in the future.

Selling, general and administrative expenses

Selling,
general and administrative expenses decreased by 42% to $304,000 for
the three months ended June 30, 2012 from $526,000 for the three months ended
June 30, 2011. In 2011, we incurred significant professional fees related to our
private placement.

Derivative gain/ (loss)

Derivative gain was $538,000 for the three months ended June 30, 2012 compared to $1 million for the three month ended June 30, 2011. It is the result of the Black-Scholes derivative valuation of the warrants issued by the Company in relation to the private placement in April 2011. The valuation of these warrants is required by US GAAP and can produce either a non cash gain or loss; depending upon the fair market value of the common stock. This is a non cash transaction and does not affect the Company’s working capital.

Value added tax

The value added tax reserve was approximately $942,000 for the three months ended June 30, 2012 compared to approximately $170,000 for the three months ended June 30, 2012. The Company establishes a reserve for the current period VAT, while offsetting it with prior period reversals. The reversal of prior reserves occurs once the Company obtains tax bureau certifications that indicates the Company is current with its VAT tax. For the three months ended June 30, 2012 and 2011, the reversal of prior reserve exceeded current period accrual, which resulted in a source of income.

23

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Income tax expense

Income
tax expense for the three months ended June 30, 2012 was $281,000 compared to
income tax expense of $289,000 for the three months ended June 30, 2011. The provision for income tax represents income tax owed in China. The decrease is due to decreased income before tax of XYT. In addition, our effective rate changed due to change in our valuation allowance for the deferred tax asset of FCPG HK and FCPG.

Net income/(loss)

Our net income for the three months ended June 30, 2012 was $2.3 million, an increase of 33%, from net income of $1.7 million for the three months ended June 30, 2011.  The decrease is primarily attributed to the fluctuation of the derivative liability.

Liquidity and Capital Resources

Overview

As of June 30, 2012, we had cash and equivalents on hand of $4.6 million and a working capital deficit of $1.2 million.  We believe that our cash on hand and working capital will be sufficient to meet our operational cash requirements through the next 12 months.  In order to continue our growth, we will have to obtain additional capital in the form of debt or equity. We are currently seeking both short term working capital as well as significant amounts of long term capital to execute our business plan and ultimately expand the business throughout China.

Additional capital is required to acquire sufficient inventory to meet growing sales and to broaden our product line.  Additional capital is also required to facilitate the ability to obtain exclusivity for the distribution of certain pharmaceutical products, as they require the Company to place large consistent orders with drug manufacturers.   To meet our future objectives, we will need to meet our revenue objectives and/or sell additional equity and debt securities, which could result in dilution to current shareholders. The incurrence of indebtedness would result in increased debt service obligations and could require the Company to agree to operating and financial covenants that would restrict its operations. Financing may not be available in amounts or on terms acceptable to the Company, if at all.  Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.

In 2012, we arranged for the following short term loan agreements to fund
our operations:

On
March 19, 2012, we issued a Promissory Note to Belmont Group, Ltd., a company
organized under the laws of Samoa (Belmont), up to an aggregate amount of
$500,000 due on or before March 19, 2013 (the Note). The Note has an interest
rate of 12% per annum. Belmont will provide funds to the Company under the Note
through draws, with a maximum of $100,000 per draw. To date, we have drawn
$150,000 under the Note.

On
January 13, 2012, we executed a loan agreement with Fudian Bank for
approximately $1,200,000. The loan carries a variable interest rate adjusted
monthly based upon one hundred thirty percent of the prevailing rate set by the
Peoples Bank of China. The Company is responsible to pay interest on a monthly
basis, and the principal is due on January 6, 2013. The loan is guaranteed by
Kunming City DGTW Trading Co., a non-related third party.

On
June 8, 2012, we entered into a lending agreement with Yunnan Hengan Investment
Co. for approximately $1,600,000. The loan matures on December 8, 2012. Interest
rate is based on prevailing interest rate set by the Peoples Bank of China,
with comparable terms.

On August 13, 2012, subsequent to our quarter ended June 30, 2012, we entered into a loan agreement with the Bank of Communications for approximately $2,000,000 to purchase inventory. The loan carries an interest rate of 9.17% with monthly interest payment. The principal is due within one year.

Substantially
all of our revenues are earned by XYT, our PRC subsidiary. However, PRC
regulations restrict the ability of our PRC subsidiary to make dividends and
other payments to their offshore parent company. Pursuant to PRC regulations,
dividends, interests, rent or royalties payable by a foreign-invested enterprise
(FIE) to its foreign non-resident investors are subject to a 10% withholding tax
unless such foreign investors' jurisdiction has a tax treaty with China that
provides for a reduced tax rate. XYT is wholly owned by FCPG HK, which falls
under Hong Kong jurisdiction. Hong Kong has a tax treaty with China that reduces
the withholding to 5% under certain condition. Dividends are only allowed to be
paid out of accumulated earnings determined in accordance with PRC accounting
standards, less any statutory reserve funds that are required by law. XYT had
not distributed any profits previously. If we decide to distribute profits in the
future, XYT will comply with the relevant rules to withdraw statutory reserve
funds which will be no lower than 10% of the total amount of profits after
payment of tax.

24

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Our
cash needs are primarily for working capital to support our operations and
purchase of inventory. We presently finance our operations through revenue from
the sale of our products and services and short-term bank borrowings. We believe
that our existing capital resources are sufficient to meet our current
obligations and operating requirements, but will not be sufficient to meet our
more aggressive growth plans and that we will need to raise additional capital
in the next 12 months. In order to meet our planned growth, we estimate
requiring US$6 to $10 million in capital. We will consider debt or equity
offerings or institutional borrowing as potential means of financing, however,
there are no assurances that we will be successful or that we will obtain terms
that are favorable to us.

Our
liquidity could be further impacted by external factors such as any significant
decrease in the market price of pharmaceutical products as a result of downward
periodic price adjustments enforced by the PRC government seeking to make
pharmaceutical products more affordable to the general public, and reimbursement
policies of the PRC Ministry of Labor and Social Security. Although we have yet
to be materially impacted by such factors, each or a combination of such factors
may result in lower sales, increased expenses and costs and result in lower
profitability and cash flow, thus reducing our liquidity. We may also in the
future apply for and receive government subsidies. Although we have not applied
for any such subsidies to date, any such subsidies which we may receive in the
future may increase our liquidity.

Net cash provided by (used in) operating activities

Net cash used in operating activities for the six months ended June 30, 2012 was $1.7 million, compared to net cash provided by operating activities of $1.9 million for the six months ended June 30, 2011. In 2012, we began to improve our business operations by requiring customers to prepay before we place orders at the suppliers. As a result, we saw significant increase to prepayments and advance receipts.

Net cash used in investing activities

Net
cash used in investing activities was $252,000 for the six months ended June 30,
2012, compared to net cash used in investing activities of $679,000 for the six
months ended June 30, 2011. Investment activities, relate to the purchase of
equipment, and finance our notes receivable.

Net cash used in financing activities

Net
cash provided by financing activities was $2.9 million for six months ended June 30,
2012, compared to net cash used in financing activities of $1.8 million for the
six months ended June 30, 2011. In 2012, we paid off a significant amount of our
loans payable. In addition, due to increase notes payable at our suppliers'
request, we were required to increase our restricted cash. Our restricted cash
is released once the notes payable are cleared, which is usually within three to
four months.

Off-Balance Sheet Arrangements

As
of June 30, 2012, we are not parties to any off-balance sheet arrangements.

Critical Accounting Policies

The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses. A
summary of our significant accounting policies is included in Item 1. Financial
Statements, Note 2  Summary of Significant Accounting Policies, which are
included in our Annual Report on Form 10-K for the year ended December 31, 2011.
Certain of our accounting policies are considered critical, as these policies require significant,
difficult or complex judgments by management, often employing the use of
estimates about the effects of matters that are inherently uncertain. Such
policies are summarized in Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations of our Annual Report on Form 10-K
for the year ended December 31, 2011.

25

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Recently Issued Accounting Pronouncements

In
May 2011, the FASB issued ASU No. 2011-04 (ASU 2011-04), Fair Value
Measurement (ASC 820) which amends the fair value measurement guidance and
includes some enhanced disclosure requirements. The most significant change in
disclosures is an expansion of the information required for Level 3 measurements
based on unobservable inputs. The standard is effective for fiscal years
beginning after December 15, 2011. The adoption had no material impact on its
consolidated financial statements and disclosures.

In
June 2011, the FASB issued ASU No. 2011-05 (ASU 2011-05), Comprehensive
Income (Topic 220), Presentation of Comprehensive Income, which eliminates
the current option to report other comprehensive income (OCI) and its
components in the statements of shareholders equity. Instead, an entity will be
required to present items of net income and OCI in one continuous statement or
in two separate, but consecutive, statements. In December 2011, the FASB issued
ASU No. 2011-12 (ASU 2011-12), Comprehensive Income (Topic 220), Deferral
of the Effective Date for Amendments to the Presentation of Reclassifications of
Items Out of Accumulated Other Comprehensive Income in Accounting Standards
Update No. 2011-05. This ASU defers the ASU 2011-05 requirement that
companies present reclassification adjustments for each component of OCI in both
net income and OCI on the face of the financial statements and the requirement
to report reclassification adjustments in interim periods. The amendments in ASU
2011-05 and ASU 2011-12 should be applied retrospectively and are effective for
fiscal years and interim periods within those years, beginning after December
15, 2011, with early adoption permitted. The adoption had no material impact on
its consolidated financial statements and disclosures.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISKS

Not
Applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We
carried out an evaluation, under the supervision and with the participation of
our management, including our Principal Executive Officer along with our
Principal Financial Officer, of the effectiveness of the design of our
disclosure controls and procedures (as defined by Exchange Act Rules 13a-15(e)
or 15d-15(e)) as of June 30, 2012 pursuant to Exchange Act Rule 13a-15. Based
upon that evaluation, our Principal Executive Officer along with our Principal
Financial Officer concluded that our disclosure controls and procedures are not
effective as of June 30, 2012 in ensuring that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified
in the Securities and Exchange Commissions rules and forms. This conclusion is
based on findings that constituted material weaknesses. A material weakness is a
deficiency, or a combination of control deficiencies, in internal control over
financial reporting such that there is a reasonable possibility that a material
misstatement of the Companys interim financial statements will not be prevented
or detected on a timely basis.

In
performing the above-referenced assessment, our management identified the
following material weaknesses:

| | i)   | We have insufficient quantity of dedicated resources and
      experienced personnel involved in reviewing and designing internal
      controls. As a result, a material misstatement of the interim and annual
      financial statements could occur and not be prevented or detected on a
      timely basis. A review and assessment of our internal controls is
      currently underway by an independent consulting firm.                                                                                                                                        
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ii)  | We have not achieved the optimal level of segregation of
      duties relative to key financial reporting functions.                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | iii) | We did not perform an entity level risk assessment to
      evaluate the implication of relevant risks on financial reporting,
      including the impact of potential fraud related risks and the risks
      related to non-routine transactions, if any, on our internal control over
      financial reporting. Lack of an entity-level risk assessment constituted
      an internal control design deficiency which resulted in more than
a remote likelihood that a material error would not have been prevented or
detected, and constituted a material weakness.

26

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We
continue to review our disclosure controls and procedures related to these
material weaknesses and expect to implement changes in the near term, including
identifying specific areas within our governance, accounting and financial
reporting processes to add adequate resources and personnel to potentially
mitigate these material weaknesses. Our present management will continue to
monitor and evaluate the effectiveness of our internal controls and procedures
and our internal controls over financial reporting on an ongoing basis and are
committed to taking further action and implementing additional enhancements or
improvements, as necessary and as funds allow.

Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. All internal control systems, no matter
how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.

Changes in Internal Control Over Financial Reporting

There
were no changes in our internal controls over financial reporting that occurred
during the three months ended June 30, 2012 that have materially affected, or
are reasonably likely to materially affect, our internal controls over financial
reporting. We believe that a control system, no matter how well designed and
operated, cannot provide absolute assurance that the objectives of the control
system are met, and no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within any company have
been detected.

27

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

To
the best of managements knowledge, there are no material legal proceedings
pending against the Company.

ITEM 1A. RISK FACTORS

Not
applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS

Subsequent
to our quarter ended June 30, 2012, on August 14, 2012, we issued 360,000 shares
of Company common stock to Mr. Greg Tse in connection with Mr. Tses service on
our Board of Directors and in accordance with Mr. Tses Board Advisory
Agreement. The issuance of the shares to Mr. Tse was effected without
registration in reliance on the exemption afforded by Regulation D and/or
Section 4(2) of the Securities Act of 1933, as amended, and the rules
promulgated thereunder, and comparable state securities law exemptions.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not
  applicable.

ITEM 5. OTHER INFORMATION

*Board
Advisory Agreement with Greg Tse*

Subsequent
to our quarter ended June 30, 2012, on August 14, 2012, we entered into a Board
Advisory Agreement (the Agreement) with Mr. Greg Tse. Pursuant to the
Agreement, in consideration for serving on the Companys Board of Directors, Mr.
Tse will receive: (a) three hundred and sixty thousand (360,000) shares of
Company common stock, vesting as to two hundred and seventy thousand (270,000)
shares immediately, 45,000 shares on September 1, 2012 and the remaining 45,000
shares on January 1, 2013, subject to Mr. Tses continuous service; and (b) a
consulting fee of two thousand five hundred dollars ($2,500) per month. The
payment to Mr. Tse of his monthly fee is contingent upon the Company closing an
equity or debt financing of at least $2,000,000.

*Loan
for Purchase of Inventory*

Subsequent
to our quarter ended June 30, 2012, on August 13, 2012, we entered into a loan
agreement with the Bank of Communications in the PRC for approximately
$2,000,000, to purchase inventory. The loan carries an annual interest rate of
9.17% with monthly interest payments. The principle is due within one year.

*Audit
Committees Conclusion as to Non-Reliance on Previously Issued Financial
Statements*

On
August 15, 2012, the Audit Committee of the Companys Board of Directors, after
consultation with management of the Company, including the Companys Chief
Financial Officer, concluded that the Companys audited consolidated financial
statements included in the Companys Transition Report on Form 10-K for the nine
months ended December 31, 2011 (the 2011 Transition Report) filed with the
Securities and Exchange Commission (SEC) on May 2, 2012, and the Companys
consolidated unaudited financial statements included in the Companys Quarterly
Report on Form 10-Q for the three months ended March 31, 2012 (the 2012
Quarterly Report) filed with the SEC on May 18, 2012, should be restated to
correct certain errors and should no longer be relied upon.

The
Companys Audit Committee, in consultation with management, concluded that the
financial statements included with the 2011 Transition Report and the 2012
Quarterly Report contained certain errors, including (i) an overstatement of the
Value Added Tax liability; (ii) an incorrect recording of warrants issued in a
private placement in additional-paid-in-capital; (iii) an under-accrual of income tax liability; (iv) an incorrect recording of a discount
on convertible notes in equity; (v) an incorrect treatment of warrants and
promissory notes as having a dilutive effect in the earnings per share
calculation; and (vi) an incorrect calculation of the other comprehensive income
for the three and six months ended June 30, 2011 because differing exchange
rates were used.

28

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The
Companys Audit Committee discussed the foregoing issues, findings and
conclusions with EFP Rotenberg, LLP, the Companys independent certifying
accountant (EFP).

In
conjunction with EFP, the Company is working diligently to complete the
restatement of the above-referenced 2011 Transition Report and 2012 Quarterly
Report. The Company expects to file an amended 2011 Transition Report and an
amended 2012 Quarterly Report, containing restated financial statements, by no
later than September 1, 2012. However, there can be no assurance that such filings will
be made within this period.

ITEM 6. EXHIBITS

The
following exhibits are included as part of this report by reference:

|Exhibit |                                                                                                                                                                                                                                               
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  | Description                                                                                                                                                                                                                                   
|        |                                                                                                                                                                                                                                               
|2.1     | Share Exchange
        Agreement, dated August 23, 2010 (incorporated by reference to Exhibit
        2.1 of the Registrants Current Report on Form 8-K filed on August
        24, 2010).                                                   
|3.1     | Articles of Incorporation of
        the Registrant, dated July 31, 2007, including all amendments to date
        (incorporated by reference to Exhibit 3.1 of the Registrants Current
        Report on Form 8-K filed September 21, 2010).
|3.2     | Amended and
        Restated Bylaws of the Registrant, as amended, dated June 1, 2010 (incorporated
        by reference to Exhibit 3.2 of the Registrants Current Report on
        Form 8-K filed on June 30, 2010).                       
|10.1    | Board
        Advisory Agreement with Greg Tse dated August 14, 2012*                                                                                                                                                                         
|10.2    | Promissory Note
        with Belmont Group, Ltd. dated March 19, 2012 (incorporated by reference
        to Exhibit 10.1 of the Registrants Quarterly Report on Form 10-Q
        filed on May 18, 2012).                                    
|10.3    | Form of Note Receivable (incorporated
        by reference to Exhibit 10.2 of the Registrants Quarterly Report
        on Form 10-Q filed on May 18, 2012).                                                                                  
|10.4    | Lease Agreement
        effective September 1, 2012*                                                                                                                                                                                          
|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 and Principal Accounting Officer Pursuant
        to Section 302 of the Sarbanes- Oxley Act of 2002.*                                                                                    
|32.1    | Certification
        of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as
        adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*                                                                       
|32.2    | Certification
        of Principal Financial and Principal Accounting Officer pursuant to 18
        U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
        Act of 2002 *                                      
|101     | Interactive data files pursuant to Rule 405 of Regulation S-T**                                                                                                                                                                               

______________ * Filed herewith 
**To be provided by amendment

29

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SIGNATURES

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

|                      | FIRST CHINA PHARMACEUTICAL GROUP, INC.                              
|--------------------- | --------------------------------------------------------------------
|                      |                                                                     
|                      |                                                                     
|Date: August 20, 2012 | /s/ Yi
      Jia Li                                                 
|                      | Name: Yi Jia Li                                                     
|                      | Title: Chief Financial Officer                                      
|                      | (Principal Financial Officer and Principal
      Accounting Officer)

30

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