UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(Mark
One)


x
            QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
the quarterly period ended March 31, 2010





 ̈
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
the transition period from _______ to _______





Commission
file number: 333-151148





CHINA
POLYPEPTIDE GROUP, INC.


_____________________________________________________________


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






Delaware
            
            20-8731646(State
      or other jurisdiction of incorporation or
              organization)
            
            (IRS
      Employer Identification No.)





No.
11 Jiangda Road


Jianghan
Economic Development Zone


Wuhan
430023, People’s Republic of China


(Address
of principal executive offices)





(86)
2783518396


(Registrant’s
telephone number, including area code)





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





Indicate
by check mark whether the registrant (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.  Yes xNo o





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 oNo o





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
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





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





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.): Yes oNo x




Number of
shares outstanding of the registrant's common stock as of May 17,
2010:





11,299,224
shares of Common Stock, $0.0001 par value per share










TABLE
OF CONTENTS





PagePART
      I - FINANCIAL INFORMATIONItem
      1.
            
            Unaudited
      Consolidated Financial Statements.
            
            
            3Item
      2.
            
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
            
            
            18Item
      3.
            
            Quantitative
      and Qualitative Disclosures About Market Risk.
            
            
            26Item
      4.
            
            Controls
      and Procedures.
            
            
            27PART
      II - OTHER INFORMATIONItem
      1.
            
            Legal
      Proceedings.
            
            
            27Item
      1A.
            
            Risk
      Factors.
            
            
            28Item
      2.
            
            Unregistered
      Sales of Equity Securities and Use of Proceeds.
            
            
            28Item
      3.
            
            Defaults
      Upon Senior Securities.
            
            
            28Item
      4.
            
            (Removed
      and Reserved).
            
            
            28Item
      5.
            
            Other
      Information.
            
            
            28Item
      6.
            
            Exhibits.
            
            
            28




2




China
Polypeptide Group, Inc. and Subsidiaries


Consolidated
Balance Sheets





March
      31,
              2010
            
            
            September
      30,
              2009Assets
            
            UnauditedCurrent
      assetsCash
      and cash equivalents
            
            $
            3,641,650
            
            
            $
            4,439,732Accounts
      receivable, net
            
            
            8,916,622
            
            
            
            14,666,836Inventories,
      net
            
            
            722,140
            
            
            
            970,685Prepayments
      and other receivables
            
            
            6,488,413
            
            
            
            5,404,943Amounts
      due from staff
            
            
            9,738,070
            
            
            
            5,460,867Deferred
      tax assets
            
            
            233,868
            
            
            
            277,335Other
      assets
            
            
            410,651
            
            
            
            411,824Total
      Current Assets
            
            
            30,151,414
            
            
            
            31,632,222Property,
      plant and equipment, net
            
            
            7,848,189
            
            
            
            6,943,440Investment
      in equity affiliates
            
            
            237,089
            
            
            
            254,286Land
      use right, net
            
            
            280,152
            
            
            
            280,953Deposit
      for land use right
            
            
            6,026,828
            
            
            
            440,100Goodwill
            
            
            113,468
            
            
            
            113,792$
            44,657,140
            
            
            $
            39,664,793Liabilities
      and Shareholders’ EquityCurrent
      liabilitiesAccounts
      payable
            
            $
            402,295
            
            
            $
            573,401Accrued
      expenses and other liabilities
            
            
            1,870,841
            
            
            
            2,449,129Taxes
      payable
            
            
            6,600,777
            
            
            
            6,404,040Short-term
      loans
            
            
            524,807
            
            
            
            566,262Deferred
      revenue
            
            
            2,922,851
            
            
            
            3,928,804Amounts
      due to related parties
            
            
            442,476
            
            
            
            7,097,865Total
      Current Liabilities
            
            
            12,764,047
            
            
            
            21,019,501Shareholders’
      equityCommon
      stock: 120,000,000 shares authorized,$0.0001
      par value, 10,689,667 shares and 8,800,000 shares issued and outstanding
      as of March 31, 2010 and September 30, 2009, respectively
            
            
            1,069
            
            
            
            880Additional
      paid-in capital
            
            
            10,912,403
            
            
            
            638,404Deferred
      compensation
            
            
            (59,325
            )
            
            
            -Unappropriated
      retained earnings
            
            
            19,039,362
            
            
            
            16,842,439Appropriated
      retained earnings
            
            
            2,055,811
            
            
            
            1,144,448Accumulated
      other comprehensive income (loss)
            
            
            (56,227
            )
            
            
            19,121Total
      Shareholders’ Equity
            
            
            31,893,093
            
            
            
            18,645,292$
            44,657,140
            
            
            $
            39,664,793




See notes
to consolidated financial statements.




3




China
Polypeptide Group, Inc. and Subsidiaries


Consolidated
Statements of Income and Comprehensive Income (Unaudited)




Three
      months ended
                  March
      31,
                
                
                Six
      months ended
                  March
      31,2010
                
                
                2009
                
                
                2010
                
                
                2009Revenues
                
                $
                8,357,079
                
                
                $
                7,322,815
                
                
                $
                14,103,669
                
                
                $
                16,870,152Cost
      of sales
                
                
                820,309
                
                
                
                543,077
                
                
                
                1,096,883
                
                
                
                1,284,074Gross
      profit
                
                
                7,536,770
                
                
                
                6,779,738
                
                
                
                13,006,786
                
                
                
                15,586,078Operating
      expensesSelling
      and administrative expenses
                
                
                5,090,424
                
                
                
                4,593,324
                
                
                
                9,393,262
                
                
                
                9,002,628Operating
      income
                
                
                2,446,346
                
                
                
                2,186,414
                
                
                
                3,613,524
                
                
                
                6,583,450Other
      income (expense)Interest
      expense, net
                
                
                (18,504
                )
                
                
                (9,364
                )
                
                
                (36,064
                )
                
                
                (22,126
                )Equity
      in (loss)/gain in affiliates
                
                
                (8,636
                )
                
                
                (16,904
                )
                
                
                (16,473
                )
                
                
                18,387Other
      operating income
                
                
                25,816
                
                
                
                5,207
                
                
                
                19,647
                
                
                
                5,040(1,324
                )
                
                
                (21,061
                )
                
                
                (32,890
                )
                
                
                1,301Income
      before income tax expense
                
                
                2,445,022
                
                
                
                2,165,353
                
                
                
                3,580,634
                
                
                
                6,584,751Income
      tax expense
                
                
                225,887
                
                
                
                345,607
                
                
                
                472,348
                
                
                
                1,477,348Net
      income
                
                
                2,219,135
                
                
                
                1,819,746
                
                
                
                3,108,286
                
                
                
                5,107,403Other
      comprehensive incomeForeign
      currency translation gain (loss)
                
                
                (3,430
                )
                
                
                32,643
                
                
                
                (75,348
                )
                
                
                33,171Comprehensive
      income
                
                $
                2,215,705
                
                
                $
                1,852,389
                
                
                $
                3,032,938
                
                
                $
                5,140,574Earnings
      per shareBasic
      and diluted
                
                $
                0.209
                
                
                $
                0.207
                
                
                $
                0.310
                
                
                $
                0.580Weighted
      average number of common shares outstanding:Basic
      and diluted
                
                
                10,621,985
                
                
                
                8,800,000
                
                
                
                10,020,755
                
                
                
                8,800,000


See notes
to consolidated financial statements.




4





China
Polypeptide Group, Inc. and Subsidiaries


Consolidated
Statements of Cash Flows (Unaudited)





Six
      months ended
                March
      31,2010
              
              
              2009Cash
      flow from operating activitiesNet
      income
              
              $
              3,108,286
              
              
              $
              5,107,403Adjustments
      to reconcile net income to net cash provided by operating
      activitiesDepreciation
      and amortization
              
              
              199,418
              
              
              
              159,983Bad
      debts provision
              
              
              173,773
              
              
              
              (83,525
              )Amortization
      of stock-based compensation
              
              
              7,965
              
              
              
              -Equity
      in loss/(gain) in affiliates
              
              
              16,473
              
              
              
              (18,387
              )Changes
      in operating assets and liabilitiesAccounts
      receivable
              
              
              5,534,146
              
              
              
              (3,748,439
              )Inventories
              
              
              245,784
              
              
              
              212,336Prepayments
      and other receivables
              
              
              (1,098,287
              )
              
              
              (885,851
              )Amounts
      due from staff
              
              
              (4,292,798
              )
              
              
              -Deferred
      tax assets
              
              
              42,678
              
              
              
              (14,615
              )Accounts
      payable
              
              
              (169,475
              )
              
              
              (36,756
              )Accrued
      expenses and other current liabilities
              
              
              (1,584,637
              )
              
              
              (127,028
              )Taxes
      payable
              
              
              214,976
              
              
              
              1,578,360Net
      cash provided by operating activities
              
              
              2,398,302
              
              
              
              2,143,481Cash
      flow from investing activitiesPurchases
      of property, plant and equipment
              
              
              (241,002
              )
              
              
              (69,777
              )Cash
      paid for construction in progress
              
              
              (877,702
              )
              
              
              (1,464,772
              )Cash
      paid to acquire land use right
              
              
              (5,588,039
              )
              
              
              -Net
      cash used in investing activities
              
              
              (6,706,743
              )
              
              
              (1,534,549
              )Cash
      flow from financing activitiesProceeds
      from private placement
              
              
              3,600,000
              
              
              
              -Repayment
      of related parties loans
              
              
              (48,202
              )
              
              
              -Repayment
      on long-term bank loan
              
              
              (39,843
              )
              
              
              (17,577
              )Net
      cash provided by (used in) financing activities
              
              
              3,511,955
              
              
              
              (17,577
              )Effect
      of exchange rate fluctuation on cash and cash equivalents
              
              
              (1,596
              )
              
              
              25,279Net
      (decrease) increase in cash and cash equivalents
              
              
              (798,082
              )
              
              
              616,634Cash
      and cash equivalents, beginning of period
              
              
              4,439,732
              
              
              
              5,918,414Cash
      and cash equivalents, end of period
              
              $
              3,641,650
              
              
              $
              6,535,048Supplemental
      disclosure of cash flow information:Income
      taxes paid
              
              $
              115,774
              
              
              $
              378,020Interest
      paid
              
              $
              23,432
              
              
              $
              24,551





See notes
to consolidated financial statements.




5




China
Polypeptide Group, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements (Unaudited)




Note
1 - Principal Activities and Organization





China
Polypeptide Group, Inc. (“CPGI” or the “Company”), formerly known as Hamptons
Extreme, Inc., was incorporated under the laws of the State of Delaware in March
2007. The Company was formed to engage in the design, manufacturing,
distribution and marketing of surfboards and related equipment.  Prior
to the Exchange (as defined below), the Company was considered to be a
development stage company with no material assets or operations and had
generated no revenues since its inception.





Pursuant
to a Stock Exchange Agreement dated November 13, 2009 (the “Stock Exchange
Agreement”) by and among the Company, Cantix International Limited (“Cantix”), a
company incorporated on January 29, 2007, under the laws of the British Virgin
Islands (the “BVI”), and the shareholders of Cantix (the “Cantix Shareholders”),
on November 13, 2009, the Company acquired all of the issued and outstanding
capital stock of Cantix from the Cantix Shareholders in exchange for 8,800,000
shares of common stock of the Company, representing approximately 88% of the
issued and outstanding capital stock of the Company (the “Exchange”), resulting
in, among other items, Cantix becoming a wholly-owned subsidiary of the
Company.





All
shares and per share numbers set forth in this Note 1 reflect an 8-for-1 forward
stock split effectuated by the Company on December 1, 2009, pursuant to which
each one (1) share of CPGI’s common stock issued and outstanding on December 1,
2009 automatically converted into 8 shares of CPGI’s common stock.





Under
United States Generally Accepted Accounting Principles, the Exchange is treated
as a reverse acquisition, and the financial statements of the Company have been
retroactively adjusted to reflect the Exchange from the beginning of the
reported period. The Exchange has been accounted for as a reverse acquisition
and recapitalization of the Company whereby Cantix is deemed to be the
accounting acquirer (legal acquiree) and the Company to be the accounting
acquiree (legal acquirer). The historical financial statements for the periods
prior to November 13, 2009 are those of Cantix except that the equity section
and earnings per share have been retroactively restated to reflect the Exchange.
To more accurately reflect its current business post the Exchange, on December
1, 2009, the Company changed its name to China Polypeptide Group,
Inc.




Cantix
has a wholly owned subsidiary, Moneyeasy Industries Limited (“Moneyeasy”), a
company incorporated in Hong Kong on August 25, 2006. This entity is a holding
company with minimum activities. Cantix, through its operating subsidiaries in
the People’s Republic of China (the “PRC”), is principally engaged
in research, development, manufacturing, marketing and sales of
polypeptide-based anti-aging nutritional supplements, health foods, functional
foods and related material products.




Wuhan
Tallyho Biological Product Co., Limited (“Wuhan Tallyho”) was founded on
December 2, 1996 in the People Republic of China (the “PRC”) with a paid-in
capital of $5,854,361 (RMB40,232,838) and has been engaged in research,
production and sales of polypeptide-based health products and anti-aging food.
Wuhan Tallyho has developed over 70 products.




Guangdong
Hopsun Polypeptide Biological Technology Co., Limited (“Guangdong Hopsun”) was
founded on November 13, 2007 in the PRC. It is a wholly owned subsidiary of
Wuhan Tallyho with $1,424,055 (RMB10,000,000) paid-in capital and specializes in
service-based sales of health and anti-aging products.




Anti-aging
Research & Development Co., Limited (“Anti-aging”) was founded on June 13,
2007 in the PRC, with $1,045,246 (RMB8,000,000) paid-in capital and specialized
in research, development and sales of polypeptide-based health products and
anti-aging foods. Prior to Moneyeasy’s acquisition of Anti-aging on December 18,
2007, Wuhan Tallyho had a 30% ownership interest in Anti-aging.




On
November 5, 2007, Moneyeasy entered into an agreement to acquire all the equity
of Wuhan Tallyho. Since Cantix, Moneyeasy and Wuhan Tallyho are controlled by
the same ultimate individual, these companies are deemed to be under common
control and the assets and liabilities will be transferred at their carrying
amounts for business acquisition. Pursuant to the terms of the acquisition
agreement, all the original equity holders of Wuhan Tallyho will receive a cash
consideration from Moneyeasy in the amount of $5,854,361 (RMB40,230,000) for all
payment of the capital of Wuhan Tallyho. This transaction was completed on
December 26, 2007 and Wuhan Tallyho became a wholly owned subsidiary of
Moneyeasy and Cantix. Thereafter, the original paid-in capital of $5,121,926 of
Wuhan Tallyho was eliminated for consolidation purpose. The cash consideration
was paid in October, 2009.




On
December 18, 2007, Moneyeasy entered into another agreement to acquire all the
equity of Anti-aging for $1,164,178 (RMB8,000,000). The transaction was
completed on January 3, 2008. The Company recorded a purchase price of $814,925
(RMB5,600,000) in other payable on the balance sheet as of September 30, 2008,
which is payable to the former owners of Anti-aging that had 70% ownership
interest in Anti-aging. The remaining purchase price of $349,253 (RMB2,400,000)
due to Wuhan Tallyho for its 30% ownership interest in Anti-aging was eliminated
upon consolidation. Upon completion of the acquisition, Moneyeasy controls two
wholly owned subsidiaries, Wuhan Tallyho and Anti-aging. CPGI, Cantix,
Moneyeasy, Wuhan Tallyho, Guangdong Hopsun and Anti-aging are collectively
hereinafter referred to as the “Company”.




6




Note
2 - Summary of Significant Accounting Policies and Practices




(a)  
Basis of Presentation




The
consolidated financial statements for the six month periods ended March 31, 2010
and 2009 include the financial statements of CPGI, Cantix, Moneyeasy and its
subsidiaries, Wuhan Tallyho, Anti-aging and Guangdong Hopsun, the subsidiary of
Wuhan Tallyho. The combined or consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America (“US GAAP”). All significant intercompany transactions
have been eliminated in combination or consolidation.




In the
opinion of management, all adjustments (which include normal recurring
adjustments) necessary to present a fair statement of consolidated financial
position as of March 31, 2010, and consolidated results of operations, and cash
flows for the six month periods ended March 31, 2010 and 2009, as applicable,
have been made. The interim results of operations are not necessarily indicative
of the operating results for the full fiscal year or any future
periods.




(b)
Use of Estimates




The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.




(c)
Cash and Cash Equivalents




Cash and
cash equivalents represent cash on hand and deposits held at call with banks.
The Company considers all highly liquid investments with original maturities of
three months or less at the time of purchase to be cash
equivalents.




(d)
Accounts Receivable




Accounts
receivable are recorded at net realizable value consisting of the carrying
amount less an allowance for uncollectible accounts, as needed. The allowance
for doubtful accounts is the Company’s best estimate of the amount of probable
credit losses in the Company’s existing accounts receivable.  The
Company determines the allowance based on aging data, historical collection
experience, customer specific facts and economic conditions. Account balances
are charged off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote.  The
Company does not have any off-balance-sheet credit exposure related to its
customers. As of March 31, 2010 and September 30, 2009, $889,764 and $717,451
allowances for doubtful accounts were provided respectively.




(e)
Inventories




Inventories
are stated at the lower of cost or market value. Cost is determined using the
weighted average cost method. Cost of finished goods comprises direct material,
direct production cost and an allocated portion of production overheads based on
normal operating capacity. The Company evaluates the need for reserves
associated with obsolete, slow-moving and non-salable inventory by reviewing the
net realizable value on a periodic basis. If inventory is written down to net
realizable value, the write-down is charged to expense.




(f)
Other Receivables




As needed
for normal business purposes, the Company advances predetermined amounts based
upon internal policy to certain employees and unrelated parties to ensure
certain transactions to be performed in a timely manner. The Company has full
oversight and control over the advanced accounts. As of March 31, 2010 and
September 30, 2009, $53,524 and $54,263 allowances for doubtful accounts were
provided respectively (note 7).




(g)
Property, Plant and Equipment




Property,
plant and equipment are stated at cost less accumulated depreciation and
impairment.




7




Depreciation
on property, plant and equipment is calculated on the straight-line method after
taking into account their respective estimated residual values over the
estimated useful lives of the assets as follows:




Asset
            
            Useful
      livesBuildings
            
            20~40
      yearsMachinery
      and equipment
            
            5~10
      yearsFurniture
      and office equipment
            
            2~5
      yearsMotor
      vehicles
            
            5
      years




Maintenance
and repair costs are expensed as incurred, whereas significant renewals and
betterments are capitalized.




(h)  Land
Use Rights




Intangible
assets include land use rights in the PRC. Land use rights are carried at cost
and charged to expense on a straight-line basis over the period the rights are
granted, i.e., 50 years.




(i)
  Accounting for the Impairment of Long-Lived Assets




Long-lived
assets held and used by the Company are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of assets may not
be recoverable. It is reasonably possible that these assets could become
impaired as a result of technology or other industry changes. Determination of
recoverability of assets to be held and used is determined by comparing the
carrying amount of an asset to future undiscounted cash flows to be generated by
the assets. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.




There
were no impairments of long-lived assets as of March 31, 2010 and September 30,
2009.




(j)
Investment in Equity Affiliates




Investment
in affiliates consists of ownership in associated companies, which the Company
exercises significant influence, usually a percentage ownership between 20% and
50%, and is accounted for under the equity method of accounting. Under the
equity method of accounting, an investee’s accounts are not reflected within the
Company’s Consolidated Balance Sheets and Statements of Income; however, the
Company’s share of the earnings or losses of the investee are reflected in the
caption “Equity in income or (loss) in affiliates” in the consolidated
statements of income. The Company’s carrying value in an equity method investee
is reflected in the caption “Long-term Investment” in the Company’s consolidated
balance sheets.




When the
Company’s carrying value in an equity method investee is reduced to zero, no
further losses are recorded in the Company’s consolidated financial statements
unless the Company guaranteed obligations of the investee or has committed
additional funding. When the investee subsequently reports income, the Company
will not record its share of such income until it equals the amount of its share
of losses not previously recognized.




(k)
Goodwill




Goodwill
represents the excess of acquisition costs over the fair value of tangible net
assets and identifiable intangible assets of businesses acquired. Goodwill and
certain other intangible assets deemed to have indefinite lives are not
amortized. Intangible assets determined to have definite lives are amortized
over their useful lives. Goodwill and indefinite lived intangible assets are
subject to impairment testing annually as of the fiscal year-end or whenever
events or changes in circumstances indicate that the carrying amount may not be
fully recoverable, using the guidance and criteria described in Statement of
Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”
(“ASC Topic 350”). This testing compares carrying values to fair values and,
when appropriate, the carrying value of these assets is reduced to fair
value.  There were no impairments of goodwill d as of March 31, 2010
and September 30, 2009.





(l)  Statutory
Surplus Reserve




In
accordance with the Company Law of the PRC, Wuhan Tallyho, Guangdong Hopsun and
Anti-aging are required to set aside 10% of its income after income taxes
prepared in accordance with the PRC accounting regulations to the statutory
surplus reserve until the balance reaches 50% of its registered capital, whether
further appropriation will be at the directors’ recommendation. As of March 31,
2010 and September 30, 2009, $2,055,811 and $1,144,448 were provided for
statutory surplus reserve.




8




(m)
Revenue Recognition




The
Company recognizes revenue in accordance with Staff Accounting Bulletin ("SAB")
No. 104 (“ASC Topic 605”). All of the following criteria must exist in order for
the Company to recognize revenue: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred or services have been rendered;
(3) the seller's price to the buyer is fixed or determinable; and (4)
collectability is reasonably assured.




Sales are
recognized when products are delivered and the customer takes ownership and
assumes risk of loss, collection of the relevant receivable is probable,
persuasive evidence of an arrangement exists and the sales price is fixed or
determinable.





(n)
Research and Development Costs




Research
and development costs are expensed as incurred.  These expenses
consist of the costs of the Company’s internal research and development
activities and the costs of developing new products and enhancing existing
products. Research and development costs amounted to $119,462 and $154,770 for
the six months ended March 31, 2010 and 2009, and $66,424 and $122,622 for the
three months ended March 31, 2010 and 2009, respectively.





(o) Foreign
Currency Translation




The
functional currency of the Company is RMB and RMB is not freely convertible into
foreign currencies. The Company maintains its financial records in the
functional currency. Monetary assets and liabilities denominated in currencies
other than the functional currency are translated into the functional currency
at rates of exchange prevailing at the balance sheet date. Transactions
denominated in currencies other than the functional currency are translated into
the functional currency at the exchange rates prevailing at the dates of the
transactions. Exchange gains or losses arising from foreign currency
transactions are included in the determination of net income for the respective
periods.




For
financial reporting purposes, the financial statements of the Company, which are
prepared using the functional currency, have been translated into United States
dollars (reporting currency). Assets and liabilities are translated at exchange
rates at the balance sheet date, revenue and expenses are translated at the
average exchange rates for the period, and Shareholders’ equity is
translated at historical exchange rates. Translation adjustments are included in
accumulated other comprehensive income, a component of
Shareholders’ equity.




The
exchange rates applied are as follows:




March
      31,
              2010
            
            
            September
      30,
              2009Period
      (Year) end RMB exchange rate
            
            
            6.8361
            
            
            
            6.8166Average
      RMB exchange rate – period (year) end
            
            
            6.8360
            
            
            
            6.8236





No
representation is made that the RMB amounts could have been, or could be,
converted into U.S. dollars at the rates used in translation.





(p)
Income Taxes




(i)    
Income tax




The
Company adopted Statement of Financial Accounting Standards No. 109, “Accounting
for Income Taxes” (“ASC Topic 740”) that requires recognition of deferred income
tax liabilities and assets for the expected future tax consequences of temporary
differences between income tax basis and financial reporting basis of assets and
liabilities. Provision for income taxes consist of taxes currently due plus
deferred taxes.




The
charge for taxation is based on the results for the year as adjusted for items,
which are non-assessable or disallowed. It is calculated using tax rates that
have been enacted or substantively enacted by the balance sheet date. Deferred
tax is accounted for using the balance sheet liability method in respect of
temporary differences arising from differences between the carrying amount of
assets and liabilities in the financial statements and the corresponding tax
basis used in the computation of assessable tax profit. In principle, deferred
tax liabilities are recognized for all taxable temporary differences, and
deferred tax assets are recognized to the extent that it is probably that
taxable profit will be available against which deductible temporary differences
can be utilized.




Deferred
tax is calculated at the tax rates that are expected to apply to the period when
the asset is realized or the liability is settled. Deferred tax is charged or
credited in the income statement, except when it related to items credited or
charged directly to equity, in which case the deferred tax is also dealt with in
equity. Deferred tax assets and liabilities are offset when they relate to
income taxes levied by the same taxation authority and the Company intends to
settle its current tax assets and liabilities on a net basis.




9




The
Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income
Taxes” (“ASC Topic 740”), as of January 1, 2007. A tax position is recognized as
a benefit only if it is “more likely than not” that the tax position would be
sustained in a tax examination, with a tax examination being presumed to occur.
The amount recognized is the largest amount of tax benefit that is greater than
50% likely of being realized on examination. For tax positions not meeting the
“more likely than not” test, no tax benefit is recorded. The adoption had no
affect on the Company’s financial statements.




(ii)   Value
added tax




Wuhan
Tallyho,Anti-aging, and Guangdong Hopsun are all qualified as ordinary
value-added taxpayers and the applicable tax rate for domestic sales is
17%.  Input VAT on purchases of raw materials, fuel, utilities and
other production materials (merchandise, transportation costs) can be deducted
from output VAT. VAT payable is the net difference between output and deductible
input VAT.




(q)
Commitments and Contingencies




In the
normal course of business, the Company is subject to loss contingencies, such as
legal proceedings and claims arising out of its business, that cover a wide
range of matters, including, among others, government investigations, product
and environmental liability, and tax matters. In accordance with SFAS
No. 5, “Accounting for
Contingencies”(“ASC Topic 450”), the Company records accruals for
such loss contingencies when it is probable that a liability has been incurred
and the amount of loss can be reasonably estimated. Historically, the Company
has not experienced any material service liability claims.




(r)
Fair Value of Financial Instruments




The
carrying amounts of cash and cash equivalents, accounts receivables from third
and related parties, amounts due from and due to related parties, accounts
payable, other payables and short-term borrowings approximate their fair values
due to their short term nature.




The fair
value is estimated by discounting the future cash flow using an interest rate
which approximated the rate for which the financial institution would charge
borrowers with similar credit ratings and remaining maturities.




(s)
Recently Issued Accounting Pronouncements




In
December 2009, FASB issued ASU No. 2009-16, Accounting for Transfers of
Financial Assets. This Accounting Standards Update amends the FASB Accounting
Standards Codification for the issuance of FASB Statement No. 166, Accounting for Transfers of
Financial Assets—an amendment of FASB Statement No. 140.The amendments in
this Accounting Standards Update improve financial reporting by eliminating the
exceptions for qualifying special-purpose entities from the consolidation
guidance and the exception that permitted sale accounting for certain mortgage
securitizations when a transferor has not surrendered control over the
transferred financial assets. In addition, the amendments require enhanced
disclosures about the risks that a transferor continues to be exposed to because
of its continuing involvement in transferred financial assets. Comparability and
consistency in accounting for transferred financial assets will also be improved
through clarifications of the requirements for isolation and limitations on
portions of financial assets that are eligible for sale accounting. The Company
does not currently believe the adoption of ASU No. 2009-16 will have a material
impact on the Company’s consolidated financial statements.





In
December, 2009, FASB issued ASU No. 2009-17, Improvements to Financial Reporting
by Enterprises Involved with Variable Interest Entities. This Accounting
Standards Update amends the FASB Accounting Standards Codification for the
issuance of FASB Statement No. 167, Amendments to FASB Interpretation
No. 46(R). The amendments in this Accounting Standards Update replace the
quantitative-based risks and rewards calculation for determining which reporting
entity, if any, has a controlling financial interest in a variable interest
entity with an approach focused on identifying which reporting entity has the
power to direct the activities of a variable interest entity that most
significantly impact the entity’s economic performance and (1) the obligation to
absorb losses of the entity or (2) the right to receive benefits from the
entity. An approach that is expected to be primarily qualitative will be more
effective for identifying which reporting entity has a controlling financial
interest in a variable interest entity. The amendments in this Update also
require additional disclosures about a reporting entity’s involvement in
variable interest entities, which will enhance the information provided to users
of financial statements. The Company is currently evaluating the impact of ASU
No. 2009-17, however, the Company does not expect the adoption of this ASU will
have a material impact on its consolidated financial statements.




In
January 2010, FASB issued ASU No. 2010-01- "Accounting for Distributions to
Shareholders with Components of Stock and Cash." The amendments in this Update
clarify that the stock portion of a distribution to shareholders that allows
them to elect to receive cash or stock with a potential limitation on the total
amount of cash that all shareholders can elect to receive in the aggregate is
considered a share issuance that is reflected in EPS prospectively and is not a
stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings
Per Share). The amendments in this update are effective for interim and
annual periods ending on or after December 15, 2009, and should be applied on a
retrospective basis. Adoption of this ASU is not expected to have material
impact on the Company’s consolidated financial statements.




10





In
January 2010, FASB issued ASU No. 2010-02 – "Accounting and Reporting for
Decreases in Ownership of a Subsidiary – a Scope Clarification." The amendments
in this Update affect accounting and reporting by an entity that experiences a
decrease in ownership in a subsidiary that is a business or nonprofit activity.
The amendments also affect accounting and reporting by an entity that exchanges
a group of assets that constitutes a business or nonprofit activity for an
equity interest in another entity.  The amendments in this update are
effective beginning in the period that an entity adopts SFAS No. 160,
“Non-controlling Interests in Consolidated Financial Statements – An Amendment
of ARB No. 51.” If an entity has previously adopted SFAS No. 160 as of the date
the amendments in this update are included in the Accounting Standards
Codification, the amendments in this update are effective beginning in the first
interim or annual reporting period ending on or after December 15, 2009. The
amendments in this update should be applied retrospectively to the first period
that an entity adopted SFAS No. 160. Adoption of this ASU is not expected to
have material impact on the Company’s consolidated financial
statements.





In
January 2010, FASB issued ASU No. 2010-06 – "Improving Disclosures about Fair
Value Measurements." This update provides amendments to Subtopic 820-10 that
requires new disclosure as follows: 1) Transfers in and out of Levels 1 and
2.  A reporting entity should disclose separately the amounts of
significant transfers in and out of Level 1 and Level 2 fair value measurements
and describe the reasons for the transfers.  2)  Activity in
Level 3 fair value measurements.  In the reconciliation for fair value
measurements using significant unobservable inputs (Level 3), a reporting entity
should present separately information about purchases, sales, issuances, and
settlements (that is, on a gross basis rather than as one net number). This
update provides amendments to Subtopic 820-10 that clarify existing disclosures
as follows: 1) Level of disaggregation. A reporting entity should provide
fair value measurement disclosures for each class of assets and liabilities. A
class is often a subset of assets or liabilities within a line item in the
statement of financial position. A reporting entity needs to use judgment in
determining the appropriate classes of assets and liabilities.
2) Disclosures about inputs and valuation techniques. A reporting entity
should provide disclosures about the valuation techniques and inputs used to
measure fair value for both recurring and nonrecurring fair value measurements.
Those disclosures are required for fair value measurements that fall in either
Level 2 or Level 3. The new disclosures and clarifications of existing
disclosures are effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about purchases, sales,
issuances, and settlements in the roll forward of activity in Level 3 fair value
measurements. These disclosures are effective for fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal years. The
Company is currently evaluating the impact of ASU No. 2010-06, however, the
Company does not expect the adoption of this ASU to have a material impact on
its consolidated financial statements.





In
February 2010, the FASB issued Accounting Standards Update 2010-09, “Subsequent
Events (Topic 855): Amendments to Certain Recognition and Disclosure
Requirements,” or ASU 2010-09. ASU 2010-09 primarily rescinds the requirement
that, for listed companies, financial statements clearly disclose the date
through which subsequent events have been evaluated. Subsequent events must
still be evaluated through the date of financial statement issuance; however,
the disclosure requirement has been removed to avoid conflicts with other SEC
guidelines. ASU 2010-09 was effective immediately upon issuance and has been
adopted by the Company since then.





Note
3 - Significant Risks




(a)    Foreign
currency risk




As Wuhan
Tallyho, Anti-aging and Guangdong Hopsun are operating in the PRC, a majority of
sales and expenses transactions and a significant portion of its assets and
liabilities are denominated in RMB. RMB is not freely convertible into foreign
currencies. In the PRC, certain foreign exchange transactions are required by
law to be transacted only by authorized financial institutions at exchange rates
set by the People’s Bank of China (“PBOC”). Remittances in currencies other than
RMB by the Company in China must be processed through the PBOC or other China
foreign exchange regulatory bodies which require certain supporting
documentation in order to affect the remittance.




(b)    Risk
of credit exposure




In the
normal course of business, the Company may give credit to its customers after
performing a credit analysis based on a number of financial and other criteria.
The Company performs ongoing credit evaluations of customers’ financial
condition and may require for collateral for significant credit
exposure.





The top
four third-party customers accounted for approximately 7.0% of the consolidated
revenues for the six months ended March 31, 2010 and the top two third-party
customers accounted for approximately 24.1% of the consolidated revenues for the
six months ended March 31, 2009. The top seven third-party customers accounted
for 89.8% of the accounts receivable as of March 31, 2010 and the top seven
third-party customers accounted for 91% of the accounts receivable as of
September 30, 2009.




11




Note
4 – Earnings per Share





The
Company reports earnings per share in accordance with the provisions of SFAS
128, “Earnings per Share” (“ASC Topic 260”).  ASC Topic 260 requires
presentation of basic and diluted earnings per share in conjunction with the
disclosure of the methodology used in computing such earnings per
share.  Basic earnings per share excludes dilution and is computed by
dividing income available to common stockholders by the weighted average common
shares outstanding during the period. Diluted earnings per share takes into
account the potential dilution that could occur if securities or other contracts
to issue common stock were exercised and converted into common stock. The
following is a reconciliation of the basic and diluted earnings per share
computations for the six and three months ended March 31, 2010 and
2009:





2010
            
            
            2009For
      the six months ended March 31, 2010 and 2009
            
            unaudited
            
            
            unauditedNet
      income for basic and diluted earnings per share
            
            $
            3,108,286
            
            
            $
            5,107,403Weighted
      average number of common shares outstanding – basic and
      diluted
            
            
            10,020,755
            
            
            
            8,800,000Earnings
      per share – basic and diluted
            
            $
            0.310
            
            
            $
            0.580





2010
            
            
            2009For
      the three months ended March 31, 2010 and 2009
            
            unaudited
            
            
            unauditedNet
      income for basic and diluted earnings per share
            
            $
            2,219,135
            
            
            $
            1,819,746Weighted
      average number of common shares outstanding – basic and
      diluted
            
            
            10,621,985
            
            
            
            8,800,000Earnings
      per share - basic and diluted
            
            $
            0.209
            
            
            $
            0.207





Note
5 - Accounts Receivable





March
      31,
              2010
            
            
            September
      30,
              2009unauditedAccounts
      receivable
            
            $
            9,806,387
            
            
            $
            15,384,287Allowance
      for doubtful accounts
            
            
            (889,765)
            
            
            
            (717,451)$
            8,916,622
            
            
            $
            14,666,836





Note
6 – Inventories





March
      31,
              2010
            
            
            September
      30,
              2009unauditedRaw
      materials
            
            $
            107,401
            
            
            $
            159,523Work
      in progress
            
            
            205,046
            
            
            
            145,145Finished
      goods
            
            
            470,648
            
            
            
            706,657Low-value
      consumables and Packaging materials
            
            
            95,232
            
            
            
            115,993878,327
            
            
            
            1,127,318Allowance
      for inventory obsolescence
            
            
            (156,187)
            
            
            
            (156,633)$
            722,140
            
            
            $
            970,685




Note
7 - Prepayments and Other Receivables





March
      31,
              2010
            
            
            September
      30,
              2009unauditedOther
      receivables
            
            $
            1,382,012
            
            
            $
            995,284Advance
      to suppliers
            
            
            1,163,464
            
            
            
            456,079Shenzhen
      Era Biotechnology Co., Limited (a)
            
            
            3,996,431
            
            
            
            4,007,8436,541,907
            
            
            
            5,459,206Allowance
      for doubtful accounts
            
            
            (53,524)
            
            
            
            (54,263)$
            6,488,413
            
            
            $
            5,404,943







(a)
            As
      of March 31, 2010, the Company had an outstanding loan of $3,996,431
      (RMB27,320,000), in aggregate, to Shenzhen Era Biotechnology Co., Limited
      (“Shenzhen Era Biotechnology”).  $2,267,375 (RMB15,500,000) of
      such loan was due on August 11, 2009 with interest accruing at the rate of
      9.36% per annum and was extended to July 28, 2010 on July 28, 2009. The
      $1,729,056 (RMB11,820,000) balance of such loan accrues at the interest
      rate of 4.68% per annum and matures on June 9, 2010. Such loan is
      guaranteed by a majority shareholder of Shenzhen Era Biotechnology.
      Shenzhen Era Biotechnology has started repayment in April
      2010.




12




Note
8 – Amounts Due from Staff




Amounts
due from staff represent various advances to certain employees for business
purposes and receivables from sales managers due to the cash collected from
customers by sales managers. Amounts due from staff amounted to $9,738,070 and
$5,460,867 as of March 31, 2010 and September 30, 2009,
respectively.




Note
9 – Property, Plant and Equipment




March
      31,
              2010
            
            
            September
      30,
              2009unauditedBuildings
            
            $
            2,334,057
            
            
            $
            2,263,059Machinery
      and equipment
            
            
            588,963
            
            
            
            629,806Furniture
      and office equipment
            
            
            428,439
            
            
            
            294,680Motor
      vehicles
            
            
            694,987
            
            
            
            629,6614,046,446
            
            
            
            3,817,206Accumulated
      depreciation
            
            
            (1,465,307)
            
            
            
            (1,274,766)2,581,139
            
            
            
            2,542,440Construction
      in progress
            
            
            5,267,050
            
            
            
            4,401,000$
            7,848,189
            
            
            $
            6,943,440




A
building owned by the Company with net book value of $1,039,892 (RMB7,108,806)
was pledged by the Company to Xianfeng Rural Credit Co-operative of Wuhan for a
loan of $731,411 (RMB5,000,000), borrowed by Wuhan Pan-Asia Peptide Material
Research Co. Limited (“Wuhan Pan-Asia”), an unrelated third party. Wuhan
Pan-Asia entered into an agreement with the Company for a loan facility of
$731,411(RMB5,000,000) to the Company in exchange for the pledge. As of March
31, 2010, the Company borrowed a total of $718,698 (RMB4,913,091) from Wuhan
Pan-Asia (note 16).




Depreciation
expense for the six months ended March 31, 2010 and 2009 was $199,418 and
$159,983, respectively. Depreciation expense for the three months ended March
31, 2010 and 2009 was $126,488 and $89,598, respectively.




As of
March 31, 2010, the construction of a new factory is located in Jianghan
Economical Development Zone in Hubei Province, the PRC (note 22).




Note
10 - Land Use Rights




As of
March 31, 2010, land use rights of the Company included certain parcels of land
located in Wuhan City, Hubei Province, the PRC, with a net carrying value of
$280,152. The land use rights for land with area of approximately 11,208 square
meters and 7,947 square meters which will expire in November 2048 and January
2059 respectively.




Note
11 – Deposit for Land Use Rights




Deposit
for land use rights represents the payments that are paid to the government to
secure the land use rights of the land lots in Guangzhou Science Park for future
regional headquarters and research and development center purpose. The Company
has paid deposit for land use rights, in aggregate, $6,026,828 and $440,100 as
of March 31, 2010 and September 30, 2009, respectively. The relevant certificate
of land use right is to be issued, and if not, such amount will be
refunded.




13





Note
12 – Investment in Equity Affiliates




As of
March 31, 2010, the Company’s investment in affiliates that are accounted for
based on the equity method of accounting represented 40% interest in Wuhan
Hopsun Biological Product Inspection Co., Limited (“Wuhan Hopsun”), which
engages in biotechnological health products testing including Wuhan Tallyho’s
products.




The
investments in Wuhan Hopsun amounted to $237,089 and $254,286 at March 31, 2010
and September 30, 2009, respectively, which includes the Company’s share of
accumulated losses in this affiliate of $16,473 for the six months ended March
31, 2010 and a gain of $18,387 for the same period in 2009.




Note
13 - Other Assets




Other
assets represented equipment held for sale. The Company acted as a guarantor for
an original loan amount of $410,651 (RMB2,807,250) borrowed by Wuhan Sanrong
Company Limited (“Wuhan Sanrong”) from Agriculture Bank of China in 2001. The
loan was secured with elevators that belonged to Wuhan Sanrong at that time.
Wuhan Sanrong encountered some cash flow difficulties and the bank requested
that the Company take over the loan. The loans including the collateral were
taken over by the Company in September 2002. These assets are held for disposal
and are carried at lower of carrying value or fair value less cost to
sell.




Wuhan
Sanrong was a former shareholder of Wuhan Tallyho and ceased to be a shareholder
on March 28, 2001.




Note
14 - Short-term Loans




Interest
              rate
      per
            
            
            March
      31, 2010
            
            
            September
      30, 2009Lender
            
            Annum
            
            
            RMB
            
            
            USD
            
            
            RMB
            
            
            USDunauditedAgriculture Bank of
      ChinaThe
      term of the loan has expired in September 2003 (note 13)
            
            
            5.84%
            
            
            
            2,087,632
            
            
            
            305,383
            
            
            
            2,360,000
            
            
            
            346,211Wuhan Finance
      BureauThe
      term of the loan has expired in November 2001
            
            
            5.94%
            
            
            
            1,500,000
            
            
            
            219,423
            
            
            
            1,500,000
            
            
            
            220,051Total
      bank loans
            
            
            
            
            
            3,587,632
            
            
            
            524,807
            
            
            
            3,860,000
            
            
            
            566,262




Short-term
loans represent those short-term loans from financial institutions. The term of
the loan from Agriculture Bank of China and Wuhan Finance Bureau expired in 2003
and 2001; however, the lenders have not demanded repayment. Interest accrued on
a monthly basis base on the contractual rate.




The
interest expenses for the six months ended March 31, 2010 and 2009
were $42,322 and $49,290, respectively.  The
interest expenses for the three months ended March 31, 2010 and 2009
were $21,060 and $23,434, respectively.  The interest expenses also
include those related to the loan from Wuhan Pan-Asia, an unrelated party (note
16).





Note
15 – Deferred Revenue




Deferred
revenue represents the sales related to the products delivered to the
third-party wholesalers or distributors for which collectability could not be
reasonably assured. As of March 31, 2010 and September 30, 2009, deferred
revenue amounted to $2,922,851 and $3,928,804, respectively.




14





Note
16 - Accrued Expenses and Other Liabilities




March
      31,
              2010
            
            
            September
      30,
              2009unauditedAdvance
      from customers
            
            $
            13,119
            
            
            $
            3,738Accrued
      payroll
            
            
            80,332
            
            
            
            87,891Accrued
      expense
            
            
            187,114
            
            
            
            134,146Other
      payables– Wuhan
      Pan-Asia (a)
            
            
            718,698
            
            
            
            679,223– Guangzhou
      Shunfa Garment Factory
            
            
            -
            
            
            
            564,428– Wuhan
      Xinwang Investment Management Company
            
            
            384,977
            
            
            
            386,077– Malaysia
      Phoenix Company
            
            
            116,718
            
            
            
            117,052Others
            
            
            369,883
            
            
            
            476,574$
            1,870,841
            
            
            $
            2,449,129







(a)
            As
      of March 31, 2010, the Company had outstanding  loan totaling
      RMB4,913,089 (approximately $718,698) from Wuhan Pan-Asia, an unrelated
      third party, under a loan facility agreement of RMB5,000,000
      (approximately $731,411).  Wuhan Pan-Asia borrowed the funds to
      lend to the Company from Xianfeng Rural Credit Co-operative for which the
      Company pledged an office building as collateral (note 9). Interest on the
      loan is paid by the Company monthly at the rate of 0.531% (note 14). This
      loan matures in August 2010.




Note
17 - Taxes Payable




CPGI is
incorporated in Delaware and is subject to US federal income tax with a system
of graduated marginal tax rates ranging from 15% to 39%. As CPGI does not
conduct any business in Delaware, it is not subject to Delaware state corporate
income tax.




Cantix,
being incorporated in BVI, is governed by the income tax law of BVI. According
to current BVI income tax law, the applicable income tax rate for Cantix is
0%.




Moneyeasy,
incorporated in Hong Kong, is subject to a corporate income tax rate of
16.5%.The PRC entities are subject to the PRC Enterprises Income Tax at the
applicable tax rates on the taxable income.




Wuhan
Tallyho was registered in the City of Wuhan in the PRC and subject to the
applicable income tax rate of 25% for the six month periods ended March 31, 2010
and 2009.




Guangdong
Hopsun, registered in the City of Guangzhou in the PRC, is subject to the
Enterprise Income Tax rate of 25% for the six months ended March 31, 2009.
Guangdong Hopsun has passed all necessary examinations and was certified as a
high technological enterprise by relevant governmental authorities in December
2009. According to the PRC income tax law, a certified high technological
enterprise can be subject to preferential Enterprise Income Tax rate of 15%.
Based on management best estimation, GD Hopsun is eligible for the preferential
Enterprise Income Tax rate of 15% for the three months ended March 31,
2010.




Wuhan
Anti-Aging, registered in the City of Wuhan in the PRC, is subject to the
Enterprise Income Tax rate of 25%. Wuhan Anti-Aging incurred a net operating
loss of $48,888 for the six month periods ended March 31, 2010 which may be
carried forward for 5 years to reduce future years’ taxable income. Management
believes that the realization of the benefits arising from this loss appear to
be remote due to the research and development nature of Wuhan Anti-Aging’s
operation and its continuing losses for PRC income tax purpose.




March
      31,
              2010
            
            
            September
      30,
              2009unauditedVAT
      payable
            
            $
            2,539,443
            
            
            $
            2,629,954Income
      tax payable
            
            
            3,874,110
            
            
            
            3,569,913Other
      taxes payable
            
            
            187,224
            
            
            
            204,173$
            6,600,777
            
            
            $
            6,404,040





In June
2006, the FASB issued Interpretation No. 48 “Accounting for Uncertainty in Income
Taxes” (“ASC Topic 740”). This interpretation clarifies the accounting
for uncertainty in income taxes recognized in an enterprise's financial
statements in accordance with ASC Topic 740.  This interpretation
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. The interpretation also provides guidance for
de-recognition of tax positions, financial statement classification, interest
and penalties, accounting in interim periods, disclosure, and transition. This
interpretation was effective for fiscal years beginning after December 15, 2006.
The adoption of ASC Topic 740 did not have a material effect on the Company’s
financial position or results of operations.




15





The
Company and its subsidiary file tax returns with the relevant government
authorities in the PRC. The Company does not believe there will be any material
changes in its unrecognized tax positions over the next 12 months.




The
Company’s policy is to recognize interest and penalties accrued on any
unrecognized tax benefits as a component of income tax expense. As of the date
of adoption of ASC Topic 740, the Company did not have any accrued interest or
penalties associated with any unrecognized tax benefits, nor were any interest
expense recognized for the six months ended March 31, 2010 and
2009.




Deferred
tax relates to depreciation difference of fixed assets and provision of
assets.




Note
18 - Related Party Transactions




The
transactions with the following entities and individuals were made in the
ordinary course of business and were negotiated on an arm’s length basis.
 A summary of balances and transactions with related parties is as
follows:





March
      31,
              2010
            
            
            September
      30,
              2009unauditedDue
      to related partiesWuhan
      Hopsun Biological Products Inspection Company Limited
            
            $
            442,476
            
            
            $
            450,642Xiu
      Chio Fa
            
            
            -
            
            
            
            898,275Former
      equity holders of Wuhan Tallyho (a)
            
            
            -
            
            
            
            5,748,948$
            442,476
            
            
            $
            7,097,865







(a)
            Pursuant
      to an acquisition agreement between Moneyeasy and the former equity
      holders of Wuhan Tallyho on November 5, 2007, Moneyeasy acquired 100% of
      Wuhan Tallyho’s shares with a total consideration of
      $5,854,361(RMB40,230,000). The balance was settled as of December 31,
      2009.





The
balances due to related companies were interest free, unsecured and had no fixed
term of repayment.




Note
19 - Advertising




The
Company expenses all advertising costs as incurred. The advertising cost for the
six months ended March 31, 2010 and 2009 was nil and $1,766,
respectively.




Note
20 - Fair Value of Financial Instruments




The
carrying amount of cash and cash equivalents, trade accounts receivable,
prepayments and other receivables, amounts due from related parties, amounts due
to related parties, and accrued liabilities and other payables, approximate
their fair values because of the short maturity of these
instruments.




The
carrying amount of bank loans approximate the fair value based on the borrowing
rates currently available for bank loans with similar terms and
maturity.




Note
21 - Operating Lease Commitments




The
Company leases office block, workshop and warehouses under operating leases. The
leases typically run for an initial period of one year, with an option to renew
the lease after that date at which time all terms are
renegotiated.  The lease includes contingent rentals.  There
were no significant operating lease commitment as of March 31, 2010 and
September 30, 2009. Rental expenses under these leases aggregated $64,854 and
$57,137 for the six months ended March 31, 2010 and 2009 and $31,252 and $30,400
for the three months ended March 31, 2010 and 2009.




Note
22 - Capital Commitments




Capital
commitments for construction of a new facility (note 9) were approximately $2.87
million as of March 31, 2010 and approximately $8.98 million combined with that
for the purchase of the land use right as of September 30, 2009.




16





Note
23 – Shareholders’ Equity




Common
stock





On
November 13, 2009, as the result of closing of the Exchange disclosed in Note 1,
the Company acquired all of the issued and outstanding capital stock of Cantix
in exchange for the issuance of 8,800,000 (on a post 8-for-1 forward stock split
basis) shares of the Company’s common stock.





On
January 8, 2010, as the result of closing of an investment of $3,600,000
pursuant to a Securities Purchase Agreement dated December 16, 2009, the Company
issued a) 666,667 shares of the Company’s common stock, and b) a 5 year warrant
to purchase up to an additional 333,333 shares of Common Stock at an exercise
price of $6.75 per share to the investor.





On March
1, 2010, the Company issued 23,000 shares of the Company’s common stock as
payment for services which are worth $67,290, which has been included in
deferred compensation.





Warrant





The
Company issued a 5 year warrant to purchase up to an additional 333,333 shares
of Common Stock at an exercise price of $6.75 per share on January 8, 2010 (see
above for details) at which the fair value of the warrant was estimated using
the Black-Scholes option–pricing model.





The
following table summarizes the assumptions used in the Black-Scholes
option–pricing model when calculating the fair value of the
warrant:





Number
      of Shares Underlying the Warrant Valued
            
            
            Expected
      Life (Years)
            
            
            Exercise
      Price
            
            
            Expected
      Volatility
            
            
            Dividend
      Yield
            
            
            Risk
      Free Interest Rate
            
            
            Grant
      Date Fair Value333,333
            
            
            
            2
            
            
            $
            6.75
            
            
            
            125
            %
            
            
            -
            
            
            
            0.96
            %
            
            $
            1,051,434





Due to
the limited trading history of the Company’s common stock, the Company used a
similar public company's (similar industry, similar size and similar length of
operations) market prices to calculate the volatility which was estimated to be
125%.





Following
is a summary of the warrant activity:





Outstanding
      as of October 1, 2009
            
            
            -Granted
            
            
            333,333Forfeited
            
            
            -Exercised
            
            
            -Outstanding
      as of March 31, 2010
            
            
            333,333





Note
24 - Subsequent Events





As of May
17, 2010, which is the consolidated financial statements issuance date,
Management identified the following subsequent event:





Pursuant
to a Share Purchase Agreement dated as of April 16, 2010 by and between CPGI,
and one institutional investor (the “Investor”), the Investor purchased from
CPGI, effective April 21, 2010, for an aggregate purchase price of $3,000,000
(i) 609,557 shares of common stock, par value U.S. $.0001 per share, and (ii) a
5 year warrant to purchase up to an additional 80,956 shares of Common Stock at
an exercise price of U.S. $6.75 per share.




17





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





Cautionary
Notice Regarding Forward-Looking Statements





We make
certain forward-looking statements in this report. Statements concerning our
future operations, prospects, strategies, financial condition, future economic
performance (including growth and earnings), demand for our products, and other
statements of our plans, beliefs, or expectations, including the statements
contained under the captions “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” “Business,” as well as captions elsewhere
in this document, are forward-looking statements.  In some cases these
statements are identifiable through the use of words such as “anticipate,”
“believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can”,
“could,” “may,” “should,” “will,” “would,” and similar expressions.  We
intend such forward-looking statements to be covered by the safe harbor
provisions contained in Section 27A of the Securities Act of 1933, as amended,
or the Securities Act, and in Section 21E of the Securities Exchange Act of
1934, as amended, or the Exchange Act.  The forward-looking statements
we make are not guarantees of future performance and are subject to various
assumptions, risks, and other factors that could cause actual results to differ
materially from those suggested by these forward-looking statements.
 Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by the
forward-looking statements. Indeed, it is likely that some of our assumptions
will prove to be incorrect.  Our actual results and financial position will
vary from those projected or implied in the forward-looking statements and the
variances may be material.  You are cautioned not to place undue reliance
on such forward-looking statements.  These risks and uncertainties,
together with the other risks described from time to time in reports and
documents that we file with the SEC should be considered in evaluating
forward-looking statements.





The
nature of our business makes predicting the future trends of our revenues,
expenses, and net income difficult.  Thus, our ability to predict results
or the actual effect of our future plans or strategies is inherently uncertain.
 The risks and uncertainties involved in our business could affect the
matters referred to in any forward-looking statements and it is possible that
our actual results may differ materially from the anticipated results indicated
in these forward-looking statements.  Important factors that could cause
actual results to differ from those in the forward-looking statements include,
without limitation, the following:





·
            the
      effect of political, economic, and market conditions and geopolitical
      events;·
            legislative
      and regulatory changes that affect our business;·
            the
      availability of funds and working capital;·
            the
      actions and initiatives of current and potential
    competitors;·
            investor
      sentiment; and·
            our
      reputation.




We do not
undertake any responsibility to publicly release any revisions to these
forward-looking statements to take into account events or circumstances that
occur after the date of this report.  Additionally, we do not undertake any
responsibility to update you on the occurrence of any unanticipated events which
may cause actual results to differ from those expressed or implied by any
forward-looking statements.





The
following discussion and analysis should be read in conjunction with our
consolidated financial statements and the related notes thereto as filed with
the SEC and other financial information contained elsewhere in this
report.





Use
of Certain Defined Terms





Unless
otherwise specified or required by context, references to “we,” “the Company,”
“our” and “us” refer collectively to China Polypeptide Group, Inc., a Delaware
corporation, together with its wholly-owned subsidiary, Cantix International
Ltd., a British Virgin Islands limited company, or Cantix; Cantix’s wholly-owned
direct subsidiary, Moneyeasy Industries Limited, a Hong Kong limited company, or
Moneyeasy;  Moneyeasy’s wholly-owned direct subsidiaries, Wuhan
Tallyho Biological Product Co., Ltd., a PRC limited company, or Tallyho, and
Wuhan Polypeptide Anti-Aging Research and Development Co., Ltd., a PRC limited
company, or Anti-Aging, and Tallyho’s operating subsidiary, Guangdong Hopsun
Polypeptide Biological Technology Co., Ltd., or Hopsun.  Specific
discussions or comments relating only to China Polypeptide Group, Inc. will
reference “CPGI” and those relating only to Cantix and its subsidiaries will
reference “Cantix.”




18





Overview





CPGI was
incorporated in Delaware in March 2007 to engage in the design, manufacturing,
distribution and marketing of surfboards and related equipment.  Prior
to the acquisition of Cantix, discussed below, CPGI was a development stage
company and had no material assets and no revenues.  On November 13,
2009, CPGI acquired all of the issued and outstanding capital stock of
Cantix.  As a result of the acquisition (i) Cantix became a wholly
owned subsidiary of CPGI, (ii) CPGI’s principal business became the business of
Cantix, (iii) CPGI ceased to be a shell Company, (iv) CPGI changed its fiscal
year end from December 31 to September 30, and (v) the shareholders of Cantix
became the controlling shareholders of CPGI. The share exchange
transaction with Cantix was treated as a reverse acquisition, with Cantix as the
acquirer and CPGI as the acquired party.  Because Cantix and its
affiliates’ operations are the only significant operations of the Company,
unless the context suggests otherwise, when we refer in this report to business
and financial information for periods prior to the consummation of the reverse
acquisition, we are referring to the business and financial information of
Cantix and its consolidated subsidiaries.





Through
our direct and indirect operating subsidiaries, Tallyho, Hopsun and Anti-Aging,
we are principally engaged in the research, development, manufacturing,
marketing and sales of polypeptide-based anti-aging nutritional supplements,
health foods, functional foods and related material products.  We have
developed over 70 different types of polypeptide-based products. We market and
sell our products through a combined network of sales personnel, wholesalers and
private labeled partners  in China and internationally, however China
is currently our primary market.





Our
products are primarily manufacturedin our 8,529 square
meters production facilities located in the Hannan Jianghan Economic Development
Zone in Wuhan, China.  Our products currently being marketed and sold
in China have been tested and approved by the applicable Chinese governmental
hygiene and safety agencies, including by the local bureaus of the Ministry of
Health and the State Food and Drug Administration.  Our research and
development efforts are conducted at our facilities in Wuhan,
China.





We
believe that we are one of the few companies in our industry with competitive
prices and  high quality of diversified nutritional products combined
with excellent customer service.  We believe that we are one of the
largest companies in China, focused on the development and production of
functional peptide nutritional products.





The
Company’s common stock is eligible for quotation on Over-the-Counter Bulletin
Board under the trading symbol of “CHPN.”




Results
of Operations




The
following tables set forth key components of our results of operations for the
periods indicated, both in dollars and as a percentage of sales revenue and key
components of our revenue for the periods indicated in dollars.




Comparison of Three Months
Ended March 31, 2010 and 2009 (Unaudited)




Three
      Months Ended March 31,2010
              
              
              2009Amount
              
              
              %
      of
                Revenues
              
              
              Amount
              
              
              %
      of
                Revenues`
              
              (in
      dollars, except percentages)REVENUES
              
              
              8,357,079
              
              
              
              100.0
              %
              
              
              7,322,815
              
              
              
              100.0
              %COST
      OF SALES
              
              
              820,309
              
              
              
              9.8
              %
              
              
              543,077
              
              
              
              7.4
              %GROSS
      PROFIT
              
              
              7,536,770
              
              
              
              90.2
              %
              
              
              6,779,738
              
              
              
              92.6
              %SELLING
      AND ADMINISTRATIVES EXPENSES
              
              
              5,090,424
              
              
              
              60.9
              %
              
              
              4,593,324
              
              
              
              62.7
              %OPERATING
      INCOME
              
              
              2,446,346
              
              
              
              29.3
              %
              
              
              2,186,414
              
              
              
              29.9
              %OTHER
      INCOME (EXPENSE)Interest
      expense, net
              
              
              (18,504
              )
              
              
              -0.2
              %
              
              
              (9,364
              )
              
              
              -0.1
              %Equity
      in (loss)/gain in affiliates
              
              
              (8,636
              )
              
              
              -0.1
              %
              
              
              (16,904
              )
              
              
              -0.2
              %Other
      operating income
              
              
              25,816
              
              
              
              0.3
              %
              
              
              5,207
              
              
              
              0.1
              %INCOME
      BEFORE INCOME TAX EXPENSE
              
              
              2,445,022
              
              
              
              29.3
              %
              
              
              2,165,353
              
              
              
              29.6
              %INCOME
      TAX EXPENSE
              
              
              225,887
              
              
              
              2.7
              %
              
              
              345,607
              
              
              
              4.7
              %NET
      INCOME
              
              
              2,219,135
              
              
              
              26.6
              %
              
              
              1,819,746
              
              
              
              24.9
              %OTHER
      COMPREHENSIVE INCOME (LOSS)Foreign
      currency translation gain (loss)
              
              
              (3,430
              )
              
              
              0.0
              %
              
              
              32,643
              
              
              
              0.4
              %COMPREHENSIVE
      INCOME
              
              
              2,215,705
              
              
              
              26.5
              %
              
              
              1,852,389
              
              
              
              25.3
              %
 19




Revenues.Revenues for the
three months ended March 31, 2010 increased $1,034,264, or 14.1%, to $8,357,079,
from $7,322,815 for the three months ended March 31, 2009.  The
increase is mainly attributable to that the pre-new year holiday sales of our
products largely occurred later in January 2010 than those of last year which
occurred largely in December 2008 and January 2009. The main reason is that the
Chinese Lunar New Year Day fell later this year (February 14, 2010) than that of
last year (January 26, 2009) and there is generally a 6-to-8-week sales season
of our products prior to this holiday.





Cost of Sales.Cost of sales
for the three months ended March 31, 2010 totaled $820,309, or approximately
9.8% of revenues, compared to $543,077, or approximately 7.4% of revenues, for
the three months ended March 31, 2009, an increase of $277,232 or 51.0% from
period to period.  The increase is mainly attributable to increase in
prices of raw materials and overhead costs during the 2010 period. Given the
overall market inflation expectation in China, especially for those agricultural
products which are main raw materials for our products, management expects that
the prices of our raw materials will continue to increase in 2010.  We
expect that the inflationary impact, if any, on our results of operations will
be minimal given our historical high gross margin.





Gross Profit.Gross profit
for the three months ended March 31, 2010 increased $757,032, or 11.2%, to
$7,536,770, from $6,779,738 for the three months ended March 31,
2009.  The respective gross margins are 90.2% and 92.6% for the three
months ended March 31, 2010 and 2009.  The increase in gross profit is
mainly due to the increase of revenues.





Selling and Administrative Expenses.Selling and administrative expenses for the three months ended March 31,
2010 totaled $5,090,424, or approximately 60.9% of revenues, compared to
$4,593,324, or approximately 62.7% of revenues, for the same period in 2009, an
increase of $497,100 or 10.8% from period to period.  The increase of
selling and administrative expenses is generally in line with the increase of
revenues for the three months ended March 31, 2010, as compared to the same
period in 2009.





Operating Income.Operating
income amounted to $2,446,346, or approximately 29.3% of revenues, for the three
months ended March 31, 2010, as compared to $2,186,414, or approximately 29.9%
of revenues, for the three months ended March 31, 2009, an increase of $259,932
or 11.9% from period to period. The increase in operating income is mainly
attributable to the increase of revenues in the 2010 period.





Interest Expense.Net
interest expense for the three months ended March 31, 2010 increased $9,140, or
97.6%, to $18,504, as compared to interest expense of $9,364 for the three
months ended March 31, 2009. The increase in interest expense is due to the
increase in funds borrowed by us from Wuhan Pan Asia (as defined below), an
unrelated third party.





Equity in (Loss)/Gain in Affiliates.The equity in loss in affiliates for the three months ended March 31,
2010 amounted to $8,636, a change of $8,268, as compared to the equity in loss
in affiliates of $16,904 for the three months ended March 31,
2009.  The change is due to the decrease of the net loss of an
affiliate company in which the Company has a 40% equity interest, thus using the
equity method to account for such an investment.





Income before Income Tax
Expense. Income before income tax expense was $2,445,022, or
approximately 29.3% of revenues, for the three months ended March 31, 2010, as
compared to $2,165,353, or approximately 29.6% of revenues, for the three months
ended March 31, 2009, an increase of $279,669 or 12.9%. The increase in income
before income tax expense is mainly attributable to the increase in revenues
during the 2010 period.




20





Net Income.Net income
amounted to $2,219,135, or approximately 26.6% of revenues, for the three months
ended March 31, 2010, as compared to $1,819,746, or approximately 24.9% of
revenues, for the three months ended March 31, 2009, an increase of $399,389 or
21.9%. The increase in net income is mainly attributable to increased revenues
with a slightly less increase in selling and administrative expenses compared to
those during the same period in 2009.  Although no assurance can be
given, management believes that our revenues and net income will continue to
grow in future periods resulting from, among other factors, growing market
demands for anti-aging nutritional supplements, health food and functional food
products, our increased sales and marketing efforts, our newly added
manufacturing capacity to meet such increasing demands, our expansion into other
high margin peptide-based product categories as well as improved economic
conditions and the government’s stimulus measures focusing on stimulating
consumption in China.





Comparison of Six Months
Ended March 31, 2010 and 2009 (Unaudited)




Six
      Months Ended March 31,2010
              
              
              2009Amount
              
              
              %
      of
                Revenues
              
              
              Amount
              
              
              %
      of
                Revenues(in
      dollars, except percentages)REVENUES
              
              
              14,103,669
              
              
              
              100.0
              %
              
              
              16,870,152
              
              
              
              100.0
              %COST
      OF SALES
              
              
              1,096,883
              
              
              
              7.8
              %
              
              
              1,284,074
              
              
              
              7.6
              %GROSS
      PROFIT
              
              
              13,006,786
              
              
              
              92.2
              %
              
              
              15,586,078
              
              
              
              92.4
              %SELLING
      AND ADMINISTRATIVES EXPENSES
              
              
              9,393,262
              
              
              
              66.6
              %
              
              
              9,002,628
              
              
              
              53.4
              %OPERATING
      INCOME
              
              
              3,613,524
              
              
              
              25.6
              %
              
              
              6,583,450
              
              
              
              39.0
              %OTHER
      INCOME (EXPENSE)Interest
      expense, net
              
              
              (36,064
              )
              
              
              -0.3
              %
              
              
              (22,126
              )
              
              
              -0.1
              %Equity
      in (loss)/gain in affiliates
              
              
              (16,473
              )
              
              
              -0.1
              %
              
              
              18,387
              
              
              
              0.1
              %Other
      operating income
              
              
              19,647
              
              
              
              0.1
              %
              
              
              5,040
              
              
              
              0.0
              %INCOME
      BEFORE INCOME TAX EXPENSE
              
              
              3,580,634
              
              
              
              25.4
              %
              
              
              6,584,751
              
              
              
              39.0
              %INCOME
      TAX EXPENSE
              
              
              472,348
              
              
              
              3.3
              %
              
              
              1,477,348
              
              
              
              8.8
              %NET
      INCOME
              
              
              3,108,286
              
              
              
              22.0
              %
              
              
              5,107,403
              
              
              
              30.3
              %OTHER
      COMPREHENSIVE INCOME (LOSS)Foreign
      currency translation gain (loss)
              
              
              (75,348
              )
              
              
              -0.5
              %
              
              
              33,171
              
              
              
              0.2
              %COMPREHENSIVE
      INCOME
              
              
              3,032,938
              
              
              
              21.5
              %
              
              
              5,140,574
              
              
              
              30.5
              %




Revenues.Revenues for the
six months ended March 31, 2010 decreased by $2,766,483, or 16.4%, to
$14,103,669, from $16,870,152 for the six months ended March 31, 2009. The
decrease is mainly attributable to the decrease of $2,485,752 in recognized
sales under the wholesale model which the Company has started to use since late
2008. The Company periodically evaluated the reasonable assurance of
collectability in recognizing such sales. The amounts for which the
collectability are deemed not to be reasonably assured are recorded as deferred
revenues to be recognized in the future periods when the collectability can be
reasonably assured. The decrease is mainly resulted from such evaluation for the
current six month period.  Management expects that this impact would
be temporary as the Company continues to ensure future collectability and the
sales will return to its normal track in future periods.





Cost of Sales.Cost of sales
for the six months ended March 31, 2010 totaled $1,096,883, or approximately
7.8% of revenues, compared to $1,284,074, or approximately 7.6% of revenues, for
the six months ended March 31, 2009, a decrease of $187,191, or
14.6%.  The decrease is generally in line with the change of revenues
with slight impact from the recent price increase of our raw materials. Given
the overall market inflation expectation in China, especially for those
agricultural products which are a main raw material for our products, management
expects that the prices of our raw materials will continue to increase in
2010.  Management expects that any inflationary impact on our results
of operations will be minimal given our historical high gross
margin.




21





Gross Profit.Gross profit
for the six months ended March 31, 2010 decreased $2,579,292, or 16.5%, to
$13,006,786, as compared to $15,586,078 for the six months ended March 31,
2009.  The respective gross margins are 92.2% and 92.4% for the six
months ended March 31, 2010 and 2009.  The decrease in gross profit is
mainly due to the decrease in revenues in the 2010 period.





Selling and Administrative Expenses.Selling and administrative expenses for the six months ended March 31,
2010 totaled $9,393,262, or approximately 66.6% of revenues, compared to
$9,002,628, or approximately 53.4% of revenues, for the same period in 2009, an
increase of $390,634, or 4.3%.  The increase is mainly attributable to
the increase in professional expenses related to public company operations and
the increase of provisions for bad debts.  The Company incurred
$370,831 in professional expenses related to the public company operations
during the six months ended March 31, 2010, as compared to $22,411 during the
same period in 2009.  The bad debt provision amounted to $174,598
during the six months ended March 31, 2010, as compared to $83,526 recovered bad
debts in the same period of 2009.





Operating Income.Operating
income amounted to $3,613,524, or approximately 25.6% of revenues, for the six
months ended March 31, 2010, as compared to $6,583,450, or approximately 39.0%
of revenues, for the six months ended March 31, 2009, a decrease of $2,969,926,
or 45.1%. The decrease in operating income is mainly attributable to the
decrease of revenues and the increase of selling and administrative
expenses.





Interest Expense.Net
interest expense totaled $36,064 for the six months ended March 31, 2010, as
compared to interest expense of $22,126 for the six months ended March 31, 2009,
an increase of $13,938. The increase in interest expense is due to the increase
in funds borrowed by us from Wuhan Pan Asia (as defined below), an unrelated
third party.





Equity in (Loss)/ Gain in
Affiliates.The equity in loss in affiliates amounted to $16,473 for the
six months ended March 31, 2010, as compared to the equity in gain in affiliates
of $18,387 for the six months ended March 31, 2009, an absolute change of
$34,860.  The change is due to the increase of the net loss of an
affiliate company in which the Company has a 40% equity interest, thus using the
e quity
method to account for such an investment.





Income before Income Tax
Expense. Income before income tax expense was $3,580,634, or
approximately 25.4% of revenues, for the six months ended March 31, 2010, as
compared to $6,584,751, or approximately 39.0% of revenues, for the six months
ended March 31, 2009, a decrease of $3,004,117, or 45.6%. The decrease in income
before income tax expense is mainly attributable to the decrease of revenues and
the increase of selling and administrative expenses.





Net Income.Net income
amounted to $3,108,286, or approximately 22.0% of revenues, for the six months
ended March 31, 2010, as compared to $5,107,403, or approximately 30.3% of
revenues, for the six months ended March 31, 2009, a decrease of $1,999,117 or
39.1%. The decrease in net income is mainly attributable to the decrease of
revenues accompanied by the increase of selling and administrative
expenses.  Although no assurance can be given, management believes
that our revenues and net income would rebound in future periods resulting from,
among other factors, growing market demands for anti-aging nutritional
supplements, health food and functional food products, our increased sales and
marketing efforts after the restructuring of our sales offices, our newly added
manufacturing capacity to meet such increasing demands, our expansion into other
high margin peptide-based product categories as well as improved economic
conditions and the government’s stimulus measures focusing on stimulating
consumption in China.





Liquidity
and Capital Resources





Cash
Flows (Unaudited)





The
following table sets forth a summary of our cash flows for the periods indicated
below:




Six
      Months Ended March 31,2010
              
              
              2009(in
      dollars)Net
      cash provided by operating activities
              
              
              2,398,302
              
              
              
              2,143,481Net
      cash used in investing activities
              
              
              (6,706,743
              )
              
              
              (1,534,549
              )Net
      cash provided by (used in) financing activities
              
              
              3,511,955
              
              
              
              (17,577
              )Effect
      of exchange rate fluctuation on cash and cash equivalents
              
              
              (1,596
              )
              
              
              25,279Net
      increase in cash and cash equivalents
              
              
              (798,082
              )
              
              
              616,634Cash
      and cash equivalents, beginning of period
              
              
              4,439,732
              
              
              
              5,918,414Cash
      and cash equivalents, end of period
              
              
              3,641,650
              
              
              
              6,535,048




22


Operating
Activities





Net cash
provided by operating activities increased to $2,398,302 during the six months
ended March 31, 2010, an increase of $254,821, or 11.9%, from net cash provided
by operating activities of $2,143,481 during the six months ended March 31,
2009.  The increase is mainly attributable to a significant decrease
in accounts receivable due to collections by March 31, 2010.





Investing
Activities





Net cash
used in investing activities increased by $5,172,194, or 337.0%, to $6,706,743
during the six months ended March 31, 2010, as compared to $1,534,549 during the
six months ended March 31, 2009.  The significant increase is mainly
due to the payments approximately $5.59 million to acquire the land use rights
for the land lot on which the Company plans to build its regional headquarters
and research and development center in Guangzhou city, China.





Financing
Activities





Net cash
provided by financing activities amounted to $3,511,955 during the six months
ended March 31, 2010, as compared to net cash used in financing activities of
$17,577 during the six months ended March 31, 2009, an absolute change of
$3,529,532, resulting from an equity investment of $3.6 million made by an
institutional investor during the six months ended March 31,
2010.  See “Capital Resources”.





Capital
Resources





In
January 2010, we sold 666,667 shares of our common stock and a warrant to
purchase an additional 333,333 shares of our common stock at an exercise price
of $6.75 per share to a non-U.S. institutional investor, for an aggregate
purchase price for $3,600,000.   The Company received $2.24
million of the $3,600,000 purchase price in December 2009 and the remaining
$1.36 million in January 2010.





On April
21, 2010, we consummated a share purchase agreement, dated April 16, 2010,
between the Company and a non-U.S. institutional investor, pursuant to which the
investor purchased (i) 609,557 shares of our common stock, for an aggregate
purchase price of $3,000,000, and (ii) a five year warrant to purchase up to an
additional 80,956 shares of our common stock at an exercise price of $6.75 per
share.  We agreed to give the investor piggy-back resale registration
rights in connection with the purchase, as well as a right of first refusal with
respect to any new shares of common stock issued by us in connection with any
future private offering.  We also agreed to grant the investor the right to
equally participate in any future sale by the principal shareholders of shares
in the Company to a third party.





Loan
Commitments




As of
March 31, 2010, the Company had outstanding  bank loan of RMB2,087,632
(approximately $305,383) from the Agriculture Bank of China, Wuhan Branch
(“Agriculture Bank”). This bank loan has been continuously extended from
September 2003, the original maturity date, and will be repaid when Agriculture
Bank requests repayment.  The Company has been repaying the principal
amount of this loan by approximately RMB20,000 (approximately $2,926) each
month. Interest accrues on a monthly basis at the rate of 5.84% per
annum.




As of
March 31, 2010, the Company had outstanding another bank loan of RMB1,500,000
(approximately $219,423) from the Wuhan Finance Bureau (“WFB”). This loan has
been continuously extended from November 2001, the original maturity date and
such loan will be repaid when WFB requests repayment.  Interest accrues on
a monthly basis at the rate of 5.94% per annum.




As of
March 31, 2010, the Company had outstanding  loan totaling
RMB4,913,089 (approximately $718,698) from Wuhan Pan-Asia Peptide Material
Research Co., Ltd. (“Wuhan Pan-Asia”), an unrelated third party, under a loan
facility agreement of RMB5,000,000 (approximately $731,411).  Wuhan
Pan-Asia borrowed the funds to lend to the Company from Xianfeng Rural Credit
Co-operative for which the Company pledged an office building as collateral.
Interest on the loan is paid by the Company monthly at the rate of 0.531%. This
loan matures in August 2010.




We believe
we will require additional capital to finance any future manufacturing
expansion, market channel expansion, changes in our business plan or other
future capital intensive developments, including any investments or acquisitions
we may decide to pursue. To the extent it becomes necessary to raise additional
capital, we may seek to raise it through the sale of debt and/or equity
securities, funding from joint-venture or strategic partners, institutional debt
financing or loans, or a combination of the foregoing. Other than as described
above, we currently do not have any binding commitments for, or readily
available sources of, additional financing. If we decide to pursue any of the
above projects, we cannot provide any assurances that we will be able to secure
the additional cash or working capital we may require to implement such project
now or in the future, or if we do, the terms thereof.




23




We
believe that our currently available funds, funds from operations and available
bank financing is sufficient for us to continue our operations as presently
conducted for at least the next twelve (12) months.






Obligations
under Material Contracts




The
capital commitments for construction of a new facility as of March 31, 2010 were
approximately $2.87 million.





Off
Balance Sheet Arrangements





Other
than with respect to our pledge of an office building owned by us in connection
with the Wuhan Pan-Asia loan as described above, we have not entered into any
other financial guarantees or other commitments to guarantee the payment
obligations of any third parties. We have not entered into any derivative
contracts that are indexed to our shares and classified as stockholder’s equity
or that are not reflected in our consolidated financial statements.
Furthermore, we do not have any retained or contingent interest in assets
transferred to an unconsolidated entity that serves as credit, liquidity or
market risk support to such entity. We do not have any variable interest in any
unconsolidated entity that provides financing, liquidity, market risk or
credit support to us or engages in leasing, hedging or research and development
services with us.





Seasonality




Historically,
the Company’s revenues for the first and forth quarters in each fiscal year have
been higher than revenues for the second and third fiscal
quarters.  We believe that this is partially due to a number of major
festivals and holiday celebrations that occur in China around the end of our
first and fourth fiscal quarters.  Though it may be the case, as some
Chinese festivals such as the Chinese New Year follow the Chinese Lunar calendar
which usually lags the Gregorian calendar that is used worldwide, if such
festivals happen to occur substantially later than the end of the first and
fourth quarters, we believe a certain portion of such revenues would fall in the
following quarters.




Critical
Accounting Policies and Estimates





Our
management’s discussion and analysis of our financial condition and results of
operations above is based on our consolidated financial statements
which have been prepared in accordance with United States generally
accepted accounting principles (“US GAAP”).  The preparation of these
financial statements requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods.  We evaluate
our estimates and assumptions on an ongoing basis. We base our estimates on
historical experience and on various other factors that we believe are
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. However, actual results could differ
materially from these estimates under different assumptions or conditions.





While our
significant accounting policies are more fully described in Note 2 of the Notes
to our consolidated financial statements in this Quarterly Report on Form
10-Q, we believe that the following accounting policies are the most critical
accounting policies to assist in fully understanding and evaluating
our management’s discussion and analysis:





Principles
of Consolidation





The
consolidated financial statements, prepared in accordance with US GAAP, include
the assets, liabilities, revenues, expenses and cash flows of the Company and
all its subsidiaries. This basis of accounting differs in certain material
respects from that used for the preparation of the books and records of the
Company's principal subsidiaries, which are prepared in accordance with the
accounting principles and the relevant financial regulations applicable to
enterprises with limited liabilities established in the PRC, the accounting
standards used in the place of such entities’ domicile.  The
accompanying consolidated financial statements reflect necessary adjustments not
recorded in the books and records of the Company's subsidiaries to present them
in conformity with US GAAP.  All significant inter-company accounts,
transactions and cash flows are eliminated on
consolidation.  Investment in affiliates in which the Company
exercises significant influence but do not control and are not the primary
beneficiary are accounted for using the equity method.





Use
of Estimates





The
preparation of the Company’s financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period.  Actual results
could differ from those estimates.  The financial statements include
some amounts that are based on management’s best estimates and
judgments.  These accounts and estimates include, but are not limited
to, the valuation of accounts receivable, other receivables, inventories, taxes
payable, and the estimation on useful lives of property, plant and equipment and
intangible assets.  These estimates may be adjusted as more current
information becomes available, and any adjustment could be
significant.




24





Revenue
Recognition





Revenue
from sales of the Company’s products is recognized when the significant risks
and rewards of ownership have been transferred to the buyer at the time when the
products are delivered to and accepted by its customers, the price is fixed or
determinable, and collectability is reasonably assured.  Customers do not
have a general right of return on products shipped.  The number of
products returned to the Company was insignificant during past
years.  There are no post-shipment obligations, price protection and
bill and hold arrangements.




Accounts
Receivable





Accounts
receivable are recorded at net realizable value consisting of the carrying
amount less an allowance for uncollectible accounts, as needed. The allowance
for doubtful accounts is the Company’s best estimate of the amount of probable
credit losses in the Company’s existing accounts receivable.  The
Company determines the allowance based on aging data, historical collection
experience, customer specific facts and economic conditions. Account balances
are charged off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote.  The
Company does not have any off-balance-sheet credit exposure related to its
customers.





Inventories





Inventories
are stated at the lower of cost or market value. Cost is determined using the
weighted average cost method. Cost of finished goods comprises direct material,
direct production cost and an allocated portion of production overheads based on
normal operating capacity. The Company evaluates the need for reserves
associated with obsolete, slow-moving and non-salable inventory by reviewing the
net realizable value on a periodic basis.  If inventory is written
down to net realizable value, the write-down is charged to expense.





Foreign
Currency Translation





The
accompanying financial statements are presented in United States dollars. The
functional currency of Cantix is Renminbi (“RMB”).  The financial
statements are translated into United States dollars from RMB at year-end
exchange rates as to assets and liabilities and average exchange rates as to
revenues and expenses.  Capital accounts are translated at their historical
exchange rates when the capital transactions occurred.




Recent
Accounting Pronouncements




In
December 2009, FASB issued ASU No. 2009-16, Accounting for Transfers of
Financial Assets. This Accounting Standards Update amends the FASB Accounting
Standards Codification for the issuance of FASB Statement No. 166, Accounting for Transfers of
Financial Assets—an amendment of FASB Statement No. 140.The amendments in
this Accounting Standards Update improve financial reporting by eliminating the
exceptions for qualifying special-purpose entities from the consolidation
guidance and the exception that permitted sale accounting for certain mortgage
securitizations when a transferor has not surrendered control over the
transferred financial assets. In addition, the amendments require enhanced
disclosures about the risks that a transferor continues to be exposed to because
of its continuing involvement in transferred financial assets. Comparability and
consistency in accounting for transferred financial assets will also be improved
through clarifications of the requirements for isolation and limitations on
portions of financial assets that are eligible for sale accounting. The Company
does not currently believe the adoption of ASU No. 2009-16 will have a material
impact on the Company’s consolidated financial statements.





In
December, 2009, FASB issued ASU No. 2009-17, Improvements to Financial Reporting
by Enterprises Involved with Variable Interest Entities. This Accounting
Standards Update amends the FASB Accounting Standards Codification for the
issuance of FASB Statement No. 167, Amendments to FASB Interpretation
No. 46(R). The amendments in this Accounting Standards Update replace the
quantitative-based risks and rewards calculation for determining which reporting
entity, if any, has a controlling financial interest in a variable interest
entity with an approach focused on identifying which reporting entity has the
power to direct the activities of a variable interest entity that most
significantly impact the entity’s economic performance and (1) the obligation to
absorb losses of the entity or (2) the right to receive benefits from the
entity. An approach that is expected to be primarily qualitative will be more
effective for identifying which reporting entity has a controlling financial
interest in a variable interest entity. The amendments in this Update also
require additional disclosures about a reporting entity’s involvement in
variable interest entities, which will enhance the information provided to users
of financial statements. The Company is currently evaluating the impact of ASU
No. 2009-17, however, the Company does not expect the adoption of this ASU will
have a material impact on its consolidated financial statements.




25




In
January 2010, FASB issued ASU No. 2010-01- "Accounting for Distributions to
Shareholders with Components of Stock and Cash." The amendments in this Update
clarify that the stock portion of a distribution to shareholders that allows
them to elect to receive cash or stock with a potential limitation on the total
amount of cash that all shareholders can elect to receive in the aggregate is
considered a share issuance that is reflected in EPS prospectively and is not a
stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings
Per Share). The amendments in this update are effective for interim and
annual periods ending on or after December 15, 2009, and should be applied on a
retrospective basis. Adoption of this ASU is not expected to have material
impact on the Company’s consolidated financial statements.





In
January 2010, FASB issued ASU No. 2010-02 – "Accounting and Reporting for
Decreases in Ownership of a Subsidiary – a Scope Clarification." The amendments
in this Update affect accounting and reporting by an entity that experiences a
decrease in ownership in a subsidiary that is a business or nonprofit activity.
The amendments also affect accounting and reporting by an entity that exchanges
a group of assets that constitutes a business or nonprofit activity for an
equity interest in another entity.  The amendments in this update are
effective beginning in the period that an entity adopts SFAS No. 160,
“Non-controlling Interests in Consolidated Financial Statements – An Amendment
of ARB No. 51.” If an entity has previously adopted SFAS No. 160 as of the date
the amendments in this update are included in the Accounting Standards
Codification, the amendments in this update are effective beginning in the first
interim or annual reporting period ending on or after December 15, 2009. The
amendments in this update should be applied retrospectively to the first period
that an entity adopted SFAS No. 160. Adoption of this ASU is not expected to
have material impact on the Company’s consolidated financial
statements.





In
January 2010, FASB issued ASU No. 2010-06 – "Improving Disclosures about Fair
Value Measurements." This update provides amendments to Subtopic 820-10 that
requires new disclosure as follows: 1) Transfers in and out of Levels 1 and
2.  A reporting entity should disclose separately the amounts of
significant transfers in and out of Level 1 and Level 2 fair value measurements
and describe the reasons for the transfers.  2)  Activity in
Level 3 fair value measurements.  In the reconciliation for fair value
measurements using significant unobservable inputs (Level 3), a reporting entity
should present separately information about purchases, sales, issuances, and
settlements (that is, on a gross basis rather than as one net number). This
update provides amendments to Subtopic 820-10 that clarify existing disclosures
as follows: 1) Level of disaggregation. A reporting entity should provide
fair value measurement disclosures for each class of assets and liabilities. A
class is often a subset of assets or liabilities within a line item in the
statement of financial position. A reporting entity needs to use judgment in
determining the appropriate classes of assets and liabilities.
2) Disclosures about inputs and valuation techniques. A reporting entity
should provide disclosures about the valuation techniques and inputs used to
measure fair value for both recurring and nonrecurring fair value measurements.
Those disclosures are required for fair value measurements that fall in either
Level 2 or Level 3. The new disclosures and clarifications of existing
disclosures are effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about purchases, sales,
issuances, and settlements in the roll forward of activity in Level 3 fair value
measurements. These disclosures are effective for fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal years. The
Company is currently evaluating the impact of ASU No. 2010-06, however, the
Company does not expect the adoption of this ASU to have a material impact on
its consolidated financial statements.





In
February 2010, the FASB issued Accounting Standards Update 2010-09, “Subsequent
Events (Topic 855): Amendments to Certain Recognition and Disclosure
Requirements,” or ASU 2010-09. ASU 2010-09 primarily rescinds the requirement
that, for listed companies, financial statements clearly disclose the date
through which subsequent events have been evaluated. Subsequent events must
still be evaluated through the date of financial statement issuance; however,
the disclosure requirement has been removed to avoid conflicts with other SEC
guidelines. ASU 2010-09 was effective immediately upon issuance and has been
adopted by the Company since then.


.


ITEM
      3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.





Not
Applicable.




26




ITEM
      4.
              CONTROLS
      AND PROCEDURES.
 
 Evaluation
of Disclosure Controls and Procedures.
 
 We
maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Exchange Act) that are designed to ensure that information that would be
required to be disclosed in Exchange Act reports is recorded, processed,
summarized and reported within the time period specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to our
management, including to our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.


As
required by Rule 13a-15 under the Exchange Act, our management, including Mr.
Dongliang Chen, our Chief Executive Officer and Mr. Richard Liu, our Chief
Financial Officer, evaluated the effectiveness of the design and operation of
our disclosure controls and procedures as of March 31, 2010.  Based on
that evaluation, Mr. Dongliang Chen and Mr. Liu concluded that, because of the
material weaknesses described in Item 4 “Controls and Procedures” on our
quarterly report on Form 10-Q for the fiscal quarter ended December 31, 2009,
which we are still in the process of remediating, as of March 31, 2010, our
disclosure controls and procedures were not effective.  Investors are
directed to Item 4 of our quarterly report on Form 10-Q for the fiscal quarter
ended December 31, 2009 for the description of these weaknesses.





Changes
in Internal Control over Financial Reporting.




We
regularly review our system of internal control over financial reporting and
make changes to our processes and systems to improve controls and increase
efficiency, while ensuring that we maintain an effective internal control
environment. Changes may include such activities as implementing new, more
efficient systems, consolidating activities, and migrating
processes.




During
its evaluation of the effectiveness of internal control over financial reporting
as of December 31, 2009, the management concluded that: (1) we lacked qualified
resources to perform our internal audit functions properly and that we have not
yet fully developed the scope and effectiveness of our internal audit function;
(2) we lacked an audit committee within our board to oversee the financial
reporting pursuant to US GAAP and the SEC's rules and regulations; and (3) our
accounting staff lacked sufficient accounting skills and experience necessary to
fulfill our public reporting obligations according to US GAAP and the SEC's
rules and regulations.




The
Company has already taken measures to remediate these material weaknesses by
seeking an additional financial reporting and accounting staff member with
relevant accounting experience, skills and knowledge in the preparation of
financial statements in accordance with of U.S. GAAP and financial reporting
disclosure requirements under SEC rules.  The Company’s first step in
this regard is the recent appointment of Mr. Richard Liu as Chief Financial
Officer by our Board of Directors. Mr. Liu is an experienced professional in the
field of financial reporting and other related areas, from the commencement of
his career as an accounting professional at Arthur Andersen, LLP, through to his
service as CFO for China Energy Recovery, Inc., a clean technology and
alternative energy company listed on the OTCBB.  Mr. Liu holds an MBA
degree from UCLA and obtained his B.E. degree from Shanghai Jiao Tong University
in China.  Mr. Liu is also a member of the Chinese Institute of
Certified Public Accountants (CICPA). The Company believes that Mr. Liu brings
the sufficient accounting skills and experience necessary to enable us to
implement and reinforce a rigorous process for collecting and reviewing
information required for the preparation of the financial statement, and help us
fulfill our public accounting obligations according to US GAAP and the SEC’s
rules and regulations.




In April
2010, the Company engaged a professional consulting firm experienced in handling
compliance with the requirements of the Sarbanes-Oxley Act of 2002 with respect
to internal control over financial reporting in order to assist the Company with
improving its internal controls and meet the requirements of Sarbanes-Oxley Act
of 2002. In the meantime, the Company has been searching and negotiating with
several qualified candidates to serve as the audit committee members so as to
establish an audit committee within the Board of Directors of the
Company.  The Company is also in the process of establishing an
internal audit function and will continue to hire more experienced personnel
with expertise in U.S. public company financial reporting.




Other
than the foregoing changes, there were no changes in our internal controls over
financial reporting during the second quarter of fiscal 2010 that have
materially affected, or are reasonably likely to materially affect our internal
control over financial reporting.




PART
II – OTHER INFORMATION




ITEM
      1.
            LEGAL
      PROCEEDINGS.





From time
to time, we may become involved in various lawsuits and legal proceedings, which
arise, in the ordinary course of business. We are currently not aware of any
such legal proceedings or claims that we believe will have a material adverse
affect on our business, financial condition or operating results. However,
litigation is subject to inherent uncertainties, and an adverse result in these,
or other matters, may arise from time to time that may harm our
business.




27





ITEM
      1A.
            RISK
      FACTORS.





The
Company's business, financial condition, operating results and cash flows can be
impacted by a number of factors, any one of which could cause the Company's
actual results to vary materially from recent results or from the Company's
anticipated future results. The consummation of the Acquisition caused
the Company to materially change the risk factors previously disclosed in
the Company's Annual Report on Form 10-K for the year ended December 31, 2008
(the prior year end). For a discussion identifying risk factors and
important factors that could cause actual results to differ materially from
those anticipated, see the Company's Current Report on Form 8-K filed with
the SEC on November 17, 2009. Such discussion contained therein has not
materially changed since then.  The risks described in our Current
Report on Form 8-K filed with the SEC on November 17, 2009 are not the only
risks we face.  Additional risks and uncertainties not currently known
or that may develop in the future to us or that we currently deem to be
immaterial or that may develop in the future also may materially adversely
affect our future business, financial condition and/or operating
results.





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




On April
21, 2010, we consummated a share purchase agreement, dated April 16, 2010,
between the Company and an Institutional Investor, pursuant to which the
Investor purchased (i) 609,557 shares of our common stock, for an aggregate
purchase price of $3,000,000, or $4.92 per share, and (ii) a five year warrant
to purchase up to an additional 80,956 shares of our common stock at an exercise
price of $6.75 per share.  We agreed to give the Investor piggy-back
resale registration rights in connection with the purchase, as well as a right
of first refusal with respect to any new shares of common stock issued by us in
connection with any future private offering.  We also agreed to grant the
Investor the right to equally participate in any future sale by the principal
shareholders of shares in the Company to a third party. For additional
information about such sale, see our Current Report on Form 8-K filed with the
SEC on April 21, 2010.





ITEM
      3.
            DEFAULTS
      UPON SENIOR SECURITIES.





None.





ITEM
      4.
            (REMOVED
      AND RESERVED).




ITEM
      5.
            OTHER
      INFORMATION.




We have
no information to include that was required to be but was not disclosed in a
report on Form 8-K during the period covered by this Form 10-Q. There have been
no material changes to the procedures by which security holders may recommend
nominees to our board of directors.




ITEM
      6.
            EXHIBITS.





The
following exhibits are filed as part of this report or incorporated by
reference:





(a)
Exhibits





Exhibit
      Number
            
            Description31.1
            
            Certifications
      of Chief Executive Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
            
            Certifications
      of Chief Financial Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232.1
            
            Certifications
      of Chief Executive Officer Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200232.2
            
            Certifications
      of Chief Financial Officer Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002




28





SIGNATURES





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




CHINA
      POLYPEPTIDE GROUP, INC.Date:
      May 17, 2010
              By:
              /s/
      Dongliang ChenName: Dongliang
      ChenTitle: Chairman
      and Chief Executive Officer(Principal Executive
      Officer)
  Date:
      May 17, 2010
              By:
              /s/
      Richard LiuName: Richard
      LiuTitle: Chief
      Financial Officer(Principal Accounting and
      Financial Officer)




29




EXHIBIT
INDEX







Exhibit
      Number
            
            Description31.1
            
            Certifications
      of Chief Executive Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
            
            Certifications
      of Chief Financial Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232.1
            
            Certifications
      of Chief Executive Officer Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200232.2
            
            Certifications
      of Chief Financial Officer Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002





30