**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-K**





(Mark
      One)





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





For
      the
      fiscal year ended: **June 30, 2008**





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





For
      the
      transition period from _____ to _____





Commission
      file number: **333-86347**





**GENESIS
      PHARMACEUTICALS ENTERPRISES, INC.**


(Name
      of
      small business issuer in its charter)





**Florida**
            
            **65-1130026**(State
                or other jurisdiction of incorporation or organization)
            
            (IRS
                Employer Identification No.)


**Middle
      Section, Longmao Street, Area A, Laiyang Waixiangxing Industrial
      Park**


**Laiyang
      City, Yantai, Shandong Province, People’s Republic of China
      265200**


(Address
      of principle executive offices)





**(0086)
      535-7282997**


(Issuer's
      telephone number)





Securities
      registered under Section 12(b) of the Exchange Act:


**None**





Securities
      registered under Section 12(g) of the Exchange Act: ****


**Common
      Stock, $0.001 Par Value**





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes  ̈ No **x**





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Exchange Act. Yes  ̈ No **x**





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such report(s)), and (2) has been subject to such filing requirements
      for the past 90 days. Yes **x** No  ̈





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of Registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K.  ̈





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer or a smaller reporting company.
      See
      definitions of “large accelerated filer,” “accelerated filer,” and smaller
      reporting companies 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  ̈ No **x**





The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates of the registrant, based upon the closing sale price of the
      registrant’s common stock on December 31, 2007 as reported on the OTC Bulletin
      Board was approximately $50.4 million (5,454,384 shares at $9.24). Approximately
      4,887,000 shares of common stock held by each officer and director and by each
      person who owns 10% or more of the outstanding common stock have been excluded
      because such persons may be deemed to be affiliates.





The
      number of outstanding shares of the registrant’s common stock on September 29,
      2008 was 10,330,344.








**TABLE
      OF CONTENTS**


**PART
                  I**Item
                  1.
              Description
                  of Business
              
              4Item
                  1A
              Risk
                  Factors
              
              10Item
                  1B
              Unresolved
                  Staff Comments
              
              24Item
                  2.
              Description
                  of Property
              
              24Item
                  3.
              Legal
                  Proceedings
              
              25Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders**PART
                  II**Item
                  5.
              Market
                  for Common Equity , Related Stockholder Matters and Issuer Purchases
                  of
                  Equity Securities
              
              25Item
                  6.
              Selected
                  Financial Data
              
              26Item
                  7.
              Management's
                  Discussion and Analysis or Plan of Operation
              
              26Item
                  7A.
              Quantitative
                  and Qualitative Disclosures and Market Risk
              
              37Item
                  8.
              Financial
                  Statement and Supplementary Data
              
              37Item
                  9.
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              
              37Item
                  9A.
              Controls
                  and Procedures
              
              38Item
                  9B
              Other
                  Information
              
              38**PART
                  III**Item
                  10. Directors, Executive Officers, Promoters and Control Persons;
                  Compliance with Section 16(a) of the Exchange Act
              
              39Item
                  11. Executive Compensation
              
              42Item
                  12. Security Ownership of Certain Beneficial Owners and Management
                  and
                  Related Shareholder Matters
              
              47Item
                  13. Certain Relationships and Related Transactions, and Director
                  Independence
              
              49Item
                  14. Principal Accountant Fees and Services
              
              52**PART
                  IV**Item
                  15. Exhibits and Financial Statement Schedules
              
              53SIGNATURES
              
              55EXHIBIT
                  INDEXFINANCIAL
                  STATEMENTS AND SUPPLEMENTARY DATA


2





**CAUTIONARY
      STATEMENT REGARDING FORWARD-LOOKING INFORMATION**





Certain
      statements in this annual report on Form 10K contain or may contain
      forward-looking statements that are subject to known and unknown risks,
      uncertainties and other factors which may cause actual results, performance
      or
      achievements to be materially different from any future results, performance
      or
      achievements expressed or implied by such forward-looking statements. These
      forward-looking statements were based on various factors and were derived
      utilizing numerous assumptions and other factors that could cause our actual
      results to differ materially from those in the forward-looking statements.
      These
      factors include, but are not limited to, economic, political and market
      conditions and fluctuations, government and industry regulation, interest rate
      risk, global competition, and other factors as relate to our doing business
      within the People's Republic of China. Most of these factors are difficult
      to
      predict accurately and are generally beyond our control. You should consider
      the
      areas of risk described in connection with any forward-looking statements that
      may be made herein. Readers are cautioned not to place undue reliance on these
      forward-looking statements, which speak only as of the date of this report.
      Readers should carefully review this annual report in its entirety, including
      but not limited to our financial statements and the notes thereto and the risks
      described in "Item 1. Description of Business—Risk Factors." Except for our
      ongoing obligations to disclose material information under the Federal
      securities laws, we undertake no obligation to release publicly any revisions
      to
      any forward-looking statements, to report events or to report the occurrence
      of
      unanticipated events.





When
      used
      in this annual report, the terms the "Company," "Genesis," "GNPH," "we," "us,"
      "our," and similar terms refer to Genesis Pharmaceuticals Enterprises, Inc.,
      a
      Florida corporation, and our subsidiaries. The information which appears on
      our
      website www.genesis-china.net is not part of this report.


3




**PART
      I**





**ITEM
      1. DESCRIPTION OF BUSINESS**





We
      operate, control and beneficially own the pharmaceutical business of Laiyang
      Jiangbo. Laiyang Jiangbo researches, develops, manufactures, markets and sells
      pharmaceutical products and health supplements in the PRC. From our inception
      in
      2001 until our acquisition of Karmoya International Ltd. (“Karmoya”) in October
      2007, we were a business development and marketing firm specializing in advising
      and providing turn-key solutions for Chinese small and mid-sized companies
      entering Western markets.





On
      June
      3, 2008, our board of directors and the majority holders of our capital stock
      approved amendments to our Articles of Incorporation to increase our authorized
      common stock from 600,000,000 shares to 900,000,000 shares (the “July 2008
      Authorized Share Amendment”). The Certificate of Amendment and Certificate of
      Change to our Articles of Incorporation to effect the July 2008 Authorized
      Share
      Amendment was filed with Florida’s Secretary of State on July 29,
      2008.





On
      July
      27, 2008, our board of directors and the majority holders of our capital stock
      approved a one-for-forty reverse stock split of our common stock. On August
      29,
      2008, we received confirmation from the Department of the State of Florida
      that
      the Articles of Amendment to the Amended and Restated Articles of Incorporation
      (“August 2008 Amended Articles of Incorporation”) to effect a reverse stock
      split was duly filed and on September 3, 2008, the reverse stock split was
      effectuated. Following the reverse stock split, the total number of shares
      of
      our common stock outstanding was reduced from 412,986,078 shares to
      approximately 10,325,000 shares. Pursuant to the August 2008 Amended Articles
      of
      Incorporation, the maximum number of shares of common stock that the Company
      is
      authorized to issue was also reduced from 900,000,000 to 22,500,000. The
      financial statements have been retroactively adjusted to reflect the reverse
      split. Additionally, all share representations are on a post-split basis
      hereinafter.





**Corporate
      Structure**





The
      following diagram illustrates our current corporate structure:











4


**CONTRACTUAL
      ARRANGEMENTS WITH LAIYANG JIANGBO AND ITS SHAREHOLDERS**





Our
      relationships with Laiyang Jiangbo and its shareholders are governed by a series
      of contractual arrangements primarily between two entities associated with
      our
      wholly owned subsidiary Karmoya: (1) GJBT, Karmoya’s wholly foreign owned
      enterprise in PRC, and (2) Laiyang Jiangbo, Karmoya’s operating company in PRC.
      Under PRC laws, each of GJBT and Laiyang Jiangbo is an independent legal person
      and neither of them is exposed to liabilities incurred by the other party.
      The
      contractual arrangements constitute valid and binding obligations of the parties
      of such agreements. Each of the contractual arrangements, as amended and
      restated, and the rights and obligations of the parties thereto are enforceable
      and valid in accordance with the laws of the PRC. Other than pursuant to the
      contractual arrangements described below, Laiyang Jiangbo does not transfer
      any
      other funds generated from its operations to any other member of the LJ Group.
      On September 21, 2007, we entered into the following contractual arrangements
      (collectively, the “ LJ
      Agreements ”):





Consulting
      Services Agreement .
      Pursuant to the exclusive consulting services agreement between GJBT and Laiyang
      Jiangbo, GJBT has the exclusive right to provide to Laiyang Jiangbo general
      consulting services related to pharmaceutical business operations, as well
      as
      consulting services related to human resources and technological research and
      development of pharmaceutical products and health supplements (the “ Services ”).
      Under
      this agreement, GJBT owns the intellectual property rights developed or
      discovered through research and development while providing the Services for
      Laiyang Jiangbo. Laiyang Jiangbo pays a quarterly consulting service fee in
      Chinese Renminbi (“ RMB ”)
      to
      GJBT that is equal to all of Laiyang Jiangbo's revenue for such
      quarter.





Operating
      Agreement .
      Pursuant to the operating agreement among GJBT, Laiyang Jiangbo and the
      shareholders of Laiyang Jiangbo who collectively hold 100% of the outstanding
      shares of Laiyang Jiangbo (collectively, the “ Laiyang Shareholders ”),
      GJBT
      provides guidance and instructions on Laiyang Jiangbo's daily operations,
      financial management and employment issues. The Laiyang Shareholders must
      appoint the candidates recommended by GJBT as members of Laiyang Jiangbo's
      board
      of directors. GJBT has the right to appoint senior executives of Laiyang
      Jiangbo. In addition, GJBT agrees to guarantee Laiyang Jiangbo's performance
      under any agreements or arrangements relating to Laiyang Jiangbo's business
      arrangements with any third party. Laiyang Jiangbo, in return, agrees to pledge
      its accounts receivable and all of its assets to GJBT. Moreover, Laiyang Jiangbo
      agrees that without the prior consent of GJBT, Laiyang Jiangbo will not engage
      in any transactions that could materially affect the assets, liabilities, rights
      or operations of Laiyang Jiangbo, including, but not limited to, incurrence
      or
      assumption of any indebtedness, sale or purchase of any assets or rights,
      incurrence of any encumbrance on any of its assets or intellectual property
      rights in favor of a third party, or transfer of any agreements relating to
      its
      business operation to any third party. The term of this agreement is ten (10)
      years from September 21, 2007 unless early termination occurs in accordance
      with
      the provisions of the agreement and may be extended only upon GJBT's written
      confirmation prior to the expiration of the this agreement, with the extended
      term to be mutually agreed upon by the parties.





Equity
      Pledge Agreement .
      Pursuant to the equity pledge agreement among GJBT, Laiyang Jiangbo and the
      Laiyang Shareholders, the Laiyang Shareholders pledged all of their equity
      interests in Laiyang Jiangbo to GJBT to guarantee Laiyang Jiangbo's performance
      of its obligations under the consulting services agreement. If either Laiyang
      Jiangbo or any of the Laiyang Shareholders breaches its respective contractual
      obligations, GJBT, as pledgee, will be entitled to certain rights, including
      the
      right to sell the pledged equity interests. The Laiyang Shareholders also
      granted GJBT an exclusive, irrevocable power of attorney to take actions in
      the
      place and stead of the Laiyang Shareholders to carry out the security provisions
      of the equity pledge agreement and take any action and execute any instrument
      that GJBT may deem necessary or advisable to accomplish the purposes of the
      equity pledge agreement. The Laiyang Shareholders agreed, among other things,
      not to dispose of the pledged equity interests or take any actions that would
      prejudice GJBT's interest. The equity pledge agreement will expire two (2)
      years
      after Laiyang Jiangbo obligations under the exclusive consulting services
      agreement have been fulfilled.





Option
      Agreement .
      Pursuant to the option agreement among GJBT, Laiyang Jiangbo and the Laiyang
      Shareholders, the Laiyang Shareholders irrevocably granted GJBT or its
      designated person an exclusive option to purchase, to the extent permitted
      under
      PRC law, all or part of the equity interests in Laiyang Jiangbo for the cost
      of
      the initial contributions to the registered capital or the minimum amount of
      consideration permitted by applicable PRC law. GJBT or its designated person
      has
      sole discretion to decide when to exercise the option, whether in part or in
      full. The term of this agreement is ten (10) years from September 21, 2007
      unless early termination occurs in accordance with the provisions of the
      agreement and may be extended only upon GJBT's written confirmation prior to
      the
      expiration of the this agreement, with the extended term to be mutually agreed
      upon by the parties.





Proxy
      Agreement .
      Pursuant to the proxy agreement among GJBT and the Laiyang Shareholders, the
      Laiyang Shareholders agreed to irrevocably grant and entrust all the rights
      to
      exercise their voting power to the person(s) appointed by GJBT. GJBT may from
      time to time establish and amend rules to govern how GJBT shall exercise the
      powers granted to it by the Laiyang Shareholders, and GJBT shall take action
      only in accordance with such rules. The Laiyang Shareholders shall not transfer
      their equity interests in Laiyang Jiangbo to any individual or company (other
      than GJBT or the individuals or entities designated by GJBT). The Laiyang
      Shareholders acknowledged that they will continue to perform this agreement
      even
      if one or more than one of them no longer hold the equity interests of Laiyang
      Jiangbo. This agreement may not be terminated without the unanimous consent
      of
      all of the parties, except that GJBT may terminate this agreement by giving
      thirty (30) days prior written notice to the Laiyang
      Shareholders.


5


**Recent
      Financings**





**May
      2008 Financing**





On
      May
      30, 2008, we entered into a Securities Purchase Agreement (the "May 2008
      Securities Purchase Agreement"), pursuant to which, on May 30, 2008, we sold
      to
      investors $30,000,000 principal amount of our 6% Notes and Class A Warrants
      to
      purchase 1,875,000 shares of our common stock, in transactions exempt from
      registration under the Securities Act. Pursuant to the terms of the May 2008
      Securities Purchase Agreement, we will use the net proceeds for working capital
      purposes.





The
      Notes
      are due May 30, 2011 and are convertible into shares of our common stock at
      a
      conversion price of $8.00 per share, subject to adjustment pursuant to customary
      anti-dilution provisions and automatic downward adjustments in the event of
      certain sales or issuances by us of common stock at a price per share less
      than
      $8.00 on a post-split basis. Interest on the outstanding principal balance
      of
      the notes is payable at the rate of 6% per annum, in semi-annual installments
      payable on November 30th and May 30th of each year, with the first interest
      payment due on November 30, 2008. The Class A Warrants are exercisable for
      a
      five-year period beginning on May 30, 2008 at an initial exercise price of
      $10.00 per share.





In
      connection with May 2008 financing, Mr. Wubo Cao, our chief executive officer
      and chairman of the board, placed 3,750,000 shares of our common stock owned
      by
      him into an escrow account pursuant to a Make Good Escrow Agreement, dated
      as of
      May 30, 2008. In the event that either (i) our adjusted 2008 earnings before
      taxes is less than $26,700,000 ("2008 Guaranteed EBT") or (ii) our 2008 adjusted
      fully diluted earnings before taxes per share is less than $1.60 per share
      ("2008 Guaranteed Diluted EBT"), 1,500,000 of such shares (the "2008 Make Good
      Shares") are to be released pro rata to the investors. In the event that either
      (i) our adjusted 2009 earnings before taxes is less than US $38,400,000 ("2009
      Guaranteed EBT") or (ii) our adjusted fully diluted earnings before taxes per
      share is less than $2.32 (or US $2.24, if the 500,000 shares of common
      stock held in escrow, in connection with the November 2007 financing have been
      released from escrow)("2009 Guaranteed Diluted EBT"), 2,250,000 of such shares,
      (the "2009 Make Good Shares") are to be released pro rata to the Investors.
      Should we successfully satisfy these respective financial milestones, the 2008
      Make Good Shares and 2009 Make Good Shares will be returned to Mr. Cao. In
      addition, Mr. Cao is required to deliver shares of common stock owned by him
      to
      the investors on a pro rata basis equal to the number of shares (the "Settlement
      Shares") required to satisfy all costs and expenses associated with the
      settlement of all legal and other matters pertaining to the Company prior to
      or
      in connection with the completion of the our October 2007 share exchange in
      accordance with formulas set forth in the Securities Purchase
      Agreement.









In
      connection with the May 2008 financing, we entered into a Registration Rights
      Agreement dated as of May 30, 2008 with the investors. Pursuant to the
      Registration Rights Agreement, we agreed to file a registration statement
      covering the resale of (i) the shares of common stock underlying the Notes
      and
      Class A Warrants that are being registered in this offering, (ii) the 2008
      Make
      Good Shares, (iii) the 2009 Make Good Shares, and (iv) the Settlement Shares.
      We
      were required to file an initial registration statement covering the shares
      of
      common stock underlying the notes and warrants no later than 45 days from the
      closing of the May 2008 financing and to have such registration statement
      declared effective no later than 180 days from the closing of May 2008
      financing. If we do not timely file such registration statement or cause it
      to
      be declared effective by the required dates, then we will be required to pay
      liquidated damages to the investors equal to 1.0% of the aggregate purchase
      price paid by such investors for each month that we do not file the registration
      statement or cause it to be declared effective. Notwithstanding the foregoing,
      in no event shall liquidated damages exceed 10% of the aggregate amount of
      the
      purchase price. We filed an initial registration statement on July 14, 2008
      to
      satisfy our obligations under the registration rights agreement. In connection
      with the May 2008 financing, we and the purchaser of our Debentures and November
      Warrants, agreed that such securities shall be included in this registration
      statement. See "November 2007 Financing" below.





In
      connection with the May 2008 financing, Mr. Cao entered into a Lock-Up Agreement
      dated May 30, 2008 with us, pursuant to which he agreed not to transfer any
      shares of our common stock owned by him until 18 months after the effective
      date
      of the registration statement discussed above.





**November
      2007 Financing**





On
      November 6, 2007, we entered into a Securities Purchase Agreement (the "November
      Securities Purchase Agreement") with Pope Investments, LLC, pursuant to which,
      on November 7, 2007, we issued and sold to Pope Investments (i) $5,000,000
      principal amount of our debentures and (ii) warrants to purchase 250,000 shares
      of common stock at an exercise price of 512.80 per share, subject to adjustment
      as provided therein. The exercise price and number of shares for which the
      warrants are exercisable were adjusted to 400,000 post-split shares at $8.00
      per
      share, in connection with the May 2008 financing.





The
      debentures bear interest at the rate of 6% per annum, payable in semi-annual
      installments on May 31 and November 30 of each year, with the first interest
      payment being due on May 31, 2008. The initial conversion price of the
      debentures was $10.00 per share. If we issue common stock at a price that
      is less than the effective conversion price, or common stock equivalents with
      an
      exercise or conversion price less than the then effective conversion price,
      the
      conversion price of the debenture and the exercise price of the warrant will
      be
      reduced to such price. The exercise price of the debentures was reduced to
      $8.00
      per share in connection with the May 2008 financing. The debentures may not
      be
      prepaid without the prior written consent of the holder.





Pursuant
      to the November Securities Purchase Agreement, the we entered into a
      Registration Rights Agreement (the "November Registration Rights Agreement"),
      pursuant to which we must file on each Filing Date (as defined therein) a
      registration statement to register the portion of the Registrable Securities
      (as
      defined therein) as permitted by the SEC's guidance.









Pursuant
      to the November Registration Rights Agreement, the initial registration
      statement with respect to the shares of common stock issuable upon conversion
      of
      the Debentures and exercise of the November Warrants was required to be filed
      within 90 days of the November 7, 2007 closing date and declared effective
      within 180 days following such closing date. Any subsequent registration
      statements that are required to be filed on the earliest practical date on
      which
      we are permitted by the SEC's guidance to file such additional registration
      statement. Such additional registration statements must he effective 90 days
      following the date on which it is required to be filed. In the event that the
      registration statement was not timely filed or declared effective, we were
      required, pursuant to the November registration rights agreement to pay
      liquidated damages. Such liquidated damages shall be, at the investor's option,
      either $81,643.83 or 165 shares of our common stock per day that the
      registration statement is not timely filed or declared effective as required
      pursuant to the November registration rights agreement, subject to an amount
      of
      liquidated damages not exceeding either $600,000, 60,000 shares of common stock,
      or a combination thereof based upon 12% liquidated damages in the aggregate.
      In
      connection with the May 2008 financing, Pope Investments waived the initial
      filing and effectiveness deadlines set forth in the November registration rights
      agreement and agreed that we would be required to include the Registrable
      Securities covered by the November Registration Rights Agreement in the
      Registration Rights Agreement executed in connection with the May 2008
      financing.









**LAIYANG
      JIANGBO PHARMACEUTICAL CO., LTD.**





As
      discussed above, our operations are conducted through Laiyang Jiangbo
      Pharmaceutical Co., Ltd., (“Laiyang
      Jiangbo”)a limited liability company headquartered in the PRC and organized under
      the laws of PRC (“ Laiyang Jiangbo ”).
      Laiyang Jiangbo was organized on August 18, 2003, and its fiscal year end
      is June 30.





**PRINCIPAL
      PRODUCTS OR SERVICES**





Laiyang
      Jiangbo is engaged in research, development, production, marketing and sales
      of
      pharmaceutical products. It is located in Northeast China in an Economic
      Development Zone in Laiyang City, Shandong province, and is one of the major
      pharmaceutical companies in China producing tablets, capsules, and granules
      for
      both Western medical drugs and Chinese herbal-based medical drugs. Laiyang
      Jiangbo is also a major manufacturer of liquid chemical supply for medical
      use
      in China. Approximately 20% of its current products are Chinese herbal-based
      drugs and 80% are Western medical drugs. Laiyang Jiangbo has several
      Certificates of Good Manufacturing Practices for Pharmaceutical Products (GMP
      Certificates) issued by the Shandong State Drug Administration (SDA) and
      currently produces six types of drugs.





Laiyang
      Jiangbo’s top four products in fiscal 2008 include Clarithromycin
      sustained-release tablets, Itopride Hydrochloride granules, Ciprofloxacin
      Hydrochloride tablets, and Baobaole Chewable tablets.





**Drug
      Development and Production**





Development
      and production of pharmaceutical products is Laiyang Jiangbo’s largest and most
      profitable business. Its principal pharmaceutical products include:





*Clarithromycin
      sustained-release tablets*





Clarithromycin
      sustained-release tablets, Chinese Drug Approval Number H20052746, are
      semi-synthetic antibiotics for curing Clarithromycin sensitive microorganism
      infections. Laiyang Jiangbo is one of only two domestic Chinese pharmaceutical
      companies that has the technology to manufacture and actively produce
      and sell this drug. The Company’s sales of this drug were approximately RMB
      337.2 million (US $46.4 million) with gross margin over 75% in fiscal 2008,
      which is approximately 50% of the market share in China for this type of
      drug.





Clarithromycin
      is the second generation of macrolide antibiotic and replaces the older
      generation of Erythromycin. Clarithromycin first entered the pharmaceutical
      market in Ireland in 1989, and as of 2007, it is one of thirty medicines which
      generate the greatest sales revenue all over the world. Chemically,
      Clarithromycin has a wider antimicrobial spectrum and longer duration of acid
      resistance. Its activity is 2 to 4 times better than Erythromycin, but the
      toxicity is 2-12 times lower.





Clarithromycin
      sustained-release tablets utilize sustained-release technology, which requires
      a
      high degree of production technology. Because of the high degree of technology
      required to produce this product, PRC production requirements are very strict
      and there are very few manufacturers who gain permission to produce this
      product. Therefore, there is a significant barrier to entry in the PRC market.
      Currently, our Clarithromycin sustained-release tablets are the leading product
      in the PRC domestic antibiotic sustained-release tablets market. Our goal is
      to
      maintain our current market share for this product.





*Itopride
      Hydrochloride granules*





Itopride
      Hydrochloride granules, Chinese Drug Approval Number H20050932, are a stomach
      and intestinal drug for curing digestive system-related diseases. The Company’s
      sales for this drug reached RMB 258.1 million (US $35.5 million) with gross
      margin over 85% in fiscal 2008, and the Company has approximately 10-12% of
      the
      market share in China for this type of drug. This product is widely regarded
      for
      its pharmacological properties, i.e., rapid absorption, positive clinical
      effects, and few side effects. Based on clinical observation, it has been shown
      that Itopride Hydrochloride granules can improve 95.1% of gastrointestinal
      indigestion symptoms.





Itopride
      Hydrochloride granules are the fourth generation of gastrointestinal double
      dynamic medicines, which are used for curing most symptoms due to functional
      indigestion. The older generations are Metoclopramide Paspertin, Domperidone
      and
      Cisapride.





Itopride
      Hydrochloride granules are SDA-approved and entered the PRC pharmaceutical
      market in June 2005. Since 2005, Laiyang Jiangbo has seized the opportunity
      presented by this product by rapidly establishing a domestic sales network
      and
      developing the market for this product. Currently, this product has competition
      from two other famous stomach medicines, namely Dompendone Tablets and Vitamin
      U
      Belladonna and Aluminum Capsules II. Itopride Hydrochloride granules are a
      new
      product for Laiyang Jiangbo, but it already has a nationwide sales network
      in
      China. The Company’s goal is to maintain the current market share and profit
      margin for this product.





*Ciprofloxacin
      Hydrochloride tablets*





Ciprofloxacin
      Hydrochloride tablets, Chinese Drug Approval Number H37022737, are an antibiotic
      drug used to cure infection caused by bacteria. The Company’s sales for this
      drug was approximately RMB 18.1 million (US $2.5 million) in fiscal 2008.


6


Due
      to a
      stoppage in production of raw material manufacturing in PRC in 2004, the price
      of certain raw materials which are used to produce Ciprofloxacin Hydrochloride
      tablets rose rapidly and Laiyang Jiangbo seized this opportunity by using its
      stored raw materials to produce a significant amount of Ciprofloxacin
      Hydrochloride tablets. As a result, Laiyang Jiangbo’s sales of this product won
      a large percentage of the market in PRC from 2004 to 2006. However, other
      companies resumed production in 2007, which has lead to stronger competition
      and
      a decrease in Laiyang Jiangbo’s profits for this product. As both the sales
      volume and profit decreased for this product, the Company is not actively
      promoting this product and only continues to produce Ciprofloxacin Hydrochloride
      tablets to support the Company’s product variety and brand name.





*Paracetamol
      tablets*





Paracetamol
      tablets, Chinese Drug Approval Number H37022733, are a nonprescription analgesic
      drug, mainly used for curing fever due to common flu or influenza. It is also
      used for relief of aches and pains. The Company’s sales for this drug was
      approximately RMB 3.6 million ($500,000) in fiscal 2008. Laiyang Jiangbo is
      authorized by the PRC Ministry of Health to be an appointed producer of common
      antibiotics in Jiangsu Province, Guangdong Province, Zhejiang Province, Fujian
      Province, Shandong Province and Guangxi Province. Paracetamol tablets are one
      of
      PRC’s national A-level Medicare medicines. This product entered the Chinese
      market in July 2004. As the sales volume and profit both significantly decreased
      in recent years, the Company plans to gradually exit the market for this product
      in fiscal 2009.





*Baobaole
      Chewable tablets*





Baobaole
      Chewable tablets, Chinese Drug Approval Number Z20060294, are a new product
      of
      Laiyang Jiangbo and formally entered the market in November 2007. Baobaole
      Chewable tablets are nonprescription over-the counter drugs for gastric cavity
      aches. This drug stimulates the appetite and promotes digestion. Baobaole is
      used to cure deficiencies in the spleen and stomach, abdomen aches, loss of
      appetite, and loose bowels. Its effects are mild and lasting. The drug has
      quickly gained its popularity in the market and the sales for this drug has
      grown at a fast pace since its initial introduction.





The
      Company’s sales for Baobaole Chewable tablets was approximately RMB 95.1 million
      (US $13.1 million) with gross margin over 80% in fiscal 2008. The Company plans
      to continue expanding the distribution network for this product and actively
      promote the drugs to sustain the product’s sales growth.





*Radix
      Isatidis Disperable Tablet*





Radix
      Isatidis Disperable Tablets, Chinese Drug Approval Number Z20080142,
      nonprescription Traditional Chinese Medicine, is used to cure virus influenza
      and sour throat. Laiyang Jiangbo recently obtained the approval for this drug
      and is the only company that owns this manufacturing technology in China. It
      clears away heat, detoxifies and promote pharynx. The research study indicates
      Radix Isatidisthe’s ingredients included Indole, hapoxanthineuraci,
      quina-alkaloids, amino acid, etc., have anti-inflammation and anti-virus
      effects.





Compared
      with similar existing Radix Isatidis products, Radix Isatidis Disperable Tablet
      utilizes the new disperable tablet formula, which is convenient to take and
      fast
      to dissolve. It is also easy to absorb and has high stability. The product
      was
      first introduced to the market in September 2008. The Company plans to formally
      sell this product in early October 2008 and will heavily promote this drug
      through advertising and various promotional activities.





**RESEARCH
      AND DEVELOPMENT**





For
      the
      fiscal year ended June 30, 2008, Laiyang Jiangbo spent approximately US $3.2
      million or approximately 3.3% of its fiscal 2008 revenue on research and
      development of products. For the fiscal year ended June 30, 2007, Laiyang
      Jiangbo spent approximately US $11 million or approximately 14.6% of its fiscal
      2007 revenue on research and development of various pharmaceutical products.





Laiyang
      Jiangbo places great emphasis on product research and development and maintains
      strategic relationships with many research institutions in PRC developing new
      drugs, such as Pharmaceutical Institute of Shandong University, The Institute
      of
      Microbiology and Shandong Chinese Traditional Medicine Technical School. These
      relationships help to ensure that Laiyang Jiangbo maintains a continuing
      pipeline of high quality drugs with market potential into the future. Other
      than
      a number of potential R&D projects that are currently under evolution and
      yet to be locked in, the Company currently has three products pending on PRC
      SFDA approval in the pipeline for commercialization in China. Additionally,
      the
      Company also is negotiating to purchase a Class I drug that is currently being
      developed. The products are-


7


Drug
                  Name
              
              Target
                  Treatment/Drug Type
              
              StatusFelodipine
                  Sustained Release Tablets
              
              Treat
                  high blood pressure and arteriosclerosis/Western Drug
              
              (A)
                  Expected approval date - second
                quarter
                  of fiscal year 2009Yuandu
                  Hanbi Capsules
              
              Relieve
                  arthritis pain /Traditional Chinese Medicine
              
              (A)
                  Expected approval date - second
                quarter
                  of fiscal year 2009Bezoar
                  Yijin Tablets
              
              Cures
                  inflammations such as pharyngitis/Traditional Chinese Medicine
              
              (A)
                  Expected approval date - second
                quarter
                  of fiscal year 2009




(A)
            Subject
                to SFDA. Pending administrative protection and
                approval.





*Ligustrazine
      Ferulic Acid Acetate (LFAA)*





LFAA
      is a
      Cardiac Cerebral Vascular innovative medicine, researched by Pharmaceutical
      Institute of Shandong University that is undergoing Phase III (final) clinical
      studies and for which the Company is in the process of negotiating a drug
      purchase contract. LFAA is protected by the patent of invention in China. Its
      PRC invention patent application number is 02135989X, publication number is
      CN1424313A and patent number is ZL02135989X filed in December 2005.





LFAA
      is a
      synthetic innovation medicine based on Liqustrazine. It is the successor of
      Liqustrazine, which has independent intellectual property rights. LFAA helps
      to
      reduce blood clotting and prevent platelets in the blood from clumping together.
      Based on clinical studies, LFAA’s artery endothelium cell proliferation
      stimulating function is better than Liqustrazine in a number of measures.
      Laiyang Jiangbo is currently in the process of finalizing the drug patent and
      manufacturing right purchase agreement with Pharmaceutical Institute of Shandong
      University. The Company anticipates being able to start producing LFAA in fiscal
      2010.







**DISTRIBUTION
      METHODS OF THE PRODUCTS OR SERVICES AND OUR CUSTOMERS**





Laiyang
      Jiangbo has a well-established sales network across China. It has a distribution
      network covering over 30 provinces and regions in the PRC. Currently, Laiyang
      Jiangbo has approximately 1,100 distribution agents and salespeople throughout
      the PRC. Laiyang Jiangbo will continue to establish more representative offices
      and engage additional distribution agents in order to strengthen its
      distribution network.





Laiyang
      Jiangbo recognizes the importance of branding as well as packaging. All of
      Laiyang Jiangbo’s products bear a uniform brand but have specialized designs to
      differentiate the different categories of Laiyang Jiangbo's
      products.





Laiyang
      Jiangbo conducts promotional marketing activities to publicize and enhance
      its
      image as well as to reinforce the recognition of its brand name
      including:





1.
            publishing
                advertisements and articles in national as well as specialized and
                provincial newspapers, magazines, and in other media, including the
                Internet;2.
            participating
                in national meetings, seminars, symposiums, exhibitions for pharmaceutical
                and other related industries;3.
            organizing
                cooperative promotional activities with distributors;
                and4.
            sending
              direct mail to major physician offices and
              laboratories.




**CUSTOMERS**





Currently,
      Laiyang Jiangbo has approximately 1,200 terminal clients. Terminal clients
      are
      hospitals and medical institutions which purchase large supplies of
      pharmaceutical drugs. Laiyang Jiangbo is also authorized by the PRC Ministry
      of
      Health as an appointed Medicare medication supplier in six provinces, namely
      Jiangsu Province, Shandong Province, Zhejiang Province, Fujian Province,
      Guangdong Province and Guangxi Province.





For
      the fiscal years ended June 30, 2008, 2007 and 2006, five customers accounted
      for approximately 18.1%, 33.3% and 30.5%, respectively, of Laiyang Jiangbo’s
      sales. These five customers represented 11.8% and 24.6% of Laiyang Jiangbo’s
      total accounts receivable as of June 30, 2008 and 2007,
      respectively.





**COMPETITION**





As
      a
      pharmaceutical manufacturing and distribution company in PRC, overall, Laiyang
      Jiangbo has two major competitors in the PRC: Zhuhai Lizhu and Beijing Nohua.
      These companies have number of popular pharmaceutical products, strong financial
      position and a large market share in the industry. Laiyang Jiangbo is able
      to
      compete with these competitors because of its favorable geographic position,
      strong R&D capability, unique products, extensive sales network, and lower
      prices.


8





Our
      major
      competitors in China on individual product basis are Jiangsu Hengrui
      Pharmaceuticals (Clarithromycin sustained release tablets), Xi'an Yangsen (
      Itopride Hydrochloride Granules) and Jiangzhong Pharmaceuticals (Baobaole
      Chewable tablets), respectively. We are able to compete with Jiangsu Hengrui
      Pharmaceuticals because of our extensive sales network as well as flexible
      and favorable incentive policy. Compared with Motihium of Xi'an Yangsen, a
      gastro dynamic only drug, our Itopride Hydrochloride Granules has
      better efficacy due to its gastro-intestinal dynamic characteristic, higher
      security and less side effects. Referring to Children Jiangwei Xiaoshi
      Tablets of Jiangzhong Pharmaceutcials, our Baobaole Chewable tablet is able
      to significantly stimulate appetite and fundamentally nurse children's
      gastro-intestinal system. Also, it is very convenient for children to take.
      As such, we believe we have competitive advantages for those
      products.





**SOURCES
      AND AVAILABILITY OF RAW MATERIALS AND THE PRINCIPAL
      SUPPLIERS**





Laiyang
      Jiangbo has strategic relationships with many research institutions in PRC
      developing new drugs, such as Jiangsu Drug Research Institute, Pharmaceutical
      Institute of Shandong University, Chinese Traditional Medicine Institute,
      Shandong Chinese Traditional Medicine Technical School, and the Institute for
      Drug Control Departments. These relationships help to ensure that Laiyang
      Jiangbo maintains a continuing pipeline of high quality drugs into the future.
      Laiyang Jiangbo’s own production facilities supply most of the raw materials
      used to manufacture its products. Laiyang Jiangbo designs, creates prototypes
      and manufactures its products at its manufacturing facilities located in Laiyang
      City, Shandong province. Its principal raw materials include Ciprofloxacin
      Hydrochloride tablets. The prices for these raw materials are subject to market
      forces largely beyond our control, including energy costs, organic chemical
      prices, market demand, and freight costs. The prices for these raw materials
      have varied significantly in the past and may vary significantly in the
      future.





**INTELLECTUAL
      PROPERTY**





Laiyang
      Jiangbo relies on a combination of trademarks copyright and trade secret
      protection laws in the PRC and other jurisdictions, as well as confidentiality
      procedures and contractual provisions to protect its intellectual property
      and
      brand. Laiyang Jiangbo has been issued design patents in the PRC for drug
      packaging and drug containers, each valid for 10 years, and it intends to apply
      for more patents to protect its core technologies. Laiyang Jiangbo is currently
      in the process of acquiring the rights to a new Class I drug recently patented
      and made available to Laiyang Jiangbo through its relationship with the
      Pharmaceutical Institute of Shandong University. This is a Class I drug which
      means that all PRC national hospitals and other major medical facilities must
      carry this drug. Laiyang Jiangbo also enters into confidentiality, non-compete
      and invention assignment agreements with its employees and consultants and
      nondisclosure agreements with third parties. “Jiangbo” and a certain circular
      design affiliated with our brand are our registered trademarks in the
      PRC.





Pharmaceutical
      companies are at times involved in litigation based on allegations of
      infringement or other violations of intellectual property rights. Furthermore,
      the application of laws governing intellectual property rights in the PRC and
      abroad is uncertain and evolving and could involve substantial risks to
      us.





**GOVERNMENT
      REGULATION**





*General
      PRC Government Approval*





The
      Drug
      Administration Law of the PRC governs Laiyang Jiangbo and its products. The
      State Food & Drug Administration of the PRC regulates and implements PRC
      drug laws. The State FDA has granted Laiyang Jiangbo government permits to
      produce the following products: Clarithromycin sustained-released tablets,
      Itopride Hydrochloride granules, Ciprofloxacin Hydrochloride tablets,
      Paracetamol tablets, Baobaole Chewable tablets, Compound Sufamethoxazole
      tablets, and Vitamin C tablets.





The
      drug
      approval process takes about two years: including local SFDA approval, Local
      SFDA test, State SFDA processing, state SFDA expert valuation, clinical trial,
      and final approval.





No
      enterprise may start production at its facilities until it receives approval
      from the PRC Ministry of Agriculture to begin operations. Laiyang Jiangbo
      currently has obtained the requisite approval and licenses from the Ministry
      of
      Agriculture in order to operate its production facilities.





*Circular
      106 Compliance and Approval*





On
      May
      31, 2007, the PRC State Administration of Foreign Exchange (“ SAFE ”)
      issued
      an official notice known as "Circular 106," which requires the owners of any
      Chinese companies to obtain SAFE’s approval before establishing any offshore
      holding company structure for foreign financing as well as subsequent
      acquisition matters in China.





In
      early
      September 2007, the three owners of 100% of the equity in Laiyang Jiangbo,
      Cao
      Wubo, Xun Guihong and Zhang Yihua, submitted their application to SAFE. On
      September 19, 2007, SAFE approved their application, permitting these Chinese
      citizens to establish an offshore company, Karmoya International Ltd., as a
      “special purpose vehicle” for any foreign ownership and capital raising
      activities by Laiyang Jiangbo.





After
      SAFE’s approval, Cao Wubo, Xun Guihong and Zhang Yihua became the majority
      owners of Karmoya International Ltd. on September 20, 2007.


9





**COSTS
      AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS**





In
      compliance with PRC environmental regulations, Laiyang Jiangbo spent
      approximately $2,750 in fiscal 2008, $2,000 in fiscal 2007, and approximately
      $1,600 in fiscal 2006, mainly for the wastewater treatment in connection with
      its production facilities.





**EMPLOYEES**





Laiyang
      Jiangbo currently has more than 1,430 employees, including 320 production crew,
      440 full-time salespersons and 620 part-time salespersons. Approximately 200
      of
      these employees are represented by Laiyang City Jiangbo Pharmaceuticals Union,
      which is governed by the City of Laiyang. Laiyang Jiangbo has not experienced
      a
      work stoppage since inception and does not anticipate any work stoppage in
      the
      foreseeable future. Management believes that its relations with its employees
      and the union are good.





**CORPORATE
      INFORMATION**





Laiyang
      Jiangbo’s principal executive offices are located at Middle Section, Longmao
      Street, Area A, Laiyang Waixiangxing Industrial Park, Laiyang City, Yantai,
      Shandong Province, PRC 265200.





**ITEM
      1A. RISK FACTORS**





*Investing
      in our securities involves a great deal of risk. Careful consideration should
      be
      made of the following factors as well as other information included in this
      prospectus before deciding to purchase our common stock. You should pay
      particular attention to the fact that we conduct all of our operations in China
      and are governed by a legal and regulatory environment that in some respects
      differs significantly from the environment that may prevail in other countries.
      Our business, financial condition or results of operations could be affected
      materially and adversely by any or all of these risks.*





THE
      FOLLOWING MATTERS MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL
      CONDITION, LIQUIDITY, RESULTS OF OPERATIONS OR PROSPECTS, FINANCIAL OR
      OTHERWISE. REFERENCE TO THIS CAUTIONARY STATEMENT IN THE CONTEXT OF A
      FORWARD-LOOKING STATEMENT OR STATEMENTS SHALL BE DEEMED TO BE A STATEMENT THAT
      ANY ONE OR MORE OF THE FOLLOWING FACTORS MAY CAUSE ACTUAL RESULTS TO DIFFER
      MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENT OR
      STATEMENTS.





***Risks
      Relating to Our Business***





**Our
      limited operating history makes it difficult to evaluate our future prospects
      and results of operations.**





We
      have a
      limited operating history. Laiyang Jiangbo commenced operations in 2003 and
      first achieved profitability in the fiscal year ended June 30, 2005.
      Accordingly, you should consider our future prospects in light of the risks
      and
      uncertainties experienced by early stage companies in evolving industries such
      as the pharmaceutical industry in China. Some of these risks and uncertainties
      relate to our ability to:


.
              maintain
                  our market position in the pharmaceuticals business in
                  China;.
              offer
                  new and innovative products to attract and retain a larger customer
                  base;.
              attract
                  additional customers and increase spending per
                  customer;.
              increase
                  awareness of our brand and continue to develop user and customer
                  loyalty;.
              respond
                  to competitive market conditions;.
              respond
                  to changes in our regulatory environment;.
              manage
                  risks associated with intellectual property rights;.
              maintain
                  effective control of our costs and expenses;.
              raise
                  sufficient capital to sustain and expand our
                  business;
 10


.
            attract,
                retain and motivate qualified personnel; and.
            upgrade
                our technology to support additional research and development of
                new
                products.




If
      we are
      unsuccessful in addressing any of these risks and uncertainties, our business
      may be materially and adversely affected.





**We
      may need additional financing to execute our business
      plan.**





The
      revenues from the production and sale of pharmaceutical products and the
      projected revenues from these products may not be adequate to support our
      expansion and product development programs. We may need substantial additional
      funds to build our new production facilities, pursue further research and
      development, obtain regulatory approvals, market our products, and file,
      prosecute, defend and enforce our intellectual property rights. We will seek
      additional funds through public or private equity or debt financing, strategic
      transactions and/or from other sources. We could enter into collaborative
      arrangements for the development of particular products that would lead to
      our
      relinquishing some or all rights to the related technology or
      products.





There
      are
      no assurances that future funding will be available on favorable terms or at
      all. If additional funding is not obtained, we will need to reduce, defer or
      cancel development programs, planned initiatives or overhead expenditures,
      to
      the extent necessary. The failure to fund our capital requirements would have
      a
      material adverse effect on our business, financial condition and results of
      operations.





**Our
      success depends on collaborative partners, licensees and other third parties
      over whom we have limited control.**





Due
      to
      the complexity of the process of developing pharmaceuticals, our core business
      depends on arrangements with pharmaceutical institutes, corporate and academic
      collaborators, licensors, licensees and others for the research, development,
      clinical testing, technology rights, manufacturing, marketing and
      commercialization of our products. We have several research collaborations.
      Our
      license agreements could obligate us to diligently bring potential products
      to
      market, make milestone payments and royalties that, in some instances, could
      be
      substantial, and incur the costs of filing and prosecuting patent applications.
      There are no assurances that we will be able to establish or maintain
      collaborations that are important to our business on favorable terms, or at
      all.





A
      number
      of risks arise from our dependence on collaborative agreements with third
      parties. Product development and commercialization efforts could be adversely
      affected if any collaborative partner:




.
            terminates
                or suspends its agreement with us.
            causes
                delays.
            fails
                to timely develop or manufacture in adequate quantities a substance
                needed
                in order to conduct clinical trials.
            fails
                to adequately perform clinical trials.
            determines
                not to develop, manufacture or commercialize a product to which it
                has
                rights or.
            otherwise
                fails to meet its contractual
                obligations.





Our
      collaborative partners could pursue other technologies or develop alternative
      products that could compete with the products we are developing.





**The
      profitability of our products will depend in part on our ability to protect
      proprietary rights and operate without infringing the proprietary rights of
      others.**





The
      profitability of our products will depend in part on our ability to obtain
      and
      maintain patents and licenses and preserve trade secrets, and the period our
      intellectual property remains exclusive. We must also operate without infringing
      the proprietary rights of third parties and without third parties circumventing
      our rights. The patent positions of pharmaceutical enterprises, including ours,
      are uncertain and involve complex legal and factual questions for which
      important legal principles are largely unresolved. The pharmaceutical patent
      situation outside the US is uncertain, is currently undergoing review and
      revision in many countries, and may not protect our intellectual property rights
      to the same extent as the laws of the US. Because patent applications are
      maintained in secrecy in some cases, we cannot be certain that we or our
      licensors are the first creators of inventions described in our pending patent
      applications or patents or the first to file patent applications for such
      inventions.


11





Most
      of
      our drug products have been approved by the PRC's Food and Drug Administration
      (SFDA) but have not received patent protection. For instance, Clarithromycin
      sustained-release tablets, one of our most profitable products, are produced
      by
      other companies in China. If any other company were to obtain patent protection
      for Clarithromycin sustained-release tablets in China, or for any of our other
      drug products, it would have a material adverse effect on our
      revenue.





Other
      companies may independently develop similar products and design around any
      patented products we develop. We cannot assure you that:




.
            any
                of our patent applications will result in the issuance of
                patents;.
            we
                will develop additional patentable products;.
            the
                patents we have been issued will provide us with any competitive
                advantages;.
            the
                patents of others will not impede our ability to do business;
                or.
            third
                parties will not be able to circumvent our
                patents.





A
      number
      of pharmaceutical, research, and academic companies and institutions have
      developed technologies, filed patent applications or received patents on
      technologies that may relate to our business. If these technologies,
      applications or patents conflict with ours, the scope of our current or future
      patents could be limited or our patent applications could be denied. Our
      business may be adversely affected if competitors independently develop
      competing technologies, especially if we do not obtain, or obtain only narrow,
      patent protection. If patents that cover our activities are issued to other
      companies, we may not be able to obtain licenses at a reasonable cost, or at
      all; develop our technology; or introduce, manufacture or sell the products
      we
      have planned.





Patent
      litigation is becoming widespread in the pharmaceutical industry. Such
      litigation may affect our efforts to form collaborations, to conduct research
      or
      development, to conduct clinical testing or to manufacture or market any
      products under development. There are no assurances that our patents would
      be
      held valid or enforceable by a court or that a competitor's technology or
      product would be found to infringe our patents in the event of patent
      litigation. Our business could be materially affected by an adverse outcome
      to
      such litigation. Similarly, we may need to participate in interference
      proceedings declared by the U.S. Patent and Trademark Office or equivalent
      international authorities to determine priority of invention. We could incur
      substantial costs and devote significant management resources to defend our
      patent position or to seek a declaration that another company's patents are
      invalid.





Much
      of
      our know-how and technology may not be patentable, though it may constitute
      trade secrets. There are no assurances that we will be able to meaningfully
      protect our trade secrets. We cannot assure you that any of our existing
      confidentiality agreements with employees, consultants, advisors or
      collaborators will provide meaningful protection for our trade secrets, know-how
      or other proprietary information in the event of any unauthorized use or
      disclosure. Collaborators, advisors or consultants may dispute the ownership
      of
      proprietary rights to our technology, for example by asserting that they
      developed the technology independently.





**We
      may encounter difficulties in manufacturing our products.**





Before
      our products can be profitable, they must be produced in commercial quantities
      in a cost-effective manufacturing process that complies with regulatory
      requirements, including GMP, production and quality control regulations. If
      we
      cannot arrange for or maintain commercial-scale manufacturing on acceptable
      terms, or if there are delays or difficulties in the manufacturing process,
      we
      may not be able to conduct clinical trials, obtain regulatory approval or meet
      demand for our products. Production of our products could require raw materials
      which are scarce or which can be obtained only from a limited number of sources.
      If we are unable to obtain adequate supplies of such raw materials, the
      development, regulatory approval and marketing of our products could be
      delayed.





**We
      could need more clinical trials or take more time to complete our clinical
      trials than we have planned.**





Clinical
      trials vary in design by factors including dosage, end points, length, and
      controls. We may need to conduct a series of trials to demonstrate the safety
      and efficacy of our products. The results of these trials may not demonstrate
      safety or efficacy sufficiently for regulatory authorities to approve our
      products. Further, the actual schedules for our clinical trials could vary
      dramatically from the forecasted schedules due to factors including changes
      in
      trial design, conflicts with the schedules of participating clinicians and
      clinical institutions, and changes affecting product supplies for clinical
      trials.





We
      rely
      on collaborators, including academic institutions, governmental agencies and
      clinical research organizations, to conduct, supervise, monitor and design
      some
      or all aspects of clinical trials involving our products. Since these trials
      depend on governmental participation and funding, we have less control over
      their timing and design than trials we sponsor. Delays in or failure to commence
      or complete any planned clinical trials could delay the ultimate timelines
      for
      our product releases. Such delays could reduce investors' confidence in our
      ability to develop products, likely causing our share price to
      decrease.


12


**We
      may not be able to obtain the regulatory approvals or clearances that are
      necessary to commercialize our products.**





The
      PRC
      and other countries impose significant statutory and regulatory obligations
      upon
      the manufacture and sale of pharmaceutical products. Each regulatory authority
      typically has a lengthy approval process in which it examines pre-clinical
      and
      clinical data and the facilities in which the product is manufactured.
      Regulatory submissions must meet complex criteria to demonstrate the safety
      and
      efficacy of the ultimate products. Addressing these criteria requires
      considerable data collection, verification and analysis. We may spend time
      and
      money preparing regulatory submissions or applications without assurances as
      to
      whether they will be approved on a timely basis or at all.





Our
      product candidates, some of which are currently in the early stages of
      development, will require significant additional development and pre-clinical
      and clinical testing prior to their commercialization. These steps and the
      process of obtaining required approvals and clearances can be costly and
      time-consuming. If our potential products are not successfully developed, cannot
      be proven to be safe and effective through clinical trials, or do not receive
      applicable regulatory approvals and clearances, or if there are delays in the
      process:




.
            the
                commercialization of our products could be adversely
                affected;





.
            any
                competitive advantages of the products could be diminished;
                and





.
            revenues
                or collaborative milestones from the products could be reduced or
                delayed.





Governmental
      and regulatory authorities may approve a product candidate for fewer indications
      or narrower circumstances than requested or may condition approval on the
      performance of post-marketing studies for a product candidate. Even if a product
      receives regulatory approval and clearance, it may later exhibit adverse side
      effects that limit or prevent its widespread use or that would force us to
      withdraw the product from the market.





Any
      marketed product and its manufacturer will continue to be subject to strict
      regulation after approval. Results of post-marketing programs may limit or
      expand the further marketing of products. Unforeseen problems with an approved
      product or any violation of regulations could result in restrictions on the
      product, including its withdrawal from the market and possible civil
      actions.





In
      manufacturing our products we will be required to comply with applicable good
      manufacturing practices regulations, which include requirements relating to
      quality control and quality assurance, as well as the maintenance of records
      and
      documentation. If we cannot comply with regulatory requirements, including
      applicable good manufacturing practice requirements, we may not be allowed
      to
      develop or market the product candidates. If we or our manufacturers fail to
      comply with applicable regulatory requirements at any stage during the
      regulatory process, we may be subject to sanctions, including fines, product
      recalls or seizures, injunctions, refusal of regulatory agencies to review
      pending market approval applications or supplements to approve applications,
      total or partial suspension of production, civil penalties, withdrawals of
      previously approved marketing applications and criminal
      prosecution.





**Competitors
      may develop and market pharmaceutical products that are less expensive, more
      effective or safer, making our products obsolete or
      uncompetitive.**





Some
      of
      our competitors and potential competitors have greater product development
      capabilities and financial, scientific, marketing and human resources than
      we
      do. Technological competition from pharmaceutical companies is intense and
      is
      expected to increase. Other companies have developed technologies that could
      be
      the basis for competitive products. Some of these products have an entirely
      different approach or means of accomplishing the desired curative effect than
      products we are developing. Alternative products may be developed that are
      more
      effective, work faster and are less costly than our products. Competitors may
      succeed in developing products earlier than us, obtaining approvals and
      clearances for such products more rapidly than us, or developing products that
      are more effective than ours. In addition, other forms of treatment may be
      competitive with our products. Over time, our technology or products may become
      obsolete or uncompetitive.





**Our
      products may not gain market acceptance.**





Our
      products may not gain market acceptance in the pharmaceutical community. The
      degree of market acceptance of any product depends on a number of factors,
      including establishment and demonstration of clinical efficacy and safety,
      cost-effectiveness, clinical advantages over alternative products, and marketing
      and distribution support for the products. Limited information regarding these
      factors is available in connection with our products or products that may
      compete with ours.





To
      directly market and distribute our pharmaceutical products, we or our
      collaborators require a marketing and sales force with appropriate technical
      expertise and supporting distribution capabilities. We may not be able to
      further establish sales, marketing and distribution capabilities or enter into
      arrangements with third parties on acceptable terms. If we or our partners
      cannot successfully market and sell our products, our ability to generate
      revenue will be limited.


13


**Our
      operations and the use of our products could subject us to damages relating
      to
      injuries or accidental contamination.**





Our
      research and development processes involve the controlled use of hazardous
      materials. We are subject to PRC national, provincial and local laws and
      regulations governing the use, manufacture, storage, handling and disposal
      of
      such materials and waste products. The risk of accidental contamination or
      injury from handling and disposing of such materials cannot be completely
      eliminated. In the event of an accident involving hazardous materials, we could
      be held liable for resulting damages. We are not insured with respect to this
      liability. Such liability could exceed our resources. In the future we could
      incur significant costs to comply with environmental laws and
      regulations.





**If
      we were successfully sued for product liability, we could face substantial
      liabilities that may exceed our resources.**





We
      may be
      held liable if any product we develop, or any product which is made using our
      technologies, causes injury or is found unsuitable during product testing,
      manufacturing, marketing, sale or use. These risks are inherent in the
      development of agricultural and pharmaceutical products. We currently do not
      have product liability insurance. We are not insured with respect to this
      liability. If we choose to obtain product liability insurance but cannot obtain
      sufficient insurance coverage at an acceptable cost or otherwise protect against
      potential product liability claims, the commercialization of products that
      we
      develop may be prevented or inhibited. If we are sued for any injury caused
      by
      our products, our liability could exceed our total assets.





**We
      have limited business insurance coverage.**





The
      insurance industry in China is still at an early stage of development. Insurance
      companies in China offer limited business insurance products. We do not have
      any
      business liability or disruption insurance coverage for our operations in China.
      Any business disruption, litigation or natural disaster may result in our
      incurring substantial costs and the diversion of our resources.





**Our
      business depends substantially on the continuing efforts of our executive
      officers and our ability to maintain a skilled labor force, and our business
      may
      be severely disrupted if we lose their services.**





Our
      future success depends substantially on the continued services of our executive
      officers, especially Wubo Cao our chief executive officer and the chairman
      of
      our board. We do not maintain key man life insurance on any of our executive
      officers. If one or more of our executive officers are unable or unwilling
      to
      continue in their present positions, we may not be able to replace them readily,
      if at all. Therefore, our business may be severely disrupted, and we may incur
      additional expenses to recruit and retain new officers. In addition, if any
      of
      our executives joins a competitor or forms a competing company, we may lose
      some
      of our customers.





**Our
      success depends on attracting and retaining qualified
      personnel.**





We
      depend
      on a core management and scientific team. The loss of any of these individuals
      could prevent us from achieving our business objective of commercializing our
      product candidates. Our future success will depend in large part on our
      continued ability to attract and retain other highly qualified scientific,
      technical and management personnel, as well as personnel with expertise in
      clinical testing and government regulation. We face competition for personnel
      from other companies, universities, public and private research institutions,
      government entities and other organizations. If our recruitment and retention
      efforts are unsuccessful, our business operations could suffer.





**We
      may not be able to manage the expansion of our operations effectively, which
      may
      have an adverse effect on our business and results of
      operations.**





The
      revenues from the production and sale of our current product offerings and
      the
      projected revenues from these products may not be adequate to support our
      expansion and product development programs. We will need substantial additional
      funds to expand our production facilities, pursue research and development,
      obtain regulatory approvals; file, prosecute, defend and enforce our
      intellectual property rights and market our products. We will seek additional
      funds through public or private equity or debt financing, strategic transactions
      and/or from other sources. We could enter into collaborative arrangements for
      the development of particular products that would lead to our relinquishing
      some
      or all rights to the related technology or products. There are no assurances
      that future funding will be available on favorable terms or at all. If
      additional funding is not obtained, we will need to reduce, defer or cancel
      development programs, planned initiatives or overhead expenditures, to the
      extent necessary. The failure to fund our capital requirements would have a
      material adverse effect on our business, financial condition and results of
      operations.





***Risks
      Related to Our Corporate Structure***





**PRC
      laws and regulations governing our businesses and the validity of certain of
      our
      contractual arrangements are uncertain. If we are found to be in violation,
      we
      could be subject to sanctions. In addition, changes in such PRC laws and
      regulations may materially and adversely affect our
      business.**





There
      are
      substantial uncertainties regarding the interpretation and application of PRC
      laws and regulations, including, but not limited to, the laws and regulations
      governing our business, or the enforcement and performance of our contractual
      arrangements with our affiliated Chinese entity, Laiyang Jiangbo, and its
      shareholders. We are considered a foreign person or foreign invested enterprise
      under PRC law. As a result, we are subject to PRC law limitations on foreign
      ownership of Chinese companies. These laws and regulations are relatively new
      and may be subject to change, and their official interpretation and enforcement
      may involve substantial uncertainty. The effectiveness of newly enacted laws,
      regulations or amendments may be delayed, resulting in detrimental reliance
      by
      foreign investors. New laws and regulations that affect existing and proposed
      future businesses may also be applied retroactively.


14


The
      PRC
      government has broad discretion in dealing with violations of laws and
      regulations, including levying fines, revoking business and other licenses
      and
      requiring actions necessary for compliance. In particular, licenses and permits
      issued or granted to us by relevant governmental bodies may be revoked at a
      later time by higher regulatory bodies. We cannot predict the effect of the
      interpretation of existing or new PRC laws or regulations on our businesses.
      We
      cannot assure you that our current ownership and operating structure would
      not
      be found in violation of any current or future PRC laws or regulations. As
      a
      result, we may be subject to sanctions, including fines, and could be required
      to restructure our operations or cease to provide certain services. Any of
      these
      or similar actions could significantly disrupt our business operations or
      restrict us from conducting a substantial portion of our business operations,
      which could materially and adversely affect our business, financial condition
      and results of operations.





The
      PRC
      government restricts foreign investment in pharmaceutical businesses in China.
      Accordingly, we operate our business in China through Laiyang Jiangbo. Laiyang
      Jiangbo holds the licenses and approvals necessary to operate our pharmaceutical
      business in China. We have contractual arrangements with Laiyang Jiangbo and
      its
      shareholders that allow us to substantially control Laiyang Jiangbo. We cannot
      assure you, however, that we will be able to enforce these
      contracts.





Although
      we believe we comply with current PRC regulations, we cannot assure you that
      the
      PRC government would agree that these operating arrangements comply with PRC
      licensing, registration or other regulatory requirements, with existing policies
      or with requirements or policies that may be adopted in the future. If the
      PRC
      government determines that we do not comply with applicable law, it could revoke
      our business and operating licenses, require us to discontinue or restrict
      our
      operations, restrict our right to collect revenues, require us to restructure
      our operations, impose additional conditions or requirements with which we
      may
      not be able to comply, impose restrictions on our business operations or on
      our
      customers, or take other regulatory or enforcement actions against us that
      could
      be harmful to our business.





**We
      may be adversely affected by complexity, uncertainties and changes in PRC
      regulation of pharmaceutical business and companies, including limitations
      on
      our ability to own key assets.**





The
      PRC
      government regulates the pharmaceutical industry including foreign ownership
      of,
      and the licensing and permit requirements pertaining to, companies in the
      pharmaceutical industry. These laws and regulations are relatively new and
      evolving, and their interpretation and enforcement involve significant
      uncertainty. As a result, in certain circumstances it may be difficult to
      determine what actions or omissions may be deemed to be a violation of
      applicable laws and regulations. Issues, risks and uncertainties relating to
      PRC
      government regulation of the pharmaceutical industry include the
      following:




.
            we
                only have contractual control over Laiyang Jiangbo. We do not own
                it due
                to the restriction of foreign investment in Chinese businesses;
                and.
            uncertainties
                relating to the regulation of the pharmaceutical business in China,
                including evolving licensing practices, means that permits, licenses
                or
                operations at our company may be subject to challenge. This may disrupt
                our business, or subject us to sanctions, requirements to increase
                capital
                or other conditions or enforcement, or compromise enforceability
                of
                related contractual arrangements, or have other harmful effects on
                us.





The
      interpretation and application of existing PRC laws, regulations and policies
      and possible new laws, regulations or policies have created substantial
      uncertainties regarding the legality of existing and future foreign investments
      in, and the businesses and activities of, pharmaceutical businesses in China,
      including our business.





**Our
      contractual arrangements with Laiyang Jiangbo and its shareholders may not
      be as
      effective in providing control over these entities as direct
      ownership.**





Since the law
      of the PRC limits foreign equity ownership in pharmaceutical companies in China,
      we operate our business through Laiyang Jiangbo. We have no equity ownership
      interest in Laiyang Jiangbo and rely on contractual arrangements to control
      and
      operate such business. These contractual arrangements may not be effective
      in providing control over Laiyang Jiangbo as direct ownership. For example,
      Laiyang Jiangbo could fail to take actions required for our business despite
      its
      contractual obligation to do so. If Laiyang Jiangbo fails to perform under
      its
      agreements with us, we may have to incur substantial costs and resources to
      enforce such arrangements and may have to rely on legal remedies under the
      law of the PRC, which may not be effective. In addition, we cannot assure you
      that Laiyang Jiangbo's shareholders would always act in our best
      interests.


15





**The
      chairman of the board of directors of Laiyang Jiangbo has potential conflicts
      of
      interest with us, which may adversely affect our business.**





Mr.
      Cao
      Wubo, our Chairman and Chief Executive Officer, is also the Chairman of the
      Board of Directors and General Manager of Laiyang Jiangbo. Conflicts of
      interests between his duties to our company and Laiyang Jiangbo may arise.
      As
      Mr. Cao is a director and executive officer of our company, he has a duty of
      loyalty and care to us under Florida law when there are any potential conflicts
      of interests between our company and Laiyang Jiangbo. We cannot assure you,
      however, that when conflicts of interest arise, Mr. Cao will act completely
      in
      our interests or that conflicts of interests will be resolved in our favor.
      In
      addition, Mr. Cao could violate his legal duties by diverting business
      opportunities from us to others. If we cannot resolve any conflicts of interest
      between us and Mr. Cao, we would have to rely on legal proceedings, which could
      result in the disruption of our business.





***Risks
      Related to Doing Business in China***





**Failure
      to comply with PRC regulations relating to the establishment of offshore special
      purpose companies by PRC residents may subject our PRC resident shareholders
      to
      personal liability, limit our ability to acquire PRC companies or to inject
      capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to
      distribute profits to us or otherwise materially adversely affect
      us.**





In
      October 2005, the PRC State Administration of Foreign Exchange, or SAFE, issued
      the Notice on Relevant Issues in the Foreign Exchange Control over Financing
      and
      Return Investment Through Special Purpose Companies by Residents Inside China,
      generally referred to as Circular 75, which required PRC residents to register
      with the competent local SAFE branch before establishing or acquiring control
      over an offshore special purpose company, or SPV, for the purpose of engaging
      in
      an equity financing outside of China on the strength of domestic PRC assets
      originally held by those residents. Internal implementing guidelines issued
      by
      SAFE, which became public in June 2007 (known as Notice 106), expanded the
      reach
      of Circular 75 by (i) purporting to cover the establishment or acquisition
      of
      control by PRC residents of offshore entities which merely acquire “control”
over domestic companies or assets, even in the absence of legal ownership;
      (ii)
      adding requirements relating to the source of the PRC resident’s funds used to
      establish or acquire the offshore entity; (iii) covering the use of existing
      offshore entities for offshore financings; (iv) purporting to cover situations
      in which an offshore SPV establishes a new subsidiary in China or acquires
      an
      unrelated company or unrelated assets in China; and (v) making the domestic
      affiliate of the SPV responsible for the accuracy of certain documents which
      must be filed in connection with any such registration, notably, the business
      plan which describes the overseas financing and the use of proceeds. Amendments
      to registrations made under Circular 75 are required in connection with any
      increase or decrease of capital, transfer of shares, mergers and acquisitions,
      equity investment or creation of any security interest in any assets located
      in
      China to guarantee offshore obligations, and Notice 106 makes the offshore
      SPV
      jointly responsible for these filings. In the case of an SPV which was
      established, and which acquired a related domestic company or assets, before
      the
      implementation date of Circular 75, a retroactive SAFE registration was required
      to have been completed before March 31, 2006; this date was subsequently
      extended indefinitely by Notice 106, which also required that the registrant
      establish that all foreign exchange transactions undertaken by the SPV and
      its
      affiliates were in compliance with applicable laws and regulations. Failure
      to
      comply with the requirements of Circular 75, as applied by SAFE in accordance
      with Notice 106, may result in fines and other penalties under PRC laws for
      evasion of applicable foreign exchange restrictions. Any such failure could
      also
      result in the SPV’s affiliates being impeded or prevented from distributing
      their profits and the proceeds from any reduction in capital, share transfer
      or
      liquidation to the SPV, or from engaging in other transfers of funds into or
      out
      of China.





We
      believe our shareholders who are PRC residents, as defined in Circular 75,
      have
      registered with the relevant branch of SAFE, as currently required, in
      connection with their equity interests in us and our acquisitions of equity
      interests in our PRC subsidiaries. However, we cannot provide any assurances
      that their existing registrations have fully complied with, or that they have
      made all necessary amendments to their registration to fully comply with, all
      applicable registrations or approvals required by Circular 75. Moreover, because
      of uncertainty over how Circular 75 will be interpreted and implemented, and
      how
      or whether SAFE will apply it to us, we cannot predict how it will affect our
      business operations or future strategies. For example, our present and
      prospective PRC subsidiaries’ ability to conduct foreign exchange activities,
      such as the remittance of dividends and foreign currency-denominated borrowings,
      may be subject to compliance with Circular 75 by our PRC resident beneficial
      holders. In addition, such PRC residents may not always be able to complete
      the
      necessary registration procedures required by Circular 75. We also have little
      control over either our present or prospective direct or indirect shareholders
      or the outcome of such registration procedures. A failure by our PRC resident
      beneficial holders or future PRC resident shareholders to comply with Circular
      75, if SAFE requires it, could subject these PRC resident beneficial holders
      to
      fines or legal sanctions, restrict our overseas or cross-border investment
      activities, limit our subsidiaries’ ability to make distributions or pay
      dividends or affect our ownership structure, which could adversely affect our
      business and prospects.





**If
      the PRC enacts regulations which forbid or restrict foreign investment, our
      ability to grow may be severely impaired.**





We
      intend
      to expand our business in areas relating to our present business. We may also
      expand by making acquisitions of companies in related industries. Many of the
      rules and regulations that we would face are not explicitly communicated, and
      we
      may be subject to rules that would affect our ability to grow, either internally
      or through acquisition of other Chinese or foreign companies. There are also
      substantial uncertainties regarding the proper interpretation of current laws
      and regulations of the PRC. New laws or regulations that forbid foreign
      investment could severely impair our businesses and prospects. Additionally,
      if
      the relevant authorities find us in violation of PRC laws or regulations, they
      would have broad discretion in dealing with such a violation, including, without
      limitation:


16





·
            levying
                fines;·
            revoking
                our business and other licenses; and·
            requiring
                that we restructure our ownership or
                operations.





**Any
      deterioration of political relations between the United States and the PRC
      could
      impair our operations and your investment in us.**





The
      relationship between the United States and the PRC is subject to sudden
      fluctuation and periodic tension. Changes in political conditions in the PRC
      and
      changes in the state of Sino-U.S. relations are difficult to predict and could
      adversely affect our operations or cause potential acquisition candidates or
      their goods and services to become less attractive. Such a change could lead
      to
      a decline in our profitability. Any weakening of relations between the United
      States and the PRC could have a material adverse effect on our operations and
      your investment in us, particularly in our efforts to raise capital to expand
      our other business activities.





**Adverse
      changes in economic and political policies of the PRC government could have
      a
      material adverse effect on the overall economic growth of China, which could
      adversely affect our business.**





Substantially
      all of our business operations are conducted in China. Accordingly, our results
      of operations, financial condition and prospects are subject to a significant
      degree to economic, political and legal developments in China. China's economy
      differs from the economies of most developed countries in many respects,
      including with respect to:




·
            the
                amount of government involvement;·
            level
                of development;·
            growth
                rate;·
            control
                of foreign exchange; and·
            allocation
                of resources.





While
      the
      PRC economy has experienced significant growth in the past 20 years, growth
      has
      been uneven across different regions and among various economic sectors of
      China. The PRC government has implemented various measures to encourage economic
      development and guide the allocation of resources. Some of these measures
      benefit the overall PRC economy, but may also have a negative effect on us.
      For
      example, our financial condition and results of operations may be adversely
      affected by government control over capital investments or changes in tax
      regulations that are applicable to us. Since early 2004, the PRC government
      has
      implemented certain measures to control the pace of economic growth. Such
      measures may cause a decrease in the level of economic activity in China, which
      in turn could adversely affect our results of operations and financial
      condition.





**Price
      controls may affect both our revenues and net income.**





The
      laws
      of the PRC provide for the government to fix and adjust prices. Although we
      are
      not presently subject to price controls in connection with the sale of our
      products, it is possible that price controls may be imposed in the future.
      To
      the extent that we are subject to price control, our revenue, gross profit,
      gross margin and net income will be affected since the revenue we derive from
      our sales will be limited and, unless there is also price control on the
      products that we purchase from our suppliers, we may face no limitation on
      our
      costs. Further, if price controls affect both our revenue and our costs, our
      ability to be profitable and the extent of our profitability will be effectively
      subject to determination by the applicable regulatory authorities in the
      PRC.





**Our
      operations may not develop in the same way or at the same rate as might be
      expected if the PRC economy were similar to the market-oriented economies of
      OECD member countries** ***.***





The
      economy of the PRC has historically been a nationalistic, “planned economy,”
meaning it functions and produces according to governmental plans and pre-set
      targets or quotas. In certain aspects, the PRC’s economy has been making a
      transition to a more market-oriented economy, although the government imposes
      price controls on certain products and in certain industries. However, we cannot
      predict the future direction of these economic reforms or the effects these
      measures may have. The economy of the PRC also differs from the economies of
      most countries belonging to the Organization for Economic Cooperation and
      Development (the “OECD”), an international group of member countries sharing a
      commitment to democratic government and market economy. For
      instance:


17





·
              the
                  level of state-owned enterprises in the PRC, as well as the level
                  of
                  governmental control over the allocation of resources is greater
                  than in
                  most of the countries belonging to the OECD;


·
              the
                  level of capital reinvestment is lower in the PRC than in other
                  countries
                  that are members of the OECD;


·
              the
                  government of the PRC has a greater involvement in general in the
                  economy
                  and the economic structure of industries within the PRC than other
                  countries belonging to the OECD;


·
              the
                  government of the PRC imposes price controls on certain products
                  and our
                  products may become subject to additional price controls;
                  and


·
            the
                PRC has various impediments in place that make it difficult for foreign
                firms to obtain local currency, as opposed to other countries belonging
                to
                the OECD where exchange of currencies is generally free from
                restriction.





As
      a
      result of these differences, our business may not develop in the same way or
      at
      the same rate as might be expected if the economy of the PRC were similar to
      those of the OECD member countries.





**Because
      some of our officers and directors reside outside of the United States, it
      may
      be difficult for you to enforce your rights against them or enforce United
      States court judgments against them in the PRC.**





Most
      of
      our executive officers and directors reside in the PRC and a substantial portion
      of our assets are located in the PRC. It may therefore be difficult for United
      States investors to enforce their legal rights, to effect service of process
      upon our directors or officers or to enforce judgments of United States courts
      predicated upon civil liabilities and criminal penalties of our directors and
      officers under federal securities laws. Further, it is unclear if extradition
      treaties now in effect between the United States and the PRC would permit
      effective enforcement of criminal penalties of the federal securities
      laws.





**We
      may have limited legal recourse under Chinese law if disputes arise under
      contracts with third parties.**





Almost
      all of our agreements with our employees and third parties, including our
      supplier and customers, are governed by the laws of the PRC. The legal system
      in
      the PRC is a civil law system based on written statutes. Unlike common law
      systems, such as we have in the United States, it is a system in which decided
      legal cases have little precedential value. The government of the PRC has
      enacted some laws and regulations dealing with matters such as corporate
      organization and governance, foreign investment, commerce, taxation and trade.
      However, their experience in implementing, interpreting and enforcing these
      laws
      and regulations is limited, and our ability to enforce commercial claims or
      to
      resolve commercial disputes is unpredictable. The resolution of these matters
      may be subject to the exercise of considerable discretion by agencies of the
      PRC, and forces unrelated to the legal merits of a particular matter or dispute
      may influence their determination. Any rights we may have to specific
      performance or to seek an injunction under Chinese law are severely limited,
      and
      without a means of recourse by virtue of the Chinese legal system, we may be
      unable to prevent these situations from occurring. The occurrence of any such
      events could have a material adverse effect on our business, financial condition
      and results of operations.





**Because
      we may not be able to obtain business insurance in the PRC, we may not be
      protected from risks that are customarily covered by insurance in the United
      States.**





Business
      insurance is not readily available in the PRC. To the extent that we suffer
      a
      loss of a type which would normally be covered by insurance in the United
      States, such as product liability and general liability insurance, we would
      incur significant expenses in both defending any action and in paying any claims
      that result from a settlement or judgment.





**Failure
      to comply with the United States Foreign Corrupt Practices Act could subject
      us
      to penalties and other adverse consequences.**





We
      are
      subject to the United States Foreign Corrupt Practices Act, which generally
      prohibits United States companies from engaging in bribery or other prohibited
      payments to foreign officials for the purpose of obtaining or retaining
      business. Foreign companies, including some that may compete with us, are not
      subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft
      and other fraudulent practices occur from time-to-time in the PRC. We can make
      no assurance, however, that our employees or other agents will not engage in
      such conduct for which we might be held responsible. If our employees or other
      agents are found to have engaged in such practices, we could suffer severe
      penalties and other consequences that may have a material adverse effect on
      our
      business, financial condition and results of operations.


18


**A
      downturn in the economy of the PRC may slow our growth and
      profitability.**





The
      growth of the Chinese economy has been uneven across geographic regions and
      economic sectors. There can be no assurance that growth of the Chinese economy
      will be steady or that any downturn will not have a negative effect on our
      business especially if it results in either a decreased use of products such
      as
      ours or in pressure on us to lower our prices. The Chinese economy has been
      transitioning from a planned economy to a more market-oriented economy. Although
      in recent years the Chinese government has implemented measures emphasizing
      the utilization of market forces for economic reform, the reduction of state
      ownership of productive assets and the establishment of sound corporate
      governance in business enterprises, a substantial portion of the productive
      assets in China is still owned by the Chinese government. The continued control
      of these assets and other aspects of the national economy by the
      Chinese government could materially and adversely affect our business. The
      Chinese government also exercises significant control over Chinese economic
      growth through the allocation of resources, controlling payment of foreign
      currency-denominated obligations, setting monetary policy and providing
      preferential treatment to particular industries or companies. Efforts by the
      Chinese government to slow the pace of growth of the Chinese economy could
      result in reduced demand for our products.





Any
      adverse change in the economic conditions or government policies in China could
      have a material adverse effect on the overall economic growth and the level
      of pharmaceutical investments and expenditures in China, which in turn
      could lead to a reduction in demand for our products and consequently have
      a
      material adverse effect on our businesses.





**Downturns
      in the economies of the U.S. and Europe may affect the PRC economy which could
      reduce the demand for our products.**





The
      rapid
      growth of the PRC economy in recent years has been partially related to the
      U.S.
      and European countries’ demand for goods made in and exported from the PRC. The
      downturns in the U.S. and European economies may reduce the demand for goods
      exported by the PRC which could eventually affect the PRC economy as overseas
      orders decrease. The downturn in the PRC economy may in turn negatively impact
      the demand for our products.





**If
      certain tax exemptions within the PRC regarding withholding taxes are removed,
      we may be required to deduct corporate withholding taxes from any dividends
      we
      may pay in the future.**





Under
      the
      PRC’s current tax laws, regulations and rulings, companies are exempt from
      paying withholding taxes with respect dividends paid to stockholders outside
      of
      the PRC. However, if the foregoing exemption is removed, we may be required
      to
      deduct certain amounts from any dividends we pay to our
      stockholders.





**Laiyang
      Jiangbo is subject to restrictions on making payments to
      us.**





We
      are a
      holding company incorporated in the State of Florida and do not have any assets
      or conduct any business operations other than our investments in our affiliated
      entity in China, Laiyang Jiangbo. As a result of our holding company structure,
      we rely entirely on payments from Laiyang Jiangbo under our contractual
      arrangements. The PRC government also imposes controls on the conversion of
      RMB
      into foreign currencies and the remittance of currencies out of China. We may
      experience difficulties in completing the administrative procedures necessary
      to
      obtain and remit foreign currency. See “Government control of currency
      conversion may affect the value of your investment.” Furthermore, if our
      affiliated entity in China incurs debt on its own in the future, the instruments
      governing the debt may restrict its ability to make payments. If we are unable
      to receive all of the revenues from our operations through these contractual
      or
      dividend arrangements, we may be unable to pay dividends on our ordinary
      shares.





**Uncertainties
      with respect to the PRC legal system could adversely affect
      us.**





We
      conduct our business primarily through our affiliated Chinese entity, Laiyang
      Jiangbo. Our operations in China are governed by PRC laws and regulations.
      We
      are generally subject to laws and regulations applicable to foreign investments
      in China and, in particular, laws applicable to wholly foreign-owned
      enterprises. The PRC legal system is based on written statutes. Prior court
      decisions may be cited for reference but have limited precedential
      value.





Since
      1979, PRC legislation and regulations have significantly enhanced the
      protections afforded to various forms of foreign investments in China. However,
      China has not developed a fully integrated legal system and recently enacted
      laws and regulations may not sufficiently cover all aspects of economic
      activities in China. In particular, because these laws and regulations are
      relatively new, and because of the limited volume of published decisions and
      their nonbinding nature, the interpretation and enforcement of these laws and
      regulations involve uncertainties. In addition, the PRC legal system is based
      in
      part on government policies and internal rules (some of which are not published
      on a timely basis or at all) that may have a retroactive effect. As a result,
      we
      may not be aware of our violation of these policies and rules until some time
      after the violation. In addition, any litigation in China may be protracted
      and
      result in substantial costs and diversion of resources and management
      attention.





**You
      may experience difficulties in effecting service of legal process, enforcing
      foreign judgments or bringing original actions in China based on United States
      or other foreign laws against us, our management or the experts named in the
      prospectus.**





We
      conduct substantially all of our operations in China and substantially all
      of
      our assets are located in China. In addition, most of our senior executive
      officers reside within China. As a result, it may not be possible to effect
      service of process within the United States or elsewhere outside China upon
      our
      senior executive officers, including with respect to matters arising under
      U.S.
      federal securities laws or applicable state securities laws. Moreover, our
      PRC
      counsel has advised us that the PRC does not have treaties with the United
      States or many other countries providing for the reciprocal recognition and
      enforcement of judgment of courts.


19


**Governmental
      control of currency conversion may affect the value of your
      investment.**





The
      PRC
      government imposes controls on the convertibility of RMB into foreign currencies
      and, in certain cases, the remittance of currency out of China. We receive
      substantially all of our revenues in RMB. Under our current structure, our
      income is primarily derived from payments from Laiyang Jiangbo. Shortages in
      the
      availability of foreign currency may restrict the ability of our PRC
      subsidiaries and our affiliated entity to remit sufficient foreign currency
      to
      pay dividends or other payments to us, or otherwise satisfy their foreign
      currency denominated obligations. Under existing PRC foreign exchange
      regulations, payments of current account items, including profit distributions,
      interest payments and expenditures from trade-related transactions, can be
      made
      in foreign currencies without prior approval from the PRC State Administration
      of Foreign Exchange by complying with certain procedural requirements. However,
      approval from appropriate government authorities is required where RMB is to
      be
      converted into foreign currency and remitted out of China to pay capital
      expenses such as the repayment of bank loans denominated in foreign currencies.
      The PRC government may also at its discretion restrict access in the future
      to
      foreign currencies for current account transactions. If the foreign exchange
      control system prevents us from obtaining sufficient foreign currency to satisfy
      our currency demands, we may not be able to pay dividends in foreign currencies
      to our shareholders.





**Fluctuation
      in the value of RMB may have a material adverse effect on your
      investment.**





The
      value
      of RMB against the U.S. dollar and other currencies may fluctuate and is
      affected by, among other things, changes in political and economic conditions.
      Our revenues and costs are mostly denominated in RMB, while a significant
      portion of our financial assets are denominated in U.S. dollars. We rely
      entirely on fees paid to us by our affiliated entity in China. Any significant
      fluctuation in value of RMB may materially and adversely affect our cash flows,
      revenues, earnings and financial position, and the value of, and any dividends
      payable on, our stock in U.S. dollars. For example, an appreciation of RMB
      against the U.S. dollar would make any new RMB denominated investments or
      expenditures more costly to us, to the extent that we need to convert U.S.
      dollars into RMB for such purposes. An appreciation of RMB against the U.S.
      dollar would also result in foreign currency translation losses for financial
      reporting purposes when we translate our U.S. dollar denominated financial
      assets into RMB, as RMB is our reporting currency.





**We
      face risks related to health epidemics and other
      outbreaks.**





Our
      business could be adversely affected by the effects of SARS or another epidemic
      or outbreak. China reported a number of cases of SARS in April 2004. Any
      prolonged recurrence of SARS or other adverse public health developments in
      China may have a material adverse effect on our business operations. For
      instance, health or other government regulations adopted in response may require
      temporary closure of our production facilities or of our offices. Such closures
      would severely disrupt our business operations and adversely affect our results
      of operations. We have not adopted any written preventive measures or
      contingency plans to combat any future outbreak of SARS or any other
      epidemic.





***Risks
      Related to an Investment in Our Securities***





**We
      do not anticipate paying any cash dividends.**





We
      presently do not anticipate that we will pay any dividends on any of our capital
      stock in the foreseeable future. The payment of dividends, if any, would be
      contingent upon our revenues and earnings, if any, capital requirements, and
      general financial condition. The payment of any dividends is within the
      discretion of our Board of Directors. We presently intend to retain all
      earnings, if any, to implement our business plan; accordingly, we do not
      anticipate the declaration of any dividends in the foreseeable
      future.





**Because
      the OTC Bulletin Board is a quotation system, not an issuer listing service,
      market or exchange, it may be difficult for you to sell your common stock or
      you
      may not be able to sell your common stock for an optimum trading
      price.**





The
      OTC
      Bulletin Board is a regulated quotation service that displays real-time quotes,
      last sale prices and volume limitations in over-the-counter securities. Because
      trades and quotations on the OTC Bulletin Board involve a manual process, the
      market information for such securities cannot be guaranteed. In addition, quote
      information, or even firm quotes, may not be available. The manual execution
      process may delay order processing and intervening price fluctuations may result
      in the failure of a limit order to execute or the execution of a market order
      at
      a significantly different price. Execution of trades, execution reporting and
      the delivery of legal trade confirmations may be delayed significantly.
      Consequently, one may not be able to sell shares of our common stock at the
      optimum trading prices.





The
      dealer’s spread (the difference between the bid and ask prices) may be large and
      may result in substantial losses to the seller of securities on the OTC Bulletin
      Board if the common stock or other security must be sold immediately. Further,
      purchasers of securities may incur an immediate “paper” loss due to the price
      spread. Moreover, dealers trading on the OTC Bulletin Board may not have a
      bid
      price for securities bought and sold through the OTC Bulletin Board. Due to
      the
      foregoing, demand for securities that are traded through the OTC Bulletin Board
      may be decreased or eliminated.


20


**The
      application of the “penny stock” rules could adversely affect the market price
      of our common stock and increase your transaction costs to sell those
      shares.**





In
      the
      event the trading price of our common shares reaches below $5 per
      share, the open-market trading of our common shares will be subject to the
      “penny stock” rules. The “penny stock” rules impose additional sales practice
      requirements on broker-dealers who sell securities to persons other than
      established customers and accredited investors (generally those with assets in
      excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together
      with their spouse). For transactions covered by these rules, the broker-dealer
      must make a special suitability determination for the purchase of securities
      and
      have received the purchaser's written consent to the transaction before the
      purchase. Additionally, for any transaction involving a penny stock, unless
      exempt, the broker-dealer must deliver, before the transaction, a disclosure
      schedule prescribed by the SEC relating to the penny stock market. The
      broker-dealer also must disclose the commissions payable to both the
      broker-dealer and the registered representative and current quotations for
      the
      securities. Finally, monthly statements must be sent disclosing recent price
      information on the limited market in penny stocks. These additional burdens
      imposed on broker-dealers may restrict the ability or decrease the willingness
      of broker-dealers to sell our common shares, and may result in decreased
      liquidity for our common shares and increased transaction costs for sales and
      purchases of our common shares as compared to other securities.





**Our
      common shares are thinly traded and, you may be unable to sell at or near ask
      prices or at all if you need to sell your shares to raise money or otherwise
      desire to liquidate your shares.**





We
      cannot
      predict the extent to which an active public market for its common stock will
      develop or be sustained. However, we do not rule out the possibility of applying
      for listing on the Nasdaq National Market or other exchanges.





Our
      common shares have historically been sporadically or "thinly-traded" on the
      OTC
      Bulletin Board, meaning that the number of persons interested in purchasing
      our
      common shares at or near bid prices at any given time may be relatively small
      or
      non-existent. This situation is attributable to a number of factors, including
      the fact that we are a small company which is relatively unknown to stock
      analysts, stock brokers, institutional investors and others in the investment
      community that generate or influence sales volume, and that even if we came
      to
      the attention of such persons, they tend to be risk-averse and would be
      reluctant to follow an unproven company such as ours or purchase or recommend
      the purchase of our shares until such time as we became more seasoned and
      viable. As a consequence, there may be periods of several days or more when
      trading activity in our shares is minimal or non-existent, as compared to a
      seasoned issuer which has a large and steady volume of trading activity that
      will generally support continuous sales without an adverse effect on share
      price. We cannot give you any assurance that a broader or more active public
      trading market for our common stock will develop or be sustained, or that
      current trading levels will be sustained.





The
      market price for our common stock is particularly volatile given our status
      as a
      relatively small company with a small and thinly traded “float” and lack of
      current revenues that could lead to wide fluctuations in our share price. The
      price at which you purchase our common stock may not be indicative of the price
      that will prevail in the trading market. You may be unable to sell your common
      stock at or above your purchase price if at all, which may result in substantial
      losses to you.





The
      market for our common shares is characterized by significant price volatility
      when compared to seasoned issuers, and we expect that our share price will
      continue to be more volatile than a seasoned issuer for the indefinite future.
      The volatility in our share price is attributable to a number of factors. First,
      as noted above, our common shares are sporadically and/or thinly traded. As
      a
      consequence of this lack of liquidity, the trading of relatively small
      quantities of shares by our shareholders may disproportionately influence the
      price of those shares in either direction. The price for our shares could,
      for
      example, decline precipitously in the event that a large number of our common
      shares are sold on the market without commensurate demand, as compared to a
      seasoned issuer which could better absorb those sales without adverse impact
      on
      its share price. Secondly, we are a speculative or "risky" investment due to
      our
      lack of revenues or profits to date and uncertainty of future market acceptance
      for our current and potential products. As a consequence of this enhanced risk,
      more risk-adverse investors may, under the fear of losing all or most of their
      investment in the event of negative news or lack of progress, be more inclined
      to sell their shares on the market more quickly and at greater discounts than
      would be the case with the stock of a seasoned issuer. The following factors
      may
      add to the volatility in the price of our common shares: actual or anticipated
      variations in our quarterly or annual operating results; adverse outcomes;
      the
      termination of our contractual agreements with Laiyang Jiangbo; and additions
      or
      departures of our key personnel, as well as other items discussed under this
      "Risk Factors" section, as well as elsewhere in this report. Many of these
      factors are beyond our control and may decrease the market price of our common
      shares, regardless of our operating performance. We cannot make any predictions
      or projections as to what the prevailing market price for our common shares
      will
      be at any time, including as to whether our common shares will sustain their
      current market prices, or as to what effect that the sale of shares or the
      availability of common shares for sale at any time will have on the prevailing
      market price. However, we do not rule out the possibility of applying for
      listing on the Nasdaq National Market or other exchanges.





Shareholders
      should be aware that, according to SEC Release No. 34-29093, the market for
      penny stocks has suffered in recent years from patterns of fraud and abuse.
      Such
      patterns include (1) control of the market for the security by one or a few
      broker-dealers that are often related to the promoter or issuer; (2)
      manipulation of prices through prearranged matching of purchases and sales
      and
      false and misleading press releases; (3) boiler room practices involving
      high-pressure sales tactics and unrealistic price projections by inexperienced
      sales persons; (4) excessive and undisclosed bid-ask differential and markups
      by
      selling broker-dealers; and (5) the wholesale dumping of the same securities
      by
      promoters and broker-dealers after prices have been manipulated to a desired
      level, along with the resulting inevitable collapse of those prices and with
      consequent investor losses. Our management is aware of the abuses that have
      occurred historically in the penny stock market. Although we do not expect
      to be
      in a position to dictate the behavior of the market or of broker-dealers who
      participate in the market, management will strive within the confines of
      practical limitations to prevent the described patterns from being established
      with respect to our securities. The occurrence of these patterns or practices
      could increase the volatility of our share price.


21





**The
      market price for our stock may be volatile and the volatility in our common
      share price may subject us to securities litigation.**





The
      market price for our stock may be volatile and subject to wide fluctuations
      in
      response to factors including the following:




·
            actual
                or anticipated fluctuations in our quarterly operating
                results;·
            changes
                in financial estimates by securities research analysts;·
            conditions
                in pharmaceutical and agricultural markets;·
            changes
                in the economic performance or market valuations of other pharmaceutical
                companies;·
            announcements
                by us or our competitors of new products, acquisitions, strategic
                partnerships, joint ventures or capital commitments;·
            addition
                or departure of key personnel;·
            fluctuations
                of exchange rates between RMB and the U.S. dollar;·
            intellectual
                property litigation; and·
            general
                economic or political conditions in
                China.





In
      addition, the securities market has from time to time experienced significant
      price and volume fluctuations that are not related to the operating performance
      of particular companies. These market fluctuations may also materially and
      adversely affect the market price of our stock.





The
      market for our common stock is characterized by significant price volatility
      when compared to seasoned issuers, and we expect that our share price will
      continue to be more volatile than a seasoned issuer for the indefinite future.
      In the past, plaintiffs have often initiated securities class action litigation
      against a company following periods of volatility in the market price of its
      securities. We may, in the future, be the target of similar litigation.
      Securities litigation could result in substantial costs and liabilities and
      could divert management's attention and resources.





**Our
      corporate actions are substantially controlled by our principal shareholders
      and
      affiliated entities.**





Our
      principal shareholders and their affiliated entities own approximately 53%
      of
      our outstanding common shares, representing approximately 53% of our voting
      power. These shareholders, acting individually or as a group, could exert
      substantial influence over matters such as electing directors and approving
      mergers or other business combination transactions. In addition, because of
      the
      percentage of ownership and voting concentration in these principal shareholders
      and their affiliated entities, elections of our board of directors will
      generally be within the control of these shareholders and their affiliated
      entities. While all of our shareholders are entitled to vote on matters
      submitted to our shareholders for approval, the concentration of shares and
      voting control presently lies with these principal shareholders and their
      affiliated entities. As such, it would be difficult for shareholders to propose
      and have approved proposals not supported by management. There can be no
      assurances that matters voted upon by our officers and directors in their
      capacity as shareholders will be viewed favorably by all shareholders of our
      company.





**The
      elimination of monetary liability against our directors, officers and employees
      under Florida law and the existence of indemnification rights to our directors,
      officers and employees may result in substantial expenditures by us and may
      discourage lawsuits against our directors, officers and
      employees.**





Our
      articles of incorporation contain specific provisions that eliminate the
      liability of our directors for monetary damages to our company and shareholders,
      and we are prepared to give such indemnification to our directors and officers
      to the extent provided by Florida law. We may also have contractual
      indemnification obligations under our employment agreements with our officers.
      The foregoing indemnification obligations could result in our company incurring
      substantial expenditures to cover the cost of settlement or damage awards
      against directors and officers, which we may be unable to recoup. These
      provisions and resultant costs may also discourage our company from bringing
      a
      lawsuit against directors and officers for breaches of their fiduciary duties,
      and may similarly discourage the filing of derivative litigation by our
      shareholders against our directors and officers even though such actions, if
      successful, might otherwise benefit our company and
      shareholders.


22





**Legislative
      actions, higher insurance costs and potential new accounting pronouncements
      may
      impact our future financial position and results of
      operations.**





There
      have been regulatory changes, including the Sarbanes-Oxley Act of 2002, and
      there may potentially be new accounting pronouncements or additional regulatory
      rulings that will have an impact on our future financial position and results
      of
      operations. The Sarbanes-Oxley Act of 2002 and other rule changes are likely
      to
      increase general and administrative costs and expenses. In addition, insurers
      are likely to increase premiums as a result of high claims rates over the past
      several years, which we expect will increase our premiums for insurance
      policies. Further, there could be changes in certain accounting rules. These
      and
      other potential changes could materially increase the expenses we report under
      generally accepted accounting principles, and adversely affect our operating
      results.





**Past
      activities of Genesis and its affiliates may lead to future
      liability.**





Prior
      to
      the Exchange Agreement among Genesis, Karmoya and the Karmoya Shareholders
      executed on October 1, 2007, we engaged in businesses unrelated to our current
      operations. Neither Genesis’s prior management nor any of its shareholders prior
      to the Exchange Transaction are providing indemnifications against any loss,
      liability, claim, damage or expense arising out of or based on any breach of
      or
      inaccuracy in any of their representations and warranties made regarding such
      acquisition, and any liabilities relating to such prior business against which
      we are not completely indemnified may have a material adverse effect on our
      company. For example, we are aware of three lawsuits arising from past
      activities of Genesis, alleging breach of contract. Please see “Legal
      Proceedings” for more information.





**We
      may need additional capital, and the sale of additional shares or other equity
      securities could result in additional dilution to our
      shareholders.**





We
      believe that our current cash and cash equivalents, anticipated cash flows
      from
      operations and the net proceeds from a proposed offering will be sufficient
      to
      meet our anticipated cash needs for the near future. We may, however, require
      additional cash resources due to changed business conditions or other future
      developments, including any investments or acquisitions we may decide to pursue.
      If our resources are insufficient to satisfy our cash requirements, we may
      seek
      to sell additional equity or debt securities or obtain a credit facility. The
      sale of additional equity securities could result in additional dilution to
      our
      shareholders. The incurrence of indebtedness would result in increased debt
      service obligations and could result in operating and financing covenants that
      would restrict our operations. We cannot assure you that financing will be
      available in amounts or on terms acceptable to us, if at all.





**Existing
      stockholders may experience some dilution as a result of the exercise of
      warrants.**





In
      the
      May 2008 financing, we issued notes and, in conjunction with the notes,
      Class A warrants to purchase, collectively, up to 1,875,,000 shares of our
      common stock, subject to adjustment. In the November 2007 financing, we issued
      debentures and, in connection with the debentures, warrants to purchase,
      collectively, up to 400,000 shares of our common stock. Any issuances of shares
      upon any exercise of these warrants will cause dilution in the interests of
      our
      shareholders.





**If
      we fail to maintain an effective system of internal controls, we may not be
      able
      to accurately report our financial results or prevent
      fraud.**





We
      will
      be subject to reporting obligations under the U.S. securities laws. The SEC,
      as
      required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules
      requiring every public company to include a management report on such company's
      internal controls over financial reporting in its annual report, which contains
      management's assessment of the effectiveness of our internal controls over
      financial reporting. In addition, an independent registered public accounting
      firm must attest to and report on management's assessment of the effectiveness
      of our internal controls over financial reporting. Our management may conclude
      that our internal controls over our financial reporting are not effective.
      Moreover, even if our management concludes that our internal controls over
      financial reporting are effective, our independent registered public accounting
      firm may still decline to attest to our management's assessment or may issue
      a
      report that is qualified if it is not satisfied with our controls or the level
      at which our controls are documented, designed, operated or reviewed, or if
      it
      interprets the relevant requirements differently from us. Our reporting
      obligations as a public company will place a significant strain on our
      management, operational and financial resources and systems for the foreseeable
      future. Effective internal controls, particularly those related to revenue
      recognition, are necessary for us to produce reliable financial reports and
      are
      important to help prevent fraud. As a result, our failure to achieve and
      maintain effective internal controls over financial reporting could result
      in
      the loss of investor confidence in the reliability of our financial statements,
      which in turn could harm our business and negatively impact the trading price
      of
      our stock. Furthermore, we anticipate that we will incur considerable costs
      and
      use significant management time and other resources in an effort to comply
      with
      Section 404 and other requirements of the Sarbanes-Oxley Act.


23





**We
      will incur increased costs as a result of being a public
      company.**





As
      a
      public company, we will incur significant legal, accounting and other expenses
      that we did not incur as a private company. In addition, the Sarbanes-Oxley
      Act
      and other new rules subsequently implemented by SEC have required changes in
      corporate governance practices of public companies. We expect these new rules
      and regulations to increase our legal, accounting and financial compliance
      costs
      and to make certain corporate activities more time-consuming and costly. In
      addition, we will incur additional costs associated with our public company
      reporting requirements. We are currently evaluating and monitoring developments
      with respect to these new rules, and we cannot predict or estimate the amount
      of
      additional costs we may incur or the timing of such costs.





**ITEM
      1B. UNRESOLVED STAFF COMMENTS**





**Not
      applicable.**





**ITEM
      2. DESCRIPTION OF PROPERTY**





Our
      principal executive offices are located at Middle Section, Longmao Street,
      Area
      A, Laiyang Waixiangxing Industrial Park, Laiyang City, Yantai, Shandong
      Province, PRC 265200, where we have developed approximately 45,356 square meters
      of production, office, and garage space. Our total building area is 7,172 square
      meters and our production workshop area is more than 3,132 square meters. This
      property is owned by us.





On
      August
      13, 2003, the Laiyang Development Planning Agency approved Laiyang Jiangbo’s
      plan to construct garage and office space. On August 18, 2003, the Laiyang
      Industrial Park Administration certified Laiyang Jiangbo’s investment of RMB 10
      million ($1.3 million) in Section A of the Industrial Park to build on a 13,000
      square meters lot.





In
      October 2007, the Laiyang Bureau of Land and Resources sold us a 50 years land
      use right for a 266,664 square meters lot located in Laiyang City to Laiyang
      Jiangbo. The Company paid approximately RMB 60.8 million ($8.9 million) for
      the
      land use right.





**ITEM
      3. LEGAL PROCEEDINGS**





Except
      as
      discussed below, we are not a party to any pending legal proceeding, nor are
      we
      aware of any legal proceedings being contemplated against us by any governmental
      authority:





Elizabeth
      Hiromoto et al v. Telecom Communications, Inc. et al. - Case No.
      2:07-cv-07858-PSG-E, United States District Court, Central District of
      California (Western Division - Los Angeles)





On
      December 3, 2007, two individuals filed a lawsuit against the Company, its
      former Chief Executive Officer James Wang, and certain others, alleging breach
      of contract relating to damages arising from the sale of Telecom Communications,
      Inc.(“TCOM”) to Arran Services Limited, in which Mr. Wang acted as the Company’s
      President and Chairman to provide consulting services to TCOM and certain
      misrepresentations made on behalf of and in conjunction with TCOM’s majority
      shareholder . On July 2, 2008, the Company and the plaintiffs settled the
      lawsuit with prejudice and claims and plaintiffs have agreed to file a Request
      for Dismissal with Prejudice of the lawsuit.





Fernando
      Praca, Plaintiff v.s. EXTREMA, LLC and Genesis Pharmaceuticals Enterprises,
      Inc.- Case No. 50 2005 CA 005317, Circuit Court of the 15 th Judicial Circuit in and for Palm Beach County, Florida





Fernando
      Praca, former Director and former President of the Company’s discontinued
      subsidiary, Extrema LLC, filed an action in Dade County, Florida against
      Extrema, LLC and the Company in June 2005 relating to damages arising from
      the
      sale of Extrema LLC to Genesis Technology Group, Inc. Praca had filed a Motion
      of Temporary Injunction but had not proceeded to move this case forward. The
      plaintiff has decided to reinitiate the legal action in March 2008. In July
      2008, the Company and Praca entered into a Settlement Agreement whereby Praca
      agreed to dismiss this action against the Company and to surrender to the
      Company for cancellation, 100,000 shares of common stock in the Company held
      by
      him and the Company agreed to provide Praca with a legal opinion of its counsel
      removing the restrictive legend on the 1,269,607 shares of common stock held
      by
      Praca.


24





Kenneth
      Clinton vs. Genesis Pharmaceuticals Enterprises, Inc., GNPH Holdings, Capital
      Growth Financial, Inc., Gary L. Wolfson and Pacific Rim Consultants, Inc. -
      Case
      No. 50 2007 CA 023923, Circuit Court of the 15 th Judicial Circuit in and for Palm Beach County, Florida





On
      December 21, 2007, Kenneth Clinton, a former director and former President
      of
      the Company, filed a lawsuit against the Company and certain entities and
      persons related to our predecessor Genesis Technology Group, Inc. The complaint
      alleged, among other things, breach of contract against the Company for an
      agreement to pay the plaintiff certain shares of other public companies
      (collectively, the “Reverse Merger Shares”) in connection with reverse merger
      transactions arranged by our predecessor, and breach of contract against the
      Company for failure to allow the plaintiff to exercise certain stock options
      for
      shares in the Company or exchange such options for new shares in the Company.
      The plaintiff sought relief in the form of (1) delivery of the Reverse Merger
      Shares, or in the alternative damages in the amount of those shares, (2) a
      judgment against the Company to allow the plaintiff to exchange and exercise
      his
      stock options for shares in the Company, or in the alternative damages in the
      amount of those shares, and (3) a declaratory judgment regarding a pledge and
      escrow agreement with defendant Capital Growth Financial.





In
      February 2008, the Company entered into a settlement agreement and general
      release with Mr. Clinton whereby the Company agreed to allow Mr. Clinton to
      exercise 1.5 million stock options issued under the Company’s 2007 stock option
      plan for shares in the Company and released and discharged Mr. Clinton from
      any
      and all claims, demands or obligations. Mr. Clinton agreed to waive and release
      the Company from any and all claims, demands or obligations.





CRG
      Partners, Inc. and Genesis Technology Group, Inc., n/k/a Genesis Pharmaceuticals
      Enterprises, Inc. (ARBITRATION) - Case No. 32 145 Y 00976 07, American
      Arbitration Association, Southeast Case Management Center





On
      December 4, 2007, CRG Partners, Inc. (“CRG”), a former consultant of the
      Company, filed a demand for arbitration against the Company alleging breach
      of
      contract and seeking damages of approximately $10 million as compensation for
      consulting services rendered to the Company. The amount of damages sought by
      the
      claimant is equal to the dollar value of 29,978,900 shares of the Company’s
      common stock (Pre 40 to 1 reverse split) on November 2, 2007 which the claimant
      alleges are due and owing to CRG. On December 5, 2007, we gave notice of
      termination of our relationship with CRG under the consulting agreement. The
      arbitration is scheduled to be conducted in Miami Dade County, Florida. We
      plan
      to vigorously defend our position.





China
      West II, LLC and Genesis Technology Group, Inc., n/k/a Genesis Pharmaceuticals
      Enterprises, Inc. (ARBITRATION)





In
      June
      2008, China West II, LLC (“CW II”) filed a Demand For Arbitration with the
      American Arbitration Association the case of *CW
      II
      and Genesis Technology Group, Inc. n/k/a Genesis Pharmaceuticals Enterprises,
      Inc. and Joshua Tan.* In
      that
      matter, CW II seeks breach of contract damages in connection with the Company’s
      October 2007 reverse merger from the Company and Joshua Tan, jointly and
      severally for approximately $6.7 million estimated by CW II. As of the date
      of
      this report, the Company is unable to estimate a loss, if any, the Company
      may
      incur related expenses to this lawsuit. The Company believes CW II’s demand was
      without merit and plans to vigorously defend its position.





**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





On
      June
      13, 2008, the holders of 52.4% of the Company’s issued and outstanding common
      stock (216,677,951) approved an increase in the Company’s number of authorized
      shares of the Company’s Common Stock to 900,000,000. The share increase became
      effective on July 29, 2008.





**PART
      II**





**Item
      5.**  **MARKET
      FOR COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
      SECURITIES**





**Market
      Information**





Our
      common stock is not listed on any stock exchange. Our common stock is traded
      over-the-counter on the Over-the-Counter Electronic Bulletin Board under the
      symbol “GNPH”. The following table sets forth the high and low bid information
      for our common stock for each quarter within our last two fiscal years, as
      reported by the Over-the-Counter Electronic Bulletin Board. The bid prices
      reflect inter-dealer quotations, do not include retail markups, markdowns or
      commissions and do not necessarily reflect actual transactions.


**LOW**
              
              **HIGH****2008**Quarter
                  ended June 30, 2008
              
              $
              7.50
              
              $
              14.40Quarter
                  ended March 31, 2008
              
              $
              7.04
              
              $
              14.72Quarter
                  ended December 31, 2007
              
              $
              8.80
              
              $
              14.40Quarter
                  ended September 30, 2007
              
              $
              3.40
              
              $
              6.00**2007**Quarter
                  ended June 30, 2007
              
              $
              4.04
              
              $
              7.40Quarter
                  ended March 31, 2007
              
              $
              4.80
              
              $
              7.40Quarter
                  ended December 31, 2006
              
              $
              3.20
              
              $
              7.16Quarter
                  ended September 30, 2006
              
              $
              3.60
              
              $
              7.40




25





As
      of
      September 26, 2008, the closing sales price for shares of our common stock
      was
      $8.70 per share on the Over-The-Counter Bulletin Board.





**Holders**





As
      of
      September 25, 2008, there were approximately 955 shareholders of record of
      our
      common stock based upon the shareholders’ listing provided by our transfer
      agent. Our transfer agent is Computershare Trust Company, 350 Indiana St.,
      #800,
      Golden, Colorado 80401, and its telephone number is (303) 262-0600.





**Dividend
      Policy**





We
      have
      not paid cash dividends on our common stock since the Company became public
      through reverse merger. We intend to keep future earnings to finance the
      expansion of our business, and we do not anticipate that any cash dividends
      will
      be paid in the foreseeable future. We rely on dividends from Laiyang Jiangbo
      for
      our funds and PRC regulations may limit the amount of funds distributed to
      us
      from Laiyang Jiangbo, which will affect our ability to declare any dividends.
      See "Risk Factors - Risks Related to Doing Business in the PRC – Laiyang Jiangbo
      and GJBT are subject to restrictions on paying dividends and making other
      payments to us" and " Governmental control of currency conversion may affect
      the
      value of your investment."





Our
      future payment of dividends will depend on our earnings, capital requirements,
      expansion plans, financial condition and relevant factors that our board of
      directors may deem relevant. Our retained earnings limits our ability to pay
      dividends.





**Recent
      Sales of Unregistered Securities**





The
      following private placements of the Company’s securities were made in reliance
      upon the exemption from registration under Section 4(2) of the Securities Act
      of
      1933, as amended, and/or, Rule 506 of Regulation D promulgated under the
      Securities Act. The Company did not use underwriters in any of the following
      private placements.





In
      July
      2008, the Company issued 2,500 shares of restricted common stock to its officers
      and directors for services rendered. The Company valued these common stock
      at
      the fair market valueon the date of grant of $8 per share or, $20,000, in total
      base on the trading price of common stock. Accordingly, the Company recorded
      stock-based compensation expense of $20,000.





In
      June
      2008, the Company issued 5,875 shares of restricted common stock to its officers
      and directors for services rendered. The Company valued these common stock
      at
      the fair market on the date of grant of $8 per share, or $47,000, in total
      base
      on the trading price of common stock. Accordingly, the Company recorded
      stock-based compensation expense of $47,000. In June 2008, we issued 235,000
      shares of restricted common stock





In
      February 2008, in conjunction with a settlement between the Company and the
      Company’s former officer, Mr. Kenneth Clinton, Mr. Clinton exercised 1,500,000
      options and the remaining 941,406 options held by the former officer were
      cancelled. The Company received $157,500 in cash and the proceed was used for
      working capital purposes.





**Issuer
      Purchases of Equity Securities.**





None.





**ITEM
      6. SELECTED FINANCIAL DATA**





As
      a
      smaller reporting company, we are not required to provide the information called
      for by Item 6 of Form 10-K.




**ITEM
      7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION**





*The
      following analysis of our consolidated financial condition and results of
      operations for the years ended June 30, 2008, 2007 and 2006, should be read
      in
      conjunction with our audited consolidated financial statements, including
      footnotes, and other information presented elsewhere in this annual report
      on
      Form 10-K. This discussion contains forward-looking statements that involve
      significant risks and uncertainties. As a result of many factors, such as those
      set forth under “Forward Looking Statements” and “Item 1A. Risk Factors” and
      elsewhere in this Form 10-K, our actual results may differ materially from
      those
      anticipated in these forward-looking statements. When used in this section,
      "fiscal 2008" means our fiscal year ended June 30, 2008 and "fiscal 2007" means
      our fiscal year ended June 30, 2007.*


26


**OVERVIEW**





We
      were
      originally incorporated on August 15, 2001 in the State of Florida under the
      name Genesis Technology Group, Inc. On October 12, 2001, we consummated a merger
      with NewAgeCities.com, an Idaho public corporation originally formed in 1969.
      We
      were the surviving entity after the merger with the Idaho public
      corporation.





On
      October 1, 2007, we completed a share exchange transaction by and among us,
      Karmoya International Ltd., a British Virgin Islands company (“Karmoya”), and
      Karmoya’s shareholders. As a result of the share exchange transaction, Karmoya,
      a company which was established as a “special purpose vehicle” for the foreign
      capital raising activities of its Chinese subsidiaries, became our wholly owned
      subsidiary and our new operating business. Karmoya was incorporated under the
      laws of the British Virgin Islands on July 17, 2007 and owns 100% of the capital
      stock of Union Well International Limited, a Cayman Islands company (“Union
      Well”). Karmoya conducts its business operations through Union Well’s wholly
      owned subsidiary, Genesis Jiangbo (Laiyang) Biotech Technology Co., Ltd.
      (“GJBT”). GJBT was incorporated under the laws of the People’s Republic of China
      ("PRC") on September 16, 2007 and registered as a wholly foreign owned
      enterprise (WOFE) on September 19, 2007. GJBT has entered into consulting
      service agreements and equity-related agreements with Laiyang Jiangbo
      Pharmaceutical Co., Ltd. (“Laiyang Jiangbo”), a PRC limited liability company
      incorporated on August 18, 2003.





As
      a
      result of the share exchange transaction, our primary operations consist of
      the
      business and operations of Karmoya and its subsidiaries, which are conducted
      by
      Laiyang Jiangbo in the PRC. Laiyang Jiangbo produces and sells western
      pharmaceutical products in China and focuses on developing innovative medicines
      to address various medical needs for patients worldwide.





**FINANCIAL
      PERFORMANCE HIGHLIGHTS:**





**Net
      Revenues**


**2008**
              
              **2007**
              
              **2006**Net
                  Revenues (in '000)
              
              $
              99,547
              
              $
              76,194
              
              $
              49,156%
                  change year over year
              
              
              30.65
              %
              
              55
              %
              
              285.50
              %


Net
      revenues for fiscal 2008 of $99.5 million reflected an increase of 30.65%
      over fiscal 2007 net revenues of $76.2 million. Our net revenues experienced
      55%
      growth from fiscal 2006, $ 49.2 million, to fiscal 2007, $ 76.2
      million.





Gross
      margin




**2008**
            
            **2007**
            
            **2006**Cost
                of Goods Sold (in '000)
            
            $
            22,507
            
            $
            21,162
            
            $
            15,686*Gross
                Margin*
            
            
            *77.39*
            *%*
            
            *72.23*
            *%*
            
            *68.09*
            *%*




Gross
      margin increased to 77.39% in 2008 compared with 72.23% in 2007 and 68.09%
      in
      2006. This was primarily driven by increased sales of high profit
      margin products.





SG&A




**2008**
            
            **2007**
            
            **2006**SG&A
                (in ‘000)
            
            $
            41,593
            
            $
            25,579
            
            $
            7,895*Percentage
                of Sales*
            
            
            41.78
            %
            
            33.57
            %
            
            16.06
            %




SG&A
      as a percentage of sales increased to 41.78 % in 2008 from 33.57% in 2007 and
      16.06% in 2006, principally driven by higher commission expenses paid to our
      sales personnel, higher advertisement, marketing and promotion spending and
      salaries, wages and related benefits expenses and expenses related to being
      a
      public company.





Net
      income




**2008**
            
            **2007**
            
            **2006**Net
                income (in '000)
            
            $
            22,451
            
            $
            22,053
            
            $
            7,736*net
                margin*
            
            
            22.55
            %
            
            28.94
            %
            
            15.74
            %




Net
      margin decreased to 22.55% in 2008 from 28.94% in 2007, primarily due to higher
      SG&A as a percentage of sales and the smaller amounts of tax
      exemption received in 2008 as compared to 2007. Net margin increased to
      28.94% in 2007 from 15.74% in 2006, primarily due to higher gross
      margin.


27




**RESULTS
      OF OPERATIONS**





The
      following table sets forth the results of our operations for the periods
      indicated as a percentage of total net sales: ($ in thousands)


**Year Ended**
                **June 30,**
              
              **% of**
              
              **Year Ended**
                **June 30,**
              
              **% of**
              
              **Year Ended**
                **June 30,**
              
              **% of****2008**
              
              **Revenue**
              
              **2007**
              
              **Revenue**
              
              **2006**
              
              **Revenue**REVENUES
              
              $
              93,983
              
              
              94.41
              %
              $
              72,260
              
              
              94.84
              %
              $
              45,243
              
              
              92.04
              %REVENUES
                  - RELATED PARTY
              
              
              5,564
              
              
              5.59
              %
              
              3,934
              
              
              5.16
              %
              
              3,913
              
              
              7.96
              %COST
                  OF REVENUES
              
              
              21,073
              
              
              21.17
              %
              
              19,961
              
              
              26.20
              %
              
              13,628
              
              
              27.72
              %COST
                  OF REVENUES-RELATED PARTIES
              
              
              1,434
              
              
              1.44
              %
              
              1,200
              
              
              1.58
              %
              
              2,058
              
              
              4.19
              %GROSS
                  PROFIT
              
              
              77,040
              
              
              77.39
              %
              
              55,032
              
              
              72.23
              %
              
              33,470
              
              
              68.09
              %SELLING,
                  GENERAL AND ADMINISTRATIVE EXPENSES
              
              
              41,593
              
              
              41.78
              %
              
              25,579
              
              
              33.57
              %
              
              7,895
              
              
              16.06
              %RESEARCH
                  AND DEVELOPMENT
              
              
              3,236
              
              
              3.25
              %
              
              11,144
              
              
              14.63
              %
              
              13,642
              
              
              27.75
              %INCOME
                  FROM OPERATIONS
              
              
              32,211
              
              
              32.36
              %
              
              18,309
              
              
              24.03
              %
              
              11,933
              
              
              24.28
              %OTHER
                  EXPENSES(INCOME)
              
              
              2,789
              
              
              2.80
              %
              
              (6,375
              )
              
              (8.37
              )%
              
              387
              
              
              0.79
              %INCOME
                  BEFORE PROVISION FOR INCOME TAXES
              
              
              29,422
              
              
              29.56
              %
              
              24,684
              
              
              32.40
              %
              
              11,546
              
              
              23.49
              %PROVISION
                  FOR INCOME TAXES
              
              
              6,971
              
              
              7.00
              %
              
              2,631
              
              
              3.45
              %
              
              3,810
              
              
              7.75
              %NET
                  INCOME
              
              
              22,451
              
              
              22.55
              %
              
              22,053
              
              
              28.94
              %
              
              7,736
              
              
              15.74
              %OTHER
                  COMPREHENSIVE INCOME
              
              
              6,554
              
              
              6.58
              %
              
              1,018
              
              
              1.34
              %
              
              128
              
              
              0.26
              %COMPREHENSIVE
                  INCOME
              
              $
              29,005
              
              
              29.14
              %
              $
              23,071
              
              
              30.28
              %
              $
              7,864
              
              
              16.00
              %




**Comparison
      of Years Ended June 30, 2008 and 2007**





*REVENUES.* Our
      revenues include revenues from sales and revenues from sales to related party
      of
      $94.0 million and $5.6 million, respectively, for the year ended June 30, 2008.
      During the year ended June 30, 2008, we had revenues from sales of $94.0 million
      as compared to revenues from sales of $72.3 million for the year ended June
      30,
      2007, an increase of approximately 30.06%. During the year ended June 30, 2008,
      we had revenues from sales to related parties of $5.6 million as compared to
      revenues from sales to related parties of $4.0 million for the year ended June
      30, 2007, an increase of approximately 41.44%. The overall increase in total
      revenue was primarily attributable to the increase of sales volume of our best
      selling products: Clarithromycin sustained-release tablets and Itopride
      Hydrochloride Granules. Additionally, we released a new product, Baobaole
      chewable tablets in the second quarter of fiscal year 2008 and the product
      has
      been very popular in the market since. We believe our sales will continue to
      grow because we are strengthening our sales force, improving the quality of
      our
      products and continuing developing new products that we expect to be well
      accepted in the market.


28





*COST
      OF REVENUES.* Our cost
      of revenues includes cost of sales and cost of sales to related party of $21.1
      million and $1.4 million, respectively, for the year ended June 30, 2008. For
      the year ended June 30, 2007, cost of sales and to related parties amounted
      to
      $20.0 million and $1.2 million, respectively. Total cost of sales for 2008
      increased $1.3 million or 6.36%, from $21.1 million for the year ended June
      30,
      2007 to $22.5 million for the year ended June 30, 2008. Cost of sales as a
      percentage of net revenue for the year ended June 30, 2008 is approximately
      22.61%, compared to the year ended June 30, 2007 at approximately 27.77%. The
      decrease was attributable to more sales being generated from producing of
      high-profit-margins products, the highly profitable new product Baobaole
      chewable tables, more efficient producing process, our ability to better manage
      raw material purchase prices and the government exemption on sales taxes and
      mis. fees received in fiscal 2008.




*GROSS
      PROFIT.* Gross
      profit was $77.0 million for the year ended June 30, 2008 as compared to $55.0
      million for the year ended June 30, 2007, representing gross margins of
      approximately 77.39% and 72.23%, respectively. The increase in our gross profits
      was mainly due to decrease in cost of sales as a percentage of net revenue
      as we
      better managed raw material purchase prices and our product sales mixture to
      generate more sales from products with higher profit margins.





*SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES.* Selling,
      general and administrative expenses totaled $41.6 million for the year ended
      June 30, 2008, as compared to $25.6 million for the year ended June 30, 2007,
      an
      increase of approximately 62.56% as summarized below ($ in
      thousands):


Years
                    Ended June 30,2008
                
                2007Shipping
                    and handling
                
                $
                365
                
                $
                280Advertisement,
                    marketing and promotion spending
                
                
                28,119
                
                
                18,097Travel
                    and entertainment- sales related
                
                
                982
                
                
                564Depreciation
                    and amortization
                
                
                458
                
                
                280Salaries,
                    commissions, wages and related benefits
                
                
                10,190
                
                
                5,789Travel
                    and entertainment- non sales related
                
                
                325
                
                
                36Other
                
                
                1,154
                
                
                533Total
                
                $
                41,593
                
                $
                25,579
  The
          changes in these expenses during the year ended June 30, 2008, as compared
          to
          the corresponding period in 2007 included the following:
 ·
                  An
                      increase of $10.0 million or approximately 55.39% in advertising,
                      marketing and promotional spending for the year ended June
                      30, 2008 was
                      primarily due to TV commercials and magazine advertisements
                      expenses to
                      promote our new product- Baobaole Chewable tablets, as well
                      as our brand
                      name. Additionally, we also increased our marketing and promotional
                      activities to promote our two best selling
                      products.
  ·
                  Travel
                      and entertainment -sales related expenses increased by $0.4
                      million or
                      approximately 74.14% for the year ended June 30, 2008 as compared
                      to the
                      corresponding period in fiscal 2007was
                      primarily due toour
                      marketing and sales travel related activities related to promoting
                      our
                      Baobole Chewable tablets and establishing the distribution
                      network for the
                      product as well as promoting our two other best selling products.
   ·
                  Shipping
                      and handling expenses increased by $0.1 million or approximately
                      30.43%
                      for the year ended June 30, 2008 as compared to the corresponding
                      period
                      of fiscal 2007,primarily
                      because there was an increase in sales volume in fiscal year
                      2008.
   ·
                  Depreciation
                      and amortization increased by $0.2 million or 63.45% for the
                      year ended
                      June 30, 2008 as compared to the corresponding period of fiscal
                      2007,
                      primarilydue
                      to additional fixed assets being depreciated.
  ·
                  Salaries,
                      wages, commissions and related benefits increased by $4.4 million
                      or
                      76.00% for the year ended June 30, 2008 as compared to the
                      corresponding
                      period of fiscal 2007. The increase was primarilydue
                      to increase in commission payments as a percentage of sales
                      to sales
                      representatives as well as an increase in number of employees
                      and sales
                      representatives as a result of expanding our distribution network
                      from 26
                      provinces and regions to 30 provinces and regions in fiscal
                      2008.


29




·
                An
                    increase of $0.3 million or approximately 806.12% in travel and
                    entertainment -non sales related expenses for the year ended
                    June 30, 2008
                    as compared to the corresponding period of fiscal 2007. The increase
                    wasprimarily
                    due to increase in corporate executives’ and managers’ entertainment and
                    travel related to public company related activities.
  ·
                Other
                    selling, general and administrative expenses, which includes
                    professional
                    fees, utilities, office supplies and expenses increased by $0.6
                    million or
                    116.37% for the year ended June 30, 2008 as compared to the corresponding
                    period in fiscal 2008 primarilydue
                    to more professional fees, and other expenses related to being
                    a publicly
                    traded company in fiscal 2008.


*RESEARCH
      AND DEVELOPMENT COSTS.* Research
      and development costs, which consist fees paid to third parties for research
      and
      development related activities conducted for the Company and cost of material
      used and salaries paid for the development of the Company’s products, totaled $3
      million for the year ended June 30, 2008, as compared to $11 million for the
      year ended June 30, 2007, an decrease of approximately 70.96%. The significant
      decrease in research and development expenses in fiscal 2008 was mainly due
      to
      major spending on a research and development project conducted and paid for
      new
      drug clinical trials and project were expensed in the second quarter of fiscal
      2007. The Company completed several research and development projects prior
      to
      the end of fiscal 2007 and those drugs are currently in the final process of
      being approved by the Chinese SFDA.





*OTHER
      INCOME (EXPENSES)* .
      Our
      other expenses consisted of valued added tax and various other tax exemptions
      from the government, financial expenses and non-operating expenses. We had
      net
      other expense of $2.8 million for the year ended June 30, 2008 as compared
      to
      net other income of $6.3 million for the year ended June 30, 2007. The increase
      in net other expenses was due the decrease of $3.5 million tax exemption
      received by the Company in fiscal 2008, the increase in interest expense as
      a
      result of our financings in November 2007 and May 2008, realized and unrealized
      losses on our marketable securities, and our loss from
      discontinued operations in fiscal 2008 which we did not occurr in
      fiscal 2007.





*NET
      INCOME.* Our net
      income for the year ended June 30, 2008 was $22.5 million as compared to $22.1
      million for the year ended June 30, 2007, an increase of $0.4 million or 1.80%.
      The increase in net income is primarily attributable to increase in sales volume
      of our best selling products, as well as improved profit margin and partially
      offset by higher operating expense and significantly $4.7 million less tax
      exemptions received in fiscal 2008 and the interest expenses related to our
      financings in November 2007 and May 2008 . Our management believes that net
      income will continue to improve as we will continue to offer better and more
      products to gain market shares, improve our manufacturing efficiency and control
      our spending.





**Comparison
      of Years Ended June 30, 2007 and 2006**





*REVENUES.* Our
      revenues include revenues from sales and revenues from sales to related parties
      of $72 million and $4 million, respectively for the year ended June 30, 2007.
      During the year ended June 30, 2007, we had revenues from sales of $72 million
      as compared to revenues from sales of $45 million for the year ended June 30,
      2006, an increase of approximately 59.71%. During the year ended June 30, 2007,
      we had revenues from sales to related parties of $3.93 million as compared
      to
      revenues from sales to related parties of $3.91 million for the year ended
      June
      30, 2006, an increase of approximately 0.52%. These increases are attributable
      to continued strong sales of our best selling products, Ciprloxacin
      Hydrochloride tablets, and Paracetamol tablets. We believe that our sales will
      continue to grow because we are strengthening our sales force, improving the
      quality of our products and continuing developing new products that will be
      well
      accepted in the market.





*COST
      OF REVENUES.* Our cost
      of revenues includes cost of sales and cost of sales to related party of $20.0
      million and $1.2 million, respectively, for the year ended June 30, 2007. For
      the year ended June 30, 2006, cost of sales and to related parties amounted
      to
      $13.6 million and $2.1 million, respectively. Total cost of revenues for 2007
      increased $5.5 million or 34.91%, from $15.7 million for the year ended June
      30,
      2006 to $21.2 million for the year ended June 30, 2007. The decrease in cost
      of
      revenue as a percentage of net revenues for the year ended June 30, 2006,
      approximately 27.77% as compared to the year ended June 30, 2006, approximately
      31.91%, was attributable to better and more efficient manufacturing
      production.





*GROSS
      PROFIT.* Gross
      profit was $55.0 million for the year ended June 30, 2007 as compared to $33.5
      million for the year ended June 30, 2006, representing gross margins of
      approximately 72.23% and 68.09%, respectively. The increase in our gross profits
      was mainly due to strong product sale and decrease in cost of revenue as a
      percentage of net revenue.





*SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES.* Selling,
      general and administrative expenses totaled $25.6 million for the year ended
      June 30, 2007, as compared to $7.9 million for the year ended June 30, 2006,
      an
      increase of approximately 224.01% as summarized below ($ in
      thousands):


30


Years
                  Ended June 30,2007
              
              2006Shipping
                  and handling
              
              $
              280
              
              $
              188Advertisement,
                  marketing and promotion spending
              
              
              18,097
              
              
              5,455Travel
                  and entertainment- sales related
              
              
              564
              
              
              397Depreciation
                  and amortization
              
              
              280
              
              
              182Salaries,
                  commissions, wages and related benefits
              
              
              5,789
              
              
              1,114Travel
                  and entertainment- non sales related
              
              
              36
              
              
              45Other
              
              
              533
              
              
              514Total
              
              $
              25,579
              
              $
              7,895
 
 The
        changes in these expenses during the year ended June 30, 2007, as compared
        to
        the corresponding period in 2006 included the following:
 
 ·
              An
                  increase of $12.6 million or approximately 231.72% in advertising,
                  marketing and promotional spending for the year ended June 30,
                  2007 was
                  primarilydue
                  to increase in marketing and promotional activities to promote
                  our
                  products and brand name.
 
 ·
              Travel
                  and entertainment sales related expenses increased by $0.2 million,
                  or
                  approximately 41.94%, for the year ended June 30, 2007 as compared
                  to the
                  corresponding period in fiscal 2006was
                  primarily due to the increase in our sales entertainment and sales
                  travel
                  related activities.
 
 ·
                  Shipping
                      and handling expenses increased by $0.1 million, or approximately
                      48.87%,
                      for the year ended June 30, 2007 as compared to the corresponding
                      period
                      of fiscal 2006,primarily
                      because increase in sales volume in fiscal year 2007.
 
 ·
              Depreciation
                  and amortization increased by $0.1 million, or 53.76%, for the
                  year ended
                  June 30, 2007 as compared to the corresponding period of fiscal
                  2006,
                  primarilydue
                  to additional amortization expenses on the new patent obtained
                  in late
                  fiscal 2007.
  ·
                  Salaries,
                      wages, commissions and related benefits increased by $4.7 million,
                      or
                      419.83%, for the year ended June 30, 2007 as compared to the
                      corresponding
                      period of fiscal 2006. The increase was primarilydue
                      to increase in commission payments to sales representatives
                      as well as an
                      increase in number of employees and sales representatives.
 
 ·
              Travel
                  and entertainment non sales related expenses were materially consistent
                  for the year ended June 30, 2007 as compared to the corresponding
                  period
                  of fiscal 2006.
 
 ·
              Other
                  selling, general and administrative expenses, which includes professional
                  fees, utilities, office supplies and expenses were materially consistent
                  for the year ended June 30, 2007 as compared to the corresponding
                  period
                  in fiscal 2006.




*RESEARCH
      AND DEVELOPMENT COSTS.* Research
      and development costs, which consist of cost of material used and salaries
      paid
      for the development of the Company’s products and fees paid to third parties,
      totaled $11 million for the year ended June 30, 2007, as compared to $14 million
      for the year ended June 30, 2006, an decrease of approximately 18.31%. The
      decrease was mainly because we had less new product development projects in
      2007.





*OTHER
      (INCOME) EXPENSES* .
      Our
      other (income) expenses consisted of corporate income tax and valued added
      tax
      exemption from the government, financial expenses and non-operating expenses.
      We
      had other income of $6.4 million for the year ended June 30, 2007 as compared
      to
      other expense $ 0.4 million for the year ended June 30, 2006. The decrease
      in
      other expenses is mainly due to receiving of corporate income tax and value
      added tax exemption from the government.





*NET
      INCOME.* Our net
      income for the year ended June 30, 2007 was $22 million as compared to $8
      million for the year ended June 30, 2006. The increase in net income is
      attributable to increased sales volume, lower average costs as well as
      government income tax and value added tax exemption. Our management believes
      that net income will continue to increase because we will continue to offer
      better and more products and improve our manufacturing
      efficiency.


31





**LIQUIDITY
      AND CAPITAL RESOURCES**





We
      have
      historically financed our operations and capital expenditures principally
      through private placements of debt and equity offerings, bank loans, and cash
      provided by operations. In fiscal year 2008, our primary financing activities
      included the following:





-
            In
                November 2007, we raised $5,000,000 in gross proceeds through the
                sale of
                a convertible note.
              We
                received $4,645,592 in net proceeds after deducting placement agent
                discounts and commissions and payment of professional and other related
                expenses. Further detailed discussion regarding this financing is
                provided
                in the footnotes to financial statements.





-
            In
                May 2008, we raised $30,000,000 in gross proceeds through the sale
                of a
                convertible note.
              We
                received $28,313,500 in net proceeds after deducting placement agent
                discounts and commissions and payment of professional and other related
                expenses. Further detailed discussion regarding this financing is
                provided
                in the footnotes to financial statements.




As
      is
      customary in the industry, we provide payment terms to most of our customers
      that exceed terms that we receive from our suppliers. Therefore, the Company’s
      liquidity needs have generally consisted of working capital necessary to finance
      receivables and raw material inventory. Capital expenditures have historically
      been necessary to expand the production capacity of the Company’s manufacturing
      operations.





***Cash
      Flows***





Net
      cash
      flow provided by operating activities was $17.1 million in fiscal 2008, compared
      with $15.3 million in fiscal 2007, an increase of $1.8 million. The 2008
      increase in cash provided by operating activities included the followings:
      1)
      decrease in inventory of $1.7 million 2) an add-back of amortization on debt
      discount of $2.5 million, 3) an add-back of unrealized loss on marketable
      securities of $0.7 million, 4) increase in other payables of $2.0 million and
      partially offset by the increase in accounts receivable and 5) increase in
      advances to suppliers. We also have cash payment for liabilities from
      discontinued operations of $ 1.2 million in 2008 while we do not have
      corresponding payment in fiscal 2007.





Net
      cash
      flow used in investing activities was $7.6 million in fiscal 2008 and $0.2
      million in fiscal 2007, a $7.4 million increased. Uses of cash flow for
      investing activities included equipment purchases and payments for
      intangible assets. The increase of net cash flow used in investing activities
      in
      fiscal 2008 was mainly due to increase in property and equipments payments
      of $0.3 million and purchase of intangible assets of $8.9 million offset by
      proceeds from sale of marketable securities of $1.0 million and cash received
      from reverse acquisition of $0.5 million.





Net
      cash
      flow provided by financing activities was $18.5 million in fiscal 2008 and
      while
      net cash flow used in financing activities was $1.2 million in fiscal 2007.
      The
      increase of net cash flow provided by financing activities was mainly due to
      increase in proceeds from convertible debt of $33 million, decrease in
      payments for short term loans of $ 0.9 million offset by payment for
      dividend of $10.6 million, payment to escrow account of $2.0 million and
      decrease in proceeds from short term loan of $ 1.9 million.


Our
        working capital position increased $57.2 million, to $73.2 million at June
        30,
        2008, from $16.0 million at June 30, 2007. This increase in working capital
        is
        primarily attributable to the increase in cash in bank of $30.5 million,
        accounts receivable of $12.5 million, marketable equity securities of $2.1
        million, advances to suppliers of $1.4 million and decrease of dividend payable
        of $10.5 million, notes payable of $2.6 million, short term bank loans of
        $1.8
        million, and offset by decrease of inventories of $1.2 million, and increase
        of
        other payables of $2.3 million and the liability assumed from discontinued
        operations of $1.1 million.





We
      anticipate that our working capital requirements may increase as a result of
      our
      anticipated expanded business expansion plan, continued increases in sales,
      potential increases in the price of our raw material, competition and our
      relationship with suppliers or customers. We believe that our existing cash,
      cash equivalents and cash flows from operations will be sufficient to meet
      our
      presently anticipated future cash needs for at least the next 12 months. We
      may,
      however, require additional cash resources due to changed business conditions
      or
      other future developments, including any investments or acquisitions we may
      decide to pursue.





**Contractual
      Obligations and Off-Balance Sheet Arrangements**





***Contractual
      Obligations***





We
      have
      certain fixed contractual obligations and commitments that include future
      estimated payments. Changes in our business needs, cancellation provisions,
      changing interest rates, and other factors may result in actual payments
      differing from the estimates. We cannot provide certainty regarding the timing
      and amounts of payments. We have presented below a summary of the most
      significant assumptions used in our determination of amounts presented in the
      tables, in order to assist in the review of this information within the context
      of our consolidated financial position, results of operations, and cash
      flows.


32





The
      following tables summarize our contractual obligations as of June 30, 2008,
      and
      the effect these obligations are expected to have on our liquidity and cash
      flows in future periods.





**Payments Due by Period****Total**
            
            **Less than 1**
              **year**
            
            **1-3 Years**
            
            **3-5 Years**
            
            **5 Years +****In Thousands**Contractual
                Obligations:Bank
                Indebtedness
            
            $
            8,615,395
            
            $
            8,615,395
            
            $
            -
            
            $
            -
            
            $
            -Research
                and Development Contract Obligations
            
            $
            11,562,575
            
            $
            4,377,000
            
            $
            5,252,400
            
            $
            1,933,175
            
            $
            -Total
                Contractual Obligations:
            
            $
            20,177,970
            
            $
            12,992,395
            
            $
            5,252,400
            
            $
            1,933,175
            
            $
            -





Bank
      Indebtedness amounts include the short-term bank loans amount and notes payable
      amount.





***Off-balance
      Sheet Arrangements***





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
      shareholder’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.





**Basis
      of Presentation**





Our
      financial statements are prepared in accordance with accounting principles
      generally accepted in the United States of America (“GAAP”). These
      accounting principles require us to make certain estimates, judgments and
      assumptions. We believe that the estimates, judgments and assumptions upon
      which
      we rely are reasonable based upon information available to us at the time that
      these estimates, judgments and assumptions are made. These estimates, judgments
      and assumptions can affect the reported amounts of assets and liabilities as
      of
      the date of the financial statements as well as the reported amounts of revenues
      and expenses during the periods presented. Our financial statements would be
      affected to the extent there are material differences between these estimates
      and actual results. In many cases, the accounting treatment of a particular
      transaction is specifically dictated by GAAP and does not require management’s
      judgment in its application. There are also areas in which management’s judgment
      in selecting any available alternative would not produce a materially different
      result.





**CRITICAL
      ACCOUNTING POLICIES**





The
      discussion and analysis of our financial condition and results of operations
      are
      based upon our consolidated financial statements, which have been prepared
      in
      accordance with accounting principles generally accepted in the United States.
      The preparation of these consolidated financial statements requires us to make
      estimates and judgments that affect the reported amounts of assets, liabilities,
      revenues and expenses, and related disclosure of contingent assets and
      liabilities. On an on-going basis, we evaluate our estimates based on historical
      experience and on various other assumptions that are believed to be reasonable
      under the circumstances, the results of which form the basis for making
      judgments about the carrying values of assets and liabilities that are not
      readily apparent from other sources. Actual results may differ from these
      estimates under different assumptions or conditions.





A
      summary
      of significant accounting policies is included in Note 2 to the audited
      consolidated financial statements included in this Form 10-K. Management
      believes that the application of these policies on a consistent basis enables
      us
      to provide useful and reliable financial information about the company's
      operating results and financial condition.





**Use
      of Estimates**





The
      preparation of our consolidated 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 as well as the reported net sales and expenses
      during the reporting periods. On an ongoing basis, we evaluate our estimates
      and
      assumptions. 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. Actual results
      may
      differ from these estimates under different assumptions or conditions.
      Significant estimates in 2008, 2007 and 2006 include the allowance for doubtful
      accounts, the allowance for obsolete inventory, the useful life of property
      and
      equipment and intangible assets, and accruals for taxes due.





**Inventories**





Inventories,
      consisting of raw materials and finished goods related to the Company’s products
      are stated at the lower of cost or market utilizing the weighted average
      method.


33





**Property
      and equipment**





Property
      and equipment are stated at cost less accumulated depreciation. Depreciation
      is
      computed using straight-line method over the estimated useful lives of the
      assets. The estimated useful lives of the assets are as follows:





Useful
                LifeBuilding
                and building improvements
            5
                -
                40
            
            YearsManufacturing
                equipment
            5
–
                20
            
            YearsOffice
                equipment and furniture
            5
–
                10
            
            YearsVehicle
            5
            
            Years





The
      cost
      of repairs and maintenance is expensed as incurred; major replacements and
      improvements are capitalized. When assets are retired or disposed of, the cost
      and accumulated depreciation are removed from the accounts, and any resulting
      gains or losses are included in income in the year of disposition.





Long-lived
      assets of the Company are reviewed periodically or more often if circumstances
      dictate, to determine whether their carrying value has become impaired. The
      Company considers assets to be impaired if the carrying value exceeds the future
      projected cash flows from related operations. The Company also re-evaluates
      the
      periods of amortization to determine whether subsequent events and circumstances
      warrant revised estimates of useful lives.





In
      accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
      "Accounting for the Impairment or Disposal of Long-Lived Assets", the Company
      examines the possibility of decreases in the value of fixed assets when events
      or changes in circumstances reflect the fact that their recorded value may
      not
      be recoverable. The Company recognizes an impairment loss when the sum of
      expected undiscounted future cash flows is less than the carrying amount of
      the
      asset. The amount of impairment is measured as the difference between the
      asset’s estimated fair value and its book value.





**Intangible
      assets**





All
      land
      in the People’s Republic of China is owned by the government and cannot be sold
      to any individual or company. The Company has recorded the costs paid to acquire
      a long-term interest to utilize the land underlying the Company's facility
      as
      land use rights. This type of arrangement is common for the use of land in
      the
      PRC. The land use rights are amortized on the straight-line method over the
      term
      of the land use rights of 50 years.





Purchased
      technological know-how includes secret formulas, manufacturing processes,
      technical, procedural manuals and the certificate of drugs production and is
      amortized using the straight-line method over the expected useful economic
      life
      of 5 years, which reflects the period over which those formulas, manufacturing
      processes, technical and procedural manuals are kept secret to the Company
      as
      agreed between the Company and the selling parties.





Intangible
      assets of the Company are reviewed periodically or more often if circumstances
      dictate, to determine whether their carrying value has become impaired. The
      Company considers assets to be impaired if the carrying value exceeds the future
      projected cash flows from related operations. The Company also re-evaluates
      the
      periods of amortization to determine whether subsequent events and circumstances
      warrant revised estimates of useful lives.





**Investments
      and restricted investments**





Investments
      are comprised primarily of equity securities and are stated fair value. Certain
      of these investments are classified as trading securities based on the Company’s
      intent to sell and dispose of them within the year. Further, certain of these
      securities are classified as available-for-sale and are reflected as restricted,
      noncurrent investments based on the Company’s intent to hold them beyond one
      year. For trading securities, realized and unrealized gains and losses are
      included in the accompanying consolidated statements of income. For
      available-for-sale securities, realized gains and losses are included in the
      consolidated statements of income. Unrealized gains and losses for these
      available-for-sale securities are reported in other comprehensive income, net
      of
      tax, in the consolidated statements of shareholders’ equity. The Company has no
      investments that are considered to be held-to-maturity securities.





**Accounting
      for Stock Based Compensation**





Effective
      October 1, 2005, we adopted Statement of Financial Accounting Standards No.
      123
      (revised 2004), Share Based Payment ("SFAS No. 123R"). SFAS No. 123R establishes
      the financial accounting and reporting standards for stock-based compensation
      plans. As required by SFAS No. 123R, we recognize the cost resulting from all
      stock-based payment transactions including shares issued under our stock option
      plans in the financial statements. The adoption of SFAS No. 123R will have
      a
      negative impact on our future results of operations.


34





**Revenue
      recognition**





Product
      sales are generally recognized when title to the product has transferred to
      customers in accordance with the terms of the sale. The Company recognizes
      revenue in accordance with the Securities and Exchange Commission’s (SEC) Staff
      Accounting Bulletin (SAB) No. 101, “ *Revenue Recognition in Financial Statements* ”
as
      amended by SAB No. 104 (together, “SAB 104”), and Statement of
      Financial Accounting Standards (SFAS) No. 48 “ *Revenue Recognition When Right of Return Exists.* ”
      SAB 104 states that revenue should not be recognized until it is
      realized or realizable and earned. In general, the Company records revenue
      when
      persuasive evidence of an arrangement exists, services have been rendered or
      product delivery has occurred, the sales price to the customer is fixed or
      determinable, and collectibility is reasonably assured.





The
      Company is generally not contractually obligated to accept returns. However,
      on
      a case-by-case negotiated basis, the Company permits customers to return their
      products. In accordance with Statement of Financial Accounting Standards
      ("SFAS") No. 48, "Revenue Recognition when the Right of Return Exists", revenue
      is recorded net of an allowance for estimated returns. Such reserves are based
      upon management's evaluation of historical experience and estimated costs.
      The
      amount of the reserves ultimately required could differ materially in the near
      term from amounts included in the consolidated financial
      statements.





**Income
      taxes**





The
      Company is governed by the Income Tax Law of the People’s Republic of China.
      Income taxes are accounted for under Statement of Financial Accounting Standards
      No. 109, "Accounting for Income Taxes," which is an asset and liability approach
      that requires the recognition of deferred tax assets and liabilities for the
      expected future tax consequences of events that have been recognized in the
      Company's financial statements or tax returns. 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 using 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 is 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 related to income taxes levied
      by the same taxation authority and the Company intends to settle its current
      ax
      assets and liabilities on a net basis.





The
      Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income
      Taxes” (“FIN 48”), 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.





***Variable
      Interest Entities***





Pursuant
      to Financial Accounting Standards Board Interpretation No. 46 (Revised),
“Consolidation of Variable Interest Entities - an Interpretation of ARB No.
      51”
(“FIN 46R”) we are required to include in our consolidated financial statements
      the financial statements of variable interest entities. FIN 46R requires a
      variable interest entity to be consolidated by a company if that company is
      subject to a majority of the risk of loss for the variable interest entity
      or is
      entitled to receive a majority of the variable interest entity’s residual
      returns. Variable interest entities are those entities in which we, through
      contractual arrangements, bear the risk of, and enjoy the rewards normally
      associated with ownership of the entity, and therefore we are the primary
      beneficiary of the entity.





Laiyang
      Jiangbo are considered a variable interest entity (“VIE”), and we are the
      primary beneficiary. On October 1, 2008, we entered into agreements
      with Laiyang
      Jiangbo to which we shall receive 100% of Laiyang Jiangbo’s net income. In
      accordance with these agreements, Laiyang Jiangbo shall pay consulting fees
      equal to 100% of its net income to our wholly-owned foreign subsidiary, GJBT,
      and GJBT shall supply the technology and administrative services needed to
      service Laiyang Jiangbo.





The
      accounts of Laiyang Jiangbo are consolidated in the accompanying financial
      statements pursuant to FIN 46R. As a VIE, Laiyang Jiangbo sales are included
      in
      our total sales, its income from operations is consolidated with our, and our
      net income includes all of Laiyang Jiangbo's net income. We do not have any
      non-controlling interest and accordingly, did not subtract any net income in
      calculating the net income attributable to us. Because of the contractual
      arrangements, we have pecuniary interest in Laiyang Jiangbo that require
      consolidation of our financial statements and Laiyang Jiangbo financial
      statements.


35





**Recent
      accounting pronouncements**





In
      September 2006, the FASB issued SFAS No. 157 (“SFAS 157”), “Fair Value
      Measurements.” SFAS 157 establishes a framework for measuring fair value and
      expands disclosures about fair value measurements. The changes to current
      practice resulting from the application of this statement relate to the
      definition of fair value, the methods used to measure fair value, and the
      expanded disclosures about fair value measurements. SFAS 157 is effective for
      fiscal years beginning after November 15, 2007, and interim periods within
      those
      fiscal years. The Company will adopt SFAS 157 in fiscal year 2009. The Company
      is currently evaluating the impact, if any, that the adoption of SFAS 157 will
      have on its consolidated results of operations and consolidated financial
      position.





In
      February 2008, the FASB issued FASB Staff Position No. 157-1 ("FSP 157-1"),
      "Application of FASB Statement No. 157 to FASB Statement No. 13 and Other
      Accounting Pronouncements That Address Fair Value Measurements for Purposes
      of
      Lease Classification or Measurement under Statement 13." FSP 157-1 indicates
      that it does not apply under FASB Statement No. 13 (“SFAS 13”), "Accounting for
      Leases," and other accounting pronouncements that address fair value
      measurements for purposes of lease classification or measurement under SFAS
      13.
      This scope exception does not apply to assets acquired and liabilities assumed
      in a business combination that are required to be measured at fair value under
      SFAS No. 141 or SFAS No. 141R, regardless of whether those assets and
      liabilities are related to leases.





Also
      in
      February 2008, the FASB issued FASB Staff Position No. 157-2 ("FSP 157-2"),
      "Effective Date of FASB Statement No. 157." With the issuance of FSP 157-2,
      the
      FASB agreed to: (a) defer the effective date in SFAS No. 157 for one year for
      certain nonfinancial assets and nonfinancial liabilities, except those that
      are
      recognized or disclosed at fair value in the financial statements on a recurring
      basis (at least annually), and (b) remove certain leasing transactions from
      the
      scope of SFAS No. 157. The deferral is intended to provide the FASB time to
      consider the effect of certain implementation issues that have arisen from
      the
      application of SFAS No. 157 to these assets and liabilities.





In
      February 2007, the FASB issued SFAS No. 159 (“SFAS 159”), “The Fair Value Option
      for Financial Assets and Financials Liabilities — Including an Amendment of FASB
      Statement No. 115.” This standard permits measurement of certain financial
      assets and financial liabilities at fair value. If the fair value option is
      elected, the unrealized gains and losses are reported in earnings at each
      reporting date. Generally, the fair value option may be elected on an
      instrument-by-instrument basis, as long as it is applied to the instrument
      in
      its entirety. The fair value option election is irrevocable, unless a new
      election date occurs. SFAS 159 requires prospective application and also
      establishes certain additional presentation and disclosure requirements. SFAS
      159 is effective as of the beginning of the fiscal year that begins after
      November 15, 2007. The Company is currently evaluating the impact, if any,
      that
      the adoption of SFAS 159 will have on its consolidated results of operations
      or
      consolidated financial position.





In
      December 2007, the FASB issued SFAS No. 141(R) (“SFAS 141R”), “Business
      Combinations,” which replaces SFAS No. 141. SFAS 141R retains the purchase
      method of accounting for acquisitions, but requires a number of changes,
      including changes in the way assets and liabilities are recognized in the
      purchase accounting as well as requiring the expensing of acquisition-related
      costs as incurred. Furthermore, SFAS 141R provides guidance for recognizing
      and
      measuring the goodwill acquired in the business combination and determines
      what
      information to disclose to enable users of the financial statements to evaluate
      the nature and financial effects of the business combination. SFAS 141R is
      effective for fiscal years beginning on or after December 15, 2008. Earlier
      adoption is prohibited. The Company is evaluating the impact, if any, that
      the
      adoption of this statement will have on its consolidated results of operations
      or consolidated financial position.





In
      December 2007, the FASB issued SFAS No. 160 (“SFAS 160”), “Noncontrolling
      Interests in Consolidated Financial Statements — An Amendment of ARB No. 51.”
SFAS 160 amends ARB No. 51 to establish accounting and reporting standards
      for
      the noncontrolling interest in a subsidiary and for the deconsolidation of
      a
      subsidiary. It is intended to eliminate the diversity in practice regarding
      the
      accounting for transactions between equity and noncontrolling interests by
      requiring that they be treated as equity transactions. Further, it requires
      consolidated net income to be reported at amounts that include the amounts
      attributable to both the parent and the noncontrolling interest. SFAS 160 also
      establishes a single method of accounting for changes in a parent’s ownership
      interest in a subsidiary that do not result in deconsolidation, requires that
      a
      parent recognize a gain or loss in net income when a subsidiary is
      deconsolidated, requires expanded disclosures in the consolidated financial
      statements that clearly identify and distinguish between the interests of the
      parent’s owners and the interests of the noncontrolling owners of a subsidiary,
      among others. SFAS 160 is effective for fiscal years beginning on or after
      December 15, 2008, with early adoption permitted, and it is to be applied
      prospectively. SFAS 160 is to be applied prospectively as of the beginning
      of
      the fiscal year in which it is initially applied, except for the presentation
      and disclosure requirements, which must be applied retrospectively for all
      periods presented. The Company has not yet evaluated the impact that SFAS 160
      will have on its consolidated financial position or consolidated results of
      operations.





In
      March
      2008, the FASB issued SFAS No. 161 ("SFAS 161"), "Disclosures about Derivative
      Instruments and Hedging Activities." SFAS 161 is intended to improve financial
      reporting of derivative instruments and hedging activities by requiring enhanced
      disclosures to enable financial statement users to better understand the effects
      of derivatives and hedging on an entity's financial position, financial
      performance and cash flows. The provisions of SFAS 161 are effective for interim
      periods and fiscal years beginning after November 15, 2008, with early adoption
      encouraged. The Company does not anticipate that the adoption of SFAS 161 will
      have a material impact on its consolidated results of operations or consolidated
      financial position.





In
      May
      2008, the FASB issued SFAS No. 162 (“SFAS 162”), "The Hierarchy of Generally
      Accepted Accounting Principles." SFAS 162 is intended to improve financial
      reporting by identifying a consistent framework, or hierarchy, for selecting
      accounting principles to be used in preparing financial statements that are
      presented in conformity with GAAP for nongovernmental entities. SFAS 162 is
      effective 60 days following the SEC's approval of the Public Company Accounting
      Oversight Board (“PCAOB”) amendments to AU Section 411, "The Meaning of Present
      Fairly in Conformity with Generally Accepted Accounting Principles." The Company
      does not expect the adoption of SFAS 162 will have a material impact on its
      consolidated results of operations or consolidated financial position.


36





On
      May 9,
      2008, the FASB issued FASB Staff Position No. APB 14-1 ("FSP APB 14-1"),
      "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon
      Conversion (Including Partial Cash Settlement)." FSP APB 14-1 clarifies that
      convertible debt instruments that may be settled in cash upon conversion
      (including partial cash settlement) are not addressed by paragraph 12 of APB
      Opinion No. 14, "Accounting for Convertible Debt and Debt Issued with Stock
      Purchase Warrants." Additionally, FSP APB 14-1 specifies that issuers of such
      instruments should separately account for the liability and equity components
      in
      a manner that will reflect the entity's nonconvertible debt borrowing rate
      when
      interest cost is recognized in subsequent periods. FSP APB14-1 is effective
      for
      financial statements issued for fiscal years beginning after December 15, 2008,
      and interim periods within those fiscal years. The Company has not yet evaluated
      the impact that FSP APB 14-1 will have on its consolidated results of operations
      or consolidated financial position.





On
      June
      16, 2008, the FASB issued FASB Staff Position No. EITF 03-6-1 (“FSP No. EITF
      03-6-1”), “Determining Whether Instruments Granted in Share-Based Payment
      Transactions Are Participating Securities,” to address the question of whether
      instruments granted in share-based payment transactions are participating
      securities prior to vesting. FSP EITF 03-6-1 indicates that unvested share-based
      payment awards that contain rights to dividend payments should be included
      in
      earnings per share calculations. The guidance will be effective for fiscal
      years
      beginning after December 15, 2008. The Company is currently evaluating the
      requirements of FSP No. EITF 03-6-1 and the impact that its adoption will have
      on the consolidated results of operations or consolidated financial
      position.





In
      June
      2008, the FASB issued Emerging Issues Task Force Issue 07-5 (“EITF 07-5”),
“Determining whether an Instrument (or Embedded Feature) is indexed to an
      Entity’s Own Stock.” EITF No. 07-5 is effective for financial statements issued
      for fiscal years beginning after December 15, 2008, and interim periods within
      those fiscal years. Early application is not permitted. Paragraph 11(a) of
      SFAS
      No. 133 “Accounting for Derivatives and Hedging Activities,” specifies that a
      contract that would otherwise meet the definition of a derivative but is both
      (a) indexed to the Company’s own stock and (b) classified in stockholders’
equity in the statement of financial position would not be considered a
      derivative financial instrument. EITF 07-5 provides a new two-step model to
      be
      applied in determining whether a financial instrument or an embedded feature
      is
      indexed to an issuer’s own stock and thus able to qualify for the SFAS No. 133
      paragraph 11(a) scope exception. This standard triggers liability accounting
      on
      all options and warrants exercisable at strike prices denominated in any
      currency other than the functional currency of the operating entity in the
      PRC
      (Renminbi). The Company is currently evaluating the impact of the adoption
      of
      EITF 07-5 on the accounting for related warrants transactions.





**Item
      7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES AND MARKET RISK**





As
      a
      smaller reporting company, we are not required to provide the information called
      for by Item 7A of Form 10-K.





**ITEM
      8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**





See
      "Index to Financial Statements" beginning on page F-1 below for our financial
      statements included in this annual report on Form 10-K.





**ITEM
      9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**





Effective
      February 25, 2008, Sherb & Co., LLP (“Sherb & Co.”) was dismissed as the
      Company’s principal accountant engaged to audit its financial statements. Sherb
& Co. had been engaged as the Company’s auditors since May 11, 2002 and
      audited the Company’s financial statements for the years ended September 30,
      2007 and September 30, 2006.





Sherb
      & Co.’s report on the Company’s financial statements for the two years ended
      September 30, 2007 and September 30, 2006 did not contain any adverse opinions
      or disclaimers of opinion, and were not qualified or modified as to uncertainty,
      audit scope, or accounting principles, except that Sherb & Co.’s reports for
      each of the years ended September 30, 2007 and September 30, 2006 were modified
      with respect to the uncertainty of the Company’s ability to continue as a going
      concern.





Prior
      to their dismissal, there were no disagreements with Sherb & Co. on any
      matter of accounting principles or practices, financial statement disclosure
      or
      auditing scope or procedure, which disagreements if not resolved to the
      satisfaction of Sherb & Co. would have caused them to make reference to this
      subject matter of the disagreements in connection with their report, nor were
      there any “reportable events” as such term is described in Item 304(a)(1)(iv) of
      Regulation S-B.





Sherb
      & Co.’s dismissal was approved by the Company’s board of
      directors.





On
      February 25, 2008, the Company’s board of directors engaged Moore Stephens Wurth
      Frazer & Torbet, LLP ("Moore Stephens") to serve as the Company’s principal
      accountant to audit the Company’s financial statements. There have been no
      disagreements with our independent auditors. Prior to the engagement
      of Moore Stephens as the independent auditor, there were no consulting or
      other services provided to the Company by Moore Stephens.


37





**ITEM
      9A. CONTROLS AND PROCEDURES**


Our
          management does not expect that our disclosure controls or our internal
          controls
          over financial reporting will prevent all error and fraud. A control system,
          no
          matter how well conceived and operated, can provide only reasonable, but
          no
          absolute, assurance that the objectives of a control system are met. Further,
          any control system reflects limitations on resources, and the benefits
          of a
          control system must be considered relative to its costs. These limitations
          also
          include the realities that judgments in decision-making can be faulty and
          that
          breakdowns can occur because of simple error or mistake. Additionally,
          controls
          can be circumvented by the individual acts of some persons, by collusion
          of two
          or more people or by management override of a control. A design of a control
          system is also based upon certain assumptions about potential future conditions;
          over time, controls may become inadequate because of changes in conditions,
          or
          the degree of compliance with the policies or procedures may deteriorate.
          Because of the inherent limitations in a cost-effective control system,
          misstatements due to error or fraud may occur and may not be detected.
  **Disclosure
          Controls and Procedures**
  We
          maintain disclosure controls and procedures that are designed to ensure
          that
          information required to be disclosed in our reports filed under the *Securities
          Exchange Act of 1934* ,
          as
          amended, is recorded, processed, summarized and reported within the time
          periods
          specified in the Securities and Exchange Commission's rules and forms,
          and that
          such information is accumulated and communicated to our management, including
          our principal executive officer (our president) and our principal accounting
          and
          financial officer (our chief financial officer) to allow for timely decisions
          regarding required disclosure. In designing and evaluating our disclosure
          controls and procedures, our management recognizes that any controls and
          procedures, no matter how well designed and operated, can provide only
          reasonable assurance of achieving the desired control objectives, and our
          management is required to apply its judgment in evaluating the cost-benefit
          relationship of possible controls and procedures.
  As
          of
          June 30, 2008, the year end period covered by this report, we carried out
          an
          evaluation, under the supervision and with the participation of our management,
          including our principal executive officer and our principal accounting
          officer,
          of the effectiveness of the design and operation of our disclosure controls
          and
          procedures. Based on the foregoing, our chief executive officer and our
          chief
          financial officer concluded that our disclosure controls and procedures
          were not
          effective as of the end of the period covered by this annual report due
          to the
          significant deficiencies described below in "Management’s Report on
          Internal Control over Financial Reporting.
  **Management's
          Report on Internal Control over Financial Reporting**
  Our
          management, under the supervision of our chief executive officer and chief
          financial officer, is responsible for establishing and maintaining adequate
          internal control over financial reporting as defined in Rules 13a-15(f)
          and
          15d-15(f) under the Securities Exchange Act.  Our management is also
          required to assess and report on the effectiveness of our internal control
          over
          financial reporting in accordance with Section 404 of the Sarbanes-Oxley
          Act of
          2002 (“Section 404”).   Management assessed the effectiveness of our
          internal control over financial reporting as of June 30, 2008.  In
          making this assessment, management used the criteria set forth by the Committee
          of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
          Control - Integrated Framework.  During our assessment of the
          effectiveness of internal control over financial reporting as of June 30,
          2008,
          management identified significant deficiencies and determined that our
          internal
          controls over financial reporting were not effective as of that date. The
          significant deficiencies related to the following:
 
 *1.  Accounting
          and Finance Personnel Weaknesses -* US
          GAAP expertise - The current staff in the accounting department does not
          have
          extensive experience with U.S. GAAP, and needs substantial training so
          as to
          meet with the higher demands of being a U.S. public company. The accounting
          skills and understanding necessary to fulfill the requirements of U.S.
          GAAP-based reporting, including the skills of subsidiary financial statements
          consolidation, are inadequate and were inadequately supervised. The lack
          of
          sufficient and adequately trained accounting and finance personnel resulted
          in
          an ineffective segregation of duties relative to key financial reporting
          functions.
 2. *Lack
        of internal audit function* –
The
        Company lacks qualified resources to perform the internal audit functions
        properly, which was ineffective in preventing and detecting control lapses
        and
        errors in the accounting of certain key areas like revenue recognition,
        inter-company transactions, cash receipt and cash disbursement authorizations,
        inventory safeguard and proper accumulation for cost of products, in accordance
        with the appropriate costing method used by the company. In addition, the
        scope
        and effectiveness of the internal audit function are yet to be
        developed.
 
 *3.  Absence
        of an Audit Committee* –
As
        of
        June 30, 2008, the Company did not have an Audit Committee in place.
 
 During
        majority of fiscal year ended June 30, 2008, our internal accounting staff
        was
        primarily engaged in ensuring compliance with PRC accounting and reporting
        requirements for our operating subsidiaries and was not required to meet
        or
        apply U.S. GAAP requirements.  As a result, our current accounting
        department responsible for financial reporting of the Company, on a consolidated
        basis, is relatively new to U.S. GAAP and the related internal control
        procedures required of U.S. public companies.  Although our accounting
        staff is professional and experienced in accounting requirements and procedures
        generally accepted in the PRC, management has determined that they require
        additional training and assistance in U.S. GAAP matters.  Management
        has determined that our internal audit function is also significantly deficient
        due to insufficient qualified resources to perform internal audit
        functions.  Finally, management determined that the lack of an Audit
        Committee of the board of directors of the Company also contributes to
        insufficient oversight of our accounting and audit functions.
 
 In
        order
        to correct the foregoing deficiencies, we have taken the following remediation
        measures:
 
 1.
              On
                  June 10, 2008, we engaged a full time Chief Financial officer,
                  Ms. Elsa
                  Sung, from the U.S. to serve as our Chief Financial Officer.  Ms.
                  Sung has extensive experience in internal control and U.S. GAAP
                  reporting
                  compliance to review complex, non-routine transactions and to evaluate
                  and
                  approve the accounting treatment for such transactions. Additionally,
                  we
                  also plan on involving both internal accounting and operations
                  personnel
                  and outside contractors with technical accounting expertise, as
                  needed,
                  early in the evaluation of a complex, non-routine transaction to
                  obtain
                  additional guidance as to the application of generally accepted
                  accounting
                  principles to such a proposed
                  transaction.
 
 2.
              In
                  July 2008, the Board of Directors authorized and approved creation
                  of an
                  Audit Committee that will oversee matters relating to the Company's
                  financial reporting. We appointed an independent director who is
                  qualified
                  an "audit committee financial expert" in compliance with applicable
                  SEC
                  and current stock exchange rules and regulations to the committee.
                  Each
                  member of the Audit Committee is "independent" as defined in Section
                  10A
                  of the Securities Exchange Act of
                  1934.
 
 3.
              We
                  have and will continue to evaluate the internal audit function
                  in relation
                  to the Company’s financial resources and requirements. To the extent
                  possible, we will implement procedures to assure that the initiation
                  of
                  transactions, the custody of assets and the recording of transactions
                  will
                  be performed by separate
                  individuals
  We
        believe that the foregoing steps will remediate the significant deficiencies
        identified above, and we will continue to monitor the effectiveness of these
        steps and make any changes that our management deems appropriate to insure
        that
        the foregoing do not become material weaknesses.
  A
        material weakness (within the meaning of PCAOB Auditing Standard No. 5) is
        a
        deficiency, or a combination of deficiencies, in internal control over financial
        reporting, such that there is a reasonable possibility that a material
        misstatement of our annual or interim financial statements will not be prevented
        or detected on a timely basis.  A significant deficiency is a
        deficiency, or a combination of deficiencies, in internal control over financial
        reporting that is less severe than a material weakness, yet important enough
        to
        merit attention by those responsible for oversight of the company's financial
        reporting.
  Our
        management is not aware of any material weaknesses in our internal control
        over
        financial reporting, and nothing has come to the attention of management
        that
        causes them to believe that any material inaccuracies or errors exist in
        our
        financial statements as of June 30, 2008.  The reportable conditions
        and other areas of our internal control over financial reporting identified
        by
        us as needing improvement have not resulted in a material restatement of
        our
        financial statements.  Nor are we aware of any instance where such
        reportable conditions or other identified areas of weakness have resulted
        in a
        material misstatement or omission in any report we have filed with or submitted
        to the Commission.
  Because
        of its inherent limitations, internal control over financial reporting may
        not
        prevent or detect misstatements.  Projections of any evaluation of
        effectiveness to future periods are subject to the risk that controls may
        become
        inadequate because of changes in conditions, or that the degree of compliance
        with the policies and procedures may deteriorate.
 
 **Auditor
        Attestation**
 
 This
        annual report does not include an attestation report of our registered public
        accounting firm regarding internal control over financial
        reporting.  Management’s report was not subject to attestation by our
        registered public accounting firm pursuant to temporary rules of the Securities
        and Exchange Commission that permit us to provide only management’s report in
        this annual report.
 
 **Changes
        in Internal Controls over Financial Reporting**
  Except
        as
        described above, there were no changes in our internal controls over financial
        reporting during fiscal year 2008 that have materially affected, or are
        reasonably likely to materially affect, our internal control over financial
        reporting.





**ITEM
      9B. OTHER INFORMATION**





None.


38





**PART
      III**





**ITEM
      10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
      GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
      ACT**





**Current
      Management**





The
      following table sets forth the name, age and position of each of our directors,
      executive officers and significant employees:




**Name**
            
            **Age**
            
            **Position**Cao
                Wubo
            
            43
            
            Chief
                Executive Officer and Chairman of the BoardElsa
                Sung
            
            34
            
            Chief
                Financial OfficerXu
                Haibo
            
            36
            
            Chief
                Operating Officer and DirectorDong
                Lining
            
            49
            
            Vice
                President, Director of TechnologyYang
                Weidong
            
            37
            
            Vice
                President, Director of SalesXin
                Jingsheng
            
            53
            
            Director
                of EquipmentXue
                Hong
            
            40
            
            ControllerFeng
                Xiaowei
            
            40
            
            DirectorHuang
                Lei
            
            26
            
            DirectorGe
                Jian
            
            36
            
            DirectorMichael
                Marks
            
            37
            
            DirectorJohn
                (Yang) Wang
            
            38
            
            Director




**Cao
      Wubo** ,
      age 43,
      has served as our chief executive officer and chairman of the board since
      October 2007. He has served as the chairman and general manager of Laiyang
      Jiangbo since 2003. From 1981 to 1988, Mr. Cao completed his military service
      in
      the Chinese Army, during which he was sales section director in Laiyang Yongkang
      Pharmaceutical Factory. From 1988 to 1998, he continued working in Laiyang
      Yongkang Pharmaceutical Factory as Marketing Manager. From 1998 to 2003, he
      was
      general manager of Laiyang Jiangbo Pharmacy Co. Ltd. and Laiyang Jiangbo Chinese
      and Western Pharmacy Co. Ltd. He is the founder of Laiyang Jiangbo Pharmacy
      Co.
      Ltd., Laiyang Jiangbo Chinese and Western Pharmacy Co. Ltd., and Laiyang Jiangbo
      Pharmaceutical Co. Ltd.





**Elsa
      Sung** ,
      age 34,
      has served as our chief financial officer since October 2007. Prior to June
      2008, she was also Vice President of CFO Oncall, Inc. Prior to joining CFO
      Oncall, Inc., Ms. Sung was an Audit Manager from January 2006 to July 2007
      at
      Sherb & Co., Boca Raton, Florida, responsible for managing, monitoring, as
      well as performing audits for domestic and international clients. From June
      2005
      to December 2005, Ms. Sung was a Senior Internal Auditor at Applica Consumer
      Products, Inc., an U.S. publicly traded company. From 2002 to 2005, Ms. Sung
      was
      with Ernst & Young, LLP in West Palm Beach, Florida as a Senior Auditor in
      the Assurance and Advisory Business Service Group. Ms. Sung is a licensed CPA
      in
      the State of Georgia and a member of the American Institute of Certified Public
      Accountants. She received her Master of Business Administration and Bachelor’s
      Degree, graduated “Cum Laude,” in Accounting from Florida Atlantic University.
      She also holds a Bachelor’s Degree in Sociology from National Chengchi
      University in Taipei, Taiwan.





**Xu
      Haibo** ,
      age 37,
      has served as our chief operating officer and director since October 2007.
      He
      has served as a deputy general manager of Laiyang Jiangbo since August 2006.
      He
      graduated from Shanghai Financial and Economic University in 1993 and has
      engaged in a banking career for more than ten years. From July 1993 to July
      2004, he worked in the Bank of China Yantai Branch as Credit Clerk in the Credit
      Department, Section Chief in the Operation Department, Governor of the Bank
      of
      China Yantai Fushan Branch, and Director of the Risk Control Department in
      the
      Bank of China Yantai Branch. From August 2004 to July 2006, he was general
      manager of Shandong Province Licheng Investment Co. Ltd.





**Dong
      Lining,** age 49,
      has served as our vice president and director of technology since October 2007.
      He has served as deputy manager of Laiyang Jiangbo since July 2003. He graduated
      from Shandong Pharmacy University in 1995. From July 1986 to July 2003, he
      worked in Laiyang Biochemistry Pharmaceutical Factory, where he was a checker,
      technologist, workshop director, product technology section chief, technology
      deputy factory director, and factory director. He has published several
      pharmaceutical thesis articles in magazines such as, Chinese Biochemical Medical
      Magazine, Food and Drug, and China New Clinical Medicine.





**Yang
      Weidong** ,
      age 37,
      has served as our vice president and director of sales since October 2007.
      He
      has served as a deputy general manager for Laiyang Jiangbo since August 2004.
      He
      graduated from Nanjing University with a masters degree. From February 1995
      to
      March 2000, he worked at Jiangsu Yangtze Pharmaceutical Co. Ltd as a sales
      clerk. From April 2000 to July 2004, he was area director in Jiangsu Jizhou
      Pharmaceutical Co. Ltd.


39





**Xin
      Jingsheng** ,
      age 53,
      has served as our director of equipment since October 2007. He has served as
      a
      deputy general manager of Laiyang Jiangbo since October 2003. He graduated
      from
      the Chinese People’s Liberation Army Shengqing Engineering Institute in August
      1978. Mr. Xin has experience as a member of a group of trained personnel at
      54685 Army Pharmacy from April 1983 to August 2001 and at China Laiyang
      Construction Bureau from August 2001 to September 2003. He has been engaged
      in
      the pharmaceutical industry for more than 20 years, and his varied experience
      includes positions as a technician, engineer assistant, engineer, deputy factory
      director, factory director and deputy general manager. He has participated
      in
      industry training held by the Chinese National Drug Supervising Department
      and
      Shandong Drug Supervising Department and is very familiar with laws and statutes
      in the Chinese pharmaceutical industry.





**Xue
      Hong** ,
      age 40,
      has served as our controller since October 2007. She has served as finance
      controller of Laiyang Jiangbo since April 2003. From July 1988 to March 1990,
      she worked in Qingzhou Iron and Steel Works as quality control inspector and
      auditor. From March 1990 to March 1999, She was a quality examiner at Laiyang
      City Power Facility. From March 1999 to March 2000, she worked as an accountant
      at Laiyang Yongkang Company. From March 2000 to September 2003, she was the
      chief accountant of Laiyang Jiangbo Pharmacy.





**Feng
      Xiaowei** ,
      age 40,
      has served as our director since October 2007. Mr. Feng graduated from Dalian
      Jiaotong University Railway Locomotive & Car Department with a bachelors
      degree and Jilin University Postgraduate Research Institute Foreign Economic
      Law
      Department with a masters degree. Over the course of his career, he has been
      procurator in Shenyang Railroad Transportation Procuratorate, associate
      professor in Jilin University, counsel in China Jilin International Trust and
      Investment Corporation, expert commissary of China Strategy and Administration
      Association, and deputy secretary-general of the “China Strengthening
      Self-Innovative Capacity and Building Innovative Nation Forum.” He has
      participated in the Research on National Economic Development Strategy and
      in
      the subject investigation of Beijing Olympic Games, Guangzhou Development Zone
      and Tianjin Development Zone. He has been commissioner of Yunnan Province Policy
      and Economic Development Task Team, commissioner of the Xinjiang Uygur
      Autonomous Region Policy and Economic Development Task Team and commissioner
      of
      the China Shi Hezi National Economic Development Zone Task Team. He is the
      founder of the Chinese Young People Network Home Co. Ltd., and has presided
      over
      the China Young People Card Project. From January 2003 to June 2005, he was
      Vice
      President of the Chinese Young People Network Home Co. Ltd. Mr. Feng has been
      the general manager of Anqiao International Investment Co., Ltd. since June
      2005
      through present.





**Huang
      Lei** ,
      age 26,
      has served as our director since October 2007. Ms. Huang graduated from Kwantlen
      University College in Canada. She also earned her MBA degree from the University
      of British Columbia in October 2006. From November 2006 to 2007, she was a
      marketing manager in CúC Top Enterprises Ltd. Ms. Huang has published articles
      on business administration at Canada Weekly and school magazines, and earned
      the
      Best International Student Scholarship and a full scholarship. Ms. Huang speaks
      English, French, Mandarin and Cantonese, and has a working knowledge of
      accountancy and business administration.





**Ge
      Jian** ,
      age 36,
      has served as our director since October 2007. Mr. Ge Jian graduated from
      Shandong University Management Sciences Department with a Bachelor of Business
      Administration in 1992. From 1992 to the end of 2000, he worked for the
      Development and Reform Commission of Yantai. From 2001 to 2006, he was the
      minister of the Capital Operation Department and the minister of the Development
      Department in Zhenghai Group Co. Ltd., and a director of Yantai Hualian
      Development Group Co. Ltd. Since 2006, he has been the general manager of Yantai
      Zhenghai Pawn Co. Ltd.





**Michael
      Marks** ,
      age 37,
      has served as our director since July 18, 2008. Since 2007, he has served as
      an
      independent director of China Housing & Land Development, Inc., a property
      developer in China. In 2006, Mr. Marks became the President of Middle Kingdom
      Alliance Corp., a publicly traded Special Purpose Acquisition Corporation active
      in China. In January of 2003, Mr. Marks founded the China practice of
      Sonnenblick Goldman, a real estate investment bank, and served as its Managing
      Director in China until December 2007. In 2001, he founded B2Globe, providing
      technology solutions to international internet businesses in Asia. In 1999,
      he
      co-founded Metro Corporate Training in Shanghai to offer training and management
      development, and was its Chief Executive Officer until 2001. From 1998 to 1999,
      Mr. Marks worked as a management consultant with Horwath Asia Pacific in
      Australia and China. From 1995 to 1998, Mr. Marks worked in the audit, corporate
      finance and advisory divisions of PricewaterhouseCoopers in South Africa. Mr.
      Marks received a Bachelor of Commerce (Honors) in 1994 and Masters of Commerce
      in 1997 from the University of the Witwatersrand in Johannesburg, South Africa.
      In 1998, he graduated with a Bachelor of Arts (Psychology) degree from the
      University of South Africa. In 1997, Mr. Marks became a Chartered Accountant
      in
      South Africa, and a Fellow of the Association of International Accountants
      in
      the United Kingdom in 1999. He speaks fluent Mandarin, French and
      English.





**John
      (Yang) Wang** ,
      age 38,
      has served as our director since September 8, 2008. Since November 2004, Mr.
      Wang has been the President of Marbella Capital Partners. Since September 2007,
      he also serves as the CEO of Hambrecht Asia Acquisition Corp., and is on the
      Board of Directors of Hong Kong Stock Exchange listed Wuyi International
      Pharmaceuticals Company Limited. From 2000 to 2004, he was Executive Vice
      President of SBI E2-Capital (HK) Limited. From 1997 to 1999, he managed
      Accenture Consulting’s (formerly known as Andersen Consulting) Greater China
      communication, media and high tech strategy practice. Prior to that, he was
      the
      lead telecom analyst covering Greater China and Southeast Asia for Pyramid
      Research, an emerging market telecom research firm based in Cambridge,
      Massachusetts. Mr. Wang holds a Bachelor of Arts in International Relations
      from
      Tufts University and an M.A.L.D. degree in international law and business from
      The Fletcher School of Law and Diplomacy. He has over 15 years of experience
      in
      investment banking and consulting and speaks fluent Mandarin and
      English.





**Family
      Relationships**





There
      are
      no family relationships between or among any of the current directors, executive
      officers or persons nominated or charged by the Company to become directors
      or
      executive officers.


40





**Section 16(a)
      Beneficial Ownership Reporting Compliance**





Section 16(a)
      of the Securities Exchange Act of 1934, as amended, requires the Company’s
      directors, executive officers and persons who own more than 10% of the Company’s
      Common Stock to file reports of ownership and changes in ownership on Forms
      3, 4
      and 5 with the Securities and Exchange Commission (the “SEC”). Directors,
      executive officers and greater than 10% stockholders are required by SEC rules
      to furnish the Company with copies of Section 16(a) forms they
      file.





The
      Company believes that all of its directors, executive officers and greater
      than
      10% beneficial owners complied with all filing requirements applicable to them
      in fiscal year 2008.





***Codes
      of Ethics.***




In
      January 2006, we adopted a Code of Ethics and Business Conduct to provide
      guiding principles to our officers, directors and employees. Our Code of Ethics
      and Business Conduct also strongly recommends that all directors and employees
      of our company comply with the code in the performance of their duties.
      Generally, our Code of Ethics and Business Conduct provides guidelines
      regarding:




.
            compliance
                with laws, rules and regulations.
            conflicts
                of interest,.
            insider
                trading,.
            corporate
                opportunities.
            competition
                and fair dealing,.
            discrimination
                and harassment,.
            health
                and safety,.
            record-keeping,.
            confidentiality,.
            protection
                and proper use of company assets, and.
            payments
                to government personnel.




A
      copy of
      the Code of Ethics and Business Conduct is included as Exhibit 14 to our 2007
      annual report on Form 10-K filed with the SEC.





**Meetings
      and Committees of the Board of Directors**





The
      Board
      of Directors held board meetings at least four times during the fiscal year.
      In
      addition to meetings of the full Board, directors attended meetings of Board
      committees on which they served. The Board’s standing committees are the Audit
      and Compensation Committees.





**Committee
      Membership**





The
      following table shows the current membership on the standing
      committees:





**Committee**
            
            **Chair**
            
            **Member**
            
            **Member**Audit
            
            Michael
                Marks
            
            John
                (Yang) Wang
            
            Feng
                XiaoweiCompensation
            
            Feng
                Xiaowei
            
            John
                (Yang) Wang
            
            Ge
                Jian





*Audit
      Committee.*





The
      Board
      of Directors has an Audit Committee established in accordance with section
      3(a)(58) of Securities Exchange Act of 1934 (the “Exchange Act”). The Board of
      Directors has determined that each of the members of the Audit Committee is
      “independent,” as defined in the corporate governance listing standards of
      NASDAQ and Rule 10A-3 under the Exchange Act relating to audit committees.
      In addition, the Board has determined that all members of the Audit Committee
      are financially literate and that Mr. Marks qualifies as an “audit committee
      financial expert” as defined by the Securities and Exchange
      Commission.





The
      committee assists the Board in fulfilling its oversight responsibilities
      relating to:





· our
      auditing, accounting and reporting practices;


41


· the
      adequacy of our systems of internal controls;


· and
      the quality and integrity of publicly reported financial
      disclosures.





In
      this
      role, the committee appoints the independent auditors and reviews and approves
      the scope of the audit, the financial statements and the independent auditors’
fees. The Audit Committee met one time since its first inception in July 2008,
      and the Chairman met with management and the external auditors prior to the
      release of our financial results.





The
      Audit
      Committee exercises the powers of the Board of Directors in connection with
      our
      accounting and financial reporting practices, and provides a channel of
      communication between the Board of Directors and independent registered public
      accountants.





*Compensation
      Committee.*





The
      Compensation Committee is comprised of three directors who meet the independence
      requirements of NASDAQ, are “non-employee directors” for purposes of Rule 16b-3
      under the Securities Exchange Act of 1934 and are “outside directors” for
      purposes of Section 162(m) of the Internal Revenue Code. The purpose of our
      compensation committee is to discharge the responsibilities of our board of
      directors relating to compensation of our executive officers. Specific
      responsibilities of our compensation committee include:





· reviewing and recommending approval of compensation of our executive
      officers;


· administering our stock incentive plan;


· and
      reviewing and making recommendations to our board with respect to incentive
      compensation and equity plans.





The
      Compensation Committee has yet to hold a meeting since its first inception
      in
      July 2008.





Stockholder
      Nominees





There
      have been no material changes to the procedures by which security holders may
      recommend nominees to the registrant’s Board of directors since our last annual
      report on form 10-KSB.





**Involvement
      in Certain Legal Proceedings**





There
      are
      no orders, judgments, or decrees of any governmental agency or administrator,
      or
      of any court of competent jurisdiction, revoking or suspending for cause any
      license, permit or other authority to engage in the securities business or
      in
      the sale of a particular security or temporarily or permanently restraining
      any
      of our officers or directors from engaging in or continuing any conduct,
      practice or employment in connection with the purchase or sale of securities,
      or
      convicting such person of any felony or misdemeanor involving a security, or
      any
      aspect of the securities business or of theft or of any felony. Nor are any
      of
      the officers or directors of any corporation or entity affiliated with us so
      enjoined.





**ITEM
      11. EXECUTIVE COMPENSATION**





***Introductions***





We
      endeavor to provide our “named executive officers” (as defined in Item 402 of
      Regulation S-K) with a competitive base salary that is in-line with their roles
      and responsibilities when compared to peer companies of comparable size in
      the
      same or similar locality. It is not uncommon for PRC private corporations in
      that locality to have base salaries as the sole and only form of compensation.
      The base salary level is established and reviewed based on the level of
      responsibilities, the experience and tenure of the individual and the current
      and potential contributions of the individual. The base salary is compared
      to
      similar positions within comparable peer companies and with consideration of
      the
      executive’s relative experience in his or her position. Base salaries are
      reviewed periodically and at the time of promotion or other changes in
      responsibilities.





Under
      the
      governance of our newly established compensation committee, we plan to implement
      a more comprehensive compensation program, which takes into account other
      elements of compensation, including, without limitation, short and long term
      compensation, cash and non-cash compensation, and other equity-based
      compensation such as stock options. This compensation program shall be
      comparative to our peers in the industry and aimed to retain and attract
      talented individuals.





**Director
      Compensation**





The
      following table sets forth information concerning the compensation of each
      person who served as a non-employee director during our fiscal year ended June
      30, 2008. The compensation for each of our executive officers who also served
      as
      a director during fiscal year ended June 30, 2008 is fully reflected under
      our
“Summary Compensation of Named Executive Officers” disclosure
      below.


42




**Director
        Compensation of Non-Employee Directors**
 **for
        Fiscal Year Ended June, 2008**
 
 **Name**
              
              **Fees**
                **Earned**
                **or Paid in**
                **Cash**
                **($)**
              
              **Stock**
                **Awards**
                **($)**
              
              **Option**
                **Awards**
                **($)**
              
              **Non-Equity**
                **Incentive Plan**
                **Compensation**
                **($)**
              
              **Nonqualified**
                **Deferred**
                **Compensation**
                **Earnings ($)**
              
              **All Other**
                **Compensation**
                **($)**
              
              **Total**
                **($)**Feng
                  Xiaowei (1)
              
              $
              2,891
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Huang
                  Lei (1)
              
              $
              2,891
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Ge
                  Jian (1)
              
              $
              2,891
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Michael
                  Marks (4)
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —John
                  (Yang) Wang (4)
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Zhang
                  Yihua (1) (2)
                (Former
                  Director)
              
              $
              28,91
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Rodrigo
                  Arboleda
                (Former
                  Director)(2)
              
              $
              23,333
              
              $
              10,000
              (5)
              
              
              
              
              —
              
              
              —
              
              $
              12,250
              (6)
              $
              45,583Robert
                  D. Cain
                (Former
                  Director )(3)
              
              $
              20,417
              
              $
              10,000
              (7)
              
              
              
              
              —
              
              
              —
              
              $
              29,524
              (8)
              $
              59,941
 
 (1)
              This
                  individual was appointed as a director in connection with the Exchange
                  Transaction on October 1, 2007, and therefore did not receive any
                  compensation from the Company for the first quarter of fiscal year
                  2008.
 
 (2)
              Effective
                  July 18, 2008, Ms. Zhang Yihua and Mr. Rodrigo Arboleda resigned
                  as a
                  member of our board of directors.
 
 (3)
              Effective
                  September 9, 2008, Mr. Robert Cain resigned as a member of our
                  board of
                  directors.
 
 (4)
                  The
                      director was appointed subsequent to the June 30, 2008 fiscal
                      year end,
                      and therefore did not receive any compensation from the Company
                      in fiscal
                      year 2008.
 (5)
              The
                  director was granted 1,250 shares of our restricted common stock
                  in fiscal
                  year 2008 valued at $10,000 in June 2008.
 
 (6)
                  The
                      $12,250 was for the amortization of deferred compensation related
                      to the
                      unamortized portion of the value of the stock awards issued
                      in fiscal year
                      2007.
 
 (7)
              The
                  director was granted 1,250 shares of our restricted common stock
                  in fiscal
                  year 2008 valued at $10,000 in June 2008.
 
 (8)
                  In
                      connection with certain business consulting services Mr. Robert
                      Cain
                      provided to the Company, the Company paid a cash payment of
                      $12,024 in
                      fiscal year 2008 to Mr. Cain. The additional $17,500 related
                      to the
                      amortization of deferred compensation related to the unamortized
                      portion
                      of the value of the stock awards issued in fiscal year 2007.
 
 The
        non-executive directors would also be reimbursed for all of their out-of-pocket
        expenses in traveling to and attending meetings of the Board of Directors
        and
        committees on which they would serve.
  43
 
 **Executive
        Compensation**
  The
        following is a summary of the compensation we paid for each of the three
        years
        ended June 30, 2008, 2007 and 2006, respectively
        (unless otherwise provided) (i) to the persons who acted as our principal
        executive officers during the three years, (ii)
        to
        the person who acted as our principal financial officer or acted in a similar
        capacity during the three years and (iii) our other executive officers received
        compensation in excess of $100,000 in these three year. We refer
        to these individuals in this 10-K as “named executive officers.”
 
 **Summary
        Compensation of Named Executive Officers**
  The
        following table reflects all compensation awarded to, earned by or paid to
        our
        named executive officers for our fiscal years ended June 30
 
 **Name
                  and**
                **Principal**
                **Position**
              
              **Fiscal**
                **Year**
                **Ended**
              
              **Salary**
                **($)**
              
              **Bonus**
                **($)**
              
              **Stock**
                **Awards**
              
              **Option**
                **Awards**
              
              **Non-Equity**
                **Incentive
                  Plan**
                **Compensation**
                **($)**
              
              **Nonqualified**
                **Deferred**
                **Compensation**
                **Earnings**
                **($)**
              
              **All
                  Other**
                **Compensation**
                **($)**
              
              **Total**
                **($)**Cao
                  Wubo,
                Chairman
                  of the Board, Chief Executive Officer, and President
              
              
              2008
                2007
                2006
              
              $
                $
                $
              117,000
                2,460
                2,269
              
              
              —
                —
                —
              
              
              —
                —
                —
              
              
              —
                —
                —
              
              
              —
                —
                —
              
              
              —
                —
                —
              
              
              —
                —
                —
              
              $
                $
                $
              117,000
                2,460
                2,269Elsa
                  Sung,
                Chief
                  Financial Officer (1)
              
              
              2008
                2007
                2006
              (2)
              $
              67,500
                —
                —
              
              
              —
                —
                —
              
              $
              27,000
                —
                —
              
              $
              10,847
                —
                —
              
              
              —
                —
                —
              
              $
              26,295
                —
                —
              
              
              —
                
                —
                —
              
              $
              131,642
                —
                —Xu
                  Haibo,
                Director,
                  Chief Operating Officer
              
              
              2008
                2007
                2006
              
              $
                $
                $
              50,400
                1,845
                908
              
              
              —
                —
                —
              
              
              —
                —
                —
              
              
              —
                —
                —
              
              
              —
                —
                —
              
              
              —
                —
                —
              
              
              —
                —
                —
              
              $
                $
                $
              50,400
                1,845
                908Gary
                  Wolfson,
                Former
                  Director and Former Chief Executive Officer (3)
              
              
              2008
                2007
                2006
              (4)
                (5)
                (6)
              $
                $
                $
              45,375
                178,062
                167,750
              
              $
              —
                415,970
                —
              
              
              —
                —
                —
              
              $
                $
                $
              311,348
                302,733
                512,675
              
              
              —
                —
                —
              
              
              —
                —
                —
              
              
              —
                —
                -
              
              $
                $
                $
              356,723
                896,765
                680,425Adam
                  Wasserman,
                Former
                  Chief Financial Officer (3)
              
              
              2008
                2007
                2006
              
              $
                $
              26,803
                80,407
                —
              
              $
              —
                36,500
                —
              
              
              —
                —
                —
              
              
              —
                —
                —
              
              
              —
                —
                —
              
              
              —
                —
                —
              
              
              —
                —
                —
              
              $
                $
              26,803
                116,907
                —Kenneth
                  Clinton,
                Former
                  Director and Former President (3)
              
              
              2008
                2007
                2006
              (7)
                (8)
                (9)
              $
                $
                $
              45,375
                178,062
                167,750
              
              $
              —
                350,112
                —
              
              
              —
                —
                —
              
              $
                $
                $
              311,348
                302,733
                512,675
              
              $
              311,348
                —
                —
              
              
              —
                —
                —
              
              
              —
                $603,000
                —
              (8)
              $
                $
                $
              356,723
                1,433,907
                680,425
  44
  (1)  Ms.
        Sung
        was appointed as our Chief Financial Officer in connection with the Exchange
        Transaction on October 1, 2007, and therefore did not receive any compensation
        from the Company for the most recent fiscal year ended September 30,
        2007.
 
 (2)
        Ms.
        Sung’s compensation for fiscal 2008 included $94,500 salary payable under the
        terms of his employment agreement, of which $67,500 was paid by cash, issuance
        of 3375 shares of our restricted common stock valued at of $27,000 in June
        2008
        and options to purchase 2,000 shares of our common stock at an exercise price
        of
        $12 per share representing other annual compensation which were valued at
        $10,847 pursuant to the terms of her employment agreement. Options to purchase
        5,500 shares of our common stock at an average exercise price of $20.09 per
        share representing nonqualified deferred compensation earnings other annual
        compensation which were valued at $26,250 pursuant to the terms of her
        employment agreement. During our fiscal year ended June 30, 2008, we granted
        Ms.
        Sung options for 2,000 shares exercisable at a price of $12 per share, 1,750
        shares exercisable at a price of $16 per share, 1,875 shares exercisable
        at a
        price of $20 per share and 1,875 shares exercisable at $24 per share with
        vesting period, 500 shares exercisable at a price of $0.105 per share, which
        was
        the lowest closing price of our common stock on the OTC Bulletin Board in
        the 5
        trading days immediately preceding the grant date. These options were granted
        to
        Ms. Sung in June, 2008. The options expire on June 10, 2013. The value of
        the
        option award was calculated using the Black-Scholes option pricing model
        based
        on the following assumptions: weighted average life of 5 years; risk-free
        interest rate of 3.57 %; volatility rate of 95%; and weighted average fair
        market value of $0.1238 per share at date of grant. The aggregate number
        of
        stock awards and option awards issued to Ms. Sung and outstanding as of June
        30,
        2008 is 3,375 and 7,500, respectively. A description of her employment agreement
        can be found below in the section titled “Employment Agreements”.
  (3)
        Effective October 1, 2007, Mr. Gary Wolfson resigned from his positions as
        Chief
        Executive Officer and a director of the Company, Mr. Adam Wasserman resigned
        as
        Chief Financial Officer of the Company and Mr. Kenneth Clinton resigned from
        his
        positions as President and a director of the Company.
 
 (4)
        Mr.
        Wolfson’s compensation for fiscal 2008 included $45,250 salary payable under the
        term of his employment agreement and options to purchase 61,036 shares of
        our
        common stock at an exercise price of $4.20 per share representing other annual
        compensation which were valued at $311,348 pursuant to the terms of his
        employment
  (5)
        Mr.
        Wolfson's compensation for fiscal 2007 included $178,062 salary payable under
        the terms of his employment agreement, $415,970 bonus payment, of which $326,845
        was paid through the distribution of LTUS shares that were held in our
        investment securities account and Options to purchase 48,379 shares of our
        common stock at an exercise price of $3.72 per share representing other annual
        compensation which were valued at $302,733 pursuant to the terms of his
        employment agreement,
 
 (6)
        Mr.
        Wolfson's compensation for fiscal 2006 included $167,750 salary payable under
        the terms of his employment agreement, of which $80,078 was paid through
        the
        issuance of 48,829 shares of our common stock upon the exercise of stock
        options
        and 42,448 shares of our common stock valued at $84,896 issued to him in
        September 2005, options to purchase 92,500 shares of our common stock at
        an
        exercise price of $5.8 per share representing other annual compensation which
        were valued at $512,675 pursuant to the terms of his employment agreement.
 
 (7)
        Mr.
        Clinton’s compensation for fiscal 2008 inlcuded $45,250a salary payable under
        the term of his employment agreement and options to purchase 61,036 shares
        of
        our common stock at an exercise price of $4.20 per share representing other
        annual compensation which were valued at $311,348 pursuant to the terms of
        his
        employment
 
 (8)
        Mr.
        Clinton's compensation for fiscal 2007 included $178,062salary payable under
        the
        terms of his employment agreement, $350,112 bonus payment, of which $326,845
        was
        paid through the distribution of LTUS shares that were held in our investment
        securities account, an one time distribution of 3,350,000 shares of SPEH
        common
        stock valued at $603,000, and options to purchase 61,035 shares of our common
        stock at an exercise price of $4.2 per share representing other annual
        compensation which were valued at $311,348 pursuant to the terms of his
        employment.
  (9)
        Mr.
        Clinton's compensation for fiscal 2006 included $167,750 salary payable under
        the terms of his employment agreement, of which $80,078 was paid through
        the
        issuance of 48,379 shares of our common stock upon the exercise of stock
        options
        and 42,448 shares of our common stock valued at $84,896 issued to him in
        September 2005, options to purchase 92,500 shares of our common stock at
        an
        exercise price of $5.8 per share representing other annual compensation which
        were valued at $512,675 pursuant to the terms of his employment agreement.
  **Outstanding
        Equity Awards**
  The
        following table sets forth certain information concerning unexercised options,
        stock that has not vested, and equity incentive plan awards outstanding as
        of
        June 30, 2008 for the named executive officers below:
  45
  **Outstanding
        Equity Awards at Fiscal Year Ended**
 **June
        30, 2008**
 
 **Option
                  Awards**
              
              **Stock
                  Awards****Name**
              
              **Number****of**
                **Securities**
                **Underlying**
                **Unexercised**
                **Options**
                **Exercisable**
              
              **Number of**
                **Securities**
                **Underlying**
                **Unexercised**
                **Options**
                **Unexercisable**
              
              **Equity**
                **Incentive Plan**
                **Awards:**
                **Number of**
                **Securities**
                **Underlying**
                **Unexercised**
                **Unearned**
                **Options**
              
              **Option**
                **Exercise**
                **Price**
                **($)**
              
              **Option**
                **Expiration**
                **Date**
              
              **Number of**
                **Shares or**
                **Units of**
                **Stock That**
                **Have Not**
                **Vested**
              
              **Market Value**
                **of Shares or**
                **Units of Stock**
                **That Have Not**
                **Vested**
                **($)**
              
              **Equity Incentive**
                **Plan**
                **Awards:**
                **Number of**
                **Unearned**
                **Shares,**
                **Units or**
                **Other**
                **Rights**
                **That**
                **Have Not**
                **Vested**
              
              **Equity Incentive**
                **Plan**
                **Awards:**
                **Market or**
                **Payout**
                **Value of**
                **Unearned**
                **Shares,**
                **Units or**
                **Other**
                **Rights**
                **That Have**
                **Not**
                **Vested**
                **($)**Elsa
                  Sung
              
              
              -
              
              
              2,000
                1,750
                1,875
                1,875
              
              
              0
              
              $
                $
                $
                $
              12
                16
                20
                24
              
              
              6/10/2013
                6/10/2013
                6/10/2013
                6/10/2013
              
              
              0
              
              
              0
              
              
              0
              
              
              0Gary
                  Wolfson (1)
              
              
              61,036
              
              
              0
              
              
              0
              
              $
              4.2
              
              
              12/31/2010
              
              
              0
              
              
              0
              
              
              0
              
              
              0
 
 (1)
              These
                  options were fully vested as of July 1,
                  2007.
 
 We
        currently have no plans that provide for payments or other benefits at,
        following, or in connection with retirement of our named executive
        officers.
  **Nonqualified
        defined contribution and other nonqualified deferred compensation
        plans.**
  We
        currently have no defined contribution or other plans that provide for the
        deferral of compensation to our named executive officers on a basis that
        is not
        tax-qualified.
  **Employment
        Agreements.**
  Effective
        June 10, 2008, the Company entered into an employment agreement (the “Employment
        Agreement”) with Ms. Sung, our Chief Financial Officer. In accordance with the
        terms of the Employment Agreement, Ms. Sung will receive an annual base salary
        of $120,000 and will be entitled to receive performance bonuses of (i) $18,000
        if the Company is successfully listed or quoted on the New York Stock Exchange,
        the American Stock Exchange, the NASDAQ Select Market, the NASDAQ Global
        Market
        or the NASDAQ Capital Market; (ii) $8,000 if the Company meets its 2008
        Guaranteed EBT ( the Company’s adjusted 2008 earnings before taxes is more than
        $26,700,000 USD or, the Company’s 2008 adjusted fully diluted earnings before
        taxes per share is less than $1.6 USD); and (iii) $20,000 if the Company
        meets
        its 2009 Guaranteed EBT ( the Company’s adjusted 2009 earnings before taxes is
        less than $38,400,000 USD or, the Company’s adjusted fully diluted earnings
        before taxes per share is less than $2.32 USD). In addition, In connection
        with
        Ms. Sung’s employment, the Board of Directors has approved a non-qualified stock
        option grant to Ms. Sung in the amount of 7,500 shares of common stock of
        the
        Company vesting over an eighteen months period. All shares pursuant to the
        option must be exercised within five years after the grant date. If the Company
        terminates Ms. Sung, without cause or if Ms. Sung terminates her employment
        for
        Good Reason (as defined therein), Ms. Sung is entitled to receive (i) a lump
        sum
        cash payment equal to any accrued and unpaid salary and bonus; (ii) an amount
        equal to the sum of (a) 80% of her then current base salary and (b) 50% of
        the
        average annual cash bonus payments during the preceding 2 fiscal years, with
        such sum payable in 6 substantially equal monthly installments; and (iii)
        6
        months of medical and life insurance costs. If the Company terminates Ms.
        Sung’s
        employment with Cause, she is entitled to his accrued and unpaid salary and
        accrued and unpaid bonus through the effective date of termination as well
        as
        the reimbursement of any expenses.
 
 **Potential
        payments upon termination or change-in-control.**
  The
        employment contract with Ms. Sung provided the terms of potential payments
        upon
        termination. A description of her employment agreement can be found above
        in the
        section titled “Employment Agreements”.
  46
  **ITEM
        12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
        SHAREHOLDER MATTERS**
  **Security
        Ownership of Certain Beneficial Owners and Management**
  The
        following table sets forth, as of June 30, 2008, certain information concerning
        the beneficial ownership of our Common Stock by (i) each shareholder known
        by us
        to own beneficially five percent or more of our outstanding Common Stock;
        (ii)
        each director; (iii) each executive officer; and (iv) all of our executive
        officers and directors as a group, and their percentage ownership and voting
        power.
 
 Beneficial
        ownership is determined in accordance with the rules of the Securities and
        Exchange Commission. Unless otherwise indicated in the table, the persons
        and
        entities named in the table have sole voting and sole investment power with
        respect to the shares set forth opposite the shareholder’s name. Unless
        otherwise indicated, the address of each beneficial owner listed below is
        c/o
        Laiyang Jiangbo Pharmaceuticals Enterprises, Inc., Middle Section, Longmao
        Street, Area A, Laiyang Waixiangxing Industrial Park, Laiyang City, Yantai,
        Shandong Province, PRC 265200. The percentage of class beneficially owned
        set
        forth below is based on 10,327,844 shares of common stock outstanding on
        June
        30, 2008. The issued and outstanding shares do not include 2,489,983 shares
        of
        our common stock issuable upon the exercise of our outstanding warrants and
        options.
  **Named
                  Executive Officers and Directors**
              
              **Number
                  of Shares of**
                **Common
                  Stock**
                **Beneficially**
                **Owned
                  (1) (2)**
              
              **Percentage
                  of**
                **Outstanding
                  Common**
                **Stock**Cao
                  Wubo, Chief Executive Officer and Chairman of the Board†
              
              
              4,856,592
              (3)
              
              47.02
              %Elsa
                  Sung, Chief Financial Officer†
              
              
              3,875
              
              
              *Xu
                  Haibo, Vice President, Chief Operating Officer and
                  Director†
              
              
              0
              
              
              -0
                  -Dong
                  Lining, Vice President, Director of Technology†
              
              
              0
              
              
              -0
                  -Yang
                  Weidong, Vice President, Director of Sales†
              
              
              0
              
              
              -0
                  -Xin
                  Jingsheng, Director of Equipment†
              
              
              0
              
              
              -0
                  -Xue
                  Hong, Controller†
              
              
              0
              
              
              -0
                  -Feng
                  Xiaowei, Director†
              
              
              0
              
              
              -0
                  -Huang
                  Lei, Director†
              
              
              0
              
              
              -0
                  -Ge
                  Jian, Director†
              
              
              9,993
              
              
              *Michael
                  Marks†
              
              
              0
              
              
              -0
                  -John
                  (Yang) Wang†
              
              
              0
              
              
              -0
                  -Total
                  Held by Directors and Executive Officers (twelve
                  individuals)
              
              
              4,870,460
              
              
              47.16
              %**5%
                  Shareholders**Verda
                  International Limited (4)
                A-1
                  Building Dasi Street
                Laiyan
                  City, Shandong Province, PRC
              
              
              4,856,592
              
              
              47.02
              %Wang
                  Renhui
                No.
                  57-2-14-1 Chaoyang Street
                Dalin,
                  PRC
              
              
              559,608
              
              
              5.42
              %Pope
                  Investments LLC(5)(6)
                5100
                  Poplar Avenue, Suite 805
                Memphis,
                  Tennessee 38137
              
              
              1,146,250
              
              
              9.99
              %Ardsley
                  Advisory Partners(7)
                262
                  Harbor Drive
                Stamford,
                  Connecticut 06902
              
              
              693,750
              
              
              6.72
              %Ardsley
                  Partners I(7)
                262
                  Harbor Drive
                Stamford,
                  Connecticut 06902
              
              
              686,250
              
              
              6.64
              %
  47
 
 * Represents
        less than one percent (1%).
 
 (1)
              Based
                  on 10,327,844 outstanding shares of Common Stock as of June 30,2008.
                  Of
                  the 10,327,844 shares, 560,000 shares are not considered issued
                  and
                  outstanding for our earnings per share calculation at June 30,
                  2008 as the
                  issuance is contingent on the occurrence of certain future events.
  (2)
              Unless
                  otherwise noted, the Company believes that all persons named in
                  the table
                  have sole voting and investment power with respect to all shares
                  of the
                  Common Stock beneficially owned by them. A person is deemed to
                  be the
                  beneficial owner of securities which may be acquired by such person
                  within
                  sixty (60) days from the date indicated above upon the exercise
                  of
                  options, warrants or convertible securities. Each beneficial owner’s
                  percentage of ownership is determined by assuming that options,
                  warrants
                  or convertible securities that are held by such person (not those
                  held by
                  any other person) and which are exercisable within sixty (60) days
                  of the
                  date indicated above, have been
                  exercised.
 (3)
                Includes
                    4,856,592 shares of common stock owned by Verda International
                    Limited, a
                    company of which Mr. Cao is the Executive Director and owner
                    of 100% of
                    the equity interest. The address for Verda International Limited
                    is A-1
                    Building Dasi Street,Laiyang City, Shandong province,
                    China.
 (4)
                The
                    natural person with voting power and investment power on behalf
                    of Verda
                    International Limited is Mr. Cao
                    Wubo.
  (5)
              Includes
                  (i) 625,000 shares of Common Stock issuable to Pope Investments
                  LLC,, upon
                  conversion of $5,000,000 aggregate principal amount of the Company’s
                  Debentures and 400,000 shares of Common Stock issuable upon exercise
                  of
                  the November Warrants and (ii) up to an additional 4,850,000 shares
                  of
                  Common Stock of the 2,125,000 shares of Common Stock issuable to
                  Pope
                  Investments upon conversion of $17,000,000 aggregate principal
                  amount of
                  the Company’s Notes and 1,062,500 shares of Common Stock issuable upon
                  exercise of 1,062,500 Class A Warrants. Pope Asset Management LLC,
                  a
                  Tennessee limited liability company (“Pope Asset”) serves as an investment
                  adviser and/or manager to Pope Investments. Pope Asset is the sole
                  manager
                  for Pope Investments and has sole voting control and investment
                  and
                  disposition power and discretion with respect to all securities
                  held by
                  Pope Investments. Pope Asset may be deemed to beneficially own
                  shares
                  owned or held by, or held for the account or benefit of, Pope Investments.
                  Mr. William P. Wells is the sole manager of Pope Asset. Mr. Wells
                  may be
                  deemed to own shares owned or held by, or held for the account
                  or benefit
                  of, Pope Investments. Pope Asset and Mr. Wells do not directly
                  own any
                  shares of Common Stock
  (6)
              The
                  percentage of shares of Common Stock that may be beneficially owned
                  by
                  Pope Investments is limited to 9.99% and no shares of Common Stock in
                  excess of this beneficial ownership limitation may be issued by
                  the
                  Company to Pope Investments. This limitation may be waived by Pope
                  Investments at any time upon 61 days’ notice to the
                  Company.
  (7)
              Beneficial
                  ownership information derived from a Schedule G filed with the
                  SEC on June
                  10, 2008 by Ardsley Partners Fund II, L.P., Ardsley Partners Institutional
                  Fund, L.P., Ardsley Offshore Fund Ltd., Ardsley Advisory Partners,
                  Ardsley
                  Partners I and Philip J. Hempleman.
  **Securities
        Authorized for Issuance Under Equity Compensation Plans or Individual
        Compensation Arrangements**
  The
        following table sets forth information as of June 30, 2008 regarding securities
        authorized for issuance under equity compensation plans, including individual
        compensation arrangements, by us under our 2002 Stock Option Plan and our
        2003
        Stock Option, our 2004 Stock Plan as amended and any compensation plans not
        previously approved by our shareholders as of June 30, 2008.
  48


**Equity
      Compensation as of June 30, 2008**


Plan Category
              
              Number of securities to be issued
                upon exercise of outstanding
                options, warrants and rights
              
              Weighted average exercise price
                of outstanding options, warrants
                and rights
              
              Number of securities remaining
                available for future issuance
                under equity compensation plans
                (excluding securities reflected in
                column 2)Equity
                  Compensation Plans or
                Individual
                  Compensation
                Arrangements
                  Not Approved by
                Security
                  Holders (1)
              
              
              133,400
                2,000
                1,750
                1,875
                1,875
              
              $
                $
                $
                $
                $
              4.20
                12.00
                16.00
                20.00
                24.00
              
              
              0**TOTAL**
              
              
              140,900
              
              $
              5.18
              
              
              0





(1)
            Equity
                compensation plan not approved by shareholders is comprised of options
                granted and/or restricted stock to be issued to employees and
                non-employees, including directors, consultants, advisers, suppliers,
                vendors, customers and lenders for purposes including to provide
                continued
                incentives, as compensation for services and/or to satisfy outstanding
                indebtedness to them.





**ITEM
      13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
      INDEPENDENCE**




**Agreement
      and Plan of Share Exchange**




On
      October 1, 2007, we executed a Share Exchange Agreement (“Exchange Agreement”)
      by and among Karmoya International Limited, a British Virgin Islands company
      (“Karmoya”), and the shareholders of 100% of Karmoya’s capital stock (the
“Karmoya Shareholders”) on the one hand, and us and the majority shareholders of
      our capital stock (the “Genesis Shareholders”) on the other hand. Separately,
      Karmoya owns 100% of the capital stock of Union Well International Limited,
      a
      Cayman Islands company (“Union Well”), which has established and owns 100% of
      the equity in Genesis Jiangbo (Laiyang) Biotech Technologies Co., Ltd., a wholly
      foreign owned enterprise in the People’s Republic of China (“GJBT”). GJBT has
      entered into consulting service agreements and equity-related agreements with
      Laiyang Jiangbo Pharmaceutical Co., Ltd. (“Laiyang Jiangbo”), a limited
      liability company headquartered in, and organized under the laws of,
      China.




Under
      the
      Exchange Agreement, on the Closing Date, we issued 5,995,780 shares of our
      Series B Voting Convertible Preferred Stock, which were converted into
      299,789,000 shares of our common stock on October 26, 2007. As a result of
      this
      transaction, the Karmoya Shareholders became our controlling shareholders and
      Karmoya became our wholly owned subsidiary. In connection with Karmoya becoming
      our wholly owned subsidiary, we acquired the business and operations of the
      LJ
      Group, and our principal business activities continued to be conducted through
      the LJ Group’s operating company in China, Laiyang Jiangbo.




**Our
      Contractual Arrangements with Laiyang Jiangbo and Its
      Shareholders**




PRC
      law
      currently limits foreign equity ownership of Chinese companies. To comply with
      these foreign ownership restrictions, we operate our business in China through
      a
      series of contractual arrangements with Laiyang Jiangbo and its shareholders
      that were executed on September 21, 2007. For a description of these contractual
      arrangements, see “Contractual Arrangements with Laiyang Jiangbo and Its
      Shareholders” under the “Business” section above.




As
      a
      result of the Exchange Transaction, we have contractual arrangements with
      Laiyang Jiangbo which give us the ability to substantially influence Laiyang
      Jiangbo's daily operations and financial affairs, appoint its senior executives
      and approve all matters requiring shareholder approval.


49


**Related
      Parties Transactions of Laiyang Jiangbo**




Set
      forth
      below are the related parties transactions since June 30, 2007 between Laiyang
      Jiangbo’s shareholders, officers and/or directors, and Laiyang Jiangbo. As a
      result of the Exchange Transaction, we have contractual arrangements with
      Laiyang Jiangbo which give us the ability to substantially influence Laiyang
      Jiangbo's daily operations and financial affairs, appoint its senior executives
      and approve all matters requiring shareholder approval.




Accounts
      receivable - related parties





The
      Company is engaged in business activities with three related parties, Jiangbo
      Chinese-Western Pharmacy, Laiyang Jiangbo Medicals, Co., Ltd, and Yantai Jiangbo
      Pharmaceuticals Co., Ltd. The Company’s Chief Executive Officer and other
      majority shareholders have 100% ownership of these entities. At June 30, 2008
      and 2007, accounts receivable from the Company’s product sales to these related
      entities were $ 673,808 and
      $498,940, respectively. Accounts receivable due drom related parties are
      receivable in cash and due within 3 to 6 monhts. For the years ended June 30,
      2008, 2007, and 2006, the Company recorded sales to related parties as follows:





Name of Related Party
            
            Relationship
            
            Net Revenues2008
            
            2007
            
            2006Jiangbo
                Chinese-Western Pharmacy
            
            90%
              owned by Chief Executive Officer
            
            $
            1,622,935
            
            $
            3,018,502
            
            $
            2,471,143Laiyang
                Jiangbo Medicals, Co. Ltd
            
            60%
              owned by Chief Executive Officer
            
            
            1,185,183
            
            
            436,909
            
            
            231,722Yantai
                Jiangbo Pharmaceuticals Co., Ltd.
            
            Owned
              by Other Related Party
            
            
            2,755,980
            
            
            478,470
            
            
            1,210,587Total
            
            
            
            
            $
            5,564,098
            
            $
            3,933,881
            
            $
            3,913,452





Other income
      from related parties





The
      Company leases two of its buildings to Jiangbo Chinese-Western Pharmacy. For
      the
      years ended June 30, 2008, 2007, and 2006, the Company recorded other income
      of
      $110,152, $102,472, and $59,775 from leasing the two buildings.




Other
      payables - related parties





Prior
      to
      fiscal year 2008, the Company received advances from its director, shareholders
      and related parties for its operating activities. At June 30, 2008 and 2007,
      the
      Company had payable balances due to its shareholders and related parties amounting
      to $164,137 and $933,132, respectively. These advances are short-term in nature and bears interest rate
      at
      0%, and
      5.84% per annum, for 2008 and 2007, respectively. The interest rate for 2007
      was
      calculated by using the Company’s 2007 average outstanding bank loan interest
      rate. The amount is expected to be repaid in the form of cash.





At
      June
      30, 2008 and 2007, other payables - related parties consisted of the
      following:





2008
            
            2007Payable
                to Cao Wubo, Chief Executive Officer and
              Chairman
                of the Board, with annual interest at
              0%
                and 5.84%, for 2008 and 2007 respectively,
              and
                unsecured.
            
            $
            164,137
            
            $
            447,531Payable
                to Xun Guihong, shareholder and sister of
              CEO’s
                spouse, with annual interest at 5.84% for
              2007
                respectively, and unsecured.
            
            
            -
            
            
            280,334Payable
                to Zhang Yihua, shareholder of the
              Company
                and Yantai Jiangbo Pharmaceuticals,
              and
                nephew of CEO, with annual interest at
              5.84%
                for 2007, and unsecured.
            
            
            -
            
            
            29,665Payable
                to Yantai Jiangbo Pharmaceuticals, an
              affiliated
                company, with annual interest at
              5.84%
                for 2007, and unsecured.
            
            
            -
            
            
            106,910Payable
                to Laiyang Jiangbo Medicals, an affiliated
              company,
                with annual interest at 5.84% for 2007,
              and
                unsecured.
            
            
            -
            
            
            68,249Payable
                to Xun Guifang, who is the direct relative of
              a
                Company's shareholder.
            
            
            -
            
            
            443Total
                other payable-related parties
            
            $
            164,137
            
            $
            933,132





50





**Related
      Party Transactions of Genesis Technology Group, Inc.**




Set
      forth
      below are the related party transactions since June 30, 2007 between the
      shareholders, officers and/or directors of Genesis Technology Group, Inc
      (“Genesis”), our predecessor, and Genesis.




On
      July
      31, 2007, Genesis’s then 51% owned subsidiary, Genesis Equity Partners LLC, II
      (“GEP II”), issued a promissory note to a member of GEP II in the amount of
      $190,000 for working capital purposes. The note bears interest at 10% per annum
      and is due on July 31, 2008 GEP II was subsequently dissolved and we assumed
      this obligation. Upon receipt by us of shares or other equity distribution
      in
      connection with the reverse merger transaction with a certain GEP II client
      and
      distribution of 24.5% of the reverse merger distribution to the note holder
      in
      accordance with the terms of GEP II’s operating agreement, our obligation under
      this note shall terminate. The note is secured by 2,000,000 shares of our common
      stock which may be adjusted from time to time.




On
      July
      23, 2007, Genesis entered into a one-year consulting agreement for business
      advisory and investor relations services with a company related to a member
      of
      its then-subsidiary, GEP. In connection with this agreement, it transferred
      100,000 shares of LTUS
      to
      this consultant with a fair market value of $100,000. The consulting agreement
      has been terminated.




**May
      2008 Escrow Agreement**





In
      connection with the May 2008 Financing, Mr. Cao, the Company’s Chief Executive
      Officer and Chairman of the Board, placed 3,750,000 shares of common stock
      of
      the Company owned by him into an escrow account pursuant to a make good escrow
      agreement, dated May 30, 2008 (the “Make Good Escrow Agreement”). In the event
      that either (i) the Company’s adjusted 2008 earnings before taxes is less than
      $26,700,000 USD (“2008 Guaranteed EBT”) or (ii) the Company’s 2008 adjusted
      fully diluted earnings before taxes per share is less than $1.6 USD (“2008
      Guaranteed Diluted EBT”), 1,500,000 of such shares (the “2008 Make Good Shares”)
      are to be released pro rata to the May 2008 Investors. In the event that either
      (i) the Company’s adjusted 2009 earnings before taxes is less than $38,400,000
      USD (“2009 Guaranteed EBT”) or (ii) the Company’s adjusted fully diluted
      earnings before taxes per share is less than $2.32 USD (or $2.24 USD if the
      500,000 shares of common stock held in escrow in connection with the November
      2007 private placement have been released from escrow) (“2009 Guaranteed Diluted
      EBT”), 2,250,000 of such shares (the “2009 Make Good Shares”) are to be released
      pro rata to the May 2008 Investors. Should the Company successfully satisfy
      these respective financial milestones, the 2008 Make Good Shares and 2009 Make
      Good Shares will be returned to Mr. Cao. In addition, Mr. Cao is required to
      deliver shares of common stock owned by him to the Investors on a pro rata
      basis
      equal to the number of shares (the “Settlement Shares”) required to satisfy all
      costs and expenses associated with the settlement of all legal and other matters
      pertaining to the Company prior to or in connection with the completion of
      the
      Company’s October 2007 share exchange in accordance with formulas set forth in
      the May 2008 Securities Purchase Agreement (post 40-to-1 reverse
      split).





**Director
      Independence**




For
      our
      description of director independence, see “Board Committees and Director
      Independence” under the section entitled “Directors, Executive Officers,
      Promoters, Control Persons and Corporate Governance; Compliance with Section
      16(a) of the Exchange Act” above.


51





**ITEM
      14 PRINCIPAL ACCOUNTANT FEES AND SERVICES**





Aggregate
      fees billed by our current principal accountants, Moore Stephens Wurth Frazer
      and Torbet, LLP for audit services


related
      to the most recent fiscal year, and for other professional services billed
      in
      the most recent fiscal year, were as follows:





**Fiscal 2008**Audit
                Fees
            
            $
            185,000Audit-Related
                Fees
            
            
            -Tax
                Fees
            
            
            -All
                Other Fees
            
            
            -Total
            
            $
            185,000




Aggregate
      fees billed by our previous principal accountants, Sherb & Co., for audit
      services related to the most recent two fiscal years, and for other professional
      services billed in the most recent two fiscal years, were as
      follows:




**Fiscal 2007**
            
            **Fiscal 2006**Audit
                Fees
            
            $
            82,500
            
            $
            66,000Audit-Related
                Fees
            
            
            0
            
            
            -Tax
                Fees
            
            
            12,500
            
            
            -All
                Other Fees
            
            
            0
            
            
            -Total
            
            $
            95,000
            
            $
            66,000




**Audit
      Fees** —
This
      category includes the audit of our annual financial statements, review of
      financial statements included in our Form 10-QSB Quarterly Reports and services
      that are normally provided by the independent auditors in connection with
      engagements for those fiscal years. This category also includes advice on audit
      and accounting matters that arose during, or as a result of, the audit or the
      review of interim financial statements.




**Audit-Related
      Fees** —
This
      category consists of assurance and related services by the independent auditors
      that are reasonably related to the performance of the audit or review of our
      financial statements and are not reported above under "Audit Fees." The services
      for the fees disclosed under this category include consultation regarding our
      correspondence with the SEC and other accounting consulting.




**Tax
      Fees** —
This
      category consists of professional services rendered by our independent auditors
      for tax compliance and tax advice. The services for the fees disclosed under
      this category include tax return preparation and technical tax
      advice.




**All
      Other Fees** —
This
      category consists of fees for other miscellaneous items.




**Pre-Approval
      Policies and Procedures** —
Prior
      to engaging its accountants to perform particular services, our board of
      directors obtains an estimate for the service to be performed. All of the
      services described above were approved by the board of directors in accordance
      with its procedure.


52





**PART
      IV**





**ITEM
      15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES**





(a) Financial
      Statements and Financial Statements Schedules




The
      following financial statements of Genesis Pharmaceuticals Enterprises, Inc.
      and
      Reports of Independent Registered Public Accounting Firms are presented in
      the
“F” pages of this report:





Reports
                of Independent Registered Public Accounting Firms
            
            
            F-1Consolidated
                Balance Sheets - as of June 30, 2008 and 2007
            
            
            F-2Consolidated
                Statements of Income and Other Comprehensive Income - for the
                Years ended June 30, 2008, 2007 and 2006
            
            
            F-3Consolidated
                Statements of Shareholders’ Equity - for the Years ended June 30, 2008,
                2007 and 2006
            
            
            F-4Consolidated
                Statements of Cash Flows - for the Years ended June 30, 2008, 2007
                and
                2006
            
            
            F-5Notes
                to Consolidated Financial Statements
            
            
            F-6
                - F-33





(b) Exhibits





*Filed
      Herewith




**Exhibit**
              **Number**
            
            **Description**2.1
            
            Share
                Acquisition and Exchange Agreement by and among Genesis, Karmoya
                and
                Karmoya Shareholders dated October 1, 2007 (1)3.1
            
            Articles
                of Incorporation (2)3.2
            
            Bylaws
                (2)3.3
            
            Articles
                of Amendment to Articles of Incorporation (2)3.4
            
            Articles
                of Amendment to Articles of Incorporation (2)3.5
            
            Articles
                of Amendment to Articles of Incorporation (3)3.6
            
            Articles
                of Amendment to Articles of Incorporation (4)4.1
            
            Articles
                of Amendment to Articles of Incorporation, Preferences and Rights
                of
                Series A Preferred Stock (5)4.2
            
            Articles
                of Amendment to Articles of Incorporation, Preferences and Rights
                of
                Series B Voting Convertible Preferred Stock (6)4.3
            
            6%
                Convertible Subordinated Debenture, dated November 7, 2007
                (7)4.4
            
            Common
                Stock Purchase Warrant, dated November 7, 2007 (7)4.5
            
            Form
                of 6% Convertible Note (8)4.6
            
            Form
                of Class A Common Stock Purchase Warrant (8)10.1
            
            Securities
                Purchase Agreement, dated as of November 6, 2007, between Genesis
                Pharmaceuticals Enterprises, Inc. and Pope Investments, LLC
                (7)10.2
            
            Registration
                Rights Agreement, dated as of November 6, 2007, between Genesis
                Pharmaceuticals Enterprises, Inc. and Pope Investments, LLC
                (7)


53





10.3
            
            Closing
                Escrow Agreement, dated as of November 6, 2007, by and among Genesis
                Pharmaceuticals Enterprises, Inc., Pope Investments, LLC and Sichenzia
                Ross Friedman Ference LLP (7)10.4
            
            Securities
                Purchase Agreement, dated May 30, 2008, by and among the Company,
                Karmoya
                International Ltd., Genesis Jiangbo (Laiyang) Biotech Technologies
                Co.,
                Ltd., Wubo Cao and the investors party thereto (8)10.5
            
            Make
                Good Escrow Agreement, dated May 30, 2008, by and among the Company,
                the
                investors party thereto, Pope Investments LLC, Wubo Cao and Loeb
&
                Loeb LLP (8)10.6
            
            Holdback
                Escrow Agreement, dated May 30, 2008, by and among the Company, the
                investors party thereto and Loeb & Loeb LLP (8)10.7
            
            Registration
                Rights Agreement, dated May 30, 2008, by and among the Company and
                the
                investors party thereto (8)10.8
            
            Lock-up
                Agreement, dated May 30, 2008, between the Company and Wubo Cao
                (8)10.9
            
            Employment
                Agreement between Elsa Sung and the Company, dated June 10, 2008
                (9)10.10
            
            Consulting
                Agreement between the Company and
                Robert Cain, dated September 10, 2008 (10)14.1
            
            Code
                of Business Conduct and Ethics (11)99.1
            
            Consulting
                Services Agreement between Genesis Jiangbo (Laiyang) Biotech Technologies
                Co., Ltd., and Laiyang Jiangbo Pharmaceutical Co., Ltd. dated September
                21, 2007 (English Translation) (1)99.2
            
            Equity
                Pledge Agreement between Genesis Jiangbo (Laiyang) Biotech Technologies
                Co., Ltd., and Laiyang Jiangbo Pharmaceutical Co., Ltd. dated September
                21, 2007 (English Translation) (1)99.3
            
            Operating
                Agreement between Genesis Jiangbo (Laiyang) Biotech Technologies
                Co.,
                Ltd., and Laiyang Jiangbo Pharmaceutical Co., Ltd. dated September
                21,
                2007 (English Translation) (1)99.4
            
            Proxy
                Agreement between Genesis Jiangbo (Laiyang) Biotech Technologies
                Co.,
                Ltd., and Laiyang Jiangbo Pharmaceutical Co., Ltd. dated September
                21,
                2007 (English Translation) (1)99.5
            
            Option
                Agreement between Genesis Jiangbo (Laiyang) Biotech Technologies
                Co.,
                Ltd., and Laiyang Jiangbo Pharmaceutical Co., Ltd. dated September
                21,
                2007 (English Translation) (1)99.6
            
            Audit
                Committee Charter (12)99.7
            
            Compensation
                Committee Charter (12)




(1)
            Incorporated
                by reference to the Company’s Form 8-K filed on October 1,
                2007.





(2)
            Incorporated
                by reference to the Company’s Form 8-K filed on September 1,
                1999.





(3)
            Incorporated
                by reference to the Company’s Form 8-K filed on August 21,
                2008.




(4)
            Incorporated
                by reference to the Company’s Form 8-K filed on September 5,
                2008.


(5)
              Incorporated
                  by reference to the Company’s Form 10-QSB filed on January 22,
                  2004.


(6)
            Incorporated
                by reference to the Company’s Form 8-K filed on October 9,
                2007.





(7)
            Incorporated
                by reference to the Company’s Form 8-K filed on November 9,
                2007.





(8)
            Incorporated
                by reference to the Company’s Form 8-K filed on June 3,
                2008.





(9)
            Incorporated
                by reference to the Company’s Form 8-K filed on June 12,
                2008.


(10)
              Incorporated
                  by reference to the Company’s Form 8-K filed on September 12,
                  2008.


(11)
            Incorporated
                by reference to the Company's Form 10-KSB filed on January 13,
                2006.(12)
            Incorporated
                  by reference to the Company's Form S-1/A filed on August 26,
                  2008.




54


**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
      the
      registrant caused this report to be signed on its behalf by the undersigned,
      thereunto duly authorized on September 29, 2008.




**GENESIS
      PHARMACEUTICALS ENTERPISES, INC.**





/s/*Cao Wubo*Cao
                Wubo, Chief Executive Officer and
                President




In
      accordance with the Securities Exchange of 1934, this report has been signed
      below by the following persons on behalf of the registrant and in the capacities
      and on the dates indicated.





**NAME**
            
            **TITLE**
            
            **DATE***/s/
                Cao Wubo*
            
            Chairman
                of the Board, Chief Executive Officer and President
            
            September 29, 2008Cao
                Wubo*/s/
                Xu Haibo*
            
            Vice
                President, Chief Operating Officer and Director
            
            September
                29, 2008Xu
                Haibo*/s/
                Elsa Sung*
            
            Chief
                Financial Officer
            
            September
                29, 2008Elsa
                Sung*/s/
                Xue Hong*
            
            Financial
                Controller
            
            September
                29, 2008Xue
                Hong*/s/
                Feng Xiaowei*
            
            Director
            
            September
                29, 2008Feng
                Xiaowei*/s/
                Huang Lei*
            
            Director
            
            September
                29, 2008Huang
                Lei*/s/
                Ge Jian*
            
            Director
            
            September
                29, 2008Ge
                Jian*/s/Michael
                Marks*
            
            Director
            
            September
                29, 2008Michael
                Marks*/s/John
                (Yang) Wang*
            
            Director
            
            September
                29, 2008John
                (Yang) Wang


55




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      the
      Board of Directors and


Shareholders
      of Genesis Pharmaceuticals Enterprises, Inc. and Subsidiaries




We
      have
      audited the consolidated balance sheets of Genesis Pharmaceuticals Enterprises,
      Inc. and Subsidiaries (the "Company") as of June 30, 2008 and 2007, and the
      consolidated statements of income and other comprehensive income, shareholders’
equity, and cash flows for each of the years in the three-year period ended
      June
      30, 2008. Genesis Pharmaceuticals Enterprises, Inc. and Subsidiaries’ management
      is responsible for these financial statements. Our responsibility is to express
      an opinion on these financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company is not required to
      have, nor were we engaged to perform, an audit of its internal control over
      financial reporting. Our audit included consideration of internal control over
      financial reporting as a basis for designing audit procedures that are
      appropriate in the circumstances, but not for the purpose of expressing an
      opinion on the effectiveness of the Company’s internal control over financial
      reporting. Accordingly, we express no such opinion. An audit also includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements, assessing the accounting principles used and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Genesis Pharmaceuticals
      Enterprises, Inc and Subsidiaries as of June 30, 2008 and 2007, and the results
      of its operations and its cash flows for each of the years in the three-year
      period ended June 30, 2008 in conformity with accounting principles generally
      accepted in the United States of America.





/S/
      Moore
      Stephens Wurth Frazer and Torbet, LLP





Moore
      Stephens Wurth Frazer and Torbet, LLP





Walnut,
      California


September
      26, 2008




F-1




GENESIS
        PHARMACEUTICALS ENTERPRISES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
        BALANCE SHEETS
 AS
        OF
        JUNE 30, 2008 AND 2007
  2008
                
                2007ASSETSCURRENT
                    ASSETS:Cash
                
                $
                48,195,798
                
                $
                17,737,208Restricted
                    cash
                
                
                7,839,785
                
                
                8,410,740Investments
                
                
                2,055,241
                
                
                -Accounts
                    receivable, net of allowance for doubtful accounts of $155,662
                    and
                    $166,696 as of June 30, 2008 and 2007, respectively
                
                
                24,312,077
                
                
                11,825,442Accounts
                    receivable - related parties
                
                
                673,808
                
                
                498,940Notes
                    receivables
                
                
                -
                
                
                57,965Inventories
                
                
                3,906,174
                
                
                5,130,934Other
                    receivables
                
                
                152,469
                
                
                23,623Advances
                    to suppliers
                
                
                1,718,504
                
                
                313,018Financing
                    costs - current
                
                
                680,303
                
                
                -Other
                    assets
                
                
                -
                
                
                100,968Total
                    current assets
                
                
                89,534,159
                
                
                44,098,838PLANT
                    AND EQUIPMENT, net
                
                
                11,225,844
                
                
                10,179,134OTHER
                    ASSETS:Restricted
                    investments
                
                
                2,481,413
                
                
                -Financing
                    costs, net
                
                
                1,236,641
                
                
                -Intangible
                    assets, net
                
                
                9,916,801
                
                
                1,119,087Total
                    other assets
                
                
                13,634,855
                
                
                1,119,087Total
                    assets
                
                $
                114,394,858
                
                $
                55,397,059LIABILITIES
                    AND SHAREHOLDERS' EQUITYCURRENT
                    LIABILITIES:Accounts
                    payable
                
                $
                2,341,812
                
                $
                2,051,506Short
                    term bank loans
                
                
                2,772,100
                
                
                4,602,500Notes
                    payable
                
                
                5,843,295
                
                
                8,410,740Other
                    payables
                
                
                3,671,703
                
                
                1,367,052Other
                    payables - related parties
                
                
                164,137
                
                
                933,132Accrued
                    liabilities
                
                
                334,439
                
                
                216,468Liabilities
                    assumed from reorganization
                
                
                1,084,427
                
                
                -Dividends
                    payable
                
                
                -
                
                
                10,520,000Taxes
                    payable
                
                
                166,433
                
                
                -Total
                    current liabilities
                
                
                16,378,346
                
                
                28,101,398CONVERTIBLE
                        DEBT, net of discount $32,499,957 and $0 as of June 30, 2008 and
                        2007, respectively
                
                
                2,500,043
                
                
                -Total
                    liabilities
                
                
                18,878,389
                
                
                28,101,398COMMITMENTS
                    AND CONTINGENCIES AND SUBSEQUENT EVENTSSHAREHOLDERS'
                    EQUITY:Convertible
                        preferred stock Series A ($0.001 par value; 0 and 218,000
                        shares
                        authorized; 0 shares issued and outstanding as of June 30,
                        2008 and
                        2007
                
                
                -
                
                
                -Common
                        Stock ($0.001 par value,15,000,000 and 5,000,000 shares authorized,
                        9,767,844 and 7,494,740 shares issued and outstanding as
                        of June 30, 2008
                        and 2007)
                
                
                9,770
                
                
                7,495Treasury
                    stock
                
                
                
                
                
                (2,805
                )Paid-in-capital
                
                
                45,554,513
                
                
                18,344,309Captial
                    contribution receivable
                
                
                (11,000
                )
                
                (12,011,000
                )Retained
                    earnings
                
                
                39,008,403
                
                
                17,653,584Statutory
                    reserves
                
                
                3,253,878
                
                
                2,157,637Accumulated
                    other comprehensive income
                
                
                7,700,905
                
                
                1,146,441Total
                    shareholders' equity
                
                
                95,516,469
                
                
                27,295,661Total
                    liabilities and shareholders' equity
                
                $
                114,394,858
                
                $
                55,397,059
 
 See
        report of independent registered public accounting firm.
  The
        accompanying notes are an integral part of these
        consolidated financial statements.
  F-2
  GENESIS
        PHARMACEUTICALS ENTERPRISES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
        STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
 FOR
        THE
        YEARS ENDED JUNE 30, 2008, 2007 AND 2006
 
 2008
              
              2007
              
              2006REVENUES:Sales
              
              $
              93,982,407
              
              $
              72,259,812
              
              $
              45,242,987Sales
                  - related parties
              
              
              5,564,098
              
              
              3,933,881
              
              
              3,913,452TOTAL
                  REVENUE
              
              
              99,546,505
              
              
              76,193,693
              
              
              49,156,439Cost
                  of sales
              
              
              21,072,674
              
              
              19,961,439
              
              
              13,628,107Cost
                  of sales - related parties
              
              
              1,433,873
              
              
              1,200,091
              
              
              2,058,126COST
                  OF SALES
              
              
              22,506,547
              
              
              21,161,530
              
              
              15,686,233GROSS
                  PROFIT
              
              
              77,039,958
              
              
              55,032,163
              
              
              33,470,206RESEARCH
                  AND DEVELOPMENT EXPENSE
              
              
              3,235,715
              
              
              11,143,830
              
              
              13,642,200SELLING,
                  GENERAL AND ADMINISTRATIVE EXPENSES
              
              
              41,593,197
              
              
              25,579,361
              
              
              7,894,672INCOME
                  FROM OPERATIONS
              
              
              32,211,046
              
              
              18,308,972
              
              
              11,933,334OTHER
                  (INCOME) EXPENSE, NETOther
                  expense, net
              
              
              708,338
              
              
              -
              
              
              7,176Non-operating
                  (income) expense
              
              
              (1,391,301
              )
              
              (6,586,956
              )
              
              1,230Interest
                  expense, net
              
              
              3,092,183
              
              
              211,616
              
              
              378,410Loss
                  (Income) from discontinued business
              
              
              380,027
              
              
              -
              
              
              -OTHER
                  EXPENSE, NET
              
              
              2,789,247
              
              
              (6,375,340
              )
              
              386,816INCOME
                  BEFORE PROVISION FOR INCOME TAXES
              
              
              29,421,799
              
              
              24,684,312
              
              
              11,546,518PROVISION
                  FOR INCOME TAXES
              
              
              6,970,739
              
              
              2,631,256
              
              
              3,810,351NET
                  INCOME
              
              
              22,451,060
              
              
              22,053,056
              
              
              7,736,167OTHER
                  COMPREHENSIVE INCOME:Unrealized
                  gain on marketable securities
              
              
              1,347,852
              
              
              -
              
              
              -Foreign
                  currency translation adjustment
              
              
              5,206,612
              
              
              1,018,130
              
              
              128,311COMPREHENSIVE
                  INCOME
              
              $
              29,005,524
              
              $
              23,071,186
              
              $
              7,864,478WEIGITED
                  AVERAGE NUMBER OF SHARES:Basic
              
              
              9,164,127
              
              
              7,494,740
              
              
              7,494,740Dilulted
              
              
              9,737,832
              
              
              7,494,740
              
              
              7,494,740EARNINGS
                  PER SHARE:Basic
              
              $
              2.45
              
              $
              2.94
              
              $
              1.03Diluted
              
              $
              1.84
              
              $
              2.94
              
              $
              1.03
 
 See
        report of independent registered public accounting firm.
  The
        accompanying notes are an integral part of these
        consolidated financial statements.
  F-3





GENESIS
      PHARMACEUTICALS ENTERPRISES, INC. AND SUBSIDIARIES





CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS' EQUITY


Par
                  Value $0.001
              
              Par
                  Vaule $0.001
              
              Par
                  Vaule $0.001
              
              Treasury
                  Stock
              
              Additional
              
              Capital
              
              Retained
                  Earnings
              
              Accumulated
                  otherNumber
              
              Preferred
              
              Number
              
              Preferred
              
              Number
              
              Common
              
              Number
              
              Treasury
              
              Paid-in
              
              contribution
              
              Statutory
              
              Unrestricted
              
              comprehensiveof
                  share
              
              stock
              
              of
                  share
              
              stock
              
              of
                  shares
              
              stock
              
              of
                  shares
              
              stock
              
              capital
              
              receivable
              
              reserves
              
              earnings
              
              income
              
              TotalsBALANCE,
                June 30, 2006
              
              
              -
              
              $
              -
              
              
              -
              
              $
              -
              
              
              7,494,740
              
              $
              7,495
              
              
              10,000
              
              $
              (2,805
              )
              $
              13,216,309
              
              $
              (12,011,000
              )
              $
              648,667
              
              $
              7,453,498
              
              $
              128,311
              
              $
              9,440,475-Capital
                  contribution
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,128,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,128,000Dividend
                  distribution
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (10,344,000
              )
              
              
              
              
              (10,344,000
              )Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              22,053,056
              
              
              
              
              
              22,053,056Adjustment
                  to statutory reserve
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,508,970
              
              
              (1,508,970
              )
              
              
              
              
              -Foreign
                  currency translation gain
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,018,130
              
              
              1,018,130BALANCE,
                June 30, 2007
              
              
              -
              
              $
              -
              
              
              -
              
              $
              -
              
              
              7,494,740
              
              $
              7,495
              
              
              10,000
              
              $
              (2,805
              )
              $
              18,344,309
              
              $
              (12,011,000
              )
              $
              2,157,637
              
              $
              17,653,584
              
              $
              1,146,441
              
              $
              27,295,661Recapitalization
                  of Company
              
              
              15,400
              
              
              15
              
              
              
              
              
              
              
              
              2,131,603
              
              
              2,132
              
              
              
              
              
              
              
              
              3,815,813
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,817,959Common
                  stock Issued for conversion of options
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              44,031
              
              
              44
              
              
              
              
              
              
              
              
              (44
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Issuance
                  of common stock @ $4.80 per share
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              37,500
              
              
              38
              
              
              
              
              
              
              
              
              179,963
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              180,001Exercise
                  of stock options to common stock @ $4.20 per
                share
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              37,500
              
              
              38
              
              
              
              
              
              
              
              
              157,463
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              157,501Conversion
                  of convertible preferred stock A to common
                stock
              
              
              (15,400
              )
              
              (15
              )
              
              
              
              
              
              
              
              16,595
              
              
              17
              
              
              
              
              
              
              
              
              (2
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Capital
                  contribution registered
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (12,000,000
              )
              
              12,000,000
              
              
              
              
              
              
              
              
              
              
              
              -Sales
                  of treasury stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (10,000
              )
              
              2,805
              
              
              (830
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,975Grant
                  of warrants and beneficial conversion featurein
                  connection with convertible debt
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              35,000,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              35,000,000Common
                  stock issued for service @ $8.00 per share
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,875
              
              
              6
              
              
              
              
              
              
              
              
              46,994
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              47,000Stock
                  option compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              10,847
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              10,847Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              22,451,060
              
              
              
              
              
              22,451,060Adjustment
                  to statutory reserve
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,096,241
              
              
              (1,096,241
              )
              
              
              
              
              -Change
                  in fair value on restricted marketable equity securities
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,347,852
              
              
              1,347,852Foreign
                  currency translation gain
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,206,612
              
              
              5,206,612BALANCE,
                June 30, 2008
              
              
              -
              
              $
              -
              
              
              -
              
              $
              -
              
              
              9,767,844
              
              $
              9,770
              
              
              -
              
              $
              -
              
              $
              45,554,513
              
              $
              (11,000
              )
              $
              3,253,878
              
              $
              39,008,403
              
              $
              7,700,905
              
              $
              95,516,469





See
      report of independent registered public accounting firm.





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




F-4




GENESIS
      PHARMACEUTICALS ENTERPRISES, INC. AND SUBSIDIARIES





CONSOLIDATED
      STATEMENTS OF CASH FLOWS


FOR
      THE
      YEARS ENDED JUNE 30, 2008, 2007 AND 2006





2008
            
            2007
            
            2006CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income
            
            $
            22,451,060
            
            $
            22,053,056
            
            $
            7,736,167Loss
                from discontinued operations
            
            
            380,027
            
            
            -
            
            
            -Income
                from continued operations
            
            
            22,831,087
            
            
            22,053,056
            
            
            7,736,167Adjustments
                to reconcile net income to cash provided
                by (used in) operating activities:Depreciation
            
            
            517,863
            
            
            364,417
            
            
            255,602Amortization
                of intangible assets
            
            
            184,465
            
            
            122,126
            
            
            111,786Amortization
                of debt issuance costs
            
            
            123,964
            
            
            -
            
            
            -Amortization
                of debt discount
            
            
            2,500,043
            
            
            -
            
            
            -Bad
                debt expense (recovery)
            
            
            (27,641
            )
            
            -
            
            
            157,214Unrealized
                loss on marketable securities
            
            
            696,528
            
            
            -
            
            
            -Common
                stock issued for services
            
            
            46,994
            
            
            -
            
            
            -Amortization
                of stock option compensation
            
            
            10,847
            
            
            -
            
            
            -Gain
                on forgiveness of debt
            
            
            (86,752
            )
            
            -
            
            
            -Change
                in operating assets and liabilitiesAccounts
                receivable
            
            
            (10,534,270
            )
            
            (1,534,814
            )
            
            (6,945,531
            )Accounts
                receivable - related parties
            
            
            (113,465
            )
            
            (62,599
            )
            
            (12,538
            )Notes
                receivables
            
            
            60,694
            
            
            (26,626
            )
            
            (28,888
            )Inventories
            
            
            1,686,090
            
            
            1,727,215
            
            
            (3,680,020
            )Other
                receivables
            
            
            (111,571
            )
            
            (20,889
            )
            
            3,359Advances
                to suppliers
            
            
            (1,259,254
            )
            
            (66,821
            )
            
            264,641Other
                assets
            
            
            92,996
            
            
            1,563,800
            
            
            (1,445,205
            )Accounts
                payable
            
            
            55,085
            
            
            (2,027,968
            )
            
            764,749Accrued
                liabilities
            
            
            211,362
            
            
            45,567
            
            
            70,348Other
                payables
            
            
            2,033,689
            
            
            (827,498
            )
            
            (630,146
            )Other
                payables - related parties
            
            
            (822,155
            )
            
            (3,848,086
            )
            
            (1,470,501
            )Liabilities
                from discontinued operations
            
            
            (1,172,816
            )
            
            -
            
            
            -Taxes
                payable
            
            
            169,790
            
            
            (2,168,912
            )
            
            1,905,120Net
                cash provided by (used in) operating activities
            
            
            17,093,573
            
            
            15,291,968
            
            
            (2,943,843
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Proceeds
                from sale of marketable securities
            
            
            1,034,028
            
            
            -
            
            
            -Proceeds
                from sale of restricted securities
            
            
            155,000
            
            
            -
            
            
            -Purchase
                of equipment
            
            
            (453,718
            )
            
            (183,237
            )
            
            (531,890
            )Purchase
                of intangible assets
            
            
            (8,870,631
            )
            
            -
            
            
            (34,106
            )Cash
                receipt from reverse acquisition
            
            
            534,950
            
            
            -
            
            
            -Net
                cash used in investing activities
            
            
            (7,600,371
            )
            
            (183,237
            )
            
            (565,996
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Restricted
                cash
            
            
            3,292,168
            
            
            435,022
            
            
            (4,544,212
            )Principal
                payments on notes payable
            
            
            (3,292,168
            )
            
            (435,022
            )
            
            4,544,294Borrowings
                on short term loan
            
            
            2,616,110
            
            
            4,471,600
            
            
            5,568,750Principal
                payments on short term loan
            
            
            (4,819,150
            )
            
            (5,688,450
            )
            
            -Proceeds
                from sale of common stock
            
            
            337,500
            
            
            -
            
            
            -Proceeds
                from sale of treasury stock
            
            
            1,975
            
            
            -
            
            
            -Payment
                to escrow acount
            
            
            (1,996,490
            )
            
            -
            
            
            -Payments
                for dividend
            
            
            (10,608,000
            )
            
            -
            
            
            -Proceeds
                from convertible debt
            
            
            32,974,500
            
            
            -
            
            
            -Payments
                for debt issuance cost
            
            
            (15,408
            )
            
            -
            
            
            -Net
                cash provided by (used in) financing activities
            
            
            18,491,037
            
            
            (1,216,850
            )
            
            5,568,832EFFECTS
                OF EXCHANGE RATE CHANGE IN CASH
            
            
            2,474,351
            
            
            473,729
            
            
            74,821NET
                INCREASE IN CASH
            
            
            30,458,590
            
            
            14,365,610
            
            
            2,133,814CASH,
                beginning of the year
            
            
            17,737,208
            
            
            3,371,598
            
            
            1,237,784CASH,
                end of the year
            
            $
            48,195,798
            
            $
            17,737,208
            
            $
            3,371,598





See
      report of independent registered public accounting firm.




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





F-5




GENESIS
      PHARMACEUTICALS ENTERPRISES, INC.


NOTES
      TO
      AUDITED CONSOLIDATED FINANCIAL STATEMENTS




JUNE
      30,
      2008




**Note
      1 – Organization and business**




Genesis
      Pharmaceuticals Enterprises, Inc. (the “Company” or “Genesis”) was originally
      incorporated in the state of Florida on August 15, 2001, under the name Genesis
      Technology Group, Inc. with the principal business objective of operating as
      a
      business development and marketing firm that specializes in advising and
      providing a turnkey solution for small and mid-sized Chinese companies entering
      Western markets. On October 1, 2007, Genesis executed a Share Acquisition and
      Exchange Agreement (“Exchange Agreement”) by and among Genesis, Karmoya
      International Ltd. (“Karmoya”), a British Virgin Islands company, and the
      shareholders of 100% of Karmoya’s capital stock (the “Karmoya Shareholders”).
      After the closing of the share exchange transaction, Karmoya became the
      Company’s wholly-owned subsidiary, and the Company’s primary operations now
      consist of the business and operations of Karmoya and its subsidiaries. The
      following table summarizes the estimated fair values of the assets acquired
      and
      liabilities assumed at the date of the acquisition:





Cash
            
            $
            534,950Prepaid
                expenses
            
            
            40,620Marketable
                equity securities
            
            
            370,330Other
                assets
            
            
            7,083Restricted
                marketable securities
            
            
            1,746,809Restricted
                marketable securities held for short term loans
            
            
            3,250,000Accounts
                payable and accrued liabilities
            
            
            (1,085,323
            )Loan
                payable
            
            
            (515,000
            )Other
                liabilities assumed from acquisition
            
            
            (452,001
            )Minority
                interest
            
            
            (121,063
            )Net
                assets acquired
            
            $
            3,776,405





Contemporaneous
      with the share exchange agreement in October 2007, the Company discontinued
      the
      business development and marketing segment of the Company, which had been the
      Company’s principal business objective prior to the reverse merger as described
      in Note 7. (The business development and marketing segment represented 100%
      of
      the Company’s sales prior to October 1, 2007.) Liabilities of the business
      development and marketing segment are reclassified as liabilities assumed from
      reorganization in the consolidated balance sheets. The results of operations
      and
      cash flows of the business development and marketing segment of the Company
      have
      been reflected as loss from discontinued operations in the consolidated
      statements of income and consolidated statements of cash flows, respectively,
      for the year ended June 30, 2008. Except for Genesis Pharmaceuticals
      Enterprises, Inc., all other entities that were consolidated into the Company
      prior to October 1, 2007, have been administratively dissolved.





Karmoya
      was established on July 18, 2007, under the laws of British Virgin Islands.
      Karmoya was established as a “special purpose vehicle” for the foreign capital
      raising activities of Laiyang Jiangbo Pharmaceutical Co., Ltd. (“Laiyang
      Jiangbo”), a limited liability company formed under the laws of the People’s
      Republic of China (the “PRC” or “China”). China’s State Administration of
      Foreign Exchange (“SAFE”) requires the shareholders of any Chinese companies to
      obtain SAFE’s approval before establishing any offshore holding company
      structure for foreign financing as well as subsequent acquisition matters under
      an official notice known as “Circular 106” in the PRC. On September 19, 2007,
      Karmoya was approved by the local Chinese SAFE as a “special purpose vehicle”
offshore company.





On
      September 20, 2007, Karmoya acquired 100% of Union Well International Limited
      (“Union Well”), a Cayman Islands corporation established on May 9, 2007. On
      September 17, 2007, Union Well established a wholly-owned subsidiary, Genesis
      Jiangbo (“Laiyang”) Biotech Technology Co., Ltd. (“GJBT”), in the PRC as a
      wholly-owned foreign limited liability company with an original registered
      capital of $12 million. GJBT develops, manufactures, and sells health medicines.
      The Company increased its registered capital in GJBT to $30,000,000 in June
      2008.


F-6


Laiyang
      Jiangbo was formed under laws of the PRC in August 2003, with registered capital
      of $1,210,000 (RMB 10,000,000). On December 1, 2006, Laiyang Jiangbo’s
      registered capital increased to $6,664,000 (RMB 50,000,000), and on December
      22,
      2006, the registered capital was funded by the contribution of certain buildings
      to the Company. Laiyang Jiangbo produces and sells western pharmaceutical
      products in China and focuses on developing innovative medicines to address
      various medical needs for patients worldwide. Laiyang Jiangbo operates in 26
      provinces in the PRC, and is headquartered in Laiyang City, Shandong province,
      China.





On
      September 21, 2007, GJBT entered into a series of contractual arrangements
      (“Contractual Arrangements”) with Laiyang Jiangbo and its shareholders. Under
      the terms of the Contractual Arrangements, GJBT took control over the management
      of the business activities of Laiyang Jiangbo and holds a 100% variable interest
      in Laiyang Jiangbo. The Contractual Arrangements are comprised of a series
      of
      agreements, including a Consulting Services Agreement and an Operating
      Agreement, through which GJBT has the right to advise, consult, manage, and
      operate Laiyang Jiangbo, and collect and own all of their respective net
      profits. Additionally, Laiyang Jiangbo’s shareholders have granted their voting
      rights over Laiyang Jiangbo to GJBT. In order to further reinforce GJBT’s rights
      to control and operate Laiyang Jiangbo, Laiyang Jiangbo and its shareholders
      have granted GJBT the exclusive right and option to acquire all of their equity
      interests in Laiyang Jiangbo or, alternatively, all of the assets of Laiyang
      Jiangbo. Further Laiyang Jiangbo’s shareholders have pledged all of their
      rights, titles, and interests in Laiyang Jiangbo to GJBT. As both companies
      are
      under common control, this has been accounted for as a reorganization of
      entities and the accompanying consolidated financial statements have been
      prepared as if the reorganization occurred retroactively. The Company
      consolidates Laiyang Jiangbo’s results, assets and liabilities in its financial
      statements.





Karmoya
      used the contractual arrangements to gain control of Laiyang Jiangbo, instead
      of
      using a complete acquisition of Laiyang Jiangbo’s assets or equity to make
      Laiyang Jiangbo a wholly-owned subsidiary of Karmoya, due to the following:
      (i)
      PRC laws governing share exchanges with foreign entities, which became effective
      on September 8, 2006, make the consequences of such acquisitions uncertain
      and
      (ii) other than by share exchange, PRC’s laws would require Karmoya to acquire
      Laiyang Jiangbo in cash, and at the time of the acquisition, Karmoya was unable
      to raise sufficient funds to pay the full appraised cash fair value for Laiyang
      Jiangbo’s assets or shares as required under PRC laws.





**Note
      2 - Summary of significant accounting policies**





Basis
      of presentation





The
      Company prepares its consolidated financial statements in accordance with
      accounting principles generally accepted in the United States of America ("US
      GAAP"). In the opinion of management, the accompanying consolidated balance
      sheets, and consolidated statements of income, shareholders’ equity, and cash
      flows include all adjustments, consisting only of normal recurring items.





Principles
      of consolidation





The
      accompanying consolidated financial statements include the accounts of the
      following entities, and all significant intercompany transactions and balanced
      have been eliminated in consolidation:





Consolidated
                entity name:
            
            Percentage
                of ownershipKarmoya
                International Ltd.
            
            
            100
            %Union
                Well International Limited
            
            
            100
            %Genesis
                Jiangbo Biotech Technology Co., Ltd.
            
            
            100
            %Laiyang
                Jiangbo Pharmaceutical Co., Ltd
            
            
            Variable
                Interest Entity


F-7


Financial
      Accounting Standards Board (“FASB”) Interpretation Number (“FIN”) 46 (revised
      December 2003), Consolidation of Variable Interest Entities, an Interpretation
      of ARB No.51 (“FIN 46R”), addresses whether certain types of entities, referred
      to as variable interest entities (“VIEs”), should be consolidated in a company’s
      consolidated financial statements. In accordance with the provisions of FIN
      46R,
      the Company has determined that Laiyang Jiangbo is a VIE and that the Company
      is
      the primary beneficiary, and accordingly, the financial statements of Laiyang
      Jiangbo are consolidated into the financial statements of the Company.





Reverse
      stock split





In
      July 2008, the Company approved a 40-to-1 reverse stock split, effective on
      September 4, 2008, and a new trading symbol “GNPH” also became effective on that
      day. The accompanying consolidated financial statements have been retroactively
      adjusted to reflect the reverse split. All share representations are on a
      post-split basis.





Foreign
      currency translation





The
      reporting currency of the Company is the U.S. dollar. The functional currency
      of
      the Company is the local currency, the Chinese Renminbi (“RMB”). In accordance
      with Statement of Financial Accounting Standards (“SFAS”) No. 52, “Foreign
      Currency Translation,” results of operations and cash flows are translated at
      average exchange rates during the period, assets and liabilities are translated
      at the unified exchange rates as quoted by the People’s Bank of China at the end
      of the period, and equity is translated at historical exchange rates. As a
      result, amounts related to assets and liabilities reported on the consolidated
      statements of cash flows will not necessarily agree with changes in the
      corresponding balances on the consolidated balance sheets. Transaction gains
      and
      losses that arise from exchange rate fluctuations on transactions denominated
      in
      a currency other than the functional currency are included in the results of
      operations as incurred.





Translation
      adjustments amounted to $6,353,053 and $1,146,441 as of June 30, 2008 and 2007,
      respectively. Asset and liability accounts at June 30, 2008, were translated
      at
      6.85 RMB to $1.00 USD as compared to 7.60 RMB to $1.00 USD at June 30, 2007.
      The
      average translation rates applied to income statements for the years ended
      June
      30, 2008, 2007, and 2006 were 7.26 RMB, 7.81 RMB and 8.06 RMB to $1.00 USD,
      respectively.





Use
      of
      estimates





The
      preparation of financial statements in conformity with US GAAP requires
      management to make estimates and assumptions that affect the 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. The significant estimates made in the
      preparation of the Company’s consolidated financial statements relate to the
      assessment of the carrying values of accounts receivable and related allowance
      for doubtful accounts, allowance for obsolete inventory, sales returns, fair
      value of warrants and beneficial conversion features related to the convertible
      notes, and fair value of options granted to employees. Actual results could
      be
      materially different from these estimates upon which the carrying values were
      based.





Revenue
      recognition





Product
      sales are generally recognized when title to the product has transferred to
      customers in accordance with the terms of the sale. The Company recognizes
      revenue in accordance with the Securities and Exchange Commission’s (“SEC”)
      Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in
      Financial Statements” as amended by SAB No. 104 (together,
“SAB 104”), and SFAS No. 48 (“SFAS 48”) “Revenue Recognition When
      Right of Return Exists.” SAB 104 states that revenue should not be
      recognized until it is realized or realizable and earned. In general, the
      Company records revenue when persuasive evidence of an arrangement exists,
      services have been rendered or product delivery has occurred, the sales price
      to
      the customer is fixed or determinable, and collectibility is reasonably
      assured.


F-8


The
      Company is generally not contractually obligated to accept returns. However,
      on
      a case by case negotiated basis, the Company permits customers to return their
      products. In accordance with SFAS 48, revenue is recorded net of an allowance
      for estimated returns. Such reserves are based upon management's evaluation
      of
      historical experience and estimated costs. The amount of the reserves ultimately
      required could differ materially in the near term from amounts included in
      the
      accompanying consolidated statements of income.





Shipping
      and handling





Shipping
      and handling costs related to costs of goods sold are included in selling,
      general and administrative expenses. Shipping and handling costs amounted to
      $365,327, $280,099 and $188,151 for the years ended June 30, 2008, 2007, and
      2006, respectively.





Financial
      instruments





SFAS
      No.
      107 (“SFAS 107”), “Disclosures about Fair Value of Financial Instruments,”
requires disclosure of the fair value of financial instruments held by the
      Company. SFAS 107 defines the fair value of financial instruments as the amount
      at which the instrument could be exchanged in a current transaction between
      willing parties. The Company considers the carrying values of cash, accounts
      receivable, notes receivable, other **** receivables,
      prepayments, accounts payable, other payables, accrued liabilities, customer
      deposits, taxes payable, and loans to approximate their fair values because
      of
      the short period of time between the origination of such instruments and their
      expected realization and their current market rate of interest.





Stock-based
      compensation





The
      Company records stock-based compensation expense pursuant to  SFAS
      No.
      123R (SFAS 123R”), "Share Based Payment.” SFAS 123R requires companies to
      measure compensation cost for stock-based employee compensation plans at fair
      value at the grant date and recognize the expense over the employee's requisite
      service period. The Company estimates the fair value of the award using the
      Black-Scholes Option Pricing Model. Under SFAS 123R, the Company’s expected
      volatility assumption is based on the historical volatility of Company’s stock
      or the expected volatility of similar entities. The expected life assumption
      is
      primarily based on historical exercise patterns and employee post-vesting
      termination behavior. The risk-free interest rate for the expected term of
      the
      option is based on the U.S. Treasury yield curve in effect at the time of grant.





Stock-based
      compensation expense is recognized based on awards expected to vest, and there
      were no estimated forfeitures as the Company has a short history of issuing
      options. SFAS 123R requires forfeitures to be estimated at the time of grant
      and
      revised in subsequent periods, if necessary, if actual forfeitures differ from
      those estimates.





Comprehensive
      income





SFAS
      No.
      130 (“SFAS 130”), “Reporting Comprehensive Income,” establishes standards for
      reporting and display of comprehensive income and its components in financial
      statements. It requires that all items that are required to be recognized under
      accounting standards as components of comprehensive income be reported in a
      financial statement that is displayed with the same prominence as other
      financial statements. The accompanying consolidated financial statements include
      the provisions of SFAS 130.





Cash
      and cash equivalents





Cash
      and
      cash equivalents include cash on hand and demand deposits in accounts maintained
      with state-owned banks within the PRC. The Company considers all highly liquid
      instruments with original maturities of three months or less, and money market
      accounts to be cash and cash equivalents.


F-9


The
      Company maintains cash deposits in financial institutions that exceed the
      amounts insured by the U.S. government. Balances at financial institutions
      or
      state-owned banks within the PRC are not covered by insurance. Non-performance
      by these institutions could expose the Company to losses for amounts in excess
      of insured balances. At June 30, 2008 and 2007, the Company’s bank balances,
      including restricted cash balances, exceeded government-insured limits by
      approximately $55,576,446 and $26,278,194, respectively. The Company has not
      experienced, nor does it anticipate, non-performance by these
      institutions.





Restricted
      cash





Restricted
      cash represent amounts set aside by the Company in accordance with the Company’s
      debt agreements with certain financial institutions. These cash amounts are
      designated for the purpose of paying down the principal amounts owed to the
      financial institutions, and these amounts are held at the same financial
      institutions with which the Company has debt agreements. Due to the short-term
      nature of the Company’s debt obligations to these banks, the corresponding
      restricted cash balances have been classified as current in the consolidated
      balance sheets.





As
      of
      June 30, 2008 and 2007, the Company had restricted cash of $7,839,785 and
      $8,410,740, respectively, of which $5,843,295 and $8,410,740, respectively,
      were
      maintained as security deposits for bank acceptance related to the Company’s
      notes payable. At June 30, 2008, $1,996,490 of the restricted cash amounts
      were
      maintained in the Company’s legal counsel’s hold-back escrow account related to
      the May 2008 convertible note issuance (Note 13), contingent on the Company’s
      satisfaction of certain financing terms. Subsequent to year end, these monies
      were released to the Company in full.





Investments
      and restricted investments





Investments
      are comprised primarily of equity securities and are stated fair value. Certain
      of these investments are classified as trading securities based on the Company’s
      intent to sell them within the year. Further, certain of these securities are
      classified as available-for-sale and are reflected as restricted, noncurrent
      investments, based on the Company’s intent to hold them beyond one year.
      Restricted investments are securities that were acquired through the reverse
      acquisition which contained certain restrictions on the securities. For trading
      securities, realized and unrealized gains and losses are included in the
      accompanying consolidated statements of income. For available-for-sale
      securities, realized gains and losses are included in the consolidated
      statements of income. Unrealized gains and losses for these available-for-sale
      securities are reported in other comprehensive income, net of tax, in the
      consolidated statements of shareholders’ equity. The Company has no investments
      that are considered to be held-to-maturity securities.





For
      the
      year ended June 30, 2008, realized loss on trading securities amounted to
      $44,881. Unrealized loss on trading securities amounted to $651,464 for the
      year
      ended June 30, 2008.





For
      the
      year ended June 30, 2008, unrealized gain on available-for-sales securities
      amounted to $1,347,852.





For
      the
      years ended June 30, 2007 and 2006, there were no realized and unrealized gain
      or loss on trading securities or available-for-sale securities.





Accounts
      receivable





In
      the
      normal course of business, the Company extends credit to its customers without
      requiring collateral or other security interests. Management reviews its
      accounts receivables at each reporting period to provide for an allowance
      against accounts receivable for an amount that could become uncollectible.
      This
      review process may involve the identification of payment problems with specific
      customers. The Company estimates this allowance based on the aging of the
      accounts receivable, historical collection experience, and other relevant
      factors, such as changes in the economy and the imposition of regulatory
      requirements that can have an impact on the industry. These factors continuously
      change, and can have an impact on collections and the Company’s estimation
      process. These impacts may be material.


F-10


Certain
      accounts receivable amounts are charged off against allowances after designated
      period of collection efforts. Subsequent cash recoveries are recognized as
      income in the period when they occur.





The
      activities in the allowance for doubtful accounts are as follows for the years
      ended June 30, 2008 and 2007:





2008
            
            2007Beginning
                allowance for doubtful accounts
            
            $
            166,696
            
            
            158,710Bad
                debt recovery
            
            
            (27,641
            )
            
            -Foreign
                currency translation adjustments
            
            
            16,607
            
            
            7,986Ending
                allowance for doubtful accounts
            
            $
            155,662
            
            
            166,696





Inventories





Inventories,
      consisting of raw materials and finished goods related to the Company’s
      products, are stated at the lower of cost or market utilizing the weighted
      average method.  As of June 30, 2008 and 2007, inventories consisted of the
      following:





2008
            
            2007Raw
                materials
            
            $
            2,164,138
            
            $
            2,955,915Packing
                materials
            
            
            531,076
            
            
            609Work–in-progress
            
            
            204,763
            
            
            -Finished
                goods
            
            
            1,006,197
            
            
            2,174,410Total
            
            $
            3,906,174
            
            $
            5,130,934





The
      Company reviews its inventory periodically for possible obsolescence or to
      determine if any reserve is necessary. As of June 30, 2008 and 2007, the Company
      determined that no inventory reserves were necessary.





Advances
      to suppliers





Advances
      to suppliers represent partial payments or deposits for inventory purchases.
      These advances to suppliers are non-interest bearing and unsecured. As of June
      30, 2008, and 2007, the Company’s advance to suppliers amounted to approximately
      $1,718,504 and $313,018, respectively.





Plant
      and equipment





Plant
      and
      equipment are stated at cost less accumulated depreciation. Additions and
      improvements to plant and equipment accounts are recorded at cost. When assets
      are retired or disposed of, the cost and accumulated depreciation are removed
      from the accounts, and any resulting gains or losses are included in the results
      of operations in the year of disposition. Maintenance, repairs, and minor
      renewals are charged directly to expense as incurred. Major additions and
      betterments to plant and equipment accounts are capitalized. Depreciation is
      computed using the straight-line method over the estimated useful lives of
      the
      assets. The estimated useful lives of the assets are as follows:





Useful
                LifeBuildings
                and building improvements
            
            
            5
–
                40
            
            
            YearsManufacturing
                equipment
            
            
            5
–
                20
            
            
            YearsOffice
                equipment and furniture
            
            
            5
–
                10
            
            
            YearsVehicles
            
            
            5
            
            
            Years


F-11




Intangible
      assets





All
      land
      in the PRC is owned by the PRC government and cannot be sold to any individual
      or company. The Company has recorded the amounts paid to the PRC government
      to
      acquire long-term interests to utilize land underlying the Company’s facilities
      as land use rights. This type of arrangement is common for the use of land
      in
      the PRC. The land use rights are amortized on the straight-line method over
      the
      terms of the land use rights, which range from 20 to 50 years. The Company
      acquired land use rights in August 2004 and October 2007 in the amounts of
      approximately $879,000 and $8,871,000, respectively, which are included in
      intangible assets. (See Note 6.)





Intangible
      assets also consist of purchased technological know-how (“patents”). This
      includes secret formulas, manufacturing processes, technical and procedural
      manuals, and the certificate of drugs production, and are amortized using the
      straight-line method over the expected useful life of 5 years, which reflects
      the period over which the patents are kept secret to the Company as agreed
      between the Company and the selling parties. (See Note 6.)





Impairment
      of long-lived assets





Long-lived
      assets of the Company are reviewed periodically or more often if circumstances
      dictate, to determine whether their carrying values have become impaired. The
      Company considers assets to be impaired if the carrying values exceed the future
      projected cash flows from related operations. The Company also re-evaluates
      the
      periods of depreciation to determine whether subsequent events and circumstances
      warrant revised estimates of useful lives. As of June 30, 2008, the Company
      expects these assets to be fully recoverable.





Beneficial
      conversion feature of convertible notes





The
      Company accounted for the $5,000,000 and $30,000,000 secured convertible notes
      issued pursuant to the subscription agreements discussed in Note 14 under
      Emerging Issues Task Force (“EITF”) 00-27, ‘‘Application of Issue 98-5 to
      Certain Convertible Instruments.” In accordance with EITF 00-27, the Company has
      determined that the convertible notes contained beneficial conversion feature
      because on November 6, 2007, the effective conversion price of the $5,000,000
      convertible note was $5.48 when the market value per share was $16.00, and
      on
      May 30, 2008, the effective conversion price of the $30,000,000 convertible
      note
      was $4.69 when the market value per share was $12.00. Total value of beneficial
      conversion feature of $2,742,714 for the November 6, 2007 convertible
      note and $17,572,910 for the May
      30, 2008 convertible debt was discount to the convertible note. The beneficial
      conversation feature was amortized according to the term of the note. As of
      June
      30, 2008, total of $1,444,136 remained unamortized for the beneficial conversion
      feature.





Income
      taxes





The
      Company accounts for income taxes in accordance with SFAS
      N o.
      109
      (“SFAS 109”), “Accounting for Income Taxes.” Under the asset and liability
      method as required by SFAS 109, deferred income taxes are recognized for the
      tax
      consequences of temporary differences by applying enacted statutory tax rates
      applicable to future years to differences between the financial statement
      carrying amounts and the tax bases of existing assets and liabilities. Under
      SFAS 109, the effect on deferred income taxes of a change in tax rates is
      recognized in income in the period that includes the enactment date. A valuation
      allowance is recognized if it is more likely than not that some portion, or
      all
      of, a deferred tax asset will not be realized. As of June 30, 2008 and 2007,
      the
      Company did not have any deferred tax assets or liabilities, and as such, no
      valuation allowances were recorded at June 30, 2008 and 2007.


F-12


In
      July
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48 (“FIN 48”), "Accounting for Uncertainty in Income Taxes -
      an interpretation of FASB Statement No. 109," which clarifies the accounting
      and
      disclosure for uncertain tax positions. This interpretation is effective for
      fiscal years beginning after December 15, 2006, and the Company has implemented
      this interpretation as of July 1, 2007. FIN 48 prescribes a recognition
      threshold and measurement attribute for recognition and measurement of a tax
      position taken or expected to be taken in a tax return. FIN 48 also provides
      guidance on de-recognition, classification, interest and penalties, accounting
      in interim periods, disclosure and transition.





Under
      FIN
      48, evaluation of a tax position is a two-step process. The first step is to
      determine whether it is more-likely-than-not that a tax position will be
      sustained upon examination, including the resolution of any related appeals
      or
      litigation based on the technical merits of that position. The second step
      is to
      measure a tax position that meets the more-likely-than-not threshold to
      determine the amount of benefit to be recognized in the financial statements.
      A
      tax position is measured at the largest amount of benefit that is greater than
      50 percent likely of being realized upon ultimate settlement. Tax positions
      that
      previously failed to meet the more-likely-than-not recognition threshold should
      be recognized in the first subsequent period in which the threshold is met.
      Previously recognized tax positions that no longer meet the more-likely-than-not
      criteria should be de-recognized in the first subsequent financial reporting
      period in which the threshold is no longer met.





The
      adoption of FIN 48 at July 1, 2007, did not have a material effect on the
      Company's consolidated financial statements.





The
      Company’s operations are subject to income and transaction taxes in the United
      States and in the PRC jurisdictions. Significant estimates and judgments are
      required in determining the Company’s worldwide provision for income taxes. Some
      of these estimates are based on interpretations of existing tax laws or
      regulations, and as a result the ultimate amount of tax liability may be
      uncertain. However, the Company does not anticipate any events that would lead
      to changes to these uncertainties.





Value
      added tax





The
      Company is subject to value added tax (“VAT”) for manufacturing products and
      business tax for services provided. The applicable VAT rate is 17% for products
      sold in the PRC. The amount of VAT liability is determined by applying the
      applicable tax rate to the invoiced amount of goods sold (output VAT) less
      VAT
      paid on purchases made with the relevant supporting invoices (input VAT). Under
      the commercial practice of the PRC, the Company paid **** VAT
      based
      on tax invoices issued. The tax invoices may be issued subsequent to the date
      on
      which revenue is recognized, and there may be a considerable delay between
      the
      date on which the revenue is recognized and the date on which the tax invoice
      is
      issued. In the event that the PRC tax authorities dispute the date on which
      revenue is recognized for tax purposes, the PRC tax office has the right to
      assess a penalty, which can range from zero to five times the amount of the
      taxes which are determined to be late or deficient, and will be expensed in
      the
      period if and when a determination is been made by the taxing authorities that
      a
      penalty is due.





VAT
      on
      sales and VAT on purchases amounted to $16,975,054 and $3,283,855, respectively,
      for the year ended June 30, 2008. VAT on sales and VAT on purchases amounted
      to
      $5,523,840 and $262,013, respectively, for the year ended June 30, 2007. VAT
      on
      sales and VAT on purchases amounted to $8,410,050 and $151,889, respectively,
      for the year ended June 30, 2006. Sales and purchases are recorded net of VAT
      collected and paid as the Company acts as an agent for the government. VAT
      taxes
      are not impacted by the income tax holiday. The Chinese local government has
      exempted $1,428,804 of the Company’s VAT tax liability at June 30, 2008, and
      this exemption has been included in the consolidated statement of income for
      the
      year then ended.


F-13


Advertising





Expenses
      incurred in the advertising of the Company and the Company’s products are
      charged to operations currently. Advertising expenses amounted to $4,653,121,
      $1,280,900 and $606,867 for the years ended June 30, 2008, 2007 and 2006,
      respectively.





Research
      and development





Research
      and development costs are expensed as incurred. These costs primarily consist
      of
      cost of material used and salaries paid for the development of the Company’s
      products and fees paid to third parties to assist in such efforts. Research
      and
      development costs for the years ended June 30, 2008, 2007, and 2006 were
      approximately $3,236,000, $11,144,000, and $13,642,000,
      respectively.





Recent
      accounting pronouncements





In
      September 2006, the FASB issued SFAS No. 157 (“SFAS 157”), “Fair Value
      Measurements.” SFAS 157 establishes a framework for measuring fair value and
      expands disclosures about fair value measurements. The changes to current
      practice resulting from the application of this statement relate to the
      definition of fair value, the methods used to measure fair value, and the
      expanded disclosures about fair value measurements. SFAS 157 is effective for
      fiscal years beginning after November 15, 2007, and interim periods within
      those
      fiscal years. The Company will adopt SFAS 157 in fiscal year 2009. The Company
      is currently evaluating the impact, if any, that the adoption of SFAS 157 will
      have on its consolidated results of operations and consolidated financial
      position.





In
      February 2008, the FASB issued FASB Staff Position No. 157-1 ("FSP 157-1"),
      "Application of FASB Statement No. 157 to FASB Statement No. 13 and Other
      Accounting Pronouncements That Address Fair Value Measurements for Purposes
      of
      Lease Classification or Measurement under Statement 13." FSP 157-1 indicates
      that it does not apply under FASB Statement No. 13 (“SFAS 13”), "Accounting for
      Leases," and other accounting pronouncements that address fair value
      measurements for purposes of lease classification or measurement under SFAS
      13.
      This scope exception does not apply to assets acquired and liabilities assumed
      in a business combination that are required to be measured at fair value under
      SFAS No. 141 or SFAS No. 141R, regardless of whether those assets and
      liabilities are related to leases.





Also
      in
      February 2008, the FASB issued FASB Staff Position No. 157-2 ("FSP 157-2"),
      "Effective Date of FASB Statement No. 157." With the issuance of FSP 157-2,
      the
      FASB agreed to: (a) defer the effective date in SFAS No. 157 for one year for
      certain nonfinancial assets and nonfinancial liabilities, except those that
      are
      recognized or disclosed at fair value in the financial statements on a recurring
      basis (at least annually), and (b) remove certain leasing transactions from
      the
      scope of SFAS No. 157. The deferral is intended to provide the FASB time to
      consider the effect of certain implementation issues that have arisen from
      the
      application of SFAS No. 157 to these assets and liabilities.





In
      February 2007, the FASB issued SFAS No. 159 (“SFAS 159”), “The Fair Value Option
      for Financial Assets and Financials Liabilities — Including an Amendment of FASB
      Statement No. 115.” This standard permits measurement of certain financial
      assets and financial liabilities at fair value. If the fair value option is
      elected, the unrealized gains and losses are reported in earnings at each
      reporting date. Generally, the fair value option may be elected on an
      instrument-by-instrument basis, as long as it is applied to the instrument
      in
      its entirety. The fair value option election is irrevocable, unless a new
      election date occurs. SFAS 159 requires prospective application and also
      establishes certain additional presentation and disclosure requirements. SFAS
      159 is effective as of the beginning of the fiscal year that begins after
      November 15, 2007. The Company is currently evaluating the impact, if any,
      that
      the adoption of SFAS 159 will have on its consolidated results of operations
      or
      consolidated financial position.





In
      December 2007, the FASB issued SFAS No. 141(R) (“SFAS 141R”), “Business
      Combinations,” which replaces SFAS No. 141. SFAS 141R retains the purchase
      method of accounting for acquisitions, but requires a number of changes,
      including changes in the way assets and liabilities are recognized in the
      purchase accounting as well as requiring the expensing of acquisition-related
      costs as incurred. Furthermore, SFAS 141R provides guidance for recognizing
      and
      measuring the goodwill acquired in the business combination and determines
      what
      information to disclose to enable users of the financial statements to evaluate
      the nature and financial effects of the business combination. SFAS 141R is
      effective for fiscal years beginning on or after December 15, 2008. Earlier
      adoption is prohibited. The Company is evaluating the impact, if any, that
      the
      adoption of this statement will have on its consolidated results of operations
      or consolidated financial position.


F-14


In
      December 2007, the FASB issued SFAS No. 160 (“SFAS 160”), “Noncontrolling
      Interests in Consolidated Financial Statements — An Amendment of ARB No. 51.”
SFAS 160 amends ARB No. 51 to establish accounting and reporting standards
      for
      the noncontrolling interest in a subsidiary and for the deconsolidation of
      a
      subsidiary. It is intended to eliminate the diversity in practice regarding
      the
      accounting for transactions between equity and noncontrolling interests by
      requiring that they be treated as equity transactions. Further, it requires
      consolidated net income to be reported at amounts that include the amounts
      attributable to both the parent and the noncontrolling interest. SFAS 160 also
      establishes a single method of accounting for changes in a parent’s ownership
      interest in a subsidiary that do not result in deconsolidation, requires that
      a
      parent recognize a gain or loss in net income when a subsidiary is
      deconsolidated, requires expanded disclosures in the consolidated financial
      statements that clearly identify and distinguish between the interests of the
      parent’s owners and the interests of the noncontrolling owners of a subsidiary,
      among others. SFAS 160 is effective for fiscal years beginning on or after
      December 15, 2008, with early adoption permitted, and it is to be applied
      prospectively. SFAS 160 is to be applied prospectively as of the beginning
      of
      the fiscal year in which it is initially applied, except for the presentation
      and disclosure requirements, which must be applied retrospectively for all
      periods presented. The Company has not yet evaluated the impact that SFAS 160
      will have on its consolidated financial position or consolidated results of
      operations.





In
      March
      2008, the FASB issued SFAS No. 161 ("SFAS 161"), "Disclosures about Derivative
      Instruments and Hedging Activities." SFAS 161 is intended to improve financial
      reporting of derivative instruments and hedging activities by requiring enhanced
      disclosures to enable financial statement users to better understand the effects
      of derivatives and hedging on an entity's financial position, financial
      performance and cash flows. The provisions of SFAS 161 are effective for interim
      periods and fiscal years beginning after November 15, 2008, with early adoption
      encouraged. The Company does not anticipate that the adoption of SFAS 161 will
      have a material impact on its consolidated results of operations or consolidated
      financial position.





In
      May
      2008, the FASB issued SFAS No. 162 (“SFAS 162”), "The Hierarchy of Generally
      Accepted Accounting Principles." SFAS 162 is intended to improve financial
      reporting by identifying a consistent framework, or hierarchy, for selecting
      accounting principles to be used in preparing financial statements that are
      presented in conformity with GAAP for nongovernmental entities. SFAS 162 is
      effective 60 days following the SEC's approval of the Public Company Accounting
      Oversight Board (“PCAOB”) amendments to AU Section 411, "The Meaning of Present
      Fairly in Conformity with Generally Accepted Accounting Principles." The Company
      does not expect the adoption of SFAS 162 will have a material impact on its
      consolidated results of operations or consolidated financial position.





On
      May 9,
      2008, the FASB issued FASB Staff Position No. APB 14-1 ("FSP APB 14-1"),
      "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon
      Conversion (Including Partial Cash Settlement)." FSP APB 14-1 clarifies that
      convertible debt instruments that may be settled in cash upon conversion
      (including partial cash settlement) are not addressed by paragraph 12 of APB
      Opinion No. 14, "Accounting for Convertible Debt and Debt Issued with Stock
      Purchase Warrants." Additionally, FSP APB 14-1 specifies that issuers of such
      instruments should separately account for the liability and equity components
      in
      a manner that will reflect the entity's nonconvertible debt borrowing rate
      when
      interest cost is recognized in subsequent periods. FSP APB14-1 is effective
      for
      financial statements issued for fiscal years beginning after December 15, 2008,
      and interim periods within those fiscal years. The Company has not yet evaluated
      the impact that FSP APB 14-1 will have on its consolidated results of operations
      or consolidated financial position.





On
      June
      16, 2008, the FASB issued FASB Staff Position No. EITF 03-6-1 (“FSP No. EITF
      03-6-1”), “Determining Whether Instruments Granted in Share-Based Payment
      Transactions Are Participating Securities,” to address the question of whether
      instruments granted in share-based payment transactions are participating
      securities prior to vesting. FSP EITF 03-6-1 indicates that unvested share-based
      payment awards that contain rights to dividend payments should be included
      in
      earnings per share calculations. The guidance will be effective for fiscal
      years
      beginning after December 15, 2008. The Company is currently evaluating the
      requirements of FSP No. EITF 03-6-1 and the impact that its adoption will have
      on the consolidated results of operations or consolidated financial
      position.


F-15


In
      June
      2008, the FASB issued Emerging Issues Task Force Issue 07-5 (“EITF 07-5”),
“Determining whether an Instrument (or Embedded Feature) is indexed to an
      Entity’s Own Stock.” EITF No. 07-5 is effective for financial statements issued
      for fiscal years beginning after December 15, 2008, and interim periods within
      those fiscal years. Early application is not permitted. Paragraph 11(a) of
      SFAS
      No. 133 “Accounting for Derivatives and Hedging Activities,” specifies that a
      contract that would otherwise meet the definition of a derivative but is both
      (a) indexed to the Company’s own stock and (b) classified in stockholders’
equity in the statement of financial position would not be considered a
      derivative financial instrument. EITF 07-5 provides a new two-step model to
      be
      applied in determining whether a financial instrument or an embedded feature
      is
      indexed to an issuer’s own stock and thus able to qualify for the SFAS No. 133
      paragraph 11(a) scope exception. This standard triggers liability accounting
      on
      all options and warrants exercisable at strike prices denominated in any
      currency other than the functional currency of the operating entity in the
      PRC
      (Renminbi). The Company is currently evaluating the impact of the adoption
      of
      EITF 07-5 on the accounting for related warrants transactions.





Company
      reporting year end





For
      financial statement reporting purposes in the United States of America, the
      Company adopted June 30 as its fiscal year end, beginning in 2007.





Reclassifications





Certain
      amounts in the prior year’s consolidated financial statements have been
      reclassified to conform to the current period presentation with no impact on
      the
      previously reported net income or cash flows.





**Note
      3 - Earnings per share**





The
      Company reports earnings per share in accordance with the provisions of SFAS
      No.
      128 (“SFAS 128”), “Earnings Per Share.” SFAS 128 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
      shareholders 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.





All
      share
      and per share amounts used in the Company’s financial statements and notes
      thereto have been retroactively restated to reflect the 40-to-1 reverse stock
      split, which occurred on September 4, 2008.





The
      following is a reconciliation of the basic and diluted earnings per share
      computations for the years ended June 30, 2008, 2007, and 2006:




2008
            
            2007
            
            2006For
                the years ended June 30, 2008, 2007 and 2006Net
                income for basic earnings per share
            
            $
            22,451,060
            
            $
            22,053,056
            
            $
            7,736,167Plus:
                interest expense
            
            
            195,833
            
            
            -
            
            
            -Subtract:
                financing cost
            
            
            (277,292
            )
            
            -
            
            
            -Subtract:
                debt discount
            
            
            (4,454,641
            )
            
            -
            
            
            -Net
                income for diluted earnings per share
            
            
            17,914,960
            
            
            22,053,056
            
            
            7,736,167Weighted
                average shares used in basic computation
            
            
            9,164,127
            
            
            7,494,740
            
            
            7,494,740Diluted
                effect of stock options
            
            
            87,910
            
            
            -
            
            
            -Diluted
                effect of warrants
            
            
            79,973
            
            
            -
            
            
            -Diluted
                effect of $5,000,000 convertible note
            
            
            405,822
            
            
            -
            
            
            -Weighted
                average shares used in diluted computation
            
            
            9,737,832
            
            
            7,494,740
            
            
            7,494,740Earnings
                per share:Basic
            
            $
            2.45
            
            $
            2.94
            
            $
            1.03Diluted
            
            $
            1.84
            
            $
            2.94
            
            $
            1.03


F-16


For
      the
      year ended June 30, 2008, the $30,000,000 convertible debt was excluded from
      the
      diluted earnings per share due to the anti-diluted effect.




For
      the
      year ended June 30, 2008, 250,000 warrants at an average exercise price of
      $12.80 were not included in the diluted earnings per share calculation because
      of the anti-dilutive effect. For years ended June 30, 2007 and 2006, all options
      and warrants were excluded in the diluted earnings per share calculation due
      to
      the anti-diluted effect.





**Note
      4 - Supplemental disclosure of cash flow information**





Cash
      paid
      for income taxes amounted to $7,001,264, $447,911, and $2,554,136 for the years
      ended June 30, 2008, 2007, and 2006, respectively.





Cash
      paid
      for interest amounted to $493,781, $280,628, and $231,520 for the years ended
      June 30, 2008, 2007, and 2006, respectively.





Capital
      contribution in the amount of $5,128,000 via contribution of buildings on
      December 22, 2006.





**Note
      5 - Plant and equipment**





Plant
      and
      equipment consist of the following at June 30, 2008 and 2007:




2008
            
            2007Buildings
                and building improvements
            
            $
            10,926,369
            
            $
            9,824,210Manufacturing
                equipment
            
            
            1,188,643
            
            
            785,219Office
                equipment and furniture
            
            
            298,137
            
            
            217,813Vehicle
            
            
            380,485
            
            
            233,385Total
            
            
            12,793,634
            
            
            11,060,627Less:
                accumulated depreciation
            
            
            1,567,790
            
            
            881,493Total
            
            $
            11,225,844
            
            $
            10,179,134





For
      the
      years ended June 30, 2008, 2007, and 2006, depreciation expense amounted to
      $517,863, $364,417, and $255,602, respectively.





**Note
      6 - Intangible assets**





At
      June
      30, 2008 and 2007, intangible assets consist of the following:




Useful
                Life
            
            2008
            
            2007Land
                use rights
            
            
            40
                Years
            
            $
            9,930,157
            
            $
            954,954Patents
            
            
            5
                Years
            
            
            539,830
            
            
            486,550Licenses
            
            
            5
                Years
            
            
            23,271
            
            
            20,974Total
            
            
            
            
            
            10,493,258
            
            
            1,462,478Less:
                accumulated amortization
            
            
            
            
            
            576,457
            
            
            343,391Total
            
            
            
            
            $
            9,916,801
            
            $
            1,119,087


F-17


For
      the
      years ended June 30, 2008, 2007, and 2006, amortization expense relating to
      the
      above intangible assets amounted to $184,465, $122,126, and $111,786,
      respectively. As of June 30, 2008 and 2007, the net carrying value of patents
      approximated $156,000 and $222,000, respectively, net of accumulated
      amortization.





**Note
      7 - Discontinued operations**





In
      connection with the reverse merger with Karmoya on October 1, 2007, the Company
      determined to discontinue its operations of business development and marketing,
      as it no longer supported its core business strategy. The discontinuance of
      these operations did not involve any sale of assets of assumption of liabilities
      by another party. In conjunction with the discontinuance of operations, the
      Company determined that the assets related to the Company’s business development
      and marketing operations were subject to the recognition of impairment. However,
      since the related assets are continuing to be used by the Company’s Karmoya and
      subsidiaries, the Company determined that there had been no impairment. The
      remaining liabilities of the discontinued operations are reflected in the
      consolidated balance sheets under the caption "liabilities assumed from
      reorganization" which totaled $1,084,427 as of June 30, 2008.





In
      accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
      Long-Lived Assets,” the results of operations of a component of entity that has
      been disposed of or is classified as held for sale shall be reported in
      discontinued operations. Accordingly, the results of operations of the business
      development and marketing operation segment are reported as discontinued
      operations in the accompanying consolidated statements of income for the year
      ended June 30, 2008. As the accompanying consolidated statements of income
      for
      the years ended June 30, 2007 and 2006 reflect the results of operations for
      Karmoya and its subsidiaries, the discontinued operations of Genesis did not
      have any impact on the consolidated statements of income for those periods
      presented.





The
      following is a summary of the components of the loss from discontinued
      operations for the year ended June 30, 2008:





2008Revenues
            
            $
            -Cost
                of sales
            
            
            -Gross
                profit
            
            
            -Operating
                and other non-operating expenses
            
            
            380,027Loss
                from discontinued operations before other expenses and income
                taxes
            
            
            380,027Income
                tax benefit
            
            
            -Loss
                from discontinued operations
            
            $
            380,027





**Note
      8- Debt**





Short
      term bank loans





Short
      term loans represent amounts due to various banks that are due within one year,
      and these loans can be renewed with the banks upon maturity. The Company’s short
      term bank loans consisted of the following:


F-18




June 30,2008
            
            June 30,2007Loan
                from Communication Bank; due September 2008; interest rate of 8.64%
                per
                annum; monthly interest payment; guaranteed by related party, Jiangbo
                Chinese-Western Pharmacy.
            
            $
            2,772,100
            
            $
            2,630,000Loan
                from Hua Xia Bank, due April 2008; interest rate of 6.39% per annum;
                the Company’s buildings and land use rights as
                collateral.
            
            
            -
            
            
            1,972,500Total
            
            $
            2,772,100
            
            $
            4,602,500




The
      loans
      are guaranteed by a related party as of June 30, 2008, and secured by buildings
      and land use rights as of June 30, 2007 with carrying values as
      follows:





June 30,2007Buildings
            
            $
            4,143,723Land
                use rights
            
            
            885,918Total
            
            $
            5,029,641




Interest
      expense related to the bank loans amounted to $436,818, $280,628, and $231,520
      for the years ended June 30, 2008, 2007, and 2006, respectively.





Notes
      Payable




Notes
      payable represent amounts due to various banks which are normally secured and
      are typically renewed. The Company’s notes payable consist of the following as
      of June 30, 2008 and 2007:





2008
            
            2007Commercial
                Bank; various amounts; due from July 2008to
                December 2008; 100% of restricted cash deposited.
            
            $
            5,843,295
            
            $
            -Commercial
                Bank; various amounts; due from July 2007to
                December 2007; 100% of restricted cash deposited.
            
            
            -
            
            
            8,279,240Communication
                Bank; due from July 2007 to December2007;
                100% of restricted cash deposited.
            
            
            -
            
            
            131,500Total
            
            $
            5,843,295
            
            $
            8,410,740





**Note
      9 - Related party transactions**





Accounts
      receivable - related parties





The
      Company is engaged in business activities with three related parties, Jiangbo
      Chinese-Western Pharmacy, Laiyang Jiangbo Medicals, Co., Ltd, and Yantai Jiangbo
      Pharmaceuticals Co., Ltd. The Company’s Chief Executive Officer and other
      majority shareholders have 100% ownership of these entities. At June 30, 2008
      and 2007, accounts receivable from the Company’s product sales to these related
      entities were $673,808 and $498,940, respectively. Accounts receivable due
      from
      related parties are receivable in cash and due within 3 to 6 monhts. For the
      years ended June 30, 2008, 2007, and 2006, the Company recorded sales to related
      parties as follows:




F-19


Name
                  of Related Party
              
              Relationship
              
              Net Sales2008
              
              2007
              
              2006Jiangbo
                  Chinese-Western Pharmacy
              
              
              90%
                  owned by Chief Executive Officer
              
              $
              1,622,935
              
              $
              3,018,502
              
              $
              2,471,143Laiyang
                  Jiangbo Medicals, Co. Ltd
              
              
              60%
                  owned by Chief
                Executive
                  Officer
              
              
              1,185,183
              
              
              436,909
              
              
              231,722Yantai
                  Jiangbo Pharmaceuticals Co., Ltd.
              
              
              Owned
                  by Other Related
                Party
              
              
              2,755,980
              
              
              478,470
              
              
              1,210,587Total
              
              
              
              
              $
              5,564,098
              
              $
              3,933,881
              
              $
              3,913,452





Other income
      from related parties





The
      Company leases two of its buildings to Jiangbo Chinese-Western Pharmacy. For
      the
      years ended June 30, 2008, 2007, and 2006, the Company recorded other income
      of
      $110,152, $102,472, and $59,775 from leasing the two buildings.




Other
      payables - related parties





Prior
      to
      fiscal year 2008, the Company received advances from its director, shareholders
      and related parties for its operating activities. At June 30, 2008 and 2007,
      the
      Company had payable balances due to its shareholders and related parties
      amounting to $164,137 and $933,132, respectively. These advances are short-term
      in nature and bears interest rate at 0%, and 5.84% per annum, for 2008 and
      2007,
      respectively. The interest rate for 2007 was calculated by using the Company’s
      2007 average outstanding bank loan interest rate. The amount is expected to
      be
      repaid in the form of cash.





At
      June
      30, 2008 and 2007, other payables - related parties consisted of the
      following:





2008
            
            2007Payable
                to Cao Wubo, Chief Executive Officer and
              Chairman
                of the Board, with annual interest at
              0%
                and 5.84%, for 2008 and 2007 respectively,
              and
                unsecured.
            
            $
            164,137
            
            $
            447,531Payable
                to Xun Guihong, shareholder and sister of
              CEO’s
                spouse, with annual interest at 5.84% for
              2007
                respectively, and unsecured.
            
            
            -
            
            
            280,334Payable
                to Zhang Yihua, shareholder of the
              Company
                and Yantai Jiangbo Pharmaceuticals,
              and
                nephew of CEO, with annual interest at
              5.84%
                for 2007, and unsecured.
            
            
            -
            
            
            29,665Payable
                to Yantai Jiangbo Pharmaceuticals, an
              affiliated
                company, with annual interest at
              5.84%
                for 2007, and unsecured.
            
            
            -
            
            
            106,910Payable
                to Laiyang Jiangbo Medicals, an affiliated
              company,
                with annual interest at 5.84% for 2007,
              and
                unsecured.
            
            
            -
            
            
            68,249Payable
                to Xun Guifang, who is the direct relative ofa
                Company's shareholder.
            
            
            -
            
            
            443Total
                other payables - related parties
            
            $
            164,137
            
            $
            933,132




F-20




**Note
      10 - Major customers and suppliers**





For
      the
      years ended June 30, 2008, 2007, and 2006, five customers accounted for
      approximately 18.1%, 33.3%, and 30.5%, respectively, of the Company's sales.
      These five customers represented 11.8% and 24.6% of the Company’s total accounts
      receivable as of June 30, 2008 and 2007, respectively.





For
      the
      years ended June 30, 2008, 2007 and 2006, five suppliers accounted for
      approximately 67.7%, 87.2% and 75.9% respectively, of the Company’s purchases.
      These five suppliers represented 63.8% and 55.6% of the Company’s total accounts
      payable as of June 30, 2008 and 2007, respectively.





**Note
      11 - Dividends payable**





Dividends
      declared are split pro rata between the shareholders according to their
      ownership interest. The payment of the dividends may occur at different times
      to
      the shareholders. As of June 30, 2007, the Company had a dividend payable
      balance amounting to $10,520,000, and the dividends were paid in full in
      September 2007.





**Note
      12 - Taxes payable**





Income
      Taxes





The
      Company is subject to the United States federal income tax at a tax rate of
      34%.
      No provision for income taxes in the U.S. has been made as the company had
      no
      U.S. taxable income during the years ended June 30, 2008, 2007, and
      2006.





The
      Company’s wholly-owned subsidiaries, Karmoya International Ltd. and Union Well
      International Ltd., were incorporated in the British Virgin Islands and Cayman
      Islands. Under the current laws of the BVI and Cayman Islands, the two entities
      are not subject to income taxes.





Before
      January 1, 2008, companies established in the PRC were generally subject to
      an
      enterprise income tax ("EIT") rate of 33.0%, which included a 30.0% state income
      tax and a 3.0% local income tax. The PRC local government has provided various
      incentives to companies in order to encourage economic development. Such
      incentives include reduced tax rates and other measures. On March 16, 2007,
      the
      National People's Congress of China passed the new Enterprise Income Tax Law
      ("EIT Law"), and on November 28, 2007, the State Council of China passed the
      Implementing Rules for the EIT Law ("Implementing Rules") which took effect
      on
      January 1, 2008. The EIT Law and Implementing Rules impose a unified EIT of
      25.0% on all domestic-invested enterprises and Foreign Investment Enterprises
      (“FIEs”), unless they qualify under certain limited exceptions. Therefore,
      nearly all FIEs are subject to the new tax rate alongside other domestic
      businesses rather than benefiting from the foreign enterprise income tax, and
      its associated preferential tax treatments, beginning January 1, 2008.




F-21





In
      addition to the changes to the current tax structure, under the EIT Law, an
      enterprise established outside of China with "de facto management bodies" within
      China is considered a resident enterprise and will normally be subject to an
      EIT
      of 25.0% on its global income. The Implementing Rules define the term "de facto
      management bodies" as "an establishment that exercises, in substance, overall
      management and control over the production, business, personnel, accounting,
      etc., of a Chinese enterprise." If the PRC tax authorities subsequently
      determine that the Company should be classified as a resident enterprise, then
      the organization’s global income will be subject to PRC income tax of 25.0%.
      Laiyang Jiangbo and GJBT were originally subject to 33% income tax rate and
      starting January 1, 2008, Laiyang Jiangbo and GJBT are subject to an EIT rate
      of
      25%.





Liangyang
      Jiangbo was subject to 33% income tax rate from January 1, 2007, to December
      31,
      2008, and 25% from January 1, 2008, to June 30, 2008. For the fiscal year ended
      June 30, 2008, the Company received $5,256,634 in tax exemption. Of that amount,
      $2,114,983 was reflected as reduction of the provision for income taxes;
      $1,695,671 was reflected as reduction of sales tax and miscellaneous fees;
      and
      $1,445,980 was recorded as non-operating income. The Chinese local government
      exempted all of the Company's taxes due for the period from January 1, 2007,
      and
      June 30, 2007. For that period, the Company received $9,931,919 tax exemption
      as
      of June 30, 2007, of which $3,338,774 was reflected as reduction of the
      provision for income taxes, and $6,593,145 was recorded as non-operating income.
      Total tax exemption for the year ended June 30, 2008 and 2007 is summarized
      as
      follows:





June 30, 2008
            
            June 30, 2007VAT
                tax exemption
            
            $
            1,428,804
            
            $
            6,126,464Income
                tax exemption
            
            
            2,114,983
            
            
            2,986,806City
                construction tax exemption
            
            
            1,079,063
            
            
            510,362Others
            
            
            633,784
            
            
            308,287Total
            
            $
            5,256,634
            
            $
            9,931,919





The
      table
      below summarizes the differences between the U.S. statutory federal rate and
      the
      Company’s effective tax rate and as follows for the fiscal year ended June 30,
      2008 and 2007:





2008
            
            2007
            
            2006U.S.
                statutory rates
            
            
            34.0
            %
            
            34.0
            %
            
            34.0
            %Foreign
                income not recognized in the U.S.
            
            
            (34.0
            )%
            
            (34.0
            )%
            
            (34.0
            )%China
                income taxes
            
            
            25.0
            %
            
            33.0
            %
            
            33.0
            %China
                income tax exemption
            
            
            (5.6
            )%
            
            (18.6
            )%
            
            0.0
            %Total
                provision for income taxes
            
            
            19.4
            %
            
            14.4
            %
            
            33.0
            %




Value
      added tax




Taxes
      payable as of June 30, 2008 and 2007 are as follows:





2008
            
            2007Value
                added tax
            
            $
            83,775
            
            $
            -Income
                taxes
            
            
            62,733
            
            
            -Other
                taxes
            
            
            19,924
            
            
            (12,153
            )Total
            
            $
            166,432
            
            $
            (12,153
            )




F-22




**Note
      13 - Convertible Debt**





November
      2007 Convertible Debentures





On
      November 7, 2007, the Company entered into a Securities Purchase Agreement
      (the
“November 2007 Purchase Agreement”) with Pope Investments, LLC (the “November
      2007 Investor”). Pursuant to the November 2007 Purchase Agreement, the Company
      issued and sold to the November 2007 Investor, $5,000,000 consisting of: (a)
      6%
      convertible subordinated debentures due November 30, 2010 (the “November 2007
      Debenture”) and (b) a three-year warrant to purchase 250,000 shares of Genesis’
common stock, par value $0.001 per share, at an exercise price of $12.8 per
      share, subject to adjustment as provided therein. The November 2007 Debenture
      bears interest at the rate of 6% per annum and the initial conversion price
      of
      the debentures is $10 per share. In connection with the offering, the Company
      placed in escrow 500,000 shares of its common stock. In connection with the
      May
      2008 financing, the November 2007 Debenture conversion price was subsequently
      adjusted to $8 per share (Post 40-to-1 reverse split).





The
      Company evaluated the application of EITF 98-5, “Accounting for Convertible
      Securities with Beneficial Conversion Features or Contingently Adjustable
      Conversion Ratios,” and EITF 00-27, “Application of Issue No. 98-5 to Certain
      Convertible Instruments,” and concluded that the convertible debenture has a
      beneficial conversion feature.  The Company estimated the fair value
      of the beneficial conversion feature of the November 2007 Debenture at
      $2,904,093 as a discount to par value. The fair value of the warrants was
      estimated at $2,095,907. The two amounts are recorded together as debt discount
      and amortized using the effective interest method over the three-year term
      of
      debenture.





The
      fair
      value of the warrants granted with this private placement was computed using
      the
      Black-Scholes option-pricing model. Variables used in the option-pricing model
      include (1) risk-free interest rate at the date of grant (4.5%),
      (2) expected warrant life of 3 years, (3) expected volatility of
      197%, and (4) zero expected dividends. The total estimated fair value of
      the warrants granted and beneficial conversion feature of the November 2007
      Debenture should not exceed the $5,000,000 Debenture, and the calculated warrant
      value was used to determine the allocation between the fair value of the
      beneficial conversion feature of the November 2007 Debenture and the fair value
      of the warrants.





In
      connection with the private placement, the Company paid the placement agents
      a
      fee of $250,000 and incurred other expenses of $104,408, which were capitalized
      as deferred debt issuance costs and will be amortized to interest expense over
      the life of the debenture. During the year ended June 30, 2008, amortization
      of
      debt issuance costs related to the November 2007 Purchase Agreement was $77,116.
      The remaining balance of debt issuance costs of the November 2007 Purchase
      Agreement at June 30, 2008 was $277,291. The amortization of debt discounts
      was
      $545,359 for the year ended June 30, 2008, which has been included in interest
      expense on the accompanying consolidated statements of income. The balance
      of
      the debt discount was $4,454,641 at June 30, 2008.





The
      Company evaluated whether or not the secured convertible debentures contain
      embedded conversion options, which meet the definition of derivatives under
      SFAS
      No. 133 "Accounting for Derivative Instruments and Hedging Activities" and
      related interpretations. The Company concluded that since the secured
      convertible debentures had a fixed conversion rate of $10, the secured
      convertible debt was not a derivative instrument.





The
      November 2007 Debenture bears interest at the rate of 6% per annum, payable
      in
      semi-annual installments on May 31 and November 30 of each year, with the first
      interest payment due on May 31, 2008. The initial conversion price (“November
      2007 Conversion Price”) of the November 2007 Debentures is $10 per share. If the
      Company issues common stock at a price that is less than the effective November
      2007 Conversion Price, or common stock equivalents with an exercise or
      conversion price less than the then effective November 2007 Conversion Price,
      the November 2007 Conversion Price of the November 2007 Debenture and the
      exercise price of the warrants will be reduced to such price. The November
      2007
      Debenture may not be prepaid without the prior written consent of the Holder,
      as
      defined. In connection with the Offering, the Company placed in escrow 500,000
      shares of common stock issued by the Company in the name of the escrow agent.
      In
      the event the Company’s consolidated Net Income Per Share (as defined in the
      Purchase Agreement), for the year ended June 30, 2008, is less than $1.52,
      the
      escrow agent shall deliver the 500,000 shares to the November 2007 Investor.
      The
      Company has concluded its fiscal 2008 Net Income Per Share has met the required
      amount and no shares will delivered to the November 2007 Investor.




F-23





Pursuant
      to the November 2007 Purchase Agreement, the Company entered into a Registration
      Rights Agreement. In accordance with the Registration Rights Agreement, the
      Company must file on each Filing Date (as defined in the Registration Rights
      Agreement) a registration statement to register the portion of the Registrable
      Securities (as defined therein) as permitted by the Securities and Exchange
      Commission’s guidance. The initial registration statement must be filed within
      90 days of the Closing Date and declared effective within 180 days following
      the
      Closing Date. Any subsequent registration statements that are required to be
      filed on the earliest practical date on which the Company is permitted by the
      Securities and Exchange Commission’s guidance to file such additional
      registration statement, these statements must be effective 90 days following
      the
      date on which it is required to be filed. In the event that the registration
      statement is not timely filed or declared effective, the Company will be
      required to pay liquidated damages. Such liquidated damages shall be, at the
      investor’s option, either $1,643.83 or 164 shares of common stock per day that
      the registration statement is not timely filed or declared effective as required
      pursuant to the Registration Rights Agreement, subject to an amount of
      liquidated damages not exceeding either $600,000, and 60,000 shares of common
      stock, or a combination thereof based upon 12% liquidated damages in the
      aggregate. In December 2006, the FASB issued FSP EITF 00-19-2, "Accounting
      for
      Registration Payments," which was effective immediately. This FSP amended EITF
      00-19 to require potential registration payment arrangements be treated as
      a
      contingency pursuant to SFAS No. 5, “Accounting for Contingencies,” rather than
      at fair value. The November 2007 Investor has subsequently agreed to allow
      the
      Company to file the November 2007 registration statement in conjunction with
      the
      Company’s financing in May 2008 and, as such, no liquidated damages were
      incurred for the year ended June 30, 2008.




The
      financing was completed through a private placement to accredited investors
      and
      is exempt from registration pursuant to Section 4(2) of the Securities Act
      of
      1933, as amended ("Securities Act"). The Company has not filed its registration
      statement as of May 14, 2008, and the investor has agreed to extend the initial
      registration filing date. For the year ended June 30, 2008, liquidated damage
      penalty had no material impact to the Company’s consolidated financial
      statements.




May
      2008 Convertible Debentures





On
      May
      30, 2008, the “Company entered into a Securities Purchase Agreement (the “May
      2008 Securities Purchase Agreement”) with certain investors (the “May 2008
      Investors”), pursuant to which, on May 30, 2008, the Company sold to the May
      2008 Investors 6% convertible debentures (the “May 2008 Notes”) and warrants to
      purchase 1,875,000 shares of the Company’s common stock (“May 2008 Warrants”),
      for an aggregate amount of $30,000,000 (the “May 2008 Purchase Price”), in
      transactions exempt from registration under the Securities Act of 1933, as
      amended (the “May 2008 Financing”). Pursuant to the terms of the May 2008
      Securities Purchase Agreement, the Company will use the net proceeds from the
      Financing for working capital purposes. Also pursuant to the terms of the May
      2008 Securities Purchase Agreement, the Company must, among other things,
      increase the number of its authorized shares of common stock to 22,500,000
      by
      August 31, 2008, and is prohibited from issuing any “Future Priced Securities”
as such term is described by NASD IM-4350-1 for one year following the closing
      of the Financing. The Company has satisfied the increase in the number of its
      authorized shares of common stock in August 2008 (post 40-to-1 reverse split).




F-24




The
      May
      2008 Notes are due May 30, 2011, and are convertible into shares of the
      Company’s common stock at a conversion price equal to $8, subject to adjustment
      pursuant to customary anti-dilution provisions and automatic downward
      adjustments in the event of certain sales or issuances by the Company of common
      stock at a price per share less than $8. Interest on the outstanding principal
      balance of the May 2008 Notes is payable at a rate of 6% per annum, in
      semi-annual installments payable on November 30 and May 30 of each year, with
      the first interest payment due on November 30, 2008. At any time after the
      issuance of the May 2008 Note, any May 2008 Investor may convert its May 2008
      Note, in whole or in part, into shares of the Company’s common stock, provided
      that such May 2008 Investor shall not effect any conversion if immediately
      after
      such conversion, such May 2008 Investor and its affiliates would, in the
      aggregate, beneficially own more than 9.99% of the Company’s outstanding common
      stock. The May 2008 Notes are convertible at the option of the Company if the
      following four conditions are met: (i) effectiveness of a registration statement
      with respect to the shares of the Company’s common stock underlying the Notes
      and the Warrants; (ii) the Volume Weighted Average Price (“VWAP” of the common
      stock has been equal to or greater than 250% of the conversion price, as
      adjusted, for 20 consecutive trading days on its principal trading market;
      (iii)
      the average dollar trading volume of the common stock exceeds $500,000 on its
      principal trading market for the same 20 days; and (iv) the Company achieves
      2008 Guaranteed EBT (as hereinafter defined) and 2009 Guaranteed EBT (as
      hereinafter defined). A holder of a May 2008 Note may require the Company to
      redeem all or a portion of such May 2008 Note for cash at a redemption price
      as
      set forth in the May 2008 Notes, in the event of a change in control of the
      Company, an event of default or if any governmental agency in the PRC challenges
      or takes action that would adversely affect the transactions contemplated by
      the
      Securities Purchase Agreement. The May 2008 Warrants are exercisable for a
      five-year period beginning on May 30, 2008, at an initial exercise price of
      $10
      per share.





The
      Company evaluated the application of EITF 98-5, “Accounting for Convertible
      Securities with Beneficial Conversion Features or Contingently Adjustable
      Conversion Ratios,” and EITF 00-27,“Application of Issue No. 98-5 to Certain
      Convertible Instruments” and concluded that the convertible debenture has a
      beneficial conversion feature.  The Company estimated the fair value
      of the beneficial conversion feature of the May 2008 Note at $17,572,910 as
      a
      discount to par value. The fair value of the warrants was estimated at
      $12,427,090. The two amounts are recorded together as debt discount and
      amortized using the effective interest method over the three-year term of
      Debenture.





The
      fair
      value of the warrants granted with this private placement was computed using
      the
      Black-Scholes option-pricing model. Variables used in the option-pricing model
      include (1) risk-free interest rate at the date of grant (4.2%),
      (2) expected warrant life of 5 years, (3) expected volatility of
      95%, and (4) zero expected dividends. The total estimated fair value of the
      warrants granted and beneficial conversion feature of the May 2008 Note should
      not exceed the $30,000,000 Debenture, and the calculated warrant value was
      used
      to determine the allocation between the fair value of the beneficial conversion
      feature of the May 2008 Debenture and the fair value of the warrants.





In
      connection with the private placement, the Company paid the placement agents
      a
      fee of $1,500,000 and incurred other expenses of $186,500, which were
      capitalized as deferred debt issuance costs and will be amortized to interest
      expense over the life of the debenture. During the year ended June 30, 2008,
      amortization debt issuance costs related to the May 2008 Purchase Agreement
      were
      $46,847. The remaining balance of debt issuance costs of the May 2008 Purchase
      Agreement at June 30, 2008 was $1,639,653. The amortization of debt discounts
      was $1,954,684 for the year ended June 30, 2008, which has been included in
      interest expense on the accompanying consolidated statement of income. The
      balance of the debt discount is $28,045,316 at June 30, 2008.





The
      Company evaluated whether or not the secured convertible debentures contain
      embedded conversion options, which meets the definition of derivatives under
      SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities,"
      and
      related interpretations. The Company concluded that since the secured
      convertible debentures had a fixed conversion rate of $8.00, the secured
      convertible debt was not a derivative instrument.




F-25




In
      connection with the May 2008 Financing, the Company entered into a holdback
      escrow agreement (the “Holdback Escrow Agreement”) dated May 30, 2008, with the
      May 2008 Investors and Loeb & Loeb LLP, as Escrow Agent, pursuant to which
      $4,000,000 of the Purchase Price was deposited into an escrow account with
      the
      Escrow Agent at the closing of the Financing. Pursuant to the terms of the
      Holdback Escrow Agreement, (i) $2,000,000 of the escrowed funds will be released
      to the Company upon the Company’s satisfaction no later than 120 days following
      the closing of the Financing of an obligation that the board of directors be
      comprised of at least five members (at least two of whom are to be fluent
      English speakers who possess necessary experience to serve as a director of
      a
      public company), a majority of whom will be independent directors acceptable
      to
      Pope Investments LLC (“Pope”) and (ii) $2,000,000 of the escrowed funds will be
      released to the Company upon the Company’s satisfaction no later than six months
      following the closing of the Financing of an obligation to hire a qualified
      full-time chief financial officer (as defined in the May 2008 Securities
      Purchase Agreement). In the event that either or both of these obligations
      is
      not so satisfied, the applicable portion of the escrowed funds will be released
      pro rata to the Investors. The Company has subsequently satisfied both
      requirement and the holdback money was released to the Company in full.




In
      connection with the May 2008 Financing, Mr. Cao, the Company’s Chief Executive
      Officer and Chairman of the Board, placed 3,750,000 shares of common stock
      of
      the Company owned by him into an escrow account pursuant to a make good escrow
      agreement, dated May 30, 2008 (the “Make Good Escrow Agreement”). In the event
      that either (i) the Company’s adjusted 2008 earnings before taxes is less than
      $26,700,000 USD (“2008 Guaranteed EBT”) or (ii) the Company’s 2008 adjusted
      fully diluted earnings before taxes per share is less than $1.6 USD (“2008
      Guaranteed Diluted EBT”), 1,500,000 of such shares (the “2008 Make Good Shares”)
      are to be released pro rata to the May 2008 Investors. In the event that either
      (i) the Company’s adjusted 2009 earnings before taxes is less than $38,400,000
      USD (“2009 Guaranteed EBT”) or (ii) the Company’s adjusted fully diluted
      earnings before taxes per share is less than $2.32 USD (or $2.24 USD if the
      500,000 shares of common stock held in escrow in connection with the November
      2007 private placement have been released from escrow) (“2009 Guaranteed Diluted
      EBT”), 2,250,000 of such shares (the “2009 Make Good Shares”) are to be released
      pro rata to the May 2008 Investors. Should the Company successfully satisfy
      these respective financial milestones, the 2008 Make Good Shares and 2009 Make
      Good Shares will be returned to Mr. Cao. In addition, Mr. Cao is required to
      deliver shares of common stock owned by him to the Investors on a pro rata
      basis
      equal to the number of shares (the “Settlement Shares”) required to satisfy all
      costs and expenses associated with the settlement of all legal and other matters
      pertaining to the Company prior to or in connection with the completion of
      the
      Company’s October 2007 share exchange in accordance with formulas set forth in
      the May 2008 Securities Purchase Agreement (post 40-to-1 reverse
      split).





The
      security purchase agreement set forth permitted indebtedness which the Company’s
      lease obligations and purchase money indebtedness is limited up to $1,500,000
      per year in connection with new acquisition of capital assets and lease
      obligations. Permitted investment set forth with the security purchase agreement
      limits capital expenditure of the Company not to exceed $5,000,000 in any
      rolling 12 months.





Pursuant
      to a Registration Rights Agreement, the Company agreed to file a registration
      statement covering the resale of the shares of common stock underlying the
      May
      2008 Notes and Warrants, (ii) the 2008 Make Good Shares, (iii) the 2009 Make
      Good Shares, and (iv) the Settlement Shares. The Company must file an initial
      registration statement covering the shares of common stock underlying the Notes
      and Warrants no later than 45 days from the closing of the Financing and to
      have
      such registration statement declared effective no later than 180 days from
      the
      closing of the Financing. If the Company does not timely file such registration
      statement or cause it to be declared effective by the required dates, then
      the
      Company will be required to pay liquidated damages to the Investors equal to
      1.0% of the aggregate Purchase Price paid by such Investors for each month
      that
      the Company does not file the registration statement or cause it to be declared
      effective. Notwithstanding the foregoing, in no event shall liquidated damages
      exceed 10% of the aggregate amount of the May 2008 Purchase Price.


The
                  above two convertible debenture liabilities are as follows at June
                  30,
                  2008:November
                  2007 convertible debenture note payable
              
              $
              5,000,000May
                  2008 convertible debenture note payable
              
              
              30,
                  000, 000Total
                  convertible debenture note payable
              
              
              35,000,000Less:unamortized
                  discount on November 2007 convertible debenture note
                  payable
              
              
              (4,454,641
              )Less:unamortized
                  discount on May 2008 convertible debenture note payable
              
              
              (28,045,316
              )Convertible
                  debentures, net
              
              $
              2,500,043


F-26





**Note
      14 - Shareholders’ equity**





Common
      Stock





At
      inception, Karmoya issued 1,000 shares of common stock to its founder. The
      shares were valued at par value. On September 20, 2007, the Company issued
      9,000
      shares of common stock to nine individuals at par value. The balance of $10,000
      is shown in capital contribution receivable on the accompanying consolidated
      financial statements.





On
      September 20, 2007, Karmoya acquired 100% of Union Well. Union Well was
      established on May 9, 2007, with a registered capital of $1,000. The amount
      is
      shown in capital contribution receivable on the accompanying consolidated
      financial statements.





On
      October 1, 2007, the Company executed a Share Acquisition and Exchange Agreement
      by and among the Company, Karmoya, and the shareholders of 100% of the Karmoya’s
      capital stock. At closing, the Company issued 5,995,780 shares of its Series
      B
      Voting Convertible Preferred Stock and 15 shares (post 40-for-1 reverse split)
      of its common stock to Karmoya’s shareholders in exchange for 100% of Karmoya’s
      capital stock.





On
      October 1, 2007, holders of 220,156 options converted the options into 44,031
      shares (post
      40-for-1 reverse stock split) of
      common
      stock.





In
      October 2007, the Company received $180,000 in funding from various investors
      through the sale of its common stock and issued 37,500 shares (post 40-for-1
      reverse stock split) of its common stock with a Rule 144 restrictive
      legend.





On
      October 8, 2007, a Series A preferred stockholder converted 15,400 shares of
      Series A Preferred Stock into 16,595 shares (post 40-for-1 reverse stock split)
      of common stock.





In
      October 2007, the Company’s board of directors and the majority holders of its
      capital stock approved amendments to its Articles of Incorporation by written
      consent, including: (1) a change of the Company’s corporate name to Genesis
      Pharmaceuticals Enterprises, Inc, (the “Name Change”), (2) a change of the
      principal officers and mailing address to the current address in the PRC (the
      “Address Change”), (3) a change in the registered agent and registered office in
      Florida (the “Registered Agent Change”), and (4) an increase in the authorized
      common stock from 5,000,000 (post 40-for-1 reverse stock split) to 15,000,000
      shares (post 40-for-1 reverse stock split) (the “Authorized Share Amendment”).
      The Certificate of Amendment and Certificate of Change to the Company’s Articles
      of Incorporation to effect the Name Change, Address Change, Registered Agent
      Change and the Authorized Share Amendment was filed with Florida’s Secretary of
      State on October 16, 2007.





On
      October 26, 2007, the shares of Series B Preferred Stock issued were converted,
      in the aggregate, into 7,494,725 shares (post 40-for-1 reverse stock split)
      of
      the Company’s common stock.





In
      February 2008, in conjunction with a settlement between the Company and one
      of
      the Company’s former officers, the former officer exercised 37,500 of stock
      options for 37,500 shares (post 40-for-1 reverse stock split) of common stock
      and the remaining 23,536 options held by the former officer were
      cancelled.




In
      June
      2008, the Company issued 5,875 shares of common stock to its officer and
      directors for services rendered. The Company valued the services based on the
      common stock fair market value on the date of grant at $8 per share or $46,994
      and included as part of the selling, general and administrative
      expenses.




F-27





Registered
      capital





On
      September 17, 2007, Union Well established GJBT in PRC as a 100% wholly-owned
      foreign limited liability subsidiary (“WOFE”) with registered capital of $12
      million. PRC laws require the owner of the WOFE to contribute at least 15%
      of
      the registered capital within 90 days of its business license issuance date
      and
      the remaining balance is required to be contributed within two years of the
      business license issuance date. In June 2008, the PRC government approved for
      GJBT to increase its registered capital from $12 million to $30 million. As
      of
      June 30, 2008, the Company has funded GJBT the entire registered capital
      required in accordance with PRC laws.





**Note
      15 - Warrants**





In
      connection with the May 2008 financing, the exercise price of outstanding
      warrants issued in 2004 to purchase 74,085 shares of common stock was reduced
      to
      $8 per share. The 2004 warrants contain full ratchet anti-dilution provisions
      to
      the exercise price, which due to the Company’s May 2008 financing, resulted in
      the 2004 warrants to be exercisable at $8 per share. The provisions of the
      2004
      Warrants which result in the reduction of the exercise price remain in place.
      Of
      the warrants, 16,455 shares are exercisable through January 15, 2009, and 57,630
      are exercisable through March 29, 2009.





In
      connection with the $5,000,000, 6% convertible subordinated debentures note,
      the
      Company issued a three-year warrant to purchase 250,000 shares of common stock,
      at an exercise price of $12.8 per share. The calculated fair value of the
      warrants granted with this private placement was computed using the
      Black-Scholes option-pricing model. Variables used in the option-pricing model
      include (1) risk-free interest rate at the date of grant (4.5%),
      (2) expected warrant life of 3 years, (3) expected volatility of
      197%, and (4) zero expected dividends. In connection with the May 2008
      financing, the exercise price of outstanding warrants issued in November 2007
      was reduced to $8 per share and the total number of warrants to purchase common
      stock was increased to 400,000.




In
      connection with the $30,000,000, 6% convertible subordinated debentures note,
      the Company issued a five-year warrant to purchase 1,875,000 shares of common
      stock, at an exercise price of $10 per share. The calculated fair value of
      the
      warrants granted with this private placement was computed using the
      Black-Scholes option-pricing model. Variables used in the option-pricing model
      include (1) risk-free interest rate at the date of grant (4.5%),
      (2) expected warrant life of 5 years, (3) expected volatility of
      95%, and (4) zero expected dividends.





The
      Company has 2,349,085 warrants outstanding and exercisable at an average
      exercise price of $9.60 per share as of June 30, 2008.





A
      summary
      of the warrants as of June 30, 2008, and changes during the period is presented
      below:




Number
                of warrantsOutstanding
                as of July 1, 2007
            
            
            74,085Granted
            
            
            2,275,000Forfeited
            
            
            -Exercised
            
            
            -Outstanding
                as of June 30, 2008
            
            
            2,349,085




F-28


Following
        is a summary of the status of warrants outstanding at June 30,
        2008:




Outstanding Warrants
            
            Exercisable WarrantsExercise Price
            
            Number
            
            Average
              Remaining
              Contractual Life
            
            Average
              Exercise Price
            
            Number
            
            Average
              Remaining
              Contractual Life$
            8.00
            
            
            474,085
            
            
            2.41
            
            $
            8.00
            
            
            474,085
            
            
            2.41$
            10.00
            
            
            1,875,000
            
            
            4.92
            
            $
            10.00
            
            
            1,875,000
            
            
            4.92Total
            
            
            2,349,085
            
            
            
            
            
            
            
            
            2,349,085





**Note 16 -
      Stock options**




The
      Company uses the Black-Scholes option pricing model which was developed for
      use
      in estimating the fair value of options. Option pricing models require the
      input
      of highly complex and subjective variables including the expected life of
      options granted and the Company’s expected stock price volatility over a period
      equal to or greater than the expected life of the options. Because changes
      in
      the subjective assumptions can materially affect the estimated value of the
      Company’s employee stock options, it is management’s opinion that the
      Black-Scholes option pricing model may not provide an accurate measure of the
      fair value of the Company’s employee stock options. Although the fair value of
      employee stock options is determined in accordance with SFAS 123R using an
      option pricing model, that value may not be indicative of the fair value
      observed in a willing buyer/willing seller market transaction.





The
      133,400 options were granted on July 1, 2007, and the fair value of this option
      grant was estimated on the date of the grant using the Black-Scholes
      option-pricing model with the following weighted-average assumptions:





Expected
            
            Expected
            
            Dividend
            
            Risk Free
            
            Grant DateLife
            
            Volatility
            
            Yield
            
            Interest Rate
            
            Fair ValueFormer
                officers
            
            
            3.50
                yrs
            
            
            195
            %
            
            0
            %
            
            4.50
            %
            $
            5.20





The
      7,500
      options were granted on June 10, 2008 and the fair value of this option grant
      was estimated on the date of the grant using the Black-Scholes option-pricing
      model with the following weighted-average assumptions:





Expected
            
            Expected
            
            Dividend
            
            Risk Free
            
            Grant Date
                Average FairLife
            
            Volatility
            
            Yield
            
            Interest Rate
            
            ValueCurrent
                officer
            
            
            5
                yrs
            
            
            95
            %
            
            0
            %
            
            2.51
            %
            $
            8.00





In
      accordance with SFAS 123R, the Company recorded $10,847, $0, and $0 of
      compensation expense relating to stock options for the years ended June 30,
      2008, 2007, and 2006.





The
      following is a summary of the option activity during the year ended June 30,
      2008:


Number
                  of optionsOutstanding
                  as of July 1, 2007
              
              
              194,436Granted
              
              
              7,500Forfeited
              
              
              (23,536
              )Exercised
              
              
              (37,500
              )Outstanding
                  as of June 30, 2008
              
              
              140,900




F-29





Following
      is a summary of the status of option outstanding at June 30, 2008:





Outstanding options
            
            Exercisable optionsAverage
              Exercise price
            
            Number
            
            Average
              remaining
              contractual life
              (years)
            
            Average
              exercise price
            
            Number
            
            Weighted
              average
              exercise price$
            4.20
            
            
            133,400
            
            
            2.50
            
            $
            4.20
            
            
            133,400
            
            $
            2.50$
            12.00
            
            
            2,000
            
            
            5.00
            
            
            -
            
            
            -
            
            
            -$
            16.00
            
            
            1,750
            
            
            5.00
            
            
            -
            
            
            -
            
            
            -$
            20.00
            
            
            1,875
            
            
            5.00
            
            
            -
            
            
            -
            
            
            -$
            24.00
            
            
            1,875
            
            
            5.00
            
            
            -
            
            
            -
            
            
            -$
            4.93
            
            
            140,900
            
            
            2.64
            
            $
            4.20
            
            
            133,400
            
            $
            2.50





As
      of
      June 30, 2008, there was $26,295 of total unrecognized compensation expense
      related to nonvested share-based compensation arrangements granted under the
      Stock Incentive Plan. That cost is expected to be recognized over a
      weighted-average period of 3 years.





**Note
      17 - Statutory reserves**





The
      Company is required to make appropriations to reserve funds, comprising the
      statutory surplus reserve and discretionary surplus reserve, based on after-tax
      net income determined in accordance with generally accepted accounting
      principles of the PRC ("PRC GAAP"). Appropriation to the statutory surplus
      reserve is required to be at least 10% of the after tax net income determined
      in
      accordance with PRC GAAP until the reserve is equal to 50% of the entities'
      registered capital. Appropriations to the discretionary surplus reserve are
      made
      at the discretion of the Board of Directors.




The
      statutory surplus reserve fund is non-distributable other than during
      liquidation and can be used to fund previous years' losses, if any, and may
      be
      utilized for business expansion or converted into share capital by issuing
      new
      shares to existing shareholders in proportion to their shareholding or by
      increasing the par value of the shares currently held by them, provided that
      the
      remaining reserve balance after such issue is not less than 25% of the
      registered capital.





The
      discretionary surplus fund may be used to acquire fixed assets or to increase
      the working capital to expend on production and operations of the business.
      The
      Company’s Board of Directors decided not to make an appropriation to this
      reserve for 2008 and 2007.





According
      to the Company’s articles, the Company should appropriate 10% of the net profit
      as statutory surplus reserve. For the years ended June 30, 2008 and 2007, the
      Company appropriated to the statutory surplus reserve in the amount of
      $1,096,241 and $1,508,970, respectively.





**Note
      18 - Employee pension**





Employee
      pension in the Company generally includes two parts: the first part to be paid
      by the Company is 30.6% of $128 for each qualified employee each month. The
      other part, paid by the employees, is 11% of $128 each month. For the years
      ended June 30, 2008, 2007, and 2006, the Company made pension contributions
      in
      the amount of $35,273, $31,760, and $32,130, respectively.





**Note
      19 - Accumulated other comprehensive income**





The
      components of accumulated other comprehensive income for the year ended June
      30,
      2008 and 2007 are as follows:




June 30,
            
            June 30,2008
            
            2007Beginning
                Balance
            
            $
            1,146,441
            
            $
            128,311Foreign
                currency translation gain
            
            
            5,206,612
            
            
            1,018,130Unrealized
                gain on marketable securities
            
            
            1,347,852
            
            
            -Ending
                Balance
            
            $
            7,700,905
            
            $
            1,146,441




F-30





**Note
      20 - Current vulnerability due to certain concentrations**





The
      Company's operations are carried out in the PRC. Accordingly, the Company's
      business, financial condition, and results of operations may be influenced
      by
      the political, economic, and legal environments in the PRC, and by the general
      state of the PRC's economy.





The
      Company's operations in the PRC are subject to specific considerations and
      significant risks not typically associated with companies in North America
      and
      Western Europe. These include risks associated with, among others, the
      political, economic, and legal environments, and foreign currency exchange.
      The
      Company's results may be adversely affected by changes in governmental policies
      with respect to laws and regulations, anti-inflationary measures, currency
      conversion and remittance abroad, and rates and methods of taxation, among
      others.





**Note
      21 - Commitments and contingencies**




In
      September 2007, the Company entered into a three year Cooperative Research
      and
      Development Agreement (“CRADA”) with a provincial university (the “University”).
      Pursuant to the CRADA, the University is responsible for designing, researching
      and developing designated pharmaceutical projects for the Company. Additionally,
      the University will also provide technical services and training to the
      Company.  As part of the CRADA, the Company will pay RMB 24,000,000
      (approximately $3.5 million as of June 30, 2008) plus out–of-pocket expenses to
      the University annually, and provide internship opportunities for students
      of
      the University.  The Company will have the primary ownership of the
      designated research and development project results.





In
      November 2007, the Company entered into a five year CRADA with a research
      institute (the “Institute”). Under the CRADA, the Institute is responsible for
      designing, researching and developing designated pharmaceutical projects for
      the
      Company. Additionally, the Institute will also provide technical services and
      trainings to the Company.  As part of the CRADA, the Company will pay RMB
      6,000,000 (approximately $875,000 as of June 30, 2008) to the Institute
      annually.  The Company will have the primary ownership of the designated
      research and development project results.





Legal
      proceedings





The
      following summarizes the Company’s pending and settled legal proceedings as of
      June 30, 2008:


Elizabeth
        Hiromoto et al v. Telecom Communications, Inc. et al. - Case No.
        2:07-cv-07858-PSG-E, United States District Court, Central District of
        California (Western Division - Los Angeles)
 
 On
        December 3, 2007, two individuals filed a lawsuit against the Company, its
        former Chief Executive Officer James Wang, and certain others, alleging breach
        of contract relating to damages arising from the sale of Telecom Communications,
        Inc.(“TCOM”) to Arran Services Limited, in which Mr. Wang acted as the Company’s
        President and Chairman to provide consulting services to TCOM and certain
        misrepresentations made on behalf of and in conjunction with TCOM’s majority
        shareholder . On July 2, 2008, the Company and the plaintiffs settled the
        lawsuit with prejudice and claims and plaintiffs have agreed to file a Request
        for Dismissal with Prejudice of the lawsuit.
 
 The
        Company received letters dated August 22, 2008, August 25, 2008, and September
        16, 2008, from Corrigan & Morris LLP, on behalf of James Wang, making a
        claim for indemnification of fees incurred in connection with the defense
        of two
        lawsuits brought against Mr. Wang. These letters request that the Company
        reimburse Mr. Wang a total of $153,243, representing attorneys’ fees, settlement
        amounts, and legal costs. The Company does not believe it has the obligation
        to
        reimburse Mr. Wang and is currently reviewing the letters.
  F-31





Fernando
      Praca, Plaintiff v.s. EXTREMA, LLC and Genesis Pharmaceuticals Enterprises,
      Inc.- Case No. 50 2005 CA 005317, Circuit Court of the 15th Judicial Circuit
      in
      and for Palm Beach County, Florida.





Fernando
      Praca, former Director and former President of the Company’s discontinued
      subsidiary, Extrema LLC, which is included as part of the discontinued entities,
      filed an action in Dade County, Florida, against Extrema, LLC and the Company
      in
      June 2005, relating to damages arising from the sale of Extrema LLC to Genesis
      Technology Group, Inc. Praca had filed a Motion of Temporary Injunction but
      had
      not proceeded to move this case forward. The plaintiff decided to reinitiate
      the
      legal action in March 2008. In May 2008, the plaintiff and the Company entered
      into an agreement whereby the plaintiff agreed to return 100,000 shares of
      restricted common shares of the Company and the Company agreed to remove the
      restrictive legend on the 1,269,697 shares previously owned by the plaintiff.
      The Company subsequently cancelled the 100,000 restricted common stock. The
      plaintiff agreed to waive and release the Company from any and all further
      claims, demands or obligations.




Kenneth
      Clinton vs. Genesis Pharmaceuticals Enterprises, Inc., GTEC Holdings, Capital
      Growth Financial, Inc., Gary L. Wolfson and Pacific Rim Consultants, Inc. -
      Case
      No. 50 2007 CA 023923, Circuit Court of the 15th Judicial Circuit in and for
      Palm Beach County, Florida.





On
      December 21, 2007, Kenneth Clinton, a former director and former President
      of
      the Company, filed a lawsuit against the Company and certain entities and
      persons related to Genesis Technology Group, Inc. The complaint alleges, among
      other things, breach of contract against the Company for an agreement to pay
      the
      plaintiff certain shares of other public companies (collectively, the “Reverse
      Merger Shares”) in connection with reverse merger transactions arranged by
      Genesis Technology Group, Inc , and breach of contract against the Company
      for
      failure to allow the plaintiff to exercise certain stock options for shares
      in
      the Company or exchange such options for new shares in the Company. The
      plaintiff is seeking relief in the form of (1) delivery of the Reverse Merger
      Shares, or in the alternative damages in the amount of those shares, (2) a
      judgment against the Company to allow the plaintiff to exchange and exercise
      his
      stock options for shares in the Company, or in the alternative damages in the
      amount of those shares, and (3) a declaratory judgment regarding a pledge and
      escrow agreement with defendant Capital Growth Financial.





In
      February 2008, the Company entered into a settlement agreement and general
      release with Mr. Clinton whereby the Company agreed to allow Mr. Clinton
      exercise 1.5 million stock options issued under the Company’s 2007 stock option
      plan for shares in the Company and released and discharged Mr. Clinton from
      any
      and all claims, demands or obligations. Mr. Clinton agreed to waive and release
      the Company from any and all claims, demands or obligations.





Other
      litigation




The
      Company currently has pending before the American Arbitration Association the
      case of CRG Partners, Inc. (“CRGP”) and Genesis Technology Group, Inc. n/k/a
      Genesis Pharmaceuticals Enterprises, Inc. In that matter, CRGP seeks breach
      of
      contract damages from the Company for 29,978,900 shares of the Company’s stock
      (Pre 40 to 1 reverse split) or a dollar amount equal to the value of the
      stock, estimated by CRGP at approximately $10 million. As of the date of these
      consolidated financial statements, the Company is unable to estimate a loss,
      if
      any, the Company may incur related expenses to this lawsuit. The Company
      believes CRGP’s claims were without merit and plans to vigorously defend its
      position.





In
      June
      2008, China West II, LLC (“CW II”) filed a Demand for Arbitration with the
      American Arbitration Association the case of CW II and Genesis Technology Group,
      Inc. n/k/a Genesis Pharmaceuticals Enterprises, Inc. and Joshua Tan. In that
      matter, CW II seeks breach of contract damages in connection with the Company’s
      October 2007 reverse merger from the Company and Joshua Tan, who’s the former
      director before the reverse merger, jointly and severally for approximately
      $6.7
      million. As of the date of these consolidated financial statements, the Company
      is unable to estimate a loss, if any, the Company may incur related expenses
      to
      this lawsuit .
      The
      Company believes CW II’s demand was without merit and plans to vigorously defend
      its position.


F-32





**Note
      22 - Subsequent events**





In
      July
      2008, in connection with the settlement with Mr. Fernando Praca, the Company
      cancelled 2,500 shares of its common stock (post 40-to-1 reverse split).





In
      July
      2008, the Company issued 2,500 share of common stock to two directors as part
      of
      their compensation for services. The Company valued these shares at the fair
      market value on the date of grant of $8.00 per share, or $20,000 in total,
      based
      on the trading price of common stock (post 40-to-1 reverse split).





In
      July
      2008, the Board of Directors completed an evaluation of the trading market
      for
      the Company’s common stock, and due to the low stock price, the opinion of the
      Board of Directors was that a significant reverse split of the Company’s Common
      Stock is required to allow the Company to undertake acquisitions, raise capital,
      and improve the image of the Company. Thus, the Board of Directors approved
      a
      40-to-1 reverse stock split. The matter was submitted to the vote of the
      shareholders, and a majority of the shareholders had voted in favor of the
      proposed reverse stock split. The stock split became effective on September
      4,
      2008, and a new trading symbol “GNPH” also became effective on that day. Those
      holding fractional shares will be rounded up the next whole share. Subsequent
      to
      the stock split, the Company has approximately 9,768,000 shares issued and
      outstanding. The total number of authorized shares became 22,500,000. These
      consolidated financial statements have been retroactively adjusted to reflect
      the reverse split. Additionally, all share representations are on a post-split
      basis.





In
      August
      2008, the PRC government approved for CJBT to increase its registered capital
      from $30 million to $58 million. The PRC laws require Union Well, the 100%
      owner
      of CJBT to contribute at least 20% of the registered capital within 30 days
      of
      the approval and the remaining balance is required to be contributed within
      two
      years of the approval date. In August 2008, CJBT received additional registered
      capital in total of $1,996,001.





In
      September 2008, the Company repaid the outstanding balance of the short term
      loan in the amount of $2,772,100, in satisfaction of its obligation outstanding
      as of June 30, 2008.The Company is in the process of renewing of this loan.


F-33