----

----

| x | Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
|---|----------------------------------------------------------------------------------------|

|  ̈ | Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
|--------|-----------------------------------------------------------------------------------------|

----

----

| NEVADA                                                         | 84-0605867                           |
|----------------------------------------------------------------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |

----

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

|                                |   |                             |
|-------------------------------------|--------|----------------------------------|
| Title of each class of common stock |   | Outstanding as of August 5, 2010 |
| Common Stock, $0.001 par value      |   | 78,580,138                       |

----

|                                                                                                                                     |     |
|------------------------------------------------------------------------------------------------------------------------------------------|----------|
| PART I – FINANCIAL INFORMATION                                                                                                     | 3        |
|                                                                                                                                     |     |
| ITEM 1 – Financial Statements                                                                                                 |  3  |
|                                                                                                                                     |     |
| Unaudited condensed consolidated balance sheet as of June 30, 2010 and condensed consolidated balance sheet as of December 31, 2009      | 3        |
|                                                                                                                                     |     |
| Unaudited condensed consolidated statements of income and comprehensive income for the three and six months ended June 30, 2010 and 2009 | 5        |
|                                                                                                                                     |     |
| Unaudited condensed statements of cash flow for the six months ended June 30, 2010 and 2009                                              | 6        |
|                                                                                                                                     |     |
| Notes to unaudited condensed consolidated financial statements - June 30, 2010                                                           | 7        |
|                                                                                                                                     |     |
| ITEM 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations                                | 23       |
|                                                                                                                                     |     |
| ITEM 3 – Quantitative and Qualitative Disclosures About Market Risk                                                           | 34       |
|                                                                                                                                     |     |
| ITEM 4 – Controls and Procedures                                                                                              | 34       |
|                                                                                                                                     |     |
| PART II – OTHER INFORMATION                                                                                                        |  35 |
|                                                                                                                                     |     |
| ITEM 1 – Legal Proceedings                                                                                                    |  35 |
|                                                                                                                                     |     |
| ITEM 1A – Risk Factors                                                                                                        |  35 |
|                                                                                                                                     |     |
| ITEM 2 – Unregistered Sales of Equity Securities and Use of Proceeds                                                          |  35 |
|                                                                                                                                     |     |
| ITEM 3 – Defaults upon Senior Securities                                                                                      |  35 |
|                                                                                                                                     |     |
| ITEM 4 – Other Information                                                                                                    | 35       |
|                                                                                                                                     |     |
| ITEM 5 – Exhibits                                                                                                             |  35 |

| Signatures |  36 |
|------------|----------|

----

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

|                                              |   | JUNE 30,2010 |        |   | DECEMBER 31,2009 |   |
|---------------------------------------------------|--------|--------------|-------------|--------|------------------|--------|
|                                              |   |         |        |   |             |   |
| CURRENT ASSETS                                    |   |         |        |   |             |   |
| Cash and cash equivalents                         |   | $            | 96,433,832  |   |             | $      | 91,126,486 |   |
| Restricted cash                                   |   |         | 1,103,535   |   |             |   | 3,298,379 |   |
| Accounts and notes receivable, net                |   |         | 66,767,659  |   |             |   | 57,504,454 |   |
| Inventories, net                                  |   |         | 19,016,578  |   |             |   | 10,015,711 |   |
| Advances to suppliers and prepaid expenses        |   |         | 5,937,021   |   |             |   | 13,901,180 |   |
| Deferred tax assets                               |   |         | 550,535     |   |             |   | 824,451 |   |
| Other current assets                              |   |         | 1,347,639   |   |             |   | 1,246,647 |   |
| Total Current Assets                              |   |         | 191,156,799 |   |             |   | 177,917,308 |   |
|                                              |   |         |        |   |             |   |   |   |
| LONG-TERM ASSETS                                  |   |         |        |   |             |   |   |   |
| Property, plant and equipment, net                |   |         | 95,445,470  |   |             |   | 95,468,265 |   |
| Land use rights, net                              |   |         | 152,594,995 |   |             |   | 153,604,196 |   |
| Other long term assets                            |   |         | 7,967,784   |   |             |   | 7,909,086 |   |
| Construction in progress                          |   |         | 29,324,123  |   |             |   | 28,975,386 |   |
| Other intangible assets, net                      |   |         | 16,329,103  |   |             |   | 18,695,554 |   |
| Goodwill                                          |   |         | 33,164,121  |   |             |   | 33,164,121 |   |
| Investments in and advances to equity investments |   |         | 57,441,048  |   |             |   | 57,325,887 |   |
| Deferred tax assets                               |   |         | 143,781     |   |             |   | 134,268 |   |
| Unamortized financing cost                        |   |         | 2,823,549   |   |             |   | 3,287,694 |   |
| Total Long-Term Assets                            |   |         | 395,233,974 |   |             |   | 398,564,457 |   |
| TOTAL ASSETS                                      |   | $            | 586,390,773 |   |             | $      | 576,481,765 |   |

----

|                                                                                                                                                                                        |   | JUNE 30,2010 |        |    | DECEMBER 31,2009 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|-------------|---------|------------------|--------|
|                                                                                                                                                                                        |   |         |        |    |             |   |
| CURRENT LIABILITIES                                                                                                                                                                         |   |         |        |    |             |   |
| Accounts payable                                                                                                                                                                            |   | $            | 11,477,039  |    |             | $      | 7,497,143 |   |
| Notes payable                                                                                                                                                                               |   |         | 1,103,535   |    |             |   | 3,392,575 |   |
| Other payables and accrued expenses                                                                                                                                                         |   |         | 16,935,522  |    |             |   | 22,320,757 |   |
| Taxes payable                                                                                                                                                                               |   |         | 605,024     |    |             |   | 947,338 |   |
| Short-term bank loans                                                                                                                                                                       |   |         | 8,959,257   |    |             |   | 10,384,368 |   |
| Current portion of long-term bank loans                                                                                                                                                     |   |         | 60,629      |    |             |   | 60,108 |   |
| Other liabilities                                                                                                                                                                           |   |         | 4,842,631   |    |             |   | 2,199,280 |   |
| Deferred tax liabilities                                                                                                                                                                    |   |         | 173,496     |    |             |   | 172,473 |   |
| Total Current Liabilities                                                                                                                                                                   |   |         | 44,157,133  |    |             |   | 46,974,042 |   |
|                                                                                                                                                                                        |   |         |        |    |             |   |   |   |
| LONG-TERM LIABILITIES                                                                                                                                                                       |   |         |        |    |             |   |   |   |
| Long-term bank loans, net of current portion                                                                                                                                                |   |         | 710,598     |    |             |   | 743,957 |   |
| Deferred tax liabilities                                                                                                                                                                    |   |         | 15,652,960  |    |             |   | 15,961,465 |   |
| Unrecognized tax benefits                                                                                                                                                                   |   |         | 3,871,701   |    |             |   | 2,746,561 |   |
| Convertible notes                                                                                                                                                                           |   |         | 115,000,000 |    |             |   | 115,000,000 |   |
| Total Long-Term Liabilities                                                                                                                                                                 |   |         | 135,235,259 |    |             |   | 134,451,983 |   |
| TOTAL LIABILITIES                                                                                                                                                                           |   |         | 179,392,392 |    |             |   | 181,426,025 |   |
|                                                                                                                                                                                        |   |         |        |    |             |   |   |   |
| COMMITMENTS AND CONTINGENCIES                                                                                                                                                               |   |         |        |    |             |   |   |   |
|                                                                                                                                                                                        |   |         |        |    |             |   |   |   |
| EQUITY                                                                                                                                                                                      |   |         |        |    |             |   |   |   |
| SHAREHOLDERS’ EQUITY                                                                                                                                                                  |   |         |        |    |             |   |   |   |
| Preferred stock, $0.001 par value; 2,000,000 shares authorized; 1,000,000 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively                           |   |         | 1,000       |    |             |   | 1,000 |   |
| Common stock, $0.001 par value; 150,000,000 shares authorized; 78,580,138 and 78,321,439 shares issued and outstanding at June 30, 2010 and December 31, 2009,  respectively |   |         | 78,580      |    |             |   | 78,321 |   |
| Common stock to be issued                                                                                                                                                                   |   |         | 181,500     |    |             |   | 388,000 |   |
| Prepaid forward repurchase contract                                                                                                                                                         |   |         | (29,998,616 | )  |             |   | (29,998,616 | )  |
| Additional paid-in capital                                                                                                                                                                  |   |         | 201,806,789 |    |             |   | 199,829,921 |   |
| Retained earnings (the restricted portion of retained earnings is $23,757,901 at both June 30, 2010 and December 31, 2009)                                                             |   |         | 199,421,141 |    |             |   | 191,173,754 |   |
| Accumulated other comprehensive income                                                                                                                                                      |   |         | 34,986,727  |    |             |   | 33,050,224 |   |
| Total Shareholders’ Equity                                                                                                                                                            |   |         | 406,477,121 |    |             |   | 394,522,604 |   |
| Non-controlling Interest                                                                                                                                                                    |   |         | 521,260     |    |             |   | 533,136 |   |
| TOTAL EQUITY                                                                                                                                                                                |   |         | 406,998,381 |    |             |   | 395,055,740 |   |
| TOTAL LIABILITIES AND EQUITY                                                                                                                                                                |   | $            | 586,390,773 |    |             | $      | 576,481,765 |   |

----

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

|                                                       |   | THREE MONTHS ENDEDJUNE 30, |       |   | SIX MONTHS ENDEDJUNE 30, |   |
|------------------------------------------------------------|--------|----------------------------|------------|--------|--------------------------|--------|
|                                                       |   | 2010                       |       |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
|                                                       |   |                       |       |   |                     |   |   |   |   |   |   |   |
| Revenues                                                   |   | $                          | 77,296,212 |   |                     | $      | 71,222,037 |   |   | $ | 131,045,980 |   |   | $ | 117,299,227 |   |
| Cost of sales                                              |   |                       | 37,455,860 |   |                     |   | 29,594,923 |   |   |   | 62,968,907 |   |   |   | 47,255,261 |   |
| GROSS PROFIT                                               |   |                       | 39,840,352 |   |                     |   | 41,627,114 |   |   |   | 68,077,073 |   |   |   | 70,043,966 |   |
|                                                       |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Selling and marketing expenses                             |   |                       | 11,505,462 |   |                     |   | 9,396,129 |   |   |   | 17,481,688 |   |   |   | 14,607,631 |   |
| Advertising costs                                          |   |                       | 9,217,247  |   |                     |   | 7,779,936 |   |   |   | 15,965,717 |   |   |   | 13,347,293 |   |
| Research and development costs                             |   |                       | 3,250,882  |   |                     |   | 809,584 |   |   |   | 6,029,691 |   |   |   | 1,559,382 |   |
| General and administrative expenses                        |   |                       | 5,158,104  |   |                     |   | 4,026,425 |   |   |   | 9,924,590 |   |   |   | 8,417,126 |   |
| Depreciation and amortization                              |   |                       | 1,622,989  |   |                     |   | 1,623,556 |   |   |   | 3,219,947 |   |   |   | 3,256,142 |   |
| Total operating expenses                                   |   |                       | 30,754,684 |   |                     |   | 23,635,630 |   |   |   | 52,621,633 |   |   |   | 41,187,574 |   |
|                                                       |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| INCOME FROM OPERATIONS                                     |   |                       | 9,085,668  |   |                     |   | 17,991,484 |   |   |   | 15,455,440 |   |   |   | 28,856,392 |   |
|                                                       |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Equity in earnings (loss) from unconsolidated entities     |   |                       | (170,799   | )      |                     |   | (173,258 | ) |   |   | (53,326 | ) |   |   | 264,536 |   |
| Interest expense, net                                      |   |                       | 1,371,246  |   |                     |   | 1,620,069 |   |   |   | 2,937,031 |   |   |   | 3,199,338 |   |
| Other expenses, net                                        |   |                       | 30,039     |   |                     |   | 16,329 |   |   |   | 17,792 |   |   |   | 114,938 |   |
| INCOME BEFORE INCOME TAX                                   |   |                       | 7,513,584  |   |                     |   | 16,181,828 |   |   |   | 12,447,291 |   |   |   | 25,806,652 |   |
| Income tax                                                 |   |                       | 2,395,850  |   |                     |   | 3,735,558 |   |   |   | 4,211,780 |   |   |   | 6,205,322 |   |
| NET INCOME                                                 |   |                       | 5,117,734  |   |                     |   | 12,446,270 |   |   |   | 8,235,511 |   |   |   | 19,601,330 |   |
| Net loss attributable to non-controlling interest          |   |                       | 6,476      |   |                     |   | 123,068 |   |   |   | 11,876 |   |   |   | 119,517 |   |
| NET INCOME ATTRIBUTABLE TO CONTROLLING  INTEREST |   |                       | 5,124,210  |   |                     |   | 12,569,338 |   |   |   | 8,247,387 |   |   |   | 19,720,847 |   |
|                                                       |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| OTHER COMPREHENSIVE INCOME                                 |   |                       | 1,843,654  |   |                     |   | 21,945 |   |   |   | 1,936,503 |   |   |   | 513,282 |   |
|                                                       |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| COMPREHENSIVE INCOME                                       |   | $                          | 6,967,864  |   |                     | $      | 12,591,283 |   |   | $ | 10,183,890 |   |   | $ | 20,234,129 |   |
|                                                       |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| EARNINGS PER COMMON SHARE                                  |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                      |   | $                          | 0.07       |   |                     | $      | 0.17 |   |   | $ | 0.11 |   |   | $ | 0.27 |   |
| Diluted                                                    |   | $                          | 0.07       |   |                     | $      | 0.16 |   |   | $ | 0.11 |   |   | $ | 0.26 |   |
|                                                       |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| WEIGHTED AVERAGE SHARES OUTSTANDING                        |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                      |   |                       | 74,743,986 |   |                     |   | 74,582,920 |   |   |   | 74,680,327 |   |   |   | 74,560,809 |   |
| Diluted                                                    |   |                       | 75,857,073 |   |                     |   | 88,815,593 |   |   |   | 75,502,489 |   |   |   | 86,939,711 |   |

----

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                              |   | SIX MONTHS ENDEDJUNE 30 |        |
|-----------------------------------------------------------------------------------|--------|-------------------------|-------------|
|                                                                              |   | 2010                    |        |   |   | 2009 |   |
|                                                                              |   |                    |        |   |   |   |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                             |   |                    |        |   |   |   |   |
| Net income                                                                        |   | $                       | 8,235,511   |   |   | $  | 19,601,330 |   |
| Adjustments to reconcile net income to net cash provided by operating activities: |   |                    |        |   |   |   |   |   |
| Depreciation and amortization                                                     |   |                    | 6,482,226   |   |   |   | 6,445,556 |   |
| Amortization of deferred issuance cost                                            |   |                    | 464,145     |   |   |   | 464,145 |   |
| Loss on disposal of property, plant and equipment                                 |   |                    | 370         |   |   |   | 4,745 |   |
| Amortization of deferred consulting expenses                                      |   |                    | 30,675      |   |   |   | 80,000 |   |
| Provision for doubtful accounts and slow moving inventories                       |   |                    | 79,494      |   |   |   | 332,207 |   |
| Deferred taxes                                                                    |   |                    | (43,079)    |   |   |   | 125,336 |   |
| Amortization of stock-based compensation expense                                  |   |                    | 1,280,829   |   |   |   | 1,127,500 |   |
| Equity in (earnings)/loss from unconsolidated entities                            |   |                    | 53,326      |   |   |   | (264,536 | )  |
| Independent director stock compensation                                           |   |                    | 181,500     |   |   |   | 194,000 |   |
| Changes in operating assets and liabilities, net of effects of acquisitions:      |   |                    |        |   |   |   |   |   |
| (Increase) decrease in:                                                           |   |                    |        |   |   |   |   |   |
| Accounts and notes receivable                                                     |   |                    | (9,346,105) |   |   |   | 5,934,188 |   |
| Inventories                                                                       |   |                    | (8,997,546) |   |   |   | (3,841,052) |   |
| Advances to suppliers and prepaid expenses                                        |   |                    | 7,995,584   |   |   |   | 458,285 |   |
| Other current assets                                                              |   |                    | (121,192)   |   |   |   | (192,184) |   |
| Increase (decrease) in:                                                           |   |                    |        |   |   |   |   |   |
| Accounts payable                                                                  |   |                    | 3,849,965   |   |   |   | 260,564 |   |
| Other payables and accrued expenses                                               |   |                    | (5,831,985) |   |   |   | (5,514,977) |   |
| Taxes payable                                                                     |   |                    | (342,314)   |   |   |   | 204,590 |   |
| Other liabilities                                                                 |   |                    | 2,643,351   |   |   |   | 257,855 |   |
| Unrecognized tax benefits                                                         |   |                    | 1,125,140   |   |   |   | 774,190 |   |
| Net cash provided by operating activities                                         |   |                    | 7,739,895   |   |   |   | 26,451,742 |   |
|                                                                              |   |                    |        |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                             |   |                    |        |   |   |   |   |   |
| Purchases of property, plant and equipment                                        |   |                    | (337,692)   |   |   |   | (149,837 | )  |
| Purchases of construction in progress                                             |   |                    | (1,027,429) |   |   |   | (535,881) |   |
| Purchase of land use right                                                        |   |                    | -           |   |   |   | (757,187) |   |
| Refundable deposit                                                                |   |                    | -           |   |   |   | 6,396,996 |   |
| Deposit for long-term assets                                                      |   |                    | (33,898)    |   |   |   | (361,375) |   |
| Advances to equity investments                                                    |   |                    | (11,221)    |   |   |   | (172,812 | )  |
| Proceeds from disposal of property, plant and equipment                           |   |                    | -           |   |   |   | 620 |   |
| Net cash (used in) provided by investing activities                               |   |                    | (1,410,240) |   |   |   | 4,420,524 |   |
|                                                                              |   |                    |        |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                             |   |                    |        |   |   |   |   |   |
| Proceeds from bank loans                                                          |   |                    | 4,543,075   |   |   |   | 9,181,237 |   |
| Repayment of bank loans                                                           |   |                    | (6,142,267) |   |   |   | (10,209,500 | )  |
| Net cash used in financing activities                                             |   |                    | (1,599,192) |   |   |   | (1,028,263) |   |
| Effect of exchange rate changes on cash and cash equivalents                      |   |                    | 576,883     |   |   |   | 206,056 |   |
| NET INCREASE IN CASH AND CASH EQUIVALENTS                                         |   |                    | 5,307,346   |   |   |   | 30,050,059 |   |
| Cash and cash equivalents, beginning of period                                    |   |                    | 91,126,486  |   |   |   | 68,060,769 |   |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                                          |   | $                       | 96,433,832  |   |   | $  | 98,110,828 |   |

----

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

----

|   | ● | Persuasive evidence of an arrangement exists, |
|--------|---------|-----------------------------------------------|

|   | ● | Delivery has occurred or services have been rendered, |
|--------|---------|-------------------------------------------------------|

|   | ● | The seller’s price to the buyer is fixed or determinable, and |
|--------|---------|---------------------------------------------------------------------|

|   | ● | Collectability is reasonably assured. |
|--------|---------|---------------------------------------|

----

----

|   | ● | Level 1 - defined as observable inputs such as quoted prices in active markets; |
|--------|---------|---------------------------------------------------------------------------------|

|   | ● | Level 2 - defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Level 3 - defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Buildings               |                40 years                         |
|-------------------------|---------------------------------------------------------------------------------------------------------------------------------|
| Machinery and equipment |                10 years                              |
| Motor vehicles          |                5 years                               |
| Office equipment        |                5 years                               |
| Other equipment         |                5 years                               |
| Leasehold improvements  |                Shorter of 10 years or the lease term |

| a.   | The aggregate of the following: |
|----------------|---------------------------------|

|   | 1.  | The consideration transferred measured in accordance ASC 805, which generally requires acquisition-date fair value. |
|--------|----------|---------------------------------------------------------------------------------------------------------------------|

|   | 2.  | The fair value of any non-controlling interest in the acquiree. |
|--------|----------|-----------------------------------------------------------------|

|   | 3.  | In a business combination achieved in stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree. |
|--------|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| b.   | The net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with FASB ASC 805. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                     |   | Three Months EndedJune 30, |       |   | Six Months EndedJune 30, |   |
|----------------------------------------------------------|--------|----------------------------|------------|--------|--------------------------|--------|
|                                                     |   | 2010                       |       |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
| Numerator:                                               |   |                       |       |   |                     |   |   |   |   |   |   |   |
| Net income attributable to controlling interest          |   | $                          | 5,124,210  |   |                     | $      | 12,569,338 |   |   | $ | 8,247,387 |   |   | $ | 19,720,847 |   |
| Interest expense on convertible securities, net of taxes |   |                       |  -    |   |                     |   | 1,437,500 |   |   |   | - |   |   |   | 2,875,000 |   |
| Amortization of financing costs, net of taxes       |   |                       | -          |   |                     |   | 232,072 |   |   |   | - |   |   |   |  464,144 |   |
| Net income, as adjusted                                  |   | $                          | 5,124,210  |   |                     | $      | 14,238,910 |   |   | $ | 8,247,387 |   |   | $ | 23,059,991 |   |
|                                                     |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Denominator:                                             |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average shares outstanding – Basic        |   |                       | 74,743,986 |   |                     |   | 74,582,920 |   |   |   | 74,680,327 |   |   |   | 74,560,809 |   |
| Effect of dilutive instruments:                          |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Convertible notes                                        |   |                       | -          |   |                     |   | 14,232,673 |   |   |   | - |   |   |   | 12,378,902 |   |
| Common stock awards to be issued                         |   |                       | 1,113,087  |   |                     |   | - |   |   |   | 822,162 |   |   |   | - |   |
| Weighted average shares outstanding – Diluted      |   |                       | 75,857,073 |   |                     |   | 88,815,593 |   |   |   | 75,502,489 |   |   |   | 86,939,711 |   |

----

|                                             |   | Three Months Ended June 30, |       |
|--------------------------------------------------|--------|-----------------------------|------------|
|                                             |   | 2010                        |       |   | 2009 |   |
| Manufacturing Segment                            |   |                        |       |   |   |   |
| Revenue from pharmaceutical products             |   | $                           | 63,776,505 |   |   |   | 58,438,805 |   |
| Revenue from nutraceutical products              |   |                        | 9,934,088  |   |   |   | 9,523,090 |   |
| Total manufacturing revenue                      |   |                        | 73,710,593 |   |   |   | 67,961,895 |   |
| Total manufacturing costs                        |   |                        | 33,975,991 |   |   |   | 26,448,200 |   |
| Interest (expense) income, net                   |   |                        | (79,395)   |   |   |   | 17,258 |   |
| Depreciation, depletion and amortization expense |   |                        | 1,220,088  |   |   |   | 1,254,961 |   |
| Other operating expenses                         |   |                        | 26,867,611 |   |   |   | 19,642,184 |   |
| Income tax expense                               |   |                        | 2,395,850  |   |   |   | 3,826,719 |   |
| Operating income of manufacturing segment        |   |                        | 9,171,658  |   |   |   | 16,807,089 |   |

|                                                                         | Three Months Ended June 30, |   |
|------------------------------------------------------------------------------|-----------------------------|--------|
|                                                                         | 2010                        |   | 2009 |   |
|                                                                         |                        |   |   |   |
| Distribution Segment                                                         |                        |   |   |   |   |   |
| Distribution revenue                                                         |                        | $      | 3,585,619 |   |   | $ | 3,260,142 |   |
| Distribution costs                                                           |                        |   | 3,479,869 |   |   |   | 3,146,723 |   |
| Interest income, net                                                         |                        |   | 18,092 |   |   |   | 32,476 |   |
| Depreciation, depletion and amortization expense                             |                        |   | 9,550 |   |   |   | 9,140 |   |
| Equity in earnings from unconsolidated entities                              |                        |   | 740,345 |   |   |   | 601,970 |   |
| Other operating expenses                                                     |                        |   | 347,772 |   |   |   | 383,530 |   |
| Income tax expense (benefit)                                                 |                        |   | - |   |   |   | (91,161 | ) |
| Operating income of distribution segment                                     |                        |   | 506,865 |   |   |   | 446,356 |   |
|                                                                         |                        |   |   |   |   |   |   |   |
| Reconciliation to Consolidated Net Income Available for Common Shareholders: |                        |
| Total net operating income, as defined, for reportable segments              |                        |   | 9,678,523 |   |   |   | 17,253,445 |   |
| Unallocated                                                                  |                        |   | (4,554,313 | ) |   |   | (4,684,107 | ) |
| Consolidated Net Income Available for Common Shareholders                    |                        | $      | 5,124,210 |   |   | $ | 12,569,338 |   |

|                                             |   | Six Months Ended June 30, |        |
|--------------------------------------------------|--------|---------------------------|-------------|
|                                             |   | 2010                      |        |   | 2009 |   |
|                                             |   |                      |        |   |   |   |
| Manufacturing Segment                            |   |                      |        |   |   |   |
| Revenue from pharmaceutical products             |   | $                         | 104,641,586 |   |   |   | 93,118,274 |   |
| Revenue from nutraceutical products              |   |                      | 19,599,791  |   |   |   | 18,435,483 |   |
| Total manufacturing revenue                      |   |                      | 124,241,377 |   |   |   | 111,553,757 |   |
| Total manufacturing costs                        |   |                      | 56,367,559  |   |   |   | 41,719,038 |   |
| Interest (expense) income, net                   |   |                      | (163,584)   |   |   |   | 20,297 |   |
| Depreciation, depletion and amortization expense |   |                      | 2,415,444   |   |   |   | 2,493,343 |   |
| Other operating expenses                         |   |                      | 44,833,832  |   |   |   | 33,300,054 |   |
| Income tax expense                               |   |                      | 3,835,406   |   |   |   | 6,293,854 |   |
| Operating income of manufacturing segment        |   |                      | 16,625,552  |   |   |   | 27,767,765 |   |

----

|                                                                         |   | Six Months Ended June 30, |        |
|------------------------------------------------------------------------------|--------|---------------------------|-------------|
|                                                                         |   | 2010                      |        |   | 2009 |   |
|                                                                         |   |                      |        |   |   |   |
| Distribution Segment                                                         |   |                      |        |   |   |   |   |   |
| Distribution revenue                                                         |   | $                         | 6,804,603   |   |   | $ | 5,745,470 |   |
| Distribution costs                                                           |   |                      | 6,601,348   |   |   |   | 5,536,223 |   |
| Interest income, net                                                         |   |                      | 31,662      |   |   |   | 107,419 |   |
| Depreciation, depletion and amortization expense                             |   |                      | 18,925      |   |   |   | 16,903 |   |
| Equity in earnings from unconsolidated entities                              |   |                      | 1,344,795   |   |   |   | 1,095,873 |   |
| Other operating expenses                                                     |   |                      | 621,850     |   |   |   | 536,541 |   |
| Income tax expense or (benefit)                                              |   |                      | -           |   |   |   | (88,532) |   |
| Operating income of distribution segment                                     |   |                      | 938,937     |   |   |   | 947,627 |   |
|                                                                         |   |                      |        |   |   |   |   |   |
| Reconciliation to Consolidated Net Income Available for Common Shareholders: |
| Total net operating income, as defined, for reportable segments              |   |                      | 17,564,489  |   |   |   | 28,715,392 |   |
| Unallocated                                                                  |   |                      | (9,317,102) |   |   |   | (8,994,545) |   |
| Consolidated Net Income Available for Common Shareholders                    |   | $                         | 8,247,387   |   |   | $ | 19,720,847 |   |

|                                            |   | JUNE 30,2010 |       |   | DECEMBER 31, 2009 |   |
|-------------------------------------------------|--------|--------------|------------|--------|-------------------|--------|
| Raw materials                                   |   | $            | 7,615,768  |   |              | $      | 4,599,700 |   |
| Work in progress                                |   |         | 3,183,830  |   |              |   | 2,407,927 |   |
| Finished goods                                  |   |         | 8,238,126  |   |              |   | 3,043,926 |   |
| Total inventories                               |   |         | 19,037,724 |   |              |   | 10,051,553 |   |
| Less: provision against slow-moving inventories |   |         | (21,146)   |   |              |   | (35,842 | )  |
| Inventories, net                                |   | $            | 19,016,578 |   |              | $      | 10,015,711 |   |

|                           |   | JUNE 30,2010 |        |   | DECEMBER 31, 2009 |   |
|--------------------------------|--------|--------------|-------------|--------|-------------------|--------|
| Cost of land use rights        |   | $            | 160,838,333 |   |              | $      | 160,165,545 |   |
| Less: Accumulated amortization |   |         | (8,243,338) |   |              |   | (6,561,349 | )  |
| Land use rights, net           |   | $            | 152,594,995 |   |              | $      | 153,604,196 |   |

----

|                               |   | JUNE 30,2010 |         |   | DECEMBER 31, 2009 |   |
|------------------------------------|--------|--------------|--------------|--------|-------------------|--------|
| At cost:                           |   |         |         |   |              |   |
| Buildings                          |   | $            | 91,938,573   |   |              | $      | 91,565,622 |   |
| Machinery and equipment            |   |         | 21,796,574   |   |              |   | 21,016,658 |   |
| Motor vehicles                     |   |         | 1,541,687    |   |              |   | 1,535,238 |   |
| Office equipment                   |   |         | 2,233,021    |   |              |   | 2,157,528 |   |
| Other equipment                    |   |         | 1,657,892    |   |              |   | 610,945 |   |
|                               |   |         | 119,167,747  |   |              |   | 116,885,991 |   |
| Less : Accumulated depreciation    |   |         |         |   |              |   |   |   |
| Buildings                          |   |         | (7,791,456)  |   |              |   | (6,600,971 | )  |
| Machinery and equipment            |   |         | (13,223,024) |   |              |   | (12,483,002 | )  |
| Motor vehicles                     |   |         | (1,237,455)  |   |              |   | (1,130,968 | )  |
| Office equipment                   |   |         | (1,227,910)  |   |              |   | (1,037,234 | )  |
| Other equipment                    |   |         | (242,432)    |   |              |   | (165,551 | )  |
|                               |   |         | (23,722,277) |   |              |   | (21,417,726 | )  |
| Property, plant and equipment, net |   | $            | 95,445,470   |   |              | $      | 95,468,265 |   |

|                           |   | JUNE 30,2010 |         |   | DECEMBER 31, 2009 |   |
|--------------------------------|--------|--------------|--------------|--------|-------------------|--------|
| At cost:                       |   |         |         |   |              |   |
| Product licenses               |   | $            | 15,589,656   |   |              | $      | 15,524,443 |   |
| Trademarks                     |   |         | 10,629,376   |   |              |   | 10,584,914 |   |
| Patents                        |   |         | 4,828,301    |   |              |   | 4,808,103 |   |
| Proprietary technology         |   |         | 283,550      |   |              |   | 282,364 |   |
| Software                       |   |         | 74,133       |   |              |   | 73,822 |   |
|                           |   |         | 31,405,016   |   |              |   | 31,273,646 |   |
| Less: Accumulated amortization |   |         |         |   |              |   |   |   |
| Product licenses               |   | $            | (7,807,272)  |   |              | $      | (6,396,185 | )  |
| Trademarks                     |   |         | (5,010,610)  |   |              |   | (4,168,125 | )  |
| Patents                        |   |         | (2,160,324)  |   |              |   | (1,935,171 | )  |
| Proprietary technology         |   |         | (82,807)     |   |              |   | (67,468 | )  |
| Software                       |   |         | (14,900)     |   |              |   | (11,143 | )  |
|                           |   |         | (15,075,913) |   |              |   | (12,578,092 | )  |
| Other intangible assets, net   |   | $            | 16,329,103   |   |              | $      | 18,695,554 |   |

----

|                               |   | JUNE 30,2010 |        |   | DECEMBER 31, 2009 |   |
|------------------------------------|--------|--------------|-------------|--------|-------------------|--------|
| Cost of investments:               |   |         |        |   |              |   |
| AXN                                |   | $            | 22,759,612  |   |              | $      | 22,759,612 |   |
| Nuo Hua Affiliate                  |   |         | 32,999,023  |   |              |   | 32,999,023 |   |
| Jinji                              |   |         | 86,067      |   |              |   | 86,067 |   |
| Share of equity income (loss):     |   |         |        |   |              |   |   |   |
| AXN                                |   |         | (3,310,270) |   |              |   | (1,909,244 | )  |
| Nuo Hua Affiliate                  |   |         | 4,761,692   |   |              |   | 3,260,590 |   |
| Jinji                              |   |         | 48,943      |   |              |   | 45,480 |   |
| Advances:                          |   |         |        |   |              |   |   |   |
| AXN                                |   |         | (3,300)     |   |              |   | 3,300 |   |
| Jinji                              |   |         | 99,281      |   |              |   | 81,059 |   |
| Long-term investments and advances |   | $            | 57,441,048  |   |              | $      | 57,325,887 |   |

|                                              | Three Months Ended June 30, |   |
|---------------------------------------------------|-----------------------------|--------|
|                                              | 2010                        |   | 2009 |   |
|                                              |                        |   |   |   |
| Equity (income) - Nuo Hua Affiliate               |                        | $      | (740,345) |   |   | $ | (601,970) |   |
| Equity loss - AXN                                 |                        |   | 913,177 |   |   |   | 775,272 |   |
| Equity (income) - Jinji Printing                  |                        |   | (2,033) |   |   |   | (44) |   |
| Total equity in loss from unconsolidated entities |                        | $      | 170,799 |   |   | $ | 173,258 |   |

----

|                                                         |   | Six Months Ended June 30, |       |
|--------------------------------------------------------------|--------|---------------------------|------------|
|                                                         |   | 2010                      |       |   | 2009 |   |
|                                                         |   |                      |       |   |
| Equity (income) - Nuo Hua Affiliate                          |   | $                         | (1,344,795 | ) |   | $ | (1,095,873) |   |
| Equity loss - AXN                                            |   |                      | 1,401,026  |   |   |   | 832,797 |   |
| Equity (income) - Jinji Printing                             |   |                      | (2,905)    |   |   |   | (1,460) |   |
| Total equity in (earnings) loss from unconsolidated entities |   | $                         | 53,326     |   |   | $ | (264,536) |   |

|                                           |   | June 30,2010 |       |   | December 31,2009 |   |
|------------------------------------------------|--------|--------------|------------|--------|------------------|--------|
| Investment in AXN based on quoted market price |   | $            | 54,732,800 |   |             | $      | 33,578,405 |   |
| Carrying amount of investment in AXN           |   | $            | 19,449,342 |   |             | $      | 20,850,368 |   |

|                                  |   | JUNE 30,2010 |      |   | DECEMBER 31, 2009 |   |
|---------------------------------------|--------|--------------|-----------|--------|-------------------|--------|
| Payment for long-term supply contract |   | $            | 7,500,808 |   |              | $      | 7,469,432 |   |
| Deposits for long-term assets         |   |         | 466,976   |   |              |   | 439,654 |   |
| Total other long-term assets          |   | $            | 7,967,784 |   |              | $      | 7,909,086 |   |

----

|   | ● | Total offering is $115,000,000 aggregate principal amount of 5.00% Convertible Senior Notes due on July 15, 2015. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------|

|   | ● | Interest at 5.00% per year, payable semiannually in arrears in cash. |
|--------|---------|----------------------------------------------------------------------|

|   | ● | The Notes are convertible, at the option of the holder, at any time prior to the close of business on the second business day preceding the maturity date based on an initial conversion rate of 107.6195 shares per $1,000 principal amount of Notes, which represents an initial conversion price of approximately $9.29 per share. (See below) |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | The conversion rate is subject to certain adjustments. In particular, holders who convert their Notes in connection with certain events of fundamental changes, as defined pursuant to the convertible notes agreement, may be entitled to a make whole premium in the form of additional shares of our common stock. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | The initial conversion rate may also be adjusted on January 15, 2009 if the volume weighted average price (“VWAP”) of common stock for each of the 30 consecutive trading days ended on January 15, 2009 is less than $8.08 per share. In such an event, the conversion rate will be increased as a one-time conversion price adjustment such that the conversion price as adjusted would represent the greater of (1) 115.0% of such arithmetic average of the daily VWAP and (2) $8.08. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Holders may require the Company to repurchase all or a portion of their Notes on July 15, 2013 for cash at a price equal to 100% of the principal amount of the notes to be purchased, plus accrued and unpaid interest, if any, up to, but excluding, the repurchase date. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | If a fundamental change event occurs, holders will have the right to require the Company to repurchase for cash all or any portion of their notes. The fundamental change purchase price will be 100% of the principal amount of the Notes to be purchased plus accrued and unpaid interest, if any, up to, but excluding, the fundamental change repurchase date. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | The Notes are unsecured, unsubordinated obligations and rank equal in right of payment to all of the Company’s existing and future unsecured and unsubordinated indebtedness. The Notes will be effectively subordinated to all of the Company’s existing and future secured indebtedness. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| Grant Date                 |   | April 10,2009 |   |    | November 25,2008 |   |   | April 9,2008 |    |   | August 20,2007 |   |   | April 20,2007 |   |
|----------------------------|--------|---------------|--------|---------|------------------|--------|--------|--------------|---------|--------|----------------|--------|--------|---------------|--------|
|                       |   |          |   |    |             |   |   |         |    |   |           |   |   |          |   |   |   |   |   |   |
| Risk-free interest rates   |   |          | 2.33   | %  |             |   |   | 2.41         | %  |   |           |   | 2.93   | %        |   |   |   | 4.45 | %  |   |   |   | 4.59 | % |   |
| Expected term              |   |          | 6.5    |    |             |   |   | 6.5          |    |   |           |   | 6.5    |          |   |   |   | 6.5 |   |   |   |   | 6.5 |   |   |
| Expected volatility        |   |          | 65.70  | %  |             |   |   | 64.81        | %  |   |           |   | 56.89  | %        |   |   |   | 71.71 | %  |   |   |   | 74.69 | %  |   |
| Expected dividend yield    |   |          | 0.00   | %  |             |   |   | 0.00         | %  |   |           |   | 0.00   | %        |   |   |   | 0.00 | %  |   |   |   | 0.00 | % |   |
| Fair value of share option |   |          | 2.64   |    |             |   |   | 3.34         |    |   |           |   | 4.81   |          |   |   |   | 5.87 |   |   |   |   | 7.44 |   |   |

----

----

ITEM 2

----

|                                                   |    | Three Months EndedJune 30, |       |   | Three Months EndedJune 30, |    |
|--------------------------------------------------------|--------------|----------------------------|------------|--------|----------------------------|--------------|
|                                              |    | 2010                       |       |   | 2009                       |         |   | 2010 |    |    | 2009 |    |
|                                              |    |                       |       |   |                       |         |   |   |    |    |   |    |
| Revenues                                               |    | $                          | 77,296,212 |   |                       |         | 71,222,037 |   |    |    | 100% |    |    |    |  100% |    |
| Cost of sales                                          |    |                  | 37,455,860 |   |                       |         | 29,594,923 |   |    |    | 48 |   |   |   | 42 |   |
| GROSS PROFIT                                           |    |                  | 39,840,352 |   |                       |         | 41,627,114 |   |    |    | 52 |   |   |   | 58 |   |
|                                                   |         |                       |       |   |                       |         |   |   |   |   |   |   |   |   |   |   |
| Selling and marketing expenses                         |    |                  | 11,505,462 |   |                       |         |    9,396,129 |   |    |    | 15 |   |   |   | 13 |   |
| Advertising costs                                      |    |                  | 9,217,247  |   |                       |         | 7,779,936 |   |    |    | 12 |   |   |   | 11 |   |
| Research and development costs                         |         |                       | 3,250,882  |   |                       |         | 809,584 |   |   |   | 4 |   |   |   | 1 |   |
| General and administrative expenses                    |    |                  | 5,158,104  |   |                       |         | 4,026,425 |   |    |    | 7 |   |   |   | 6 |   |
| Depreciation and amortization                          |    |                  | 1,622,989  |   |                       |         | 1,623,556 |   |    |    | 2 |   |   |   | 2 |   |
| Total operating expenses                               |    |                  | 30,754,684 |   |                       |         | 23,635,630 |   |    |    | 40 |   |   |   | 33 |   |
|                                              |    |                  |       |   |                       |         |   |   |    |    |   |   |   |   |   |   |
| INCOME FROM OPERATIONS                                 |    |                  | 9,085,668  |   |                       |         | 17,991,484 |   |    |    | 12 |   |   |   | 25 |   |
| Equity in earnings (loss) from unconsolidated entities |    |                  | (170,799)  |   |                       |         | (173,258) |   |    |    | 0 |   |   |   | 0 |   |
| Interest expense, net                                  |    |                  | 1,371,246  |   |                       |         | 1,620,069 |   |    |    | 2 |   |   |   | 2 |   |
| Other expenses, net                                    |    |                  | 30,039     |   |                       |         | 16,329 |   |    |    | 0 |   |   |   | 0 |   |
| INCOME BEFORE INCOME TAX                               |    |                  | 7,513,584  |   |                       |         | 16,181,828 |   |    |    | 10 |   |   |   | 23 |   |
| Income tax                                             |    |                  | 2,395,850  |   |                       |         | 3,735,558 |   |    |    | 3 |   |   |   | 5 |   |
| NET INCOME                                             |    |                       | 5,117,734  |   |                       |         | 12,446,270 |   |    |    | 7 |   |   |   | 18 |   |
| Net loss attributable to non-controlling interest      |    |                  | 6,476      |   |                       |         | 123,068 |   |    |    | 0 |   |   |   | 0 |   |
| NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST        |         | $                          | 5,124,210  |   |                       |         | 12,569,338 |   |   |   | 7% |   |   |   | 18% |   |
| EARNINGS PER COMMON SHARE                              |    |                  |       |   |                       |         |   |   |    |    |    |    |    |    |    |    |
| Basic                                                  |         | $                          | 0.07       |   |                       |         | 0.17 |   |    |    |    |    |    |    |    |   |
| Diluted                                                |         | $                          | 0.07       |   |                       |         | 0.16 |   |   |   |   |   |   |   |   |   |

|                                 |    | Three Months EndedJune 30, |    |         | Increase/ |         |         | Increase/  |         |
|--------------------------------------|--------------|----------------------------|--------------|--------------|-----------|--------------|--------------|------------|--------------|
|                            |    | 2010                       |    |    | 2009      |    |    | (Decrease) |    |    | (Decrease) |    |
| Revenue from pharmaceutical products |    | $                          | 63,776,505   |         |      |         | 58,438,805   |       |         |   | 5,337,700 |   |   |   | 9% |   |
| Revenue from nutraceutical products  |    |                  | 9,934,088    |         |      |         | 9,523,090    |       |         |   | 410,998 |   |   |   | 4 |    |
| Total manufacturing revenue          |    |                  | 73,710,593   |         |      |         | 67,961,895   |       |         |   | 5,748,698 |   |   |   | 8 |    |
| Distribution revenue                 |    |                  | 3,585,619    |         |      |         | 3,260,142    |       |         |   | 325,477 |   |   |   | 10 |    |
| Total revenues                       |    | $                          | 77,296,212   |         |      |         | 71,222,037   |       |         |   | 6,074,175 |   |   |   | 9% |    |

|   | ● | the sales of our prescription pharmaceutical products increased from $25,163,884 in the second quarter of 2009 to $30,396,472 in the same period of 2010, or a 21% increase. This is primarily due to the double digit increase in sales of our prescription formulated Jinji capsule, SHL powder, YYQH capsule and the expansion of CCXA generic pharmaceutical products in the rural market. The overall increase in sales was supported by our continuous marketing efforts, increase in new products offerings, as well as expanding coverage in the rural market. |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | ● | the sales of our OTC pharmaceutical products amounted to $33,380,033, and remained stable compared to the second quarter of 2009; and |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------|

|                     |    | Three Months EndedJune 30, |    |         | Increase/ |         |       | Increase/    |         |
|--------------------------|--------------|----------------------------|--------------|--------------|-----------|--------------|------------|--------------|--------------|
|                |    | 2010                       |    |    | 2009      |    |       | (Decrease)   |         |   | (Decrease) |   |
| Pharmaceutical products  |    | $                          | 28,953,638   |         |      |         | 22,576,349 |    |    | $ | 6,377,289 |   |   |   | 28% |    |
| Nutraceutical products   |    |                  | 5,022,353    |         |      |         | 3,871,851  |    |    |    | 1,150,502 |   |   |   | 30 |    |
| Total manufacturing cost |    |                  | 33,975,991   |         |      |         | 26,448,200 |    |    |    | 7,527,791 |   |   |   | 28 |    |
| Distribution cost        |    |                  | 3,479,869    |         |      |         | 3,146,723  |    |    |    | 333,146 |   |   |   | 11 |    |
| Total cost               |    | $                          | 37,455,860   |         |      |         | 29,594,923 |    |    | $ | 7,860,937 |   |   |   | 27% |    |

|                           |   | Three Months EndedJune 30, |         |         | Increase/ |   |      | Increase/  |
|--------------------------------|--------|----------------------------|--------------|--------------|-----------|--------|-----------|------------|
|                           |   | 2010                       |    |    | 2009      |   |      | (Decrease) |   |   | (Decrease) |
| Promotional materials and fees |   | $                          | 6,980,088    |         |      |   | 6,107,927 |       |   | $ | 872,161 |   |   |   | 14% |   |
| Payroll                        |   |                       | 2,090,093    |         |      |   | 1,338,517 |       |   |   | 751,576 |   |   |   | 56 |   |
| Shipping                       |   |                       | 1,467,934    |         |      |   | 1,039,217 |       |   |   | 428,717 |   |   |   | 41 |   |
| Trips and traveling            |   |                       | 777,847      |         |      |   | 647,184   |       |   |   | 130,663 |   |   |   | 20 |   |
| Office supplies                |   |                       | 100,308      |         |      |   | 195,641   |       |   |   | (95,333) |   |   |   | (49) |   |
| Miscellaneous                  |   |                       | 89,192       |         |      |   | 67,643    |       |   |   | 21,549 |   |   |   | 32 |   |
| TOTAL                          |   | $                          | 11,505,462   |         |      |   | 9,396,129 |       |   | $ | 2,109,333 |   |   |   | 22% |   |

|   | ● | promotional materials and fees increased $872,161, or 14% in the second quarter of 2010 as compared to the same period of 2009. This was primarily due to the increase in our promotion activities and initiatives to support our continuous growth of our revenue. In particular, the Company held more external sales conference to promote existing and new prescription products such as SHL products. The increase in the promotional materials and fees is in line with the sales increase for those comparative periods; |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | payroll expense increased $751,576, or 56% in the second quarter of 2010 as compared to the same period of 2009. This was primarily due to the increase of the average salaries and bonuses for our sales people as a result of our business expanding in the rural market as well as the increase in sales volume; and |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | shipping expense increased $428,717, or 41% in the second quarter of 2010 as compared to the same period of 2009. This was primarily due to the increase in sales volume and the increase in logistics costs. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                          |    | Three Months EndedJune 30, |    |         | Increase/ |         |      | Increase/    |         |
|-------------------------------|--------------|----------------------------|--------------|--------------|-----------|--------------|-----------|--------------|--------------|
|                     |    | 2010                       |    |    | 2009      |    |      | (Decrease)   |         |   | (Decrease) |   |
| Payroll                       |    | $                          | 970,481      |         |      |         | 801,895   |    |    | $ | 168,586 |   |   |    | 21% |   |
| Staff welfare and insurance   |    |                  | 358,331      |         |      |         | 308,497   |    |    |    | 49,834 |   |   |    | 16 |   |
| Professional fees             |    |                  | 771,824      |         |      |         | 473,234   |    |    |    | 298,590 |   |   |    | 63 |   |
| Directors’ remuneration |    |                  | 299,375      |         |      |         | 230,000   |    |    |    | 69,375 |   |   |    | 30 |   |
| Stock based compensation      |    |                  | 810,067      |         |      |         | 754,843   |    |    |    | 55,224 |   |   |    | 7 |   |
| Trip and traveling            |    |                  | 143,582      |         |      |         | 258,199   |    |    |    | (114,617) |   |   |    | (44) |   |
| Maintenance and repair        |    |                  | 132,388      |         |      |         | 21,449    |    |    |    | 110,939 |   |   |    | 517 |   |
| Office supplies               |    |                  | 298,982      |         |      |         | 171,615   |    |    |    | 127,367 |   |   |    | 74 |   |
| Vehicles and utilities        |    |                  | 193,725      |         |      |         | 120,128   |    |    |    | 73,597 |   |   |    | 61 |   |
| Conference fee                |    |                  | 67,701       |         |      |         | 101,465   |    |    |    | (33,764) |   |   |    | (33) |   |
| Miscellaneous                 |    |                  | 1,111,648    |         |      |         | 785,100   |    |    |    | 326,548 |   |   |    | 42 |   |
| TOTAL                         |    | $                          | 5,158,104    |         |      |         | 4,026,425 |    |    | $ | 1,131,679 |   |   |    | 28% |   |

|   | ● | payroll expenses increased by $168,586, or 21% and Staff welfare and insurance expenses increased by $49,834, or 16% as compared to the second quarter of 2009. These reflect the Company’s increased efforts in encouraging and optimizing management team as a result of the changing market environment and China’s labor costs pressure; |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | professional fees increased by $298,590, or 63%, as compared to the second quarter of 2009. This was primarily due to the increase in accounting fees relating to the accrual of audit fees to our new independent auditor; and |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | maintenance and repair fees increased by $110,939, or 517%, as compared to the second quarter of 2009. We continued upgrading our existing equipment and technologies in the second quarter of 2010 as a result of more stringent GMP manufacturing standards as well as to improve production efficiency. |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                                                   |    | Six Months EndedJune 30, |        |   | Six Months EndedJune 30, |    |
|--------------------------------------------------------|--------------|--------------------------|-------------|--------|--------------------------|--------------|
|                                              |    | 2010                     |        |   | 2009                     |         |   | 2010 |    |    | 2009 |    |
|                                              |    |                     |        |   |                     |         |   |   |    |    |   |    |
| Revenues                                               |    | $                        | 131,045,980 |   |                     |         | 117,299,227 |   |    |    | 100% |    |    |    |  100% |    |
| Cost of sales                                          |    |                | 62,968,907  |   |                     |         | 47,255,261 |   |    |    | 48 |   |   |   | 40 |   |
| GROSS PROFIT                                           |    |                | 68,077,073  |   |                     |         | 70,043,966 |   |    |    | 52 |   |   |   | 60 |   |
|                                                   |         |                     |        |   |                     |         |   |   |   |   |   |   |   |   |   |   |
| Selling and marketing expenses                         |    |                | 17,481,688  |   |                     |         | 14,607,631 |   |    |    | 13 |   |   |   | 13 |   |
| Advertising costs                                      |    |                | 15,965,717  |   |                     |         | 13,347,293 |   |    |    | 12 |   |   |   | 11 |   |
| Research and development costs                         |         |                     | 6,029,691   |   |                     |         | 1,559,382 |   |   |   | 5 |   |   |   | 1 |   |
| General and administrative expenses                    |    |                | 9,924,590   |   |                     |         | 8,417,126 |   |    |    | 8 |   |   |   | 7 |   |
| Depreciation and amortization                          |    |                | 3,219,947   |   |                     |         | 3,256,142 |   |    |    | 2 |   |   |   | 3 |   |
| Total operating expenses                               |    |                | 52,621,633  |   |                     |         | 41,187,574 |   |    |    | 40 |   |   |   | 35 |   |
|                                              |    |                |        |   |                     |         |   |   |    |    |   |   |   |   |   |   |
| INCOME FROM OPERATIONS                                 |    |                | 15,455,440  |   |                     |         | 28,856,392 |   |    |    | 12 |   |   |   | 25 |   |
| Equity in earnings (loss) from unconsolidated entities |    |                | (53,326)    |   |                     |         | 264,536 |   |    |    | 0 |   |   |   | 0 |   |
| Interest expense, net                                  |    |                | 2,937,031   |   |                     |         | 3,199,338 |   |    |    | 2 |   |   |   | 3 |   |
| Other expenses, net                                    |    |                | 17,792      |   |                     |         | 114,938 |   |    |    | 0 |   |   |   | 0 |   |
| INCOME BEFORE INCOME TAX                               |    |                | 12,447,291  |   |                     |         | 25,806,652 |   |    |    | 10 |   |   |   | 22 |   |
| Income tax                                             |    |                | 4,211,780   |   |                     |         | 6,205,322 |   |    |    | 3 |   |   |   | 5 |   |
| NET INCOME                                             |    |                     | 8,235,511   |   |                     |         | 19,601,330 |   |    |    | 7 |   |   |   | 17 |   |
| Net loss attributable to non-controlling interest      |    |                | 11,876      |   |                     |         | 119,517 |   |    |    | 0 |   |   |   | 0 |   |
| NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST        |         | $                        | 8,247,387   |   |                     |         | 19,720,847 |   |   |   | 7 |   |   |   | 17 |   |
| EARNINGS PER COMMON SHARE                              |    |                |        |   |                     |         |   |   |    |    |    |    |    |    |    |    |
| Basic                                                  |         | $                        | 0.11        |   |                     |         | 0.27 |   |    |    |    |    |    |    |    |   |
| Diluted                                                |         | $                        | 0.11        |   |                     |         | 0.26 |   |   |   |   |   |   |   |   |   |

|                                 |    | Six Months EndedJune 30, |    |         | Increase/ |         |         | Increase/  |         |
|--------------------------------------|--------------|--------------------------|--------------|--------------|-----------|--------------|--------------|------------|--------------|
|                            |    | 2010                     |    |    | 2009      |    |    | (Decrease) |    |    | (Decrease) |    |
| Revenue from pharmaceutical products |    | $                        | 104,641,586  |         |      |         | 93,118,274   |       |         |   | 11,523,312 |   |   |   | 12% |   |
| Revenue from nutraceutical products  |    |                | 19,599,791   |         |      |         | 18,435,483   |       |         |   | 1,164,308 |   |   |   | 6% |    |
| Total manufacturing revenue          |    |                | 124,241,377  |         |      |         | 111,553,757  |       |         |   | 12,687,620 |   |   |   | 11% |    |
| Distribution revenue                 |    |                | 6,804,603    |         |      |         | 5,745,470    |       |         |   | 1,059,133 |   |   |   | 18% |    |
| Total revenues                       |    | $                        | 131,045,980  |         |      |         | 117,299,227  |       |         |   | 13,746,753 |   |   |   | 12% |    |

|   | ● | the sales of our prescription pharmaceutical products increased from $41,367,074, in the six months ended June 30, 2009 to $51,342,902 in the same period of 2010, or a 24% increase. This is primarily due to the double digit increase in sales of our prescription formulated Jinji capsule, SHL powder, YYQH capsule and the expansion of CCXA generic pharmaceutical products in the rural market. The overall increase in sales was supported by our continuous marketing efforts, increase in new products offering, as well as expanding coverage in the rural market; |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | ● | the sales of our OTC pharmaceutical products increased from $51,751,200 to $53,298,684, or a 3% increase; and |
|--------|---------|---------------------------------------------------------------------------------------------------------------|

|                     |    | Six Months EndedJune 30, |    |         | Increase/ |         |       | Increase/    |         |
|--------------------------|--------------|--------------------------|--------------|--------------|-----------|--------------|------------|--------------|--------------|
|                |    | 2010                     |    |    | 2009      |    |       | (Decrease)   |         |   | (Decrease) |   |
| Pharmaceutical products  |    | $                        | 46,577,842   |         |      |         | 34,294,274 |    |    | $ | 12,283,568 |   |   |   | 36% |    |
| Nutraceutical products   |    |                | 9,789,717    |         |      |         | 7,424,764  |    |    |    | 2,364,953 |   |   |   | 32% |    |
| Total manufacturing cost |    |                | 56,367,559   |         |      |         | 41,719,038 |    |    |    | 14,648,521 |   |   |   | 35% |    |
| Distribution cost        |    |                | 6,601,348    |         |      |         | 5,536,223  |    |    |    | 1,065,125 |   |   |   | 19% |    |
| Total cost               |    | $                        | 62,968,907   |         |      |         | 47,255,261 |    |    | $ | 15,713,646 |   |   |   | 33% |    |

|                           |   | Six Months EndedJune 30, |         |         | Increase/ |   |       | Increase/  |
|--------------------------------|--------|--------------------------|--------------|--------------|-----------|--------|------------|------------|
|                           |   | 2010                     |    |    | 2009      |   |       | (Decrease) |   |   | (Decrease) |
| Promotional materials and fees |   | $                        | 9,191,371    |         |      |   | 8,253,282  |       |   | $ | 938,089 |   |   |   | 11% |   |
| Payroll                        |   |                     | 3,738,485    |         |      |   | 2,724,892  |       |   |   | 1,013,593 |   |   |   | 37 |   |
| Shipping                       |   |                     | 2,441,563    |         |      |   | 1,854,302  |       |   |   | 587,261 |   |   |   | 32 |   |
| Trips and traveling            |   |                     | 1,519,197    |         |      |   | 1,266,864  |       |   |   | 252,333 |   |   |   | 20 |   |
| Office supplies                |   |                     | 240,441      |         |      |   | 310,323    |       |   |   | (69,882) |   |   |   | (23) |   |
| Miscellaneous                  |   |                     | 350,631      |         |      |   | 197,968    |       |   |   | 152,663 |   |   |   | 77 |   |
| TOTAL                          |   | $                        | 17,481,688   |         |      |   | 14,607,631 |       |   | $ | 2,874,057 |   |   |   | 20% |   |

|   | ● | promotional materials and fees increased $938,089, or 11% in the six months ended June 30, 2010 as compared to the same period of 2009. This was primarily due to the increase in our promotion activities and initiatives to support our continuous growth of our revenue. In particular, the Company held more external sales conference to promote existing and new prescription products such as SHL products. The increase in the promotional materials and fees is in line with the sales increase for those comparative periods; |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | payroll expense increased $1,013,593, or 37% in the six months ended June 30, 2010 as compared to the same period of 2009. This was primarily due to the increase of the average salaries and bonuses for our sales people as a result of our business expanding in the rural market as well as the increase in sales volume; and |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | shipping expense increased $587,261, or 32% in the six months ended June 30, 2010 as compared to the same period of 2009. This was primarily due to the increase in sales volume and the increase in logistics costs. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                          |    | Six Months EndedJune 30, |    |         | Increase/ |         |      | Increase/    |         |
|-------------------------------|--------------|--------------------------|--------------|--------------|-----------|--------------|-----------|--------------|--------------|
|                     |    | 2010                     |    |    | 2009      |    |      | (Decrease)   |         |   | (Decrease) |   |
| Payroll                       |    | $                        | 1,747,984    |         |      |         | 1,369,977 |    |    | $ | 378,007 |   |   |    | 28% |   |
| Staff welfare and insurance   |    |                | 767,578      |         |      |         | 615,978   |    |    |    | 151,600 |   |   |    | 25 |   |
| Professional fees             |    |                | 1,550,953    |         |      |         | 1,560,110 |    |    |    | (9,157) |   |   |    | (1) |   |
| Directors’ remuneration |    |                | 489,375      |         |      |         | 465,230   |    |    |    | 24,145 |   |   |    | 5 |   |
| Stock based compensation      |    |                | 1,505,504    |         |      |         | 1,365,700 |    |    |    | 139,804 |   |   |    | 10 |   |
| Trip and traveling            |    |                | 349,249      |         |      |         | 486,025   |    |    |    | (136,776) |   |   |    | (28) |   |
| Maintenance and repair        |    |                | 303,306      |         |      |         | 41,894    |    |    |    | 261,412 |   |   |    | 624 |   |
| Office supplies               |    |                | 482,041      |         |      |         | 327,152   |    |    |    | 154,889 |   |   |    | 47 |   |
| Vehicles and utilities        |    |                | 509,881      |         |      |         | 267,625   |    |    |    | 242,256 |   |   |    | 91 |   |
| Conference fee                |    |                | 123,905      |         |      |         | 189,084   |    |    |    | (65,179) |   |   |    | (34) |   |
| Miscellaneous                 |    |                | 2,094,814    |         |      |         | 1,728,351 |    |    |    | 366,463 |   |   |    | 21 |   |
| TOTAL                         |    | $                        | 9,924,590    |         |      |         | 8,417,126 |    |    | $ | 1,507,464 |   |   |    | 18% |   |

|   | ● | payroll expenses increased by $378,007, or 28% and Staff welfare and insurance expenses increased by $151,600, or 25% as compared to the six months ended June 30 2009. These reflect the Company’s increased efforts in encouraging and optimizing management team as a result of the changing market environment and China’s labor costs pressure; and |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | maintenance and repair fees increased by $261,412, or 624%, as compared to the six months ended June 30 2009. We continued upgrading our existing equipments and technologies in the six months ended June 30 2010, as a result of more stringent GMP manufacturing standards as well as to improve production efficiency. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The increase was partially offset by the decrease of Trip and traveling expenses by $136,776, or 28%. |
|--------|-------------------------------------------------------------------------------------------------------|

----

|                        | SIX MONTHS ENDED JUNE 30 |   |
|-----------------------------|--------------------------|--------|
|                        | 2010                     |   |   | 2009 |   |
| Cash provided by (used in): |                     |   |   |   |   |
| Operating activities        |                     |   | 7,739,895 |   |   |   | 26,451,742 |   |
| Investing activities        |                     |   | (1,410,240) |   |   |   | 4,420,524 |   |
| Financing activities        |                     |   | (1,599,192) |   |   |   | (1,028,263) |   |

----

|   | ● | Cash outflow from accounts and notes receivable amounted to $9,346,105 primarily affected by the increase of our sales revenue during the six month ended June 30, 2010; |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Cash outflows from inventories amounted to $8,997,546 mainly due to the increased purchases of raw materials and finished goods for planned inventory build-up for the coming peak sales season; |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Cash inflow from advances to suppliers and prepaid expenses amounted to $7,995,584 primarily attributed to the decrease in advances payments in purchasing certain raw materials at the year end of 2009. These advance payments were for a potential increase of raw materials’ future purchase prices and most of them were settled with inventories by our suppliers during the second quarter ended June 30, 2010; |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Cash inflows from accounts payable amounted to $3,849,965 primarily attributed to the increased purchases of raw materials for planned inventory build-up; and |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Cash outflows from other payables and accrued expenses amounted to $5,831,985 primarily attributed to the decreased VAT payable balance for the slack sales season of first half year of 2010 and the payment of sales commissions accrued at December 31, 2009. |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                       |   | Payments due by period |        |
|--------------------------------------------|--------|------------------------|-------------|
|                                       |   | Total                  |        |   | Less than 1year |   |   | 1-3 years |   |   | 3-5 years |   |   | More than 5years |   |
| Purchase obligations                       |   |                   | 1,770,359   |   |   |   | 1,770,359 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Capital expenditure  commitments |   |                   | 20,027,226  |   |   |   | 11,411,652 |   |   |   | 8,615,574 |   |   |   | - |   |   |   | - |   |
| Advertising commitments                    |   |                   | 17,961,196  |   |   |   | 17,961,196 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| R&D commitments                        |   |                   | 5,052,206   |   |   |   | 4,170,968 |   |   |   | 881,238 |   |   |   | - |   |   |   | - |   |
| Long-term loan                             |   |                   | 771,227     |   |   |   | 60,629 |   |   |   | 125,895 |   |   |   | 132,345 |   |   |   | 452,358 |   |
| Convertible Notes                          |   |                   | 143,989,583 |   |   |   | 5,750,000 |   |   |   | 11,500,000 |   |   |   | 11,500,000 |   |   |   | 115,239,583 |   |
| Total                                      |   |                   | 189,571,797 |   |   |   | 41,124,804 |   |   |   | 21,122,707 |   |   |   | 11,632,345 |   |   |   | 115,691,941 |   |

----

----

ITEM 3

ITEM 4

----

PART II 

ITEM 1

ITEM 1A 

ITEM 2

ITEM 3

ITEM 4

ITEM 5

| Exhibit No. | Description                                                                                                                                                              |
|-------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1        | Certification of Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a – 14(a) of the Securities Exchange Act, as amended                     |
| 31.2        | Certification of Acting Chief Financial Officer (Principal Financial Officer) pursuant to Rule 13a – 14(a) of the Securities Exchange Act, as amended              |
| 32.1        | Certification of Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer) pursuant to 18 U.S.C. 1350, as adopted. |

----

SIGNATURES

----

| Exhibit No. | Description                                                                                                                                                              |
|-------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1        | Certification of Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a – 14(a) of the Securities Exchange Act, as amended                     |
| 31.2        | Certification of Acting Chief Financial Officer (Principal Financial Officer) pursuant to Rule 13a – 14(a) of the Securities Exchange Act, as amended              |
| 32.1        | Certification of Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer) pursuant to 18 U.S.C. 1350, as adopted. |

----