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 December 31, 2009
 
  ̈
              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
Economical Development Zone
 Wuhan,
P.R. China 430023
 (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.  Yesx
  No  ̈
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files.) Yes ̈
  No  ̈
 
 Indicate
by check mark 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 ̈
              Accelerated
      filer ̈Non-accelerated
      filer ̈ (Do not check if
      a smaller reporting company)
              Smaller
      reporting companyx
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.): Yes ̈Nox
  Number of
shares outstanding of the registrant's common stock as of February 19,
2010:
 
 10,666,667shares of Common Stock, $0.0001 par
value per share
  
 
 TABLE
OF CONTENTS
 
 PagePART
      I - FINANCIAL INFORMATIONItem
      1.
                Unaudited
      Consolidated Financial Statements
                1Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                19Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                25Item
      4.
                Controls
      and Procedures
                25PART
      II - OTHER INFORMATIONItem
      1.
                Legal
      Proceedings
                27Item
      1A.
                Risk
      Factors
                27Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                27Item
      3.
                Defaults
      Upon Senior Securities
                27Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                27Item
      5.
                Other
      Information
                27Item
      6.
                Exhibits
                27SIGNATURES
                28
  2
 
 PART
I – FINANCIAL INFORMATION
 
 Item
1.          Unaudited
Consolidated Financial
Statements
 
 China
Polypeptide Group, Inc. and Subsidiaries
 Consolidated
Balance Sheets
  December 31, 2009
                    
                    
                    September 30, 2009UnauditedAssetsCurrent
      assetsCash
      and cash equivalents
                    
                    $
                    9,139,063
                    
                    
                    $
                    4,439,732Accounts
      receivable, net
                    
                    
                    10,517,102
                    
                    
                    
                    14,666,836Inventories,
      net
                    
                    
                    992,608
                    
                    
                    
                    970,685Prepayments
      and other receivables
                    
                    
                    6,199,845
                    
                    
                    
                    5,404,943Amounts
      due from staff
                    
                    
                    4,191,905
                    
                    
                    
                    5,460,867Deferred
      tax assets
                    
                    
                    256,876
                    
                    
                    
                    277,335Other
      assets
                    
                    
                    410,585
                    
                    
                    
                    411,824Total
      Current Assets
                    
                    
                    31,707,984
                    
                    
                    
                    31,632,222Non-current
      assetsProperty,
      plant and equipment, net
                    
                    
                    6,902,666
                    
                    
                    
                    6,943,440Investment
      in equity affiliates
                    
                    
                    245,685
                    
                    
                    
                    254,286Land
      use right, net
                    
                    
                    280,107
                    
                    
                    
                    280,953Deposit
      for land use right
                    
                    
                    2,778,915
                    
                    
                    
                    440,100Goodwill
                    
                    
                    113,450
                    
                    
                    
                    113,792$
                    42,028,807
                    
                    
                    $
                    39,664,793Liabilities
      and Shareholders’ EquityCurrent
      liabilitiesAccounts
      payable
                    
                    $
                    373,594
                    
                    
                    $
                    573,401Accrued
      expenses and other liabilities
                    
                    
                    1,908,487
                    
                    
                    
                    2,449,129Taxes
      payable
                    
                    
                    6,542,461
                    
                    
                    
                    6,404,040Short-term
      loans
                    
                    
                    533,498
                    
                    
                    
                    566,262Deferred
      revenue
                    
                    
                    3,910,502
                    
                    
                    
                    3,928,804Advanced
      subscription payments
                    
                    
                    2,244,858
                    
                    
                    
                    -Amounts
      due to related companies
                    
                    
                    446,779
                    
                    
                    
                    7,097,865Total
      Current Liabilities
                    
                    
                    15,960,179
                    
                    
                    
                    21,019,501Shareholders’
      equityPreferred
      stock: 1,000,000 shares authorized, $0.0001 par value, none issued or
      outstanding as of December 31, 2009 and September 30, 2009,
      respectively
                    
                    
                    -
                    
                    
                    
                    -Common
      stock: 120,000,000 shares authorized, $0.0001 par value, 10,000,000 shares
      and 8,800,000 shares issued and outstanding as of December 31, 2009 and
      September 30, 2009, respectively
                    
                    
                    1,000
                    
                    
                    
                    880Additional
      paid-in capital
                    
                    
                    7,244,386
                    
                    
                    
                    638,404Unappropriated
      retained earnings
                    
                    
                    16,878,714
                    
                    
                    
                    16,842,439Appropriated
      retained earnings
                    
                    
                    1,997,324
                    
                    
                    
                    1,144,448Accumulated
      other comprehensive income (loss)
                    
                    
                    (52,796
                    )
                    
                    
                    19,121Total
      Shareholders’ Equity
                    
                    
                    26,068,628
                    
                    
                    
                    18,645,292$
                    42,028,807
                    
                    
                    $
                    39,664,793
  See notes
to consolidated financial statements.
  3
  China
Polypeptide Group, Inc. and Subsidiaries
 Consolidated
Statements of Income and Comprehensive Income
 
 Three months ended December
    31,2009
                  
                  
                  2008Unaudited
                  
                  
                  UnauditedRevenues
                  
                  $
                  5,746,590
                  
                  
                  $
                  9,547,337Cost
      of sales
                  
                  
                  276,574
                  
                  
                  
                  740,997Gross
      profit
                  
                  
                  5,470,016
                  
                  
                  
                  8,806,340Operating
      expensesSelling
      and administrative expenses
                  
                  
                  4,302,838
                  
                  
                  
                  4,409,304Operating
      income
                  
                  
                  1,167,178
                  
                  
                  
                  4,397,036Other
      income (expense)Interest
      expense, net
                  
                  
                  (17,560
                  )
                  
                  
                  (12,762
                  )Equity
      in (loss)/gain in affiliates
                  
                  
                  (7,837
                  )
                  
                  
                  35,291Other
      operating loss
                  
                  
                  (6,169
                  )
                  
                  
                  (167
                  )(31,566
                  )
                  
                  
                  22,362Income
      before income tax expense
                  
                  
                  1,135,612
                  
                  
                  
                  4,419,398Income
      tax expense
                  
                  
                  (246,461
                  )
                  
                  
                  (1,131,741
                  )Net
      income
                  
                  
                  889,151
                  
                  
                  
                  3,287,657Other
      comprehensive incomeForeign
      currency translation gain (loss)
                  
                  
                  (71,918
                  )
                  
                  
                  528Comprehensive
      income
                  
                  $
                  817,233
                  
                  
                  $
                  3,288,185Earnings
      per shareBasic
      and diluted
                  
                  $
                  0.094
                  
                  
                  $
                  0.374Weighted
      average number of common shares outstanding:Basic
      and diluted
                  
                  
                  9,439,130
                  
                  
                  
                  8,800,000
  See notes
to consolidated financial statements.
  4
 
 China
Polypeptide Group, Inc. and Subsidiaries
 Consolidated
Statements of Cash Flows
 
 Three months ended December
    31,2009
                  
                  
                  2008Unaudited
                  
                  
                  UnauditedCash
      flow from operating activitiesNet
      income
                  
                  $
                  889,151
                  
                  
                  $
                  3,287,657Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activitiesDepreciation
      and amortization
                  
                  
                  112,132
                  
                  
                  
                  70,385Bad
      debt provision
                  
                  
                  83,181
                  
                  
                  
                  (74,177
                  )Equity
      in loss/(gain) in affiliates
                  
                  
                  7,837
                  
                  
                  
                  (35,291
                  )Changes
      in operating assets and liabilitiesAccounts
      receivable
                  
                  
                  4,010,611
                  
                  
                  
                  (3,702,679
                  )Inventories
                  
                  
                  (24,847
                  )
                  
                  
                  190,001Prepayments
      and other receivables
                  
                  
                  (798,773
                  )
                  
                  
                  (418,174
                  )Amounts
      due from staff
                  
                  
                  1,252,750
                  
                  
                  
                  -Other
      assets
                  
                  
                  19,629
                  
                  
                  
                  (20,864
                  )Accounts
      payable
                  
                  
                  (198,116
                  )
                  
                  
                  (27,923
                  )Taxes
      payable
                  
                  
                  157,712
                  
                  
                  
                  1,312,896Accrued
      expenses and other current liabilities
                  
                  
                  (535,655
                  )
                  
                  
                  (170,836
                  )Net
      cash provided by operating activities
                  
                  
                  4,975,612
                  
                  
                  
                  410,995Cash
      flow from investing activitiesPurchases
      of property, plant and equipment
                  
                  
                  (92,242
                  )
                  
                  
                  (32,813
                  )Cash
      paid to acquire land use right
                  
                  
                  (2,340,541
                  )
                  
                  
                  -Net
      cash used in investing activities
                  
                  
                  (2,432,783
                  )
                  
                  
                  (32,813
                  )Cash
      flow from financing activitiesProceeds
      from private placement
                  
                  
                  2,239,610
                  
                  
                  
                  -Repayment
      of related parties loans
                  
                  
                  (44,397
                  )
                  
                  
                  -Repayment
      on long-term bank loan
                  
                  
                  (31,066
                  )
                  
                  
                  (8,755
                  )Net
      cash provided by (used in) financing activities
                  
                  
                  2,164,147
                  
                  
                  
                  (8,755
                  )Effect
      of exchange rate fluctuation on cash and cash equivalents
                  
                  
                  (7,645
                  )
                  
                  
                  726Net
      increase in cash and cash equivalents
                  
                  
                  4,699,331
                  
                  
                  
                  370,153Cash
      and cash equivalents, beginning of period
                  
                  
                  4,439,732
                  
                  
                  
                  5,918,414Cash
      and cash equivalents, end of period
                  
                  $
                  9,139,063
                  
                  
                  $
                  6,288,567Supplemental
      disclosure of cash flow information:Income
      taxes paid
                  
                  $
                  42,777
                  
                  
                  $
                  334,027Interest
      paid
                  
                  $
                  22,070
                  
                  
                  $
                  12,781
 
 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 individuals, 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.
  6
 
 China
Polypeptide Group, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements (Unaudited)
  CPGI,
Cantix, Moneyeasy, Wuhan Tallyho, Guangdong Hopsun and Anti-aging are
collectively hereinafter referred to as the “Company”.
  Note
2 - Summary of Significant Accounting Policies and Practices
  (a) Basis
of Presentation
  The
consolidated financial statements for the three months ended December 31, 2009
and 2008 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 December 31, 2009, and consolidated results of operations, and
cash flows for the three month periods ended December 31 2009 and 2008, 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 December 31, 2009 and September 30, 2009 $810,984 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 December 31, 2009 and
September 30, 2009, $53,515 and $54,263 allowances for doubtful accounts were
provided respectively (note 7).
  7
  China
Polypeptide Group, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements (Unaudited)
  (g)
Property, Plant and Equipment
  Property,
plant and equipment are stated at cost less accumulated depreciation and
impairment.
  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 December 31, 2009 and September
30, 2009.
  (j)
Investment in Equity Affiliates
  Investment
in affiliates consists of ownership in associated companies, which the Company
exercises significant influence, are 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.
  8
  China
Polypeptide Group, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements (Unaudited)
  (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 December
31, 2009 and September 30, 2009, $1,997,324 and $1,144,448 were provided for
statutory surplus reserve.
  (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.
  In the
PRC, value added tax (the “VAT”) of 17% on invoice amount is collected in
respect of the sales of goods on behalf of tax authorities. The VAT collected is
not revenue of the Company; instead, the amount is recorded as a liability on
the balance sheet until such VAT is paid to the authorities.
  (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 $53,038 and $32,148 for the
three months ended December 31, 2009 and 2008 respectively were recorded in the
administrative expenses.
  (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:
 December 31,2009
                    
                    
                    September 30, 2009Period
      (Year) end RMB exchange rate
                    
                    
                    6.8372
                    
                    
                    
                    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.
  9
  China
Polypeptide Group, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements (Unaudited)
  (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.
  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 June
2009, the FASB issued Accounting Standards Update No. 2009-01, “Generally Accepted Accounting
Principles” (“ASC Topic 105”) which establishes the FASB Accounting
Standards Codification (“the Codification” or “ASC”) as the official single
source of authoritative U.S. GAAP. All existing accounting standards are
superseded. All other accounting guidance not included in the Codification will
be considered non-authoritative. The Codification also includes all relevant
Securities and Exchange Commission (“SEC”) guidance organized using the same
topical structure in separate sections within the Codification.
  10
 
 China
Polypeptide Group, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements (Unaudited)
 
 Following
the Codification, the Board will not issue new standards in the form of
Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts.
Instead, it will issue Accounting Standards Updates (“ASU”) which will serve to
update the Codification, provide background information about the guidance and
provide the basis for conclusions on the changes to the
Codification.
 
 The
Codification is not intended to change GAAP, but it will change the way GAAP is
organized and presented. The Codification is effective for our 2009 annual
consolidated financial statements and the principal impact on our financial
statements is limited to disclosures as all future references to authoritative
accounting literature will be referenced in accordance with the Codification. In
order to ease the transition to the Codification, we are providing the
Codification cross-reference alongside the references to the standards issued
and adopted prior to the adoption of the Codification.
 
 Fair
Value Accounting
 
 In 2006,
the FASB issued SFAS No. 157, “Fair Value Measurements”
(“ASC Topic 820”) which defines fair value, establishes a market-based framework
or hierarchy for measuring fair value and expands disclosures about fair value
measurements. This guidance is applicable whenever another accounting
pronouncement requires or permits assets and liabilities to be measured at fair
value. It does not expand or require any new fair value measures; however the
application of this statement may change current practice.
 
 In April
2009, the FASB issued the following updates that provide additional application
guidance and enhance disclosures regarding fair value measurements and
impairments of securities:
  FSP FAS
157-4, “Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly” (“ASC Topic 820-10-65”). This update relates to
determining fair values when there is no active market or where the price inputs
being used represent distressed sales. It reaffirms the need to exercise
judgment to ascertain if a formerly active market has become inactive and in
determining fair values when markets have become inactive.
 
 FSP FAS
115-2 and FAS 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments” (“ASC topic 320-10-65”). This update
applies to investments in debt securities for which other-than-temporary
impairments may be recorded. If an entity’s management asserts that it does not
have the intent to sell a debt security and it is more likely than not that it
will not have to sell the security before recovery of its cost basis, then an
entity may separate other-than-temporary impairments into two components: 1) the
amount related to credit losses (recorded in earnings) and 2) all other amounts
(recorded in Other comprehensive income).
  FSP
FAS 107-1 and APB 28-1,“Interim Disclosures about Fair Value of Financial Instruments”(“ASC
Topic 320-10-65”). This update requires fair value disclosures for financial
instruments that are not currently reflected on the balance sheet at fair value
on a quarterly basis.
 
 In August
2009, FASB issued ASU No. 2009-05 which amends Fair Value Measurements and
Disclosures – Overall (“ASC Topic 820-10”) to provide guidance on the fair value
measurement of liabilities. This update requires clarification for circumstances
in which a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or
more of the following techniques: 1) a valuation technique that uses either the
quoted price of the identical liability when traded as an asset or quoted prices
for similar liabilities or similar liabilities when traded as an asset; or 2)
another valuation technique that is consistent with the principles in ASC Topic
820 such as the income and market approach to valuation. The amendments in this
update also clarify that when estimating the fair value of a liability, a
reporting entity is not required to include a separate input or adjustment to
other inputs relating to the existence of a restriction that prevents the
transfer of the liability. This update further clarifies that if the fair value
of a liability is determined by reference to a quoted price in an active market
for an identical liability, that price would be considered a Level 1 measurement
in the fair value hierarchy. Similarly, if the identical liability has a quoted
price when traded as an asset in an active market, it is also a Level 1 fair
value measurement if no adjustments to the quoted price of the asset are
required. Although management will continue to evaluate the application of ASC
Topic 820 and its subsequent and related updates, management does not currently
believe the adoption of ASC Topic 820 and its subsequent and related updates
will have a material impact on the Company’s results of operations or financial
position.
 
 Business
Combinations
 
 In 2007,
the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“ASC
Topic 805”). This guidance requires the acquiring entity in a business
combination to recognize the full fair value of assets acquired and liabilities
assumed in the transaction (whether a full or partial acquisition); establishes
the acquisition date fair value as the measurement objective for all assets
acquired and liabilities assumed; requires expensing of most transaction and
restructuring costs; and requires the acquirer to disclose the information
necessary to evaluate and understand the nature and financial effect of the
business combination. The impact of ASC 805 on our consolidated financial
statements will depend upon the nature, terms and size of the acquisitions we
consummate in the future.
   11
 
 China
Polypeptide Group, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements (Unaudited)
 
 In April
2009, the FASB issued Staff Position No. FSP FAS 141(R)-1, “Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies” (“ASC Topic 805-20”). This updated guidance amended the
accounting treatment for assets and liabilities arising from contingencies in a
business combination and requires that pre-acquisition contingencies be
recognized at fair value, if fair value can be reasonably determined. If fair
value cannot be reasonably determined, measurement should be based on the best
estimate in accordance with SFAS No. 5, “Accounting for Contingencies”
(“ASC Topic 405”). The Company does not have any assets acquired or liabilities
assumed in a business combination that arise from contingencies.
 
 Other
Accounting Changes
 
 In June
2009, the FASB issued the following standards:
 
 SFAS No.
166, “Accounting for Transfers of Financial Assets” (“ASC Topic 860”). This
updated guidance removed the concept of a qualifying special-purpose entity and
removed the exception from applying consolidation guidance to these entities.
This update also clarified the requirements for isolation and limitations on
portions of financial assets that are eligible for sale accounting. ASC Topic
810 is effective for our fiscal year beginning on January 1, 2010. We are
currently evaluating the potential impact the adoption of this Statement will
have on its financial statements.
 
 In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“ASC Topic 855”), which
is effective for interim or annual financial periods ending after June 15, 2009.
ASC Topic 855 establishes general standards of accounting and disclosure of
events that occur after the balance sheet but before financial statements are
issued or are available to be issued. However, since the Company is a public
entity, management is required to evaluate subsequent events through the date
that financial statements are issued and disclose the date through which
subsequent events have been evaluated, as well as the date the financial
statements were issued. ASC Topic 855 was adopted since its interim period ended
June 30, 2009. Subsequent events for the year ended September 30, 2009 have been
evaluated through February 12, 2009, the date the financial statements were
issued.
 
 During
2009, the FASB has issued several ASU’s – ASU No. 2009-02 through ASU No.
2009-15. Except for ASU’s No. 2009-05, 2009-13 and 2009-14 discussed above, the
ASU’s entail technical corrections to existing guidance or affect guidance
related to specialized industries or entities and therefore have minimal, if
any, impact on the Company.
 
 In 2008,
the FASB issued Staff Position No. FAS 132(R)-1, “Employers’ Disclosures about
Postretirement Benefit Plan Assets” (“ASC Topic 715-20-65”). This guidance will
expand disclosure by requiring the following new disclosures: 1) how investment
allocation decisions are made by management; 2) major categories of plan assets;
and 3) significant concentrations of risk. Additionally, ASC 715-20-65 will
require an employer to disclose information about the valuation of plan assets
similar to that required in ASC Topic 820 Fair Value Measurements and
Disclosures. We are currently evaluating the potential impact the adoption of
this Statement will have on its financial statements.
 
 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.
  12
 
 China
Polypeptide Group, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements (Unaudited)
  The top
three third-party customers accounted for approximately 1.4% of the consolidated
revenues for the three months ended December 31, 2009 and the top two
third-party customers accounted for approximately 36% of the consolidated
revenues for the three months ended December 31, 2008. The top seven third-party
customers accounted for 93% of the accounts receivable as of December 31, 2009
and the top seven third-party customers accounted for 91% of the accounts
receivable as of September 30, 2009.
  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 three months ended December 31, 2009 and 2008:
 
 2009
                          
                          
                          2008For
      the three months ended December 31, 2009 and 2008Net
      income for basic and diluted earnings per share
                          
                          $
                          889,151
                          
                          
                          $
                          3,287,657Weighted
      average number of common shares outstanding - basic
                          
                          
                          9,439,130
                          
                          
                          
                          8,800,000Diluted
      effect
                          
                          
                          -
                          
                          
                          
                          -Weighted
      average shares - diluted
                          
                          
                          9,439,130
                          
                          
                          
                          8,800,000Earnings
      per share:Basic
      and diluted
                          
                          $
                          0.094
                          
                          
                          $
                          0.374
  Note
5 - Accounts Receivable
 December 31, 2009
                    
                    
                    September 30, 2009Accounts
      receivable
                    
                    
                    11,328,086
                    
                    
                    $
                    15,384,287Allowance
      for doubtful accounts
                    
                    
                    (810,984
                    )
                    
                    
                    (717,451
                    )10,517,102
                    
                    
                    $
                    14,666,836
  Note
6 - Inventories
 December 31, 2009
                    
                    
                    September 30, 2009Raw
      materials
                    
                    $
                    139,957
                    
                    
                    $
                    159,523Work
      in progress
                    
                    
                    167,135
                    
                    
                    
                    145,145Finished
      goods
                    
                    
                    747,491
                    
                    
                    
                    706,657Low-value
      consumables and Packaging materials
                    
                    
                    94,187
                    
                    
                    
                    115,993Total
      Inventories
                    
                    
                    1,148,770
                    
                    
                    
                    1,127,318Allowance
      for inventory obsolescence
                    
                    
                    (156,162
                    )
                    
                    
                    (156,633
                    )$
                    992,608
                    
                    
                    $
                    970,685
  Note
7 - Prepayments and Other Receivables
  December 31, 2009
                    
                    
                    September 30, 2009Other
      receivables
                    
                    $
                    1,246,324
                    
                    
                    $
                    995,284Advance
      to suppliers
                    
                    
                    821,112
                    
                    
                    
                    456,079Shenzhen
      Era Biotechnology Co., Limited (a)
                    
                    
                    4,185,924
                    
                    
                    
                    4,007,844Total
      Prepayments and Other Receivables
                    
                    
                    6,253,360
                    
                    
                    
                    5,459,206Allowance
      for doubtful accounts
                    
                    
                    (53,515
                    )
                    
                    
                    (54,263
                    )$
                    6,199,845
                    
                    
                    $
                    5,404,943
  (a)
                  As
      of December 31, 2009, the Company had an outstanding loan of $4,185,924
      (RMB28,620,000), in aggregate, to Shenzhen Era Biotechnology Co., Limited
      (“Shenzhen Era Biotechnology”).  $2,267,010 (RMB15,500,000) of
      such loan was due on August 11, 2009 with interest accruing at the rate of
      9.36% per annum. Such portion of the loan was extended to July 28, 2010 on
      July 28, 2009. The $1,918,914 (RMB13,120,000) 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.
  13
  China
Polypeptide Group, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements (Unaudited)
  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, which were subsequently deposited in the Company’s
account. Amounts due from staff amounted to $4,191,905 and $5,460,867 as of
December 31, 2009 and September 30, 2009, respectively.
  Note
9 – Property, Plant and Equipment
  December 31, 2009
                    
                    
                    September 30, 2009Buildings
                    
                    $
                    2,256,251
                    
                    
                    $
                    2,263,059Machinery
      and equipment
                    
                    
                    623,864
                    
                    
                    
                    629,806Furniture
      and office equipment
                    
                    
                    390,068
                    
                    
                    
                    294,680Motor
      vehicles
                    
                    
                    627,767
                    
                    
                    
                    629,6613,897,950
                    
                    
                    
                    3,817,206Accumulated
      depreciation
                    
                    
                    (1,383,045
                    )
                    
                    
                    (1,274,766
                    )Construction
      in progress
                    
                    
                    4,387,761
                    
                    
                    
                    4,401,000$
                    6,902,666
                    
                    
                    $
                    6,943,440
  A
building owned by the Company with net book value of $1,039,725 (RMB7,108,806)
was pledged by the Company to Xianfeng Rural Credit Co-operative of Wuhan for a
loan of $731,294 (RMB5,000,000), borrowed by Wuhan Pan-Asia Peptide Material
Research Co. Limited (“Wuhan Pan-Asia”), an unrelated 3rd party.
Wuhan Pan-Asia entered into an agreement with the Company for a loan facility of
$731,294 (RMB5,000,000) to the Company in exchange for the pledge. As of
December 31, 2009, the Company borrowed a total of $778,058 (RMB5,319,739) from
Wuhan Pan-Asia (note 16).
  Depreciation
expense for the three months ended December 31, 2009 and 2008 was $72,930 and
$70,385, respectively.
  As of
December 31, 2009, the construction of a new factory was located in Jianghan
Economical Development Zone in Hubei Province, the PRC (note 22).
  Note
10 - Land Use Rights
  As of
December 31, 2009, 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 $280,107. 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 governments to
secure the land lots for future purchase. In December 2008, the Company paid a
deposit of $440,100 for the land use right of a land lot in Guangzhou Science
Zone for future regional headquarters and research and development center
purpose. The Company has paid, in aggregate, $2,778,915 to the government and
the remaining consideration of approximately $1,755,104 will be paid around
March 2010. Therefore, as of December 31, 2009 and September 30, 2009, deposit
for land use rights amounted to $2,778,915 and $440,100,
respectively.
  14
  China
Polypeptide Group, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements (Unaudited)
  Note
12 – Investment in Equity Affiliates
  As of
December 31, 2009, 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 $245,685 and $254,286 at December 31,
2009 and September 30, 2009, respectively, which includes the Company’s share of
accumulated losses in these affiliates of $7,837 for the three months ended
December 31, 2009 and a gain of $35,291 for the same period in
2008.
  Note
13 - Other Assets
  Other
assets represented equipment held for sale. The Company acted as a guarantor for
a loan amount of $410,585 (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
                          
                          
                          December 31,2009
                          
                          
                          September 30, 2009Lender
                          
                          annum
                          
                          
                          RMB
                          
                          
                          USD
                          
                          
                          RMB
                          
                          
                          USDAgriculture Bank of ChinaThe
      term of the loan has expired in September 2003 (note 13)
                          
                          
                          5.84
                          %
                          
                          
                          2,147,632
                          
                          
                          
                          314,110
                          
                          
                          
                          2,360,000
                          
                          
                          
                          346,211Wuhan Finance BureauThe
      term of the loan has expired in November 2001
                          
                          
                          5.94
                          %
                          
                          
                          1,500,000
                          
                          
                          
                          219,388
                          
                          
                          
                          1,500,000
                          
                          
                          
                          220,051Total
      bank loans
                          
                          
                          
                          
                          
                          3,247,632
                          
                          
                          
                          533,498
                          
                          
                          
                          3,860,000
                          
                          
                          
                          566,262
  The
weighted average interest rate of short-term bank loans was 5.88% per
annum.
  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 total
amount of interest expenses for the three months ended
December 31, 2009 and September 30, 2009 were $22,070 and $12,781
respectively.
  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 December 31, 2009 and September 30, 2009, deferred
revenue amounted to $3,910,502 and $3,928,804, respectively.
  15
  China
Polypeptide Group, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements (Unaudited)
  Note
16 - Accrued Expenses and Other Liabilities
  December 31, 2009
                    
                    
                    September 30, 2009Advance
      from customers
                    
                    $
                    1,176
                    
                    
                    $
                    3,738Accrued
      payroll
                    
                    
                    83,925
                    
                    
                    
                    87,891Accrued
      expense
                    
                    
                    169,398
                    
                    
                    
                    134,146Other
      payables-
      Wuhan Pan-Asia
                    
                    
                    778,058
                    
                    
                    
                    679,223-
      Guangzhou Shunfa Garment Factory
                    
                    
                    -
                    
                    
                    
                    564,428-
      Wuhan Xinwang Investment Management Company
                    
                    
                    384,915
                    
                    
                    
                    386,077-
      Malaysia Phoenix Company
                    
                    
                    116,700
                    
                    
                    
                    117,052Others
                    
                    
                    374,316
                    
                    
                    
                    476,574$
                    1,908,487
                    
                    
                    $
                    2,449,129
  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 three months ended December 31, 2009
and 2008.
  Guangdong
Hopsun, registered in the City of Guangzhou in the PRC, is subject to the
Enterprise Income Tax rate of 25% for the three months ended December 31, 2008.
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 December 31,
2009.
  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 $22,246 for the three months ended December 31, 2009 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.
  December 31, 2009
                    
                    
                    September 30, 2009VAT
      payable
                    
                    
                    2,585,654
                    
                    
                    $
                    2,629,954Income
      tax payable
                    
                    
                    3,768,201
                    
                    
                    
                    3,569,913Other
      taxes payable
                    
                    
                    188,606
                    
                    
                    
                    204,1736,542,461
                    
                    
                    $
                    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 SFAS 109.  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.
  16
  China
Polypeptide Group, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements (Unaudited)
  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 period ended December 31, 2009 and year ended
September 30, 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:
  December
      31,
                      2009
                    
                    
                    September
      30,
                      2009Due
      to related companiesWuhan
      Hopsun Biological Products Inspection Company Limited
                    
                    $
                    446,779
                    
                    
                    $
                    450,642Xiu
      Chio Fa
                    
                    
                    -
                    
                    
                    
                    898,275Former
      equity holders of Wuhan Tallyho (a)
                    
                    
                    -
                    
                    
                    
                    5,748,948$
                    446,779
                    
                    
                    $
                    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
three months ended December 31, 2009 and 2008 was nil and $1,737.
  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 December 31, 2009 and
September 30, 2009. Rental expenses under these leases aggregated $33,602 and
$24,510 for the three months ended December 31, 2009 and 2008.
  Note
22 - Capital Commitments
  Capital
commitments for construction of a new facility (note 9) and the purchase of the
land use rights (note 10 and note 11) were approximately $6.64 million and
approximately $8.98 million as of December 31, 2009 and September 30, 2009,
respectively.
  17
  China
Polypeptide Group, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements (Unaudited)
  Note
23 – Shareholders’ Equity
  In
October 2009, Xiu Chio Fa, the shareholder of Cantix, settled the amounts due to
the former equity holders of Wuhan Tallyho for the outstanding acquisition
consideration of $5,854,361 (RMB40,230,000). In November 2009, pursuant to a
letter issued by Xiu Chio Fa to Cantix, he waived the receivable from Cantix
which amounted to approximately $6,605,982 (RMB45,030,000) which was recorded as
additional paid-in capital as of December 31, 2009.
 
 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.
  Note
24 - Subsequent Events
 
 Pursuant
to a Securities Purchase Agreement dated as of December 16, 2009 by and between
CPGI, and one institutional investor (the “Investor”), the Investor purchased
from CPGI for an aggregate purchase price of $3,600,000 (i) 666,667 shares of
common stock, par value U.S. $.0001 per share, and (ii) a 5 year warrant to
purchase up to an additional 333,333 shares of Common Stock at an exercise price
of U.S. $6.75 per share. $2.24 million of such purchase price was paid in
December 2009 and the remaining $1.36 million was paid in January
2010.
  18





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





Cautionary
Notice Regarding Forward-Looking Statements





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





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
(the “Securities Act”) and in Section 21E of the Securities Exchange Act of
1934, as amended (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.


19





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 (as defined below), CPGI was a development stage company and
had no material assets and no revenues. On November 13, 2009, CPGI acquired (the
“Acquisition”) all of the issued and outstanding capital stock of
Cantix.  As a result of the Acquisition, among other items (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
Company’s common stock is eligible for quotation on Over-the-Counter Bulletin
Board under the trading symbol of “CHPN”.  Because Cantix and its
affiliates’ operations are the only significant operations of the Company, this
discussion and analysis focuses on the business results of Cantix, comparing its
results in the three months ended December 31, 2009 to the three months ended
December 31, 2008.





Management’s
Discussion and Analysis of Financial Condition and Results of
Operations




The
following discussion of the financial condition and results of operations of the
Company for the three months ended December 31, 2009 and 2008 should be read in
conjunction with the unaudited consolidated financial statements and the notes
to those statements that are included elsewhere in this report.





General




Through
Cantix’s PRC operating subsidiaries, Tallyho, Hopsun, and Anti-Aging, we have
been principally engaged in research, development, manufacturing, marketing and
sales of polypeptide-based anti-aging nutritional supplements, health foods,
functional foods and related material products since 1996. We believe we are one
of the leading manufacturers of these products in China.   We have
over seventy (70) different types of polypeptide-based nutritional products,
health food and functional food products. Our products are sold to customers
both in China and abroad, with China currently being the primary market, through
a combined network of internal sales force, wholesalers and private labeled
partners.  In 2005, we began selling our polypeptide-based nutritional
supplement products in Taiwan and Malaysia through local
distributors.





We
believe that, domestically and internationally, we are one of the few companies
in our industry having combined competitive prices, high quality of diversified
nutritional products and customer services.  We believe that in China,
we are one of the largest companies focusing on developing, producing and
marketing functional peptide nutritional products with over 70% market share
currently. Our products are primarily manufacturedin our production
facilities located on 8,529 square meters 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 relevant Chinese
governmental hygiene and safety agencies such as the local bureaus of Ministry
of Health and the State Food and Drug Administration. Those that are being sold
in Malaysia have also been tested and approved by Ministry of Health
Malaysia. Our
research and development efforts are conducted at Tallyho’s facilities in Wuhan,
China.





Results
of Operations




Comparison
of the Three Months Ended December 31, 2009 and 2008





The
following table sets forth the results of our operations for the periods
indicated in dollars and as a percentage of revenues:





Three Months Ended December 31,2009
                    
                    
                    2008Amount
                    
                    
                    % of
                      Revenues
                    
                    
                    Amount
                    
                    
                    % of
                      Revenues(in dollars, except percentages)REVENUES
                    
                    $
                    5,746,590
                    
                    
                    
                    100.0
                    %
                    
                    $
                    9,547,337
                    
                    
                    
                    100.0
                    %COST
      OF SALES
                    
                    
                    276,574
                    
                    
                    
                    4.8
                    %
                    
                    
                    740,997
                    
                    
                    
                    7.8
                    %GROSS
      PROFIT
                    
                    
                    5,470,016
                    
                    
                    
                    95.2
                    %
                    
                    
                    8,806,340
                    
                    
                    
                    92.2
                    %SELLING
      AND ADMINISTRATIVE EXPENSES
                    
                    
                    4,302,838
                    
                    
                    
                    74.9
                    %
                    
                    
                    4,409,304
                    
                    
                    
                    46.2
                    %OPERATING
      INCOME
                    
                    
                    1,167,178
                    
                    
                    
                    20.3
                    %
                    
                    
                    4,397,036
                    
                    
                    
                    46.1
                    %OTHER
      INCOME (EXPENSE)Interest
      expense, net
                    
                    
                    (17,560
                    )
                    
                    
                    -0.3
                    %
                    
                    
                    (12,762
                    )
                    
                    
                    -0.1
                    %Equity
      in (loss)/gain in affiliates
                    
                    
                    (7,837
                    )
                    
                    
                    -0.1
                    %
                    
                    
                    35,291
                    
                    
                    
                    0.4
                    %Other
      operating loss
                    
                    
                    (6,169
                    )
                    
                    
                    -0.1
                    %
                    
                    
                    (167
                    )
                    
                    
                    0.0
                    %INCOME
      BEFOREINCOME
      TAX EXPENSE
                    
                    
                    1,135,612
                    
                    
                    
                    19.8
                    %
                    
                    
                    4,419,398
                    
                    
                    
                    46.3
                    %INCOME
      TAX EXPENSE
                    
                    
                    246,461
                    
                    
                    
                    4.3
                    %
                    
                    
                    1,131,741
                    
                    
                    
                    11.9
                    %NET
      INCOME
                    
                    
                    889,151
                    
                    
                    
                    15.5
                    %
                    
                    
                    3,287,657
                    
                    
                    
                    34.4
                    %OTHER
      COMPREHENSIVE INCOME (LOSS)Foreign
      currency translation gain (loss)
                    
                    
                    (71,918
                    )
                    
                    
                    -1.3
                    %
                    
                    
                    528
                    
                    
                    
                    0.0
                    %COMPREHENSIVE
      INCOME
                    
                    $
                    817,233
                    
                    
                    
                    14.2
                    %
                    
                    $
                    3,288,185
                    
                    
                    
                    34.4
                    %





Revenues.Revenues for the
three months ended December 31, 2009 decreased to $5,746,590 as compared to
$9,547,337 for the three months ended December 31, 2008, a decrease of
$3,800,747 or 39.8%.  The decrease is mainly attributable to the
Chinese Lunar New Year Day falling later this year (February 14, 2010) than that
of last year (January 26, 2009) that caused a substantial portion of our pre-new
year sales of our products, which generally have a 6 to 8 week sales season
prior to the Chinese New Year Day, to occur after the end of the three months
ended December 31, 2009, while a substantial portion of such sales occurred
during the three months ended December 31, 2008.





Cost of Sales.Cost of sales
for the three months ended December 31, 2009 totaled $276,574, or approximately
4.8% of revenues, compared to $740,997, or approximately 7.8% of revenues, for
the three months ended December 31, 2008, a decrease of $464,423 or
62.7%.  The decrease is mainly attributable to less overhead costs
allocated to the current cost of sales while more to the inventory prepared for
the Chinese Lunar New Year sales season largely in January
2010.  Given the overall market inflation expectation in China,
management believes that the prices of our raw materials will increase in
2010.  However, such inflationary impact, if any, on our results of
operations is expected to be minimal given our historical high gross
margin.





Gross Profit.Gross profit
decreased to $5,470,016 for the three months ended December 31, 2009 from
$8,806,340 for the three months ended December 31, 2008, a decrease of
$3,336,324 or 37.9%.  The respective gross margins are 95.2% and 92.2%
for the three months ended December 31, 2009 and 2008.  The decrease
in gross profit is mainly due to the decrease of revenues.





Selling and Administrative Expenses.Selling and administrative expenses for the three months ended December
31, 2009 totaled $4,302,838 or approximately 74.9%
of revenues, compared to $4,409,304 or approximately 46.2%
of revenues, for the same period in 2008, a decrease of $106,466 or
2.4%.  Though the absolute value of selling and administrative
expenses decreased, the proportion to revenues significantly increased. The
significant increase in the proportion to revenues is mainly attributable to the
decrease of revenues.





Operating Income.Operating
income amounted to $1,167,178, or approximately
20.3% of revenues, for the three months ended December 31, 2009 as compared to
$4,397,036, or
approximately 46.1% of revenues, for the three months ended December 31, 2008, a
decrease of $3,229,858 or 73.5%. The decrease in operating income is mainly
attributable to the decrease of revenues.





Interest Expense.Net
interest expense totaled $17,560 for the three months ended December 31, 2009,
as compared to interest expense of $12,762 for the three months ended December
31, 2008, an increase of $4,798. 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 $7,837 for the
three months ended December 31, 2009, as compared to the equity in gain in
affiliates of $35,291 for the three months ended December 31, 2008, an absolute
change of $43,128.  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 equity method to account for such an investment.


20





Income before Income Tax
Expense. Income before income tax expense was $1,135,612, or approximately
19.8% of revenues, for the three months ended December 31, 2009 as compared to
$4,419,398, or
approximately 46.3% of revenues, for the three months ended December 31, 2008, a
decrease of $3,283,786 or 74.3%. The decrease in income before income tax
expense is mainly attributable to the decrease of revenues.





Net Income.Net income
amounted to $889,151, or
approximately 15.5% of revenues, for the three months ended December 31, 2009 as
compared to $3,287,657, or
approximately 34.4% of revenues, for the three months ended December 31, 2008, a
decrease of $2,398,506 or 73.0%. The decrease in net income is mainly
attributable to decreased revenues with a level of selling and administrative
expenses similar to that during the same period in 2008.  Although no
assurance can be given, management believes that our revenues and net income
will 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, 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





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





Three Months Ended December 31,2009
                            
                            
                            2008(in dollars)Net
      cash provided by operating activities
                            
                            
                            4,975,612
                            
                            
                            
                            410,995Net
      cash used in investing activities
                            
                            
                            (2,432,783
                            )
                            
                            
                            (32,813
                            )Net
      cash provided by (used in) financing activities
                            
                            
                            2,164,147
                            
                            
                            
                            (8,755
                            )Effect
      of exchange rate fluctuation on cash and cash
    equivalents
                            
                            
                            (7,645
                            )
                            
                            
                            726Net
      increase in cash and cash equivalents
                            
                            
                            4,699,331
                            
                            
                            
                            370,153Cash
      and cash equivalents, beginning of period
                            
                            
                            4,439,732
                            
                            
                            
                            5,918,414Cash
      and cash equivalents, end of period
                            
                            
                            9,139,063
                            
                            
                            
                            6,288,567





Operating
Activities





Net cash
provided by operating activities increased to $4,975,612 during the three
months ended December 31, 2009, an increase of $4,564,617 or 1,110.6% from net
cash provided by operating activities of $410,995 during the three months
ended December 31, 2008.  The increase is mainly attributable to a
significant decrease in accounts receivable due to collections by December 31,
2009.





Investing Activities





Net cash
used in investing activities amounted to $2,432,783 during the three
months ended December 31, 2009, as compared to $32,813 during the three
months ended December 31, 2008, an increase of $2,399,970 or
7,314.1%.  The significant increase is mainly due to the payments
(approximately $2.34 million during such three months) 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 $2,164,147 during the three
months ended December 31, 2009, as compared to net cash used in financing
activities of $8,755 during the three months ended December 31, 2008,
an absolute change of $2,172,902, resulting from partial payments (approximately
$2.24 million) of an equity investment made by an institutional investor during
the three months ended December 31, 2009. See “Capital Resources”.





Capital
Resources





In
January 2010, we sold to one non-“U.S. Person” institutional investor (i)
666,667 shares of our common stock, and (ii) a warrant to purchase an additional
333,333 shares of our common stock for an aggregate purchase price for
$3,600,000 in the aggregate.  No commission was paid in connection
with such investment.  Of such $3,600,000 purchase price, $2.24
million was paid during our first quarter ended December 31, 2009, and the
remaining $1.36 million was paid in January 2010.


21





As of
December 31, 2009, the Company had outstanding a bank loan of RMB2,147,632
(approximately $314,110) 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 $2,931) each
month. Interest accrues on a monthly basis at the rate of 5.84% per
annum.





As of
December 31, 2009, the Company had outstanding another bank loan of RMB1,500,000
(approximately $219,388) 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
December 31, 2009, the Company had outstanding a loan totaling RMB5,319,739
(approximately $778,058) 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 $731,294).  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%. The 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.





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.





Contractual
Obligations




The
capital commitments for construction of a new facility and the purchase of the
land use rights as of December 31, 2009 and as of September 30, 2009 were
approximately $6.64 million and approximately $8.98 million, respectively.





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.


22





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.





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.




In the
PRC, there is a value added tax ( “VAT”) of 17% on sales of products. VAT
collected is recorded as a liability on the balance sheet until such VAT amount
is paid to the tax authorities.





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.


23





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.




New
Financial Accounting Pronouncements




In
June 2009, the FASB issued Accounting Standards Update No. 2009-01, “Generally Accepted Accounting
Principles” (“ASC Topic 105”) which establishes the FASB Accounting
Standards Codification (“the Codification” or “ASC”) as the official single
source of authoritative U.S. GAAP. All existing accounting standards are
superseded. All other accounting guidance not included in the Codification will
be considered non-authoritative. The Codification also includes all relevant
Securities and Exchange Commission (“SEC”) guidance organized using the same
topical structure in separate sections within the Codification.




Following
the Codification, the Board will not issue new standards in the form of
Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts.
Instead, it will issue Accounting Standards Updates (“ASU”) which will serve to
update the Codification, provide background information about the guidance and
provide the basis for conclusions on the changes to the
Codification.





The
Codification is not intended to change GAAP, but it will change the way GAAP is
organized and presented. The Codification is effective for our 2009 annual
consolidated financial statements and the principal impact on our financial
statements is limited to disclosures as all future references to authoritative
accounting literature will be referenced in accordance with the Codification. In
order to ease the transition to the Codification, we are providing the
Codification cross-reference alongside the references to the standards issued
and adopted prior to the adoption of the Codification.





Fair
Value Accounting





In 2006,
the FASB issued SFAS No. 157, “Fair Value Measurements”
(“ASC Topic 820”) which defines fair value, establishes a market-based framework
or hierarchy for measuring fair value and expands disclosures about fair value
measurements. This guidance is applicable whenever another accounting
pronouncement requires or permits assets and liabilities to be measured at fair
value. It does not expand or require any new fair value measures; however the
application of this statement may change current practice.





In April
2009, the FASB issued the following updates that provide additional application
guidance and enhance disclosures regarding fair value measurements and
impairments of securities:




FSP FAS
157-4, “Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly” (“ASC Topic 820-10-65”). This update relates to
determining fair values when there is no active market or where the price inputs
being used represent distressed sales. It reaffirms the need to exercise
judgment to ascertain if a formerly active market has become inactive and in
determining fair values when markets have become inactive.





FSP FAS
115-2 and FAS 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments” (“ASC topic 320-10-65”). This update
applies to investments in debt securities for which other-than-temporary
impairments may be recorded. If an entity’s management asserts that it does not
have the intent to sell a debt security and it is more likely than not that it
will not have to sell the security before recovery of its cost basis, then an
entity may separate other-than-temporary impairments into two components: 1) the
amount related to credit losses (recorded in earnings) and 2) all other amounts
(recorded in Other comprehensive income).




FSP
FAS 107-1 and APB 28-1,“Interim Disclosures about Fair Value of Financial Instruments”(“ASC
Topic 320-10-65”). This update requires fair value disclosures for financial
instruments that are not currently reflected on the balance sheet at fair value
on a quarterly basis.





In August
2009, FASB issued ASU No. 2009-05 which amends Fair Value Measurements and
Disclosures – Overall (“ASC Topic 820-10”) to provide guidance on the fair value
measurement of liabilities. This update requires clarification for circumstances
in which a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or
more of the following techniques: 1) a valuation technique that uses either the
quoted price of the identical liability when traded as an asset or quoted prices
for similar liabilities or similar liabilities when traded as an asset; or 2)
another valuation technique that is consistent with the principles in ASC Topic
820 such as the income and market approach to valuation. The amendments in this
update also clarify that when estimating the fair value of a liability, a
reporting entity is not required to include a separate input or adjustment to
other inputs relating to the existence of a restriction that prevents the
transfer of the liability. This update further clarifies that if the fair value
of a liability is determined by reference to a quoted price in an active market
for an identical liability, that price would be considered a Level 1 measurement
in the fair value hierarchy. Similarly, if the identical liability has a quoted
price when traded as an asset in an active market, it is also a Level 1 fair
value measurement if no adjustments to the quoted price of the asset are
required. Although management will continue to evaluate the application of ASC
Topic 820 and its subsequent and related updates, management does not currently
believe the adoption of ASC Topic 820 and its subsequent and related updates
will have a material impact on the Company’s results of operations or financial
position.


24





Business
Combinations





In 2007,
the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“ASC
Topic 805”). This guidance requires the acquiring entity in a business
combination to recognize the full fair value of assets acquired and liabilities
assumed in the transaction (whether a full or partial acquisition); establishes
the acquisition date fair value as the measurement objective for all assets
acquired and liabilities assumed; requires expensing of most transaction and
restructuring costs; and requires the acquirer to disclose the information
necessary to evaluate and understand the nature and financial effect of the
business combination. The impact of ASC 805 on our consolidated financial
statements will depend upon the nature, terms and size of the acquisitions we
consummate in the future.




In April
2009, the FASB issued Staff Position No. FSP FAS 141(R)-1, “Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies” (“ASC Topic 805-20”). This updated guidance amended the
accounting treatment for assets and liabilities arising from contingencies in a
business combination and requires that pre-acquisition contingencies be
recognized at fair value, if fair value can be reasonably determined. If fair
value cannot be reasonably determined, measurement should be based on the best
estimate in accordance with SFAS No. 5, “Accounting for Contingencies”
(“ASC Topic 405”). The Company does not have any assets acquired or liabilities
assumed in a business combination that arise from contingencies.





Other
Accounting Changes





In June
2009, the FASB issued the following standards:





SFAS No.
166, “Accounting for Transfers of Financial Assets” (“ASC Topic 860”). This
updated guidance removed the concept of a qualifying special-purpose entity and
removed the exception from applying consolidation guidance to these entities.
This update also clarified the requirements for isolation and limitations on
portions of financial assets that are eligible for sale accounting. ASC Topic
810 is effective for our fiscal year beginning on January 1, 2010. We are
currently evaluating the potential impact the adoption of this Statement will
have on its financial statements.





In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“ASC Topic 855”), which
is effective for interim or annual financial periods ending after June 15, 2009.
ASC Topic 855 establishes general standards of accounting and disclosure of
events that occur after the balance sheet but before financial statements are
issued or are available to be issued. However, since the Company is a public
entity, management is required to evaluate subsequent events through the date
that financial statements are issued and disclose the date through which
subsequent events have been evaluated, as well as the date the financial
statements were issued. ASC Topic 855 was adopted since its interim period ended
June 30, 2009. Subsequent events for the year ended September 30, 2009 have been
evaluated through February 12, 2009, the date the financial statements were
issued.





During
2009, the FASB has issued several ASU’s – ASU No. 2009-02 through ASU No.
2009-15. Except for ASU’s No. 2009-05, 2009-13 and 2009-14 discussed above, the
ASU’s entail technical corrections to existing guidance or affect guidance
related to specialized industries or entities and therefore have minimal, if
any, impact on the Company.





In 2008,
the FASB issued Staff Position No. FAS 132(R)-1, “Employers’ Disclosures about
Postretirement Benefit Plan Assets” (“ASC Topic 715-20-65”). This guidance will
expand disclosure by requiring the following new disclosures: 1) how investment
allocation decisions are made by management; 2) major categories of plan assets;
and 3) significant concentrations of risk. Additionally, ASC 715-20-65 will
require an employer to disclose information about the valuation of plan assets
similar to that required in ASC Topic 820 Fair Value Measurements and
Disclosures. We are currently evaluating the potential impact the adoption of
this Statement will have on its financial statements.





Item
      3.
            Quantitative
      and Qualitative Disclosures about Market
Risk.





N/A.





Item
      4.
            Controls
      and Procedures.




25




Evaluation
of Disclosure Controls and Procedures.





Our
principal executive officer and principal financial officer, based on their
evaluation of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), as of the end of the period covered by this
Quarterly Report on Form 10-Q, have concluded that, due to the material weakness
identified below, our disclosure controls and procedures are not
effective.





Management's
Report on Internal Control over Financial Reporting.





Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rules 13a-15 (f) promulgated
under the Exchange Act. Management conducted an evaluation of the effectiveness
of our internal control over financial reporting as of December 31, 2009 using
the framework established in Internal Control - Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission
("COSO").





Management
concluded that in light of the material weaknesses described below, we did not
maintain effective internal control over financial reporting as of December 31,
2009 based on the criteria set forth in Internal Control - Integrated Framework
issued by COSO. In assessing the effectiveness of our internal control over
financial reporting, management identified the following material
weaknesses:





·
            Lack
      of Internal Audit Function - We lack qualified resources to perform our
      internal audit functions properly. In addition, we have not yet fully
      developed the scope and effectiveness of our internal audit
      function.





·
            Lack
      of Audit Committee – We lack an audit committee within our board to
      oversee the financial reporting pursuant to US GAAP and the SEC's rules
      and regulations.





·
            Insufficient
      US GAAP Accounting Skills and Experience - We found that 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.





Our
management is in the process of implementing remediation procedures to improve
internal controls over financial reporting.





We are
continuously reviewing our efforts to improve our internal control over
financial reporting and may in the future identify additional deficiencies.
Should we discover any additional deficiencies, we will take appropriate
measures to correct or improve our internal control over financial
reporting.





This
Quarterly Report on Form 10-Q does not include an attestation report of the
Company's registered public accounting firm regarding internal control over
financial reporting.  Management's report was not subject to
attestation by the Company's registered public accounting firm pursuant to
temporary rules of the SEC that permit the Company to provide only management's
report in this report.





Changes
in Internal Controls





There
were no changes in our internal control over financial reporting that occurred
during the quarter ended December 31, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.





Certifications





We have
attached as exhibits to this Quarterly Report on Form 10-Q the certifications of
our Chief Executive Officer and Chief Financial Officer, which are required
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. We recommend that
this Item 4 be read in conjunction with the certifications for a more complete
understanding of the subject matter presented.


26





PART
II – OTHER INFORMATION





Item
      1.
            Legal
      Proceedings.





To our
knowledge, there is no material litigation pending or threatened against
us.





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
      Sale of Equity Securities and Use of
Proceeds.





In
December 2009 and January 2010, we sold shares of our common stock and a warrant
to one institutional investor for $3,600,000 in the aggregate. $2.24 million and
$1.36 million of such $3,600,000 amount were received by the Company in December
2009 and January 2010, respectively. For additional information about such sale,
see our Current Report on Form 8-K filed with the SEC on January 13,
2010.





Item
      3.
            Defaults
      Upon Senior Securities.





To our
knowledge, there are no material defaults upon senior
securities.





Item
      4.
            Submission
      of Matters to a Vote of Securities
Holders.





In
November 2009, the majority shareholder of the Company, approved in a
written consent to amend the Company’s Certificate of Incorporation to (i)
change the name of the Company from “Hamptons Extreme, Inc.” to “China
Polypeptide Group, Inc.” and (ii) effect an 8 for 1 forward split of the
share of the Company’s common stock outstanding and issued , par value
$.0001 per share.





For
detailed information, please refer to the Current Report on Form 8-K filed with
SEC on December 28, 2009.





Item
      5.
            Other
      Information.





None.





Item
      6.
            Exhibits.





(a)
Exhibits





31.1
            Certification
      Required Under Section 302 of Sarbanes-Oxley Act of
  2002.


31.2
            Certification
      Required Under Section 302 of Sarbanes-Oxley Act of
  2002.


32.1
            Certification
      Required Under Section 906 of Sarbanes-Oxley Act of
  2002.


32.2
            Certification
      Required Under Section 906 of Sarbanes-Oxley Act of
  2002.


27





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:
      February 22, 2010
                By:
                /s/Dongliang
      ChenName:  Dongliang
      ChenTitle:   Chairman
      and Chief Executive Officer


28