Document:

Exhibit
10.1
 

    

    
      SUBSCRIPTION
AGREEMENT

       

      This
SUBSCRIPTION AGREEMENT
(this “Agreement”) made
as of this 21st day of January, 2011 for the benefit of Bohai Pharmaceuticals
Group, Inc., a company incorporated under the laws of Nevada, USA (the “Company”), having its
principal place of business at c/o Yantai Bohai Pharmaceuticals Group Co. Ltd.,
No. 9 Daxin Road, Zhifu District, Yantai, Shandong Province, China, by the
person or entity listed on the signature page hereto under the heading
“Subscriber” (the “Subscriber”).

       

      WHEREAS, the Company desires
to sell up to an aggregate of 1,000,000 shares (the “Shares”) of the Company’s
common stock, par value $0.001 per share (the “Common Stock”), for a per
share purchase price of RMB16.55675 (US$2.50 per share);

       

      WHEREAS, the Subscriber
desires to purchase Shares from the Company on such terms; and

       

      WHEREAS, the offer and sale of
the Shares by the Company (the “Offering”) is being made in
reliance upon the provisions of Regulation S (“Regulation S”) promulgated by
the Securities and Exchange Commission (the “SEC”) under the Securities Act
of 1933, as amended (the “Securities Act”);

       

      NOW, THEREFORE, for and in
consideration of the premises and the mutual covenants hereinafter set forth,
the Company and the Subscriber do hereby agree as follows

       

      1.        
    Agreement to
Subscribe

       

      1.1           Purchase and Issuance of the
Shares.  The Subscriber is hereby subscribing for the number of
Shares indicated on the signature page hereto by the caption, “Number of Shares
Subscribed for” (the “Subscriber’s Shares”) which
Subscriber Shares will be issued solely to the Subscriber.  The
aggregate purchase price for such Subscriber’s Shares (the “Purchase Price”) is indicated
on the signature page hereto by the caption, “Purchase Price.”

       

      1.2           Delivery of the Purchase
Price.  Upon execution of this Agreement, the Subscriber shall
be bound to fulfill its obligations hereunder and hereby irrevocably commits to
deliver to the Company, on the date hereof, the Purchase Price (payable in RMB)
by bank check, wire transfer or such other form of payment as shall be
acceptable to the Company, in its sole and absolute discretion.

       

      2.       
     Representations and Warranties of
the Subscriber

       

      The
Subscriber represents and warrants to the Company that:

       

      2.1           Subscriber.  The
information concerning the Subscriber provided by the Subscriber to the Company
(including the information regarding the Subscriber set forth on the signature
page hereto) is true, complete and accurate in all respects.  The
Subscriber has provided to the Company a true, complete and accurate copy of
his, her or its People’s Republic of China identification card or other valid
photo identification.

       

      2.2           Intent.  The
Subscriber is purchasing the Shares solely for investment purposes, for the
Subscriber’s own account and not for the account or benefit of any U.S. Person
(as defined below) or any other person or entity (whether located in the
People’s Republic of China or elsewhere), and not with a view towards the
distribution or dissemination thereof.  The Subscriber has no present
arrangement to sell the Shares to or through any person or
entity.  The Subscriber understands that the Shares must be held
indefinitely unless such Shares are resold in accordance with the provisions of
Regulation S, are subsequently registered under the Securities Act or an
exemption from registration is available.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      2.3           No Obligation to Register
Shares.  The Subscriber understands that the Company is under
no obligation to register the Shares under the Securities Act, or to assist the
Subscriber in complying with the Securities Act or the securities laws of any
state of the United States or of any foreign jurisdiction other than as
expressly provided herein.

       

      2.4           Investment
Experience.  The Subscriber, or the Subscriber’s professional
advisors, have such knowledge and experience in finance, securities, taxation,
investments and other business matters as to evaluate investments of the kind
described in this Agreement.  By reason of the business and financial
experience of the Subscriber or his or her professional advisors (who are not
affiliated with or compensated in any way by the Company or any of its
affiliates or selling agents), the Subscriber can protect his or her own
interests in connection with the transactions described in this
Agreement.  The Subscriber is able to afford the loss of his, her or
its entire investment in the Shares.

       

      2.5           Independent
Investigation.  The Subscriber, in making the decision to
purchase the Shares, has relied upon an independent investigation of the Company
and has not relied upon any information or representations made by any third
parties or upon any oral or written representations or assurances from the
Company, its officers, directors or employees or any other representatives or
agents of the Company, other than as set forth in this Agreement.  The
Subscriber is familiar with the business, operations and financial condition of
the Company and has had an opportunity to ask questions of, and receive answers
from, the Company’s officers and directors concerning the Company and the terms
and conditions of the offering of the Shares and has had full access to such
other information concerning the Company as the Subscriber has
requested.

       

      2.6           Authority.  This
Agreement has been validly authorized, executed and delivered by the Subscriber
and is a valid and binding agreement enforceable in accordance with its terms,
subject to the general principles of equity and to bankruptcy or other laws
affecting the enforcement of creditors’ rights generally. The execution,
delivery and performance of this Agreement by the Subscriber does not and will
not conflict with, violate or cause a breach of any agreement, contract or
instrument to which the Subscriber is a party.

       

      2.7           No Advice from
Company.  The Subscriber acknowledges that he, she or it has
had the opportunity to review this Agreement, the exhibits hereto (including the
risk factors relating to the Company attached hereto) and the transactions
contemplated by this Agreement with the Subscriber’s own legal counsel and
investment and tax advisors.  Except for any statements or
representations of the Company made in this Agreement, the Subscriber is relying
solely on such counsel and advisors and not on any statements or representations
of the Company or any of its representatives or agents for legal, tax or
investment advice with respect to this investment, the transactions contemplated
by this Agreement or the securities laws of any jurisdiction.

       

      2.8           Reliance on Representations
and Warranties.  The Subscriber understands that the Shares are
being offered and sold to the Subscriber in reliance on exemptions contained in
specific provisions of United States federal and state securities laws and that
the Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of the Subscriber set
forth in this Agreement in order to determine the applicability of the
exemptions contained in such provisions.  

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

       

      2.9           Regulation S
Exemption.  The Subscriber understands that the Shares are
being offered and sold to him, her or it in reliance on an exemption from the
registration requirements of United States federal and state securities laws
under Regulation S promulgated under the Securities Act and that the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of the Subscriber set forth
herein in order to determine the applicability of such exemptions and the
suitability of the Subscriber to acquire the Shares.  In this regard,
the Subscriber represents, warrants and agrees that:

      

      (i)           The
Subscriber is not a U.S. Person  and is not an affiliate (as defined
in Rule 501(b) under the Securities Act) of the Company and is not acquiring the
Shares for the account or benefit of a U.S. Person.  A “U.S. Person” means any one of
the following:

      

      (A)           any
natural person resident in the United States of America;

      

      (B)           any
partnership, limited liability company, corporation or other entity organized or
incorporated under the laws of the United States of America;

      

      (C)           any
estate of which any executor or administrator is a U.S. Person;

      

      (D)           any
trust of which any trustee is a U.S. Person;

      

      (E)           any
agency or branch of a foreign entity located in the United States of
America;

      

      (F)           any
non-discretionary account or similar account (other than an estate or trust)
held by a dealer or other fiduciary for the benefit or account of a U.S.
person;

      

      (G)           any
discretionary account or similar account (other than an estate or trust) held by
a dealer or other fiduciary organized, incorporated or (if an individual)
resident in the United States of America; and

      

      (H)           any
partnership, company, corporation or other entity if:

      

       
(1)           organized
or incorporated under the laws of any foreign jurisdiction; and

       

       
(2)           formed by a
U.S. person principally for the purpose of investing in securities not
registered under the Securities Act, unless it is organized or incorporated, and
owned, by accredited investors (as defined in Rule
501(a) under the Securities Act) who are not natural persons, estates or
trusts.

      

      (ii)           At
the time of the origination of contact concerning this Agreement and the date of
the execution and delivery of this Agreement, the Subscriber was outside of the
United States.

      

      (iii)           The
Subscriber will not, during the period commencing on the date of issuance of the
Shares and ending on the first anniversary of such date, or such shorter period
as may be permitted by Regulation S or other applicable securities law (the
“Restricted Period”),
offer, sell, pledge or otherwise transfer the Shares in the United States, or to
a U.S. Person for the account or for the benefit of a U.S. Person, or otherwise
in a manner that is not in compliance with Regulation S.

      

      (iv)           The
Subscriber will, after expiration of the Restricted Period, offer, sell, pledge
or otherwise transfer the Shares only pursuant to registration under the
Securities Act or an available exemption therefrom and, in accordance with all
applicable state and foreign securities laws.

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

       

      (v)           The
Subscriber was not in the United States engaged in, and prior to the expiration
of the Restricted Period will not engage in, any short selling of or any hedging
transaction with respect to the Shares, including without limitation, any put,
call or other option transaction, option writing or equity swap.

      

      (vi)           Neither
the Subscriber nor or any person acting on his behalf has engaged, nor will
engage, in any directed selling efforts to a U.S. Person with respect to the
Shares and the Subscriber and any person acting on his or her behalf have
complied and will comply with the “offering restrictions” requirements of
Regulation S under the Securities Act.

      

      (vii)           The
transactions contemplated by this Agreement have not been pre-arranged with a
buyer located in the United States or with a U.S. Person, and are not part of a
plan or scheme to evade the registration requirements of the Securities
Act.

      

      (viii)           Neither
the Subscriber nor any person acting on its behalf has undertaken or carried out
any activity for the purpose of, or that could reasonably be expected to have
the effect of, conditioning the market in the United States, its territories or
possessions, for any of the Shares.  The Subscriber agrees not to
cause any advertisement of the Shares to be published in any newspaper or
periodical or posted in any public place and not to issue any circular relating
to the Shares, except such advertisements that include the statements required
by Regulation S under the Securities Act, and only offshore and not in the U.S.
or its territories, and only in compliance with any local applicable securities
laws.

      

      (ix)           The
Subscriber has carefully reviewed and completed the investor questionnaire
annexed hereto as Exhibit
B.

       

      2.10        No
Advertisements.  The Subscriber is not subscribing for the
Shares as a result of or subsequent to any advertisement, article, notice or
other communication published in any newspaper, magazine, or similar media or
broadcast over television or radio or via the Internet, or presented at any
seminar or meeting.

       

      2.11        Legend.  The
Subscriber acknowledges and agrees that the Shares shall bear a restricted
legend (the “Legend”),
in the form and substance as set forth in Section 4 hereof, prohibiting the
offer, sale, pledge or transfer of the securities, except (i) pursuant to an
effective registration statement filed under the Securities Act, (ii) in
accordance with the applicable provisions of Regulation S, promulgated under the
Securities Act, (iii) pursuant to an exemption from registration provided by
Rule 144 under the Securities Act (if available), and (iv) pursuant to any other
exemption from the registration requirements of the Securities Act or for estate
planning purposes (subject to any escrow restrictions).

       

      2.12        Economic
Considerations.  The Subscriber is not relying on the Company,
or its affiliates or agents with respect to economic considerations involved in
this investment.  The Subscriber has relied solely on his or her own
advisors.

       

      2.13        Compliance with
Laws.  Any resale of the Shares during the “distribution
compliance period” as defined in Rule 902(f) to Regulation S shall only be made
in compliance with exemptions from registration afforded by Regulation
S.  Further, any such sale of the Shares in any jurisdiction outside
of the United States will be made in compliance with the securities laws of such
jurisdiction.  The Subscriber will not offer to sell or sell the
Shares in any jurisdiction unless the Subscriber obtains all required consents,
if any.

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

       

      2.14        Investment
Commitment.  The Subscriber's overall commitment to investments
which are not readily marketable is not disproportionate to the Subscriber's net
worth, and an investment in the Shares will not cause such overall commitment to
become excessive.

       

      2.15        Receipt of
Information.  The Subscriber has received all documents,
records, books and other information pertaining to the Subscriber’s investment
in the Company that has been requested by the Subscriber.

       

      2.16        Information
Available.  The Subscriber acknowledges it has avail itself of
full access to the Company’s public reports filed with the SEC, which reports
can be retrieved from commercial document retrieval services and at the website
maintained by the SEC at http://www.sec.gov.

       

      2.17        No
Reliance.  Other than as set forth herein, the Subscriber is
not relying upon any other information, representation or warranty by the
Company or any officer, director, stockholder, agent or representative of the
Company in determining to invest in the Shares.  The Subscriber has
consulted, to the extent deemed appropriate by the Subscriber, with the
Subscriber’s own advisers as to the financial, tax, legal and related matters
concerning an investment in the Shares and on that basis believes that its
investment in the Shares is suitable and appropriate for the
Subscriber.

       

      2.18        No Governmental
Review.  The Subscriber is aware that no federal or state
agency has (i) made any finding or determination as to the fairness of this
investment, (ii) made any recommendation or endorsement of the Shares or the
Company, or (iii) guaranteed or insured any investment in the Shares or any
investment made by the Company.

       

      2.19        Potential Loss of
Investment; Risk Factors.  The Subscriber understands that an
investment in the Shares is a speculative investment which involves a high
degree of risk and the potential loss of his or her entire investment. The
Subscriber has considered carefully and understands the risks associated with an
investment in the Shares, a summary of which risks is annexed hereto as Exhibit
A.

       

      3.           Representations and Warranties of
the Company

       

      The
Company represents and warrants to the Subscriber that:

       

      3.1          Valid Issuance of Capital
Stock.  The total number of shares of all classes of capital
stock which the Company has authority to issue is 150,000,000 shares of Common
Stock.  As of the date hereof, the Company has 16,977,221 shares of
Common Stock issued and outstanding.  All of the issued shares of
capital stock of the Company have been duly authorized, validly issued, and are
fully paid and non-assessable.

       

      3.2          Organization and
Qualification.  The Company is a corporation duly incorporated
and existing in good standing under the laws of Nevada and has the requisite
corporate power to own its properties and assets and to carry on its business as
now being conducted.

       

      4.           Legends, etc.

       

      4.1          Legend. Each
certificate representing the Shares shall be endorsed with the following
legends, in addition to any other legend required to be placed thereon by
applicable federal or state securities laws:
 

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

       

      “THESE
SECURITIES ARE BEING OFFERED TO INVESTORS WHO ARE NOT U.S. PERSONS (AS DEFINED
IN REGULATION S UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“THE SECURITIES
ACT”)) AND WITHOUT REGISTRATION WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION UNDER THE SECURITIES ACT IN RELIANCE UPON REGULATION S
PROMULGATED UNDER THE SECURITIES ACT.”

      “TRANSFER
OF THESE SECURITIES IS PROHIBITED, EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF
REGULATION S PROMULGATED UNDER THE SECURITIES ACT, PURSUANT TO REGISTRATION
UNDER THE SECURITIES ACT, OR PURSUANT TO AVAILABLE EXEMPTION FROM
REGISTRATION.  HEDGING TRANSACTIONS MAY NOT BE CONDUCTED UNLESS IN
COMPLIANCE WITH THE SECURITIES ACT.”

       

      4.2           Subscriber’s
Compliance. Nothing in this Section 4 shall affect in any way a
Subscriber’s obligations and agreement to comply with all applicable securities
laws upon resale of the Shares.

       

      4.3           Company’s Refusal to
Register Transfer of Shares. The Company shall refuse to register any
transfer of the Shares not made in accordance with (i) the provisions of
Regulation S, (ii) pursuant to an effective registration statement filed under
the Securities Act, or (iii) pursuant to an available exemption from the
registration requirements of the Securities Act.

       

      5.           Governing Law; Jurisdiction; Waiver
of Jury Trial

       

      This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York, USA.

       

      6.           Assignment; Entire Agreement;
Amendment

       

      6.1           Assignment. Neither
this Agreement nor any rights hereunder may be assigned by any party to any
other person other than by Subscriber to a person agreeing to be bound by the
terms hereof.

       

      6.2           Entire Agreement.
This Agreement sets forth the entire agreement and understanding between the
parties as to the subject matter thereof and merges and supersedes all prior
discussions, agreements and understandings of any and every nature among
them.

       

      6.3           Amendment.  Except
as expressly provided in this Agreement, neither this Agreement nor any term
hereof may be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such amendment,
waiver, discharge, or termination is sought.

       

      6.4           Binding Upon
Successors. This Agreement shall be binding upon and inure to the benefit
of the parties hereto and to their respective heirs, legal representatives,
successors and assigns.

       

      7.           Notices;
Indemnity

       

      7.1           Notices. Unless
otherwise provided herein, any notice or other communication to a party
hereunder shall be sufficiently given if in writing and personally delivered or
sent by facsimile with copy sent in another manner herein provided or sent by
courier (which for all purposes of this Agreement shall include Federal Express
or other recognized overnight courier) or mailed to said party by certified
mail, return receipt requested, at its address provided for herein or such other
address as either may designate for itself in such notice to the other and
communications shall be deemed to have been received when delivered personally,
on the scheduled arrival date when sent by next day or 2-day courier service, or
if sent by facsimile upon receipt of confirmation of transmittal or, if sent by
mail, then three days after deposit in the mail.

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

       

      7.2           Indemnification.  The
Subscriber shall indemnify and hold the Company and its officers, directors,
employees, agents and affiliates harmless from and against any loss, cost or
damages (including reasonable attorney’s fees and expenses) incurred as a result
of the Subscriber’s breach of any representation, warranty, covenant or
agreement in this Agreement.

       

      8.           Counterparts

       

      This
Agreement may be executed in any number of counterparts, each of which shall be
enforceable against the parties actually executing such counterparts, and all of
which together shall constitute one instrument.  Such counterparts may
be delivered by facsimile or other electronic transmission, which shall not
impair the validity thereof.

       

      9.           Survival;
Severability

       

      9.1           Survival. The
representations, warranties, covenants and agreements of the parties hereto
shall survive the date hereof and the issuance of the Shares.

       

      9.2           Severability. In the
event that any provision of this Agreement becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable or void, this Agreement
shall continue in full force and effect without said provision; provided that no
such severability shall be effective if it materially changes the economic
benefit of this Agreement to any party.

       

      10.           Titles and
Subtitles

       

      The
titles and subtitles used in this Agreement are used for convenience only and
are not to be considered in construing or interpreting this
Agreement.

       

      [Signature
page follows]

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

      SIGNATURE
PAGE

       

      IN WITNESS WHEREOF, the
parties hereto have executed this Agreement as of the day and year this
subscription has been accepted by the Company as set forth below.

       

      
        
          
            
              
                	
                        Number
      of Shares

                      	 
      
	
                        Subscribed
      For:

                      	
                        Print
      Name of Subscriber

                      
	 
      	 
      	 
      
	_________________	 
      
	 
      	 
      	 
      
	
                        Purchase
      Price: RMB_________

                      	
                        By:

                      	 
      
	 
      	 
      	
                        (Signature
      of Subscriber or

                      
	 
      	 
      	
                        Authorized
      Signatory)

                      

              

            

          

        

      

       

      
        
          
            
              
                
                  
                    	 
      	 	
                            Address:

                          	 
      
	 
      	 	 
      	 
      
	 
      	 	 
      	 
      
	 
      	 	 
      	 
      
	 
      	 	
                            Telephone: 

                          	 
      
	 
      	 	 
      	 
      
	 
      	 	
                            Fax:

                          	 
      
	 
      	 	 
      	 
      
	 
      	 	 
      	 
      
	
                            Identification
      Number

                          	 	 
      	 
      

                  

                

              

            

          

        

      

      

      If the
Shares will be held as joint tenants, tenants in common, or community property,
please complete the following:

      

      
        
          
            
              
                
                  	 
      	 	 
      
	 
      	 	
                          Print
      name of spouse or other co-subscriber

                        
	 
      	 	 
      
	 
      	 	 
      
	 
      	 	
                          Signature
      of spouse or other co-subscriber

                        
	 
      	 	 
      
	 
      	 	 
      
	      	 	
                          Print
      manner in which Shares will be held

                        
	 
      	 	 
      
	 
      	 	 
      
	
                          Identification
      Number

                        	 	 
      

                

              

            

          

        

      

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

        

      ACCEPTANCE
OF SUBSCRIPTION

        

      
        
          
            
              
                
                  
                    
                      	 
      	 	 
      
	  
      	 	
                              Name
      of Subscriber

                            
	   
      	 	 
      
	
                              ACCEPTED
      BY:

                            	 	 
      
	 
      	 	 
      
	
                              BOHAI
      PHARMACEUTICALS GROUP, INC.

                            	 	 
      
	 
      	 	 
      
	
                              By:

                            	 
      	 	 
      
	 
      	
                              Name:

                            	 	 
      
	 
      	
                              Title:

                            	 	 
      
	 
      	 
      	 	 
      
	
                              Date:
      __________________, 2011

                            	 	 
      
	  
      	 	 
      
	
                              Accepted
      for ___________ Shares

                            	 	 
      

                    

                  

                

              

            

          

        

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      
 

      Exhibit
A

      

      RISK
FACTORS

      

      You
should carefully consider the risks described below as well as other information
provided to you in our Annual Report on Form 10-K for the year ended June 30,
2010, including information in the section of such document entitled “Cautionary
Note Regarding Forward Looking Statements.”  Our business, operations
and financial condition are subject to various significant
risks.  Some of these risks are described below and you should take
these risks into account in making a decision to invest in our
securities.  If any of the following risks actually occurs, we may not
be able to conduct our business as currently planned and our business, financial
condition or results of operations could be seriously harmed.  In that
case, the market price of our common stock could decline and you could lose all
or part of your investment in our securities.

      

      Risks
Related to Our Business

      

      Our
limited operating history may not serve as an adequate basis to judge our future
prospects and results of operations.

      

      Our
limited operating history in the traditional Chinese herbal medicines industry
may not provide a meaningful basis for evaluating our business.  Bohai
entered into its current line of business in September 2004.  Although Bohai’s
revenues have grown rapidly since its inception, we cannot guarantee that we
will maintain profitability or that we will not incur net losses in the
future.  We will continue to encounter risks and difficulties that
companies at a similar stage of development frequently experience, including the
potential failure to:

      

      
        	
                 
      

              	
                ·

              	
                obtain sufficient working capital
      to support our expansion;

              

      

      

      
        	
                 
      

              	
                ·

              	
                maintain or protect our
      intellectual property;

              

      

      

      
        	
                 
      

              	
                ·

              	
                maintain our proprietary
      technology;

              

      

      

      
        	
                 
      

              	
                ·

              	
                expand our product offerings and
      maintain the quality of our
products;

              

      

      

      
        	
                 
      

              	
                ·

              	
                manage our expanding operations
      and continue to fill customers’ orders on
  time;

              

      

      

      
        	
                 
      

              	
                ·

              	
                maintain adequate control of our
      expenses allowing us to realize anticipated revenue
      growth;

              

      

      

      
        	
                 
      

              	
                ·

              	
                implement our product
      development, marketing, sales and acquisition strategies and adapt and
      modify them as needed;

              

      

      

      
        	
                 
      

              	
                ·

              	
                integrate any future
      acquisitions; and

              

      

      

      
        	
                 
      

              	
                ·

              	
                anticipate and adapt to changing
      conditions in the Chinese herbal medicine industry resulting from changes
      in government regulations, mergers and acquisitions involving our
      competitors, technological developments and other significant competitive
      and market dynamics.

              

      

      

      If we are
unable to address any or all of the foregoing risks, our business may be
materially and adversely affected.

      

      We
will likely need to raise additional funds in the future to grow our business,
which funds may not be available on acceptable terms or at all, and, without
additional funds, we may not be able to maintain or expand our
business.

      

      We expect
that the net proceeds from our January 2010 private placement, together with
cash generated from our operations, will be sufficient to fund our projected
operations for at least the next 12 months.  It is likely however that
in the future we will require substantial funds in order to fund operating
expenses and growth plans to develop manufacturing, marketing and sales
capabilities and to cover public company costs.  Without enough funds,
we may not be able to meet these goals.  We may seek additional
funding through public or private financing or through collaborative
arrangements with strategic partners.

      
        
           

        

        
          A-1

          
            

          

        

        
           

        

      

       

      You
should also be aware that in the future:

      

      
        	
              	
                ·

              	
                We cannot be certain that
      additional capital will be available on favorable terms, if at
      all;

              

      

      

      
        	
              	
                ·

              	
                Any available additional
      financing may not be adequate to meet our goals;
  and

              

      

      

      
        	
              	
                ·

              	
                Any equity financing would result
      in dilution to our
stockholders.

              

      

      

      If we
cannot raise additional funds when needed, or on acceptable terms, we may not be
able to effectively execute our growth strategy, take advantage of future
opportunities, or respond to competitive pressures or unanticipated
requirements.  In addition, we may be required to scale back or
discontinue our production and development program, or obtain funds through
strategic alliances that may require us to relinquish certain
rights.

      

      We
have significant short-term debt obligations, which mature in less than one
year.  Our inability to extend the maturities of, or to refinance,
this debt could result in defaults, and in certain instances, foreclosures on
our assets.  Moreover, we may be unable to obtain financing to fund
ongoing operations and future growth.

      

      We
currently depend on short-term bank loans and net revenues to meet our
short-term cash requirements.  As of June 30, 2010, our total bank
debt outstanding was RMB 29.95 million (approximately $ 4.41 million as of June
30, 2010) which carries maturity periods ranging from six months to one year,
while the short-term and revolving nature of these credit facilities is common
in China.  The majority of this debt is guaranteed by third-parties
and our CEO, Mr. Qu, and a portion is secured by our inventories and fixed
assets.  In China, short-term bank loans generally mature in one year
or less and contain no specific renewal terms.  However, it is
customary practice for banks and borrowers to negotiate roll-overs or renewals
of short-term borrowings on an on-going basis shortly before they mature. 
Although we have renewed our short-term borrowings in the past, we cannot assure
you that we will be able to renew these loans in the future as they
mature.  If we are unable to obtain renewals of these loans or
sufficient alternative funding on reasonable terms from banks or other parties,
we will have to repay these borrowings with the cash on our balance sheet or
cash generated by our future operations, if any.

      

      Moreover,
we cannot assure you that our business will generate sufficient cash flow from
operations to repay these borrowings.  Failure to obtain extensions of
the maturity dates of, or to refinance, these obligations or to obtain
additional equity financing to meet these debt obligations would result in an
event of default with respect to such obligations and could result in the
foreclosure on the collateral.  The sale of such collateral at
foreclosure would significantly disrupt our ability to produce products for our
customers in the quantities required by customer orders or deliver products in a
timely fashion, which could significantly lower our revenues and
profitability.

      

      In
addition, we may be exposed to changes in interest rates.  If interest
rates increase substantially, our results of operations could be adversely
affected.

      

      We
have a significant payment that we are required to make by March 31, 2011 in
connection with a land-use right purchase agreement.

      

      On
February 22, 2010, we entered into a land-use right purchase agreement with
Shandong Yantai Bureau of Land and Resources, pursuant to which we acquired the
land use right for a parcel of land totaling 333,335 square meters for RMB
97,500,000 (approximately $14,320,100).  As of June 30, 2010, we have
paid approximately RMB 50,000,000 (approximately $7,343,700), which is included
in Prepayment for Land Use Right on the accompanying consolidated balance
sheets.  In addition, we paid RMB 12,160,000 (approximately
$1,796,000) in July 2010 and the remaining balance of RMB 35,340,000
(approximately $5,180,400) is required to be paid before March 31,
2011.

      
        
           

        

        
          A-2

          
            

          

        

        
           

        

      

       

      We
currently believe that we will generate sufficient cash flow from operations and
have access to the capital resources necessary to fund our requirements.
However, there is a risk that we may not generate sufficient cash flow from
operations or otherwise have access to financing on favorable terms, or at all.
Failure to make the land-use right payment when due would result in an event of
default with respect to such obligations and could result in, among other
things, the forfeiture of the land-use right along with the deposit in the
amount of RMB 20,000,000 (approximately $2,937,480), which could cause a
material deterioration in our financial condition or operating
results.

      

      We
have not yet developed comprehensive independent corporate
governance.

      

      As of the
date of this Annual Report, we have no audit, compensation, or nominating
committees of our board of directors and have not established formal corporate
governance procedures.  A lack of independent controls over our
corporate affairs may result in inadequate board supervision of our management
generally, or potential or actual conflicts of interest between Mr. Qu and our
stockholders.  We presently have no policy to resolve such
conflicts.  The absence of customary standards of corporate governance
may cause our board to be unaware of corporate actions in China or leave our
stockholders without protections against interested director transactions,
conflicts of interest, if any, and similar matters and therefore our reputation
may become tainted, which could adversely impact our stock price and cause
potential investors to be reluctant to provide us with funds necessary to expand
our operations.

      

      We
have been heavily dependent on sales of four key products.

      

      Four of
our products, namely Tongbi Capsules, Tongbi Tablets, Lung Nourishing Cream and
Tongshangning Tablets represented approximately 25.68%, 14.62%, 26.18%, and
13.02%, respectively, of total sales for the fiscal year ended June 30, 2010. We
expect that a significant portion of our future revenue will continue to be
derived from sales of these four products. If one or more of these products were
to become subject to a problem such as loss of Certificates of Protected Variety
of Traditional Chinese Medicine, unexpected side effects, regulatory
proceedings, publicity adversely affecting user confidence or pressure from
competing products, or if a new, more effective treatment should be introduced,
the negative impact on our revenues could be significant. We held the
Certificates of Protected Variety of Traditional Chinese Medicine (Grade Two)
issued by State Food and Drug Administration of China (“SFDA”) for Tongbi
Capsules and Shangtongning Tablets which gave exclusive or near-exclusive rights
to manufacture and distribute these two medicines. These certificates expired in
September 2009 and we have filed an application for extending the protection
period on March 12, 2009 for Tongbi Capsules. We can not assure you that we will
obtain the approvals to renew the Certificate of Protected Variety of
Traditional Chinese Medicine and the loss of such protection will have a
material adverse effect on our revenues. If we are unable to obtain approvals,
these products can be manufactured and sold by other pharmaceutical
manufacturers in China once the relevant protection periods elapse, which would
increase our competition and potentially have an adverse effect on our
sales.

      

      We
may not be able to adequately protect our intellectual property, which could
cause us to be less competitive and negatively impact our business.

      

      We regard
our trademarks, trade secrets, patents and similar intellectual property as
critical to our success.  We hold the trademark “Xian Ge” registered
with the PRC Trademark Bureau under the State Administration for Industry and
Commerce with a valid term effective through February 23, 2013.  We
have received a patent in the PRC for lung nourishing cream with its production
method for the treatment of Lung Qi Deficiency Cough and Chronic
Bronchitis.  If we are unable to obtain or maintain registered
intellectual property protections for our proprietary products or methods, these
products or methods could be infringed upon, which could materially adversely
affect our business.

      

      We rely
on trademark, patent and trade secret law, as well as confidentiality agreement
with certain of our employees to protect our proprietary rights.  For
senior managers, we include a standard confidentiality clause into the
employment agreement to prevent them from disclosing the formula or processing
procedure to outside parties. No assurance can be given that our intellectual
property will not be challenged, invalidated, infringed or circumvented, or that
our intellectual property rights will provide competitive advantages to
us.  Any material impairment of our intellectual property rights could
have a material adverse effect on our business.

      
        
           

        

        
          A-3

          
            

          

        

        
           

        

      

      The
availability of counterfeit versions of our products could adversely affect our
sales volume, revenue and profitability and brand value.

      

      The
availability of sales of counterfeits of our products in China could adversely
impact our sales and potentially damage the value and reputation of our
brands.  For example, in 2010 we discovered evidence of a counterfeit
Tongbi Capsule sold in China which we believe infringes on our intellectual
property rights.  We have addressed this situation with applicable PRC
authorities and do not believe it will adversely affect our company, but similar
situations may arise in the future which could adversely impact our sales,
profitability and brand value.  Additionally, consumers who mistake
counterfeit Tongbi Capsules or counterfeits of our other products for our
products may attribute quality and efficacy deficiencies in the counterfeit
product to our brands and discontinue purchasing our brands, which would have an
adverse effect on our sales and profitability.

      

      We
face competition in the pharmaceutical market in the PRC and such competition
could cause our sales revenue and profits to decline.

      

      According
to SFDA in China, there were approximately 5,071 pharmaceutical manufacturing
companies in the PRC as of the end of June 2004, of which approximately 3,237
manufacturers obtained certificates of Good Manufacturing Practices
Certification (“GMP”).  After GMP certification became a mandatory
requirement on July 1, 2004, approximately 1,834 pharmaceutical manufacturers
were forced to cease production.  Only the 3,237 pharmaceutical
manufacturers with GMP certifications may continue their manufacturing
operations.  As of the end of 2006, there were 4,682 enterprises
manufacturing medicines and formulation in China.  The certificates,
permits, and licenses required for pharmaceutical operation in the PRC create a
potentially significant barrier for new competitors seeking entrance into the
market.  Despite these obstacles, we face competitors that will
attempt to create, or are already marketing, products in the PRC that are
similar to ours.  Many of our current and potential competitors have
significantly longer operating histories and significantly greater managerial,
financial, marketing, technical and other competitive resources, as well as
greater name recognition, than we do.  These competitors may be able
to respond more quickly to new or changing opportunities and customer
requirements and may be able to undertake more extensive promotional activities,
offer more attractive terms to customers or adopt more aggressive pricing
policies.  We cannot assure you that we will be able to compete
effectively with current or future competitors or that the competitive pressures
we face will not harm our business.

      

      Our
business depends and will depend substantially on the continuing efforts of our
present and future executive officers, and our business may be severely
disrupted if we lose, are unable to obtain or unable to replace their
services.

      

      Our
future prospects depend substantially on the continued services of our
President, Chief Executive Officer and Chairman of the Board, Mr.
Qu.  We have no employment agreement with Mr. Qu and do not maintain
key man life insurance on Mr. Qu’s life.  We also have other corporate
officers and key employees, and if Mr. Qu or one or more of our future executive
officers or key employees are unable or unwilling to continue in their
positions, we may not be able to replace them readily, if at
all.  Therefore, our business may be severely disrupted, and we may
incur additional expenses to recruit and retain new officers.  In
addition, if any of our executives joins a competitor or forms a competing
company, we may lose some of our customers.

      

      Our
business and growth will suffer if we are unable to hire and retain key
personnel that are in high demand.

       

      Our
future performance depends on our ability to attract and retain highly skilled
chemists, pharmaceutical engineers, technical, marketing and sales personnel,
especially qualified personnel for our operations in China.  Qualified
individuals are in high demand in China, and there are insufficient experienced
personnel to fill the demand.  Therefore, we may not be able to
attract or retain the personnel we need to succeed.  Our business
development would be hindered if we lost the services of some key
personnel. 

      
        
           

        

        
          A-4

          
            

          

        

        
           

        

      

      Our
business is highly dependent on continually developing or acquiring new and
advanced products, technologies, and processes and failure to do so may cause us
to lose our competitiveness in the pharmaceutical industry and may cause our
profits to decline.

       

      To remain
competitive in the pharmaceutical industry, it is important to continually
develop new and advanced products, technologies and processes.  There
is no assurance that our competitors’ new products, technologies and processes
will not render our company’s existing products obsolete or
non-competitive.  Our company’s competitiveness in the pharmaceutical
market therefore relies upon our ability to enhance our current products,
introduce new products, and develop and implement new technologies and
processes.  Our company’s failure to technologically evolve and/or
develop new or enhanced products may cause us to lose our competitiveness in the
pharmaceutical industry and may cause our profits to decline.  It is
likely that our efforts to grow our products lines will be focused on
acquisitions of such products from third parties.  There are many
risks attendant to the acquisition of assets or companies, including
availability, pricing, competition and, if acquisitions are consummate,
integration.  If we are unable to so acquire and integrate new
products, our revenue and profitability may suffer.

      

      Our
research and development may be costly and/or untimely, and there are no
assurances that our research and development will either be successful or
completed within the anticipated timeframe, if ever at all.

      

      We do not
presently rely on research and development activities as our business is focused
on expanding sales of our existing products.  However, in the future,
the research and development of new products may play an important role for our
company.  Development of new products requires significant research,
development and clinical testing efforts, and we currently have limited
resources to devote to and limited capabilities to conduct the development of
new products.  We have only one full-time employee who is engaged in
research and development, so we mainly dependent on a third-party, Yantai
Tianzheng Medicine Research and Development Co., Ltd., to perform the limited
amount of research and development that we undertake.  If research and
development activities become more important for us, and if we or third parties
that we retain are unable to perform research and development successfully, our
business and results of operations could be negatively impacted.

      

      As of the
date of this Annual Report, we have two products, namely Forsythia Capsule and
Fern Injection, under research and development. The research and development of
new products is costly and time consuming, and there are no assurances that our
research and development of new products will either be successful or completed
within the anticipated time frame, if ever at all.  There are also no
assurances that if the product is developed, that it will lead to actual
commercialization and sales.

      

      The
commercial performance of our products depends upon the degree of market
acceptance among the medical community and failure to attain market acceptance
among the medical community may have an adverse impact on our operations and
profitability.

      

      The
commercial performance of our products depends upon the degree of market
acceptance among the medical community, such as hospitals and
physicians.  Even if our products are approved by SFDA, and even if
our products are eligible for reimbursement under Chinese national medical
insurance programs, there is no assurance that physicians will prescribe or
recommend our products to patients.  Furthermore, a product’s
prevalence and use at hospitals may be contingent upon our relationship with the
medical community.  The acceptance of our products among the medical
community may depend upon several factors, including but not limited to, the
product’s acceptance by physicians and patients as a safe and effective
treatment, cost effectiveness, potential advantages over alternative treatments,
and the prevalence and severity of side effects.  Failure to attain
market acceptance among the medical community may have an adverse impact on our
operations and profitability.

      

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

       

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

       

      
        
           

        

        
          A-5

          
            

          

        

        
           

        

      

       

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

      

      
        	
              	
                ·

              	
                the commercialization of our
      products could be adversely
affected;

              

      

      

      
        	
              	
                ·

              	
                any competitive advantages of the
      products could be diminished;
and

              

      

      

      
        	
              	
                ·

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

              

      

      

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

      

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

      

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

      

      Our
current and future products may have inadvertent and/or harmful side effects
which would expose us to the risks of litigation and a loss of
revenue.

      

      All
medicines have certain side effects.  Although all of our medicines
sold on market have passed proper testing and are approved by SFDA, the products
may still inadvertently adverse effects on the health of the consumers. If such
side effect is identified after marketing and sale of the products, the products
may be required to be withdrawn from the market, or have a change in labeling.
If a product liability claim is brought against us, it may, regardless of merit
or eventual outcome, result in damage to our reputation, breach of contracts
with consumers, decreased demand for our products, costly litigation and loss of
revenue.

      

      Natural
disasters, weather conditions and other environmental factors affect our raw
material supply, and a reduction in the quality or quantity of our herb supplies
may have material adverse consequences on our financial results.

      

      Our
business may be adversely affected by weather and environmental factors beyond
our control, such as natural disasters and adverse weather
conditions.  The production of our products depends on the
availability of raw materials, a significant portion of which are herbs.
 These herbs tend to be very sensitive crops, which can be readily damaged
by harsh weather, by disease, and by pests.  If our suppliers’ crops are
destroyed by drought, flood, storm, blight, or the other woes of farming, we
will not be able to meet the demands of our customers, which will have a
material adverse effect on our business and financial condition and
results.

       

      
        
           

        

        
          A-6

          
            

          

        

        
           

        

      

       

      Our
certificates, permits, and license are subject to governmental control and
renewal, and the failure to obtain renewal would cause all or part of our
operation to be suspended and have a material adverse effect on our financial
condition.

      

      We are
subject to various PRC laws and regulations pertaining to the pharmaceutical
industry.  We have obtained certain certificates, permits, and
licenses required for the operation of a pharmaceutical enterprise and the
manufacturing and distribution of pharmaceutical products in the
PRC.  Some of the permits and license have expired or are about to
expire.  We hold a Permit for the Production of Medicine (Lu
Zb20050330) issued by Shandong Branch of SFDA on January 1, 2006 which allows us
to engage in the production of tablets, capsules, granules, syrup, concentrated
decoctions, tincture (for oral use) and medical wine.  Such permit
expires on December 31, 2010 and is material to our business.  We also
hold a GMP Certificate (No. Lu K0587) issued by Shandong Branch of SFDA on June
18, 2009, the scope of inspection of which is tablets, capsules, granules,
syrup, concentrated decoctions, tincture and medical wine.  Such
certificate expires on June, 14, 2014.  The Permit for the
Production of Medicine and GMP certificates are each valid for a term of five
years and must be renewed before their expiration.

      

      We hold a
Drug Approval Number (“DAN”) for each of our products, and the valid terms of
such DANs have expired.  We submitted the applications for
re-registration on June 29, 2007 which were accepted by SFDA, although the
approvals have not yet been granted.  We have been advised that the
approval processes for these drugs have been started to be reviewed by the
Shandong Branch of SFDA.  During the renewal period, we will be
permitted to continue manufacturing these drugs as if the renewals had been
approved.  Our license to produce medical wine has a term valid
through December 31, 2010.

      

      During
the application or renewal process for our licenses and permits, we will be
evaluated and re-evaluated by the appropriate governmental authorities and must
comply with the prevailing standards and regulations, which may change from time
to time.  In the event that we are not able to obtain or renew the
certificates, permits and licenses, all or part of our operations may be
suspended by the government, which would have a material adverse effect on our
business and financial condition.  Furthermore, if
escalating compliance costs associated with governmental standards and
regulations restrict or prohibit any part of our operations, it may adversely
affect our results of operations and profitability.

      

      We held
the Certificates of Protected Variety of Traditional Chinese Medicine (Grade
Two) (the “Certificate of Protection”) issued by SFDA for two of our products,
Tongbi Capsules and Shangtongning Tablets.  The protection periods for
both Tongbi Capsules and Shangtongning Tablets expired in September
2009.  We have submitted application to extend the protection periods
for Tongbi Capsules to extend such protection period on March 12, 2009 and SFDA
has recently started its review process.  We have decided to not
submit an extension application for Shangtongning Tablets, because the SFDA will
not approve a Certificate of Protection for Shangtongning Tablets or any other
products that are currently produced by more than three manufacturers in China.
Our inability to regain the Certificate of Protection for Tongbi Capsules, which
is one of our leading products, and the loss of the Certificate of Protection
for our product Shangttongning Tablets, may grant other manufactures the right
to produce similar products, which would result in the loss of competitive
advantage and could adversely impact our sales results.

      

      Our
failure to fully comply with PRC labor laws, including laws relating to social
insurance, may expose us to potential liability and increased
costs.

      

      Companies
operating in China must comply with a variety of labor laws, including certain
pension, health insurance, unemployment insurance and other welfare-oriented
payment obligations.  Our failure to comply with these laws could have
a material adverse effect on our business.  For example, we are
currently paying social insurance for our 129 full-time employees.  We also
have 304 sales representatives that we believe we are not required to pay social
insurance for as these sales representatives are not legally employees of ours,
but are rather independent contractors. We have not paid social insurance for
195 of our full-time employees whose personal identification files cannot be
transferred to us since they are not registered residents in Yantai, Shandong
Province, and as an alternative we have paid these employees compensations
included in their monthly salary with an amount equals to the amount of monthly
social insurance that we are required to pay and the employees could pay the
social insurance by themselves.  We believe these employees have been
covered by social insurance and we are not required to make any contributions to
the government in addition to the amount we have paid to these
employees.  However, our interpretation of these requirements may be
wrong, and the PRC regulatory authorities may not take the same view as we do on
this subject.  If the PRC regulatory authorities take the view that we are
required to pay social insurance for our independent contractors or other
employees, our failure to make previous payments may be in violation of
applicable PRC labor laws and we cannot assure you that PRC governmental
authorities will not impose penalties on us for failure to comply.  In
addition, in the event that any current or former employee files a complaint
with the PRC government, we may be subject to making up the social insurance
payment obligations as well as paying administrative fines.  The total cost
of these payments and any related fines or penalties could be very significant
and could have a material adverse effect on our working
capital.

      
        
           

        

        
          A-7

          
            

          

        

        
           

        

      

       

      In
addition, the new PRC Labor Contract Law took effect January 1, 2008 and governs
standard terms and conditions for employment, including termination and lay-off
rights, contract requirements, compensation levels and consultation with labor
unions, among other topics.  In addition, the law limits
non-competition agreements with senior management and other employees who have
access to confidential information to two years and imposes restrictions or
geographical limits.  This new labor contract law will increase
our labor costs, which could adversely impact our results of
operations.

      

      We
are subject to PRC government price control of drugs which may limit our
profitability and even cause us to stop manufacturing certain
products.

      

      The State
Development and Reform Commission of the PRC (“SDRC”) and the price
administration bureaus of the relevant provinces of the PRC in which the
pharmaceutical products are manufactured are responsible for the retail price
control over our pharmaceutical products.  The SDRC sets the price
ceilings for certain pharmaceutical products in the PRC. All of our products
except those under the protection periods are subject to such price controls as
of the date of this Memorandum and we prices our medicines well under
government-mandated caps. There is no assurance that whether our other products
will remain unaffected by the price control.  Where our products are
subject to a price ceiling, we will need to adjust the product price to meet the
requirement and to accommodate for the pricing of competitors in the competition
for market shares.  The price ceilings set by the SDRC may limit our
profitability, and in some instances, such as where the price ceiling is below
production costs, may cause us to stop manufacturing certain products which may
adversely affect our results of operations.

      

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

      

      Business
insurance is not readily available in the PRC. To the extent that we suffer a
loss of a type which would normally be covered by insurance in the United
States, such as product liability and general liability insurance, we would
incur significant expenses in both defending any action and in paying any claims
that result from a settlement or judgment. We have not obtained fire, casualty
and theft insurance, and there is no insurance coverage for our raw materials,
goods and merchandise, furniture and buildings in China. Any losses incurred by
us will have to be borne by us without any assistance, and we may not have
sufficient capital to cover material damage to, or the loss of, our production
facility due to fire, severe weather, flood or other cause, and such damage or
loss would have a material adverse effect on our financial condition, business
and prospects.

      

      We
may be subject to product liability claims, for which we have no
insurance.

      

      We may
produce products which inadvertently have an adverse pharmaceutical effect on
the health of individuals.  Existing laws and regulations in China do not
require us to maintain third party liability insurance to cover product
liability claims.  However, if a product liability claim is brought against
us, it may, regardless of merit or eventual outcome, result in damage to our
reputation, breach of contracts with our customers, decreased demand for our
products, costly litigations, product recalls, loss of revenue, and our
inability to commercialize some products.

        

      
        
           

        

        
          A-8

          
            

          

        

        
           

        

      

      Our
indemnification obligations could adversely affect our business, financial
condition and results of operations.

      

      Our
governing documents require us to indemnify our current and former directors,
officers, employees and agents against most actions of a civil, criminal,
administrative or investigative nature.  Generally, we are required to
advance indemnification expenses prior to any final adjudication of an
individual’s culpability.  The expense of indemnifying our current and
former directors, officers and employees and agents in their defense or related
expenses as a result of any actions related to the internal investigation and
financial restatement may be significant and in excess of any insurance coverage
we may have.  As such, there is a risk that our indemnification
obligations could divert needed financial resources and may adversely affect our
business, financial condition and results of operations.

      

      Potential
environmental liability could have a material adverse effect on our operations
and financial condition.

      

      As a
manufacturer, we are subject to various Chinese environmental laws and
regulations on air emission, waste water discharge, solid wastes and
noise.  We are in the process of applying for Pollution Discharge
Permit, other than that we believe that our operations are in substantial
compliance with current environmental laws and regulations. We can not assure
you that we may not be able to comply with these regulations at all times as the
Chinese environmental legal regime is evolving and becoming more
stringent.  Therefore, if the Chinese government imposes more
stringent regulations in future, we may have to incur additional and potentially
substantial costs and expenses in order to comply with new regulations, which
may negatively affect our results of operations.  Furthermore, no
assurance can be given that all potential environmental liabilities have been
identified or properly quantified or that any prior owner, operator, or tenant
has not created an environmental condition unknown to us.  If we fail
to comply with any of the present or future environmental regulations in any
material aspects, we may suffer from negative publicity and be subject to claims
for damages that may require us to pay substantial fines or have our operations
suspended or even be forced to cease operations.

      

      Risks
Relating to the Our Corporate Structure

      

      Our
corporate structure, in particular the VIE Agreements, are subject to
significant risks, as set forth in the following risk factors.

      

      The
PRC government may determine that the VIE Agreements which we utilize to control
our operating subsidiary are not in compliance with applicable PRC laws, rules
and regulations and that they are therefore unenforceable.

      

      In the
PRC it is widely understood that foreign invested enterprises are forbidden or
restricted to engage in certain businesses or industries which are sensitive to
the economy.  As we intend to centralize our management and operation
in the PRC without being restricted to conduct certain business activities which
are important for our current or future business but are restricted or might be
restricted in the future, we believe our VIE Agreements will be essential for
our business operation.  In order for WFOE to manage and operate our
business through Bohai in the PRC, the VIE Agreements were entered into under
which almost all the business activities of Bohai are managed and operated by
WFOE and almost all economic benefits and risks arising from the business of
Bohai are transferred to WFOE.

      

      There are
risks involved with the operation of Bohai under the VIE
Agreements.  We have been advised by PRC legal counsel that if the PRC
government determines the VIE Agreement used to control the operating company to
be unenforceable as they circumvent the PRC restrictions relating to foreign
investment restrictions, the relevant regulatory authorities would have broad
discretion in dealing with such breach, including:

      

      
        	
                 
      

              	
                ·

              	
                imposing economic
      penalties;

              

      

      

      
        	
                 
      

              	
                ·

              	
                discontinuing or restricting the
      operations of WFOE or
Bohai;

              

      

      
        
           

        

        
          A-9

          
            

          

        

        
           

        

      

       

      
        	
                 
      

              	
                ·

              	
                imposing conditions or
      requirements in respect of the VIE Agreements with which WFOE may not be
      able to comply;

              

      

      

      
        	
                 
      

              	
                ·

              	
                requiring us to restructure the
      relevant ownership structure or
  operations;

              

      

      

      
        	
                 
      

              	
                ·

              	
                taking other regulatory or
      enforcement actions that could adversely affect our business;
      and

              

      

      

      
        	
                 
      

              	
                ·

              	
                revoking the business license
      and/or the licenses or certificates of WFOE, and/or voiding the VIE
      Agreements.

              

      

      

      Any of
these actions could have a material adverse impact on our business, financial
condition and results of operations.

      

      We
depend upon the VIE Agreements in conducting our production, manufacturing and
distribution of traditional Chinese herbal medicines in the PRC, which may not
be as effective as direct ownership.

      

      We
conduct our production, manufacturing and distribution of traditional Chinese
herbal medicines in the PRC and generate the revenues through the VIE
Agreements.  The VIE Agreements may not be as effective in providing
us with control over Bohai as direct ownership.  The VIE Agreements
are governed by PRC laws and provide for the resolution of disputes through
arbitration proceedings pursuant to PRC laws.  Accordingly, the VIE
Agreements will be interpreted in accordance with PRC laws.  If Bohai
or its shareholders fail to perform the obligations under the VIE Agreements, we
may have to rely on legal remedies under PRC laws, including seeking specific
performance or injunctive relief, and claiming damages, and there is a risk that
we may be unable to obtain these remedies.  The legal environment in
China is not as developed as in other jurisdictions.  As a result,
uncertainties in the PRC legal system could limit our ability to enforce the VIE
Agreements.

      

      The
pricing arrangement under the VIE Agreements may be challenged by the PRC tax
authorities.

      

      We could
face adverse tax consequences if the PRC tax authorities determine that the VIE
Agreements were not entered into based on arm’s length
negotiations.  If the PRC tax authorities determine that the VIE
Agreements were not entered into on an arm’s length basis, they may adjust the
income and expenses of our company for PRC tax purposes which could result in
higher tax liability.

      

      We
rely on the approval certificates and business license held by Bohai and any
deterioration of the relationship between WFOE and Bohai could materially and
adversely affect the overall business operation of our company.

      

      Pursuant
to the VIE Agreements, our production, manufacturing and distribution of
traditional Chinese herbal medicines in China is undertaken on the basis of the
approvals, certificates and business license as well as other requisite licenses
held by Bohai.  There is no assurance that Bohai will be able to renew
its licenses or certificates when their terms expire with substantially similar
terms as the ones they currently hold.

      

      Further,
our relationship with Bohai is governed by the VIE Agreements, which are
intended to provide us, through our indirect ownership of WFOE, with effective
control over the business operations of Bohai.  However, the VIE
Agreements may not be effective in providing control over the applications for
and maintenance of the licenses required for our business
operations.  Bohai could violate the VIE Agreements, go bankrupt,
suffer from difficulties in its business or otherwise become unable to perform
its obligations under the VIE Agreements and, as a result, our operations,
reputation, business and stock price could be severely harmed.

      

      If
WFOE exercises the purchase options over Bohai’s equity pursuant to the VIE
Agreements, the payment of purchase prices could materially and adversely affect
the financial position of our company.

      

      Under the
VIE Agreements, WFOE holds an option to purchase all or a portion of the equity
of Bohai at a price, pro rata in case of not all, based on the capital paid in
by the Bohai shareholders (namely, $2.94 million or RMB 20 million
).  In the case that applicable PRC laws and regulations require an
appraisal of the equity interest or provide other restriction on the purchase
price, the purchase price shall be the lowest price permitted under the
applicable PRC laws and regulations. As Bohai is already a contractually
controlled affiliate to our company, WFOE’s purchase of Bohai’s equity would not
bring immediate benefits to our company and the exercise of the option and
payment of the purchase prices could adversely affect the financial position of
our company.

      
        
           

        

        
          A-10

          
            

          

        

        
           

        

      

       

      Risks
Associated With Doing Business in China

      

      There
are substantial risks associated with doing business in China, some of which are
addressed in the following risk factors.

      

      The
Chinese government exerts substantial influence over the manner in which we must
conduct our business activities.

      

      We are
dependent on our relationship with the local government in the province in which
we operate our business. The Chinese government has exercised and continues to
exercise substantial control over virtually every sector of the Chinese economy
through regulation and state ownership. Our ability to operate in China may be
harmed by changes in its laws and regulations, including those relating to the
“protected” status of our products, the coverage of national health insurance
for our products, taxation, environmental regulations, land use rights, property
and other matters. The central or local governments of in the PRC jurisdictions
may impose new, stricter regulations or interpretations of existing regulations
that would require additional expenditures and efforts on our part to ensure our
compliance with such regulations or interpretations. Accordingly, government
actions in the future, including any decision not to continue to support recent
economic reforms and to return to a more centrally planned economy or regional
or local variations in the implementation of economic policies, could have a
significant effect on economic conditions in China or particular regions
thereof, and could require us to divest ourselves of any interest we then hold
in Chinese properties.

      

      Future
inflation in China may inhibit our ability to conduct business in China. In
recent years, the Chinese economy has experienced periods of rapid expansion and
high rates of inflation. Rapid economic growth can lead to growth in the money
supply and rising inflation. If prices for our products rise at a rate that is
insufficient to compensate for the rise in the costs of supplies, it may have an
adverse effect on profitability. These factors have led to the adoption by
Chinese government, from time to time, of various corrective measures designed
to restrict the availability of credit or regulate growth and contain inflation.
High inflation may in the future cause Chinese government to impose controls on
credit and/or prices, or to take other action, which could inhibit economic
activity in China, and thereby harm the market for our products.

      

      Our
operations and assets in China are subject to significant political and economic
uncertainties and we may lose all of our assets and operations if the Chinese
government alters its policies to further restrict foreign participation in
business operating in the PRC.

      

      Changes
in PRC laws and regulations, or their interpretation, or the imposition of
confiscatory taxation, restrictions on currency conversion, imports and sources
of supply, devaluations of currency or the nationalization or other
expropriation of private enterprises could have a material adverse effect on our
business, results of operations and financial condition. Under its current
leadership, the Chinese government has been pursuing economic reform policies
that encourage private economic activities and greater economic
decentralization. There is no assurance, however, that the Chinese government
will continue to pursue these policies, or that it will not significantly alter
these policies from time to time without notice. We
may lose all of our assets and operations if the Chinese government alters its
policies to further restrict foreign participation in business operating in the
PRC.

      

      We
derive all of our sales in China and a slowdown or other adverse developments in
the PRC economy may materially and adversely affect our customers, demand for
our products and our business.

      

      All of
our sales are generated in China. We anticipate that sales of our products in
China will continue to represent all of our total sales in the near future.
Although the PRC economy has grown significantly in recent years, we cannot
assure you that such growth will continue. The industry which we are involved in
the PRC is relatively new and growing, but we do not know how sensitive we are
to a slowdown in economic growth or other adverse changes in the PRC economy
which may affect demand for our products. In addition, the Chinese government
also exercises significant control over Chinese economic growth through the
allocation of resources, controlling payment of foreign currency-denominated
obligations, setting monetary policy and providing preferential treatment to
particular industries or companies. Efforts by the Chinese government to slow
the pace of growth of the Chinese economy could result in reduced demand for our
products. A slowdown in overall economic growth, an economic downturn or
recession or other adverse economic developments in the PRC may materially
reduce the demand for our products and materially and adversely affect our
business.

      
        
           

        

        
          A-11

          
            

          

        

        
           

        

      

       

      Currency
fluctuations and restrictions on currency exchange may adversely affect our
business, including limiting our ability to convert Chinese Renminbi into
foreign currencies and, if Chinese Renminbi were to decline in value, reducing
our revenue in U.S. dollar terms.

      

      Our
reporting currency is the U.S. dollar and our operations in China use their
local currency as their functional currencies.  Substantially all of
our revenue and expenses are in the Chinese currency, the
Renminbi.  We are subject to the effects of exchange rate fluctuations
with respect to any of these currencies.  For example, the value of
the Renminbi depends to a large extent on Chinese government policies and
China’s domestic and international economic and political developments, as well
as supply and demand in the local market.  Since 1994, the official
exchange rate for the conversion of the Renminbi to the U.S. dollar had
generally been stable and the Renminbi had appreciated slightly against the U.S.
dollar.  In July 2005, the Chinese government changed its policy of
pegging the value of the Renminbi to the U.S. dollar.  Under this
policy, which was halted in 2008 due to the worldwide financial crisis, the
Renminbi was permitted to fluctuate within a narrow and managed band against a
basket of certain foreign currencies.  In June 2010, the Chinese
government announced its intention to again allow the Renminbi to fluctuate
within the 2005 parameters.  It is possible that the Chinese
government could adopt an even more flexible currency policy, which could result
in more significant fluctuation of Renminbi against the U.S. dollar, or it could
adopt a more restrictive policy.  We can offer no assurance that the
Renminbi will be stable against the U.S. dollar or any other foreign
currency.

      

      Our
financial statements are translated into U.S. dollars at the average exchange
rates in each applicable period.  To the extent the U.S. dollar
strengthens against foreign currencies, the translation of these foreign
currencies denominated transactions results in reduced revenue, operating
expenses and net income for our international operations.  Similarly,
to the extent the U.S. dollar weakens against foreign currencies, the
translation of these foreign currency denominated transactions results in
increased revenue, operating expenses and net income for our international
operations.  We are also exposed to foreign exchange rate fluctuations
as we convert the financial statements of our foreign consolidated subsidiaries
into U.S. dollars in consolidation.  If there is a change in foreign
currency exchange rates, the conversion of the foreign consolidated
subsidiaries’ financial statements into U.S. dollars will lead to a translation
gain or loss which is recorded as a component of other comprehensive
income.  In addition, we have certain assets and liabilities that are
denominated in currencies other than the relevant entity’s functional
currency.  Changes in the functional currency value of these assets
and liabilities create fluctuations that will lead to a transaction gain or
loss.  We have not entered into agreements or purchased instruments to
hedge our exchange rate risks, although we may do so in the
future.  The availability and effectiveness of any hedging transaction
may be limited and we may not be able to hedge our exchange rate
risks.

      

      The
State Administration of Foreign Exchange (“SAFE”) restrictions on currency
exchange may limit our ability to receive and use our sales revenue effectively
and to pay dividends, and the restrictions may cause a delay in payment of
interest on the Notes.

      

      All of
our sales revenue and expenses are denominated in the Chinese currency,
Renminbi.  Under PRC law, the Renminbi is currently convertible under
the “current account,” which includes dividends and trade and service-related
foreign exchange transactions, but not under the “capital account,” which
includes foreign direct investment and loans.  Currently, our PRC
operating subsidiary, Bohai, may purchase foreign currencies for settlement of
current account transactions, including payments of dividends to us, without the
approval of SAFE, by complying with certain procedural
requirements.  However, the relevant PRC government authorities may
limit or eliminate our ability to purchase foreign currencies in the
future.  Since a significant amount of our future revenue will be
denominated in Renminbi, any existing and future restrictions on currency
exchange may limit our ability to utilize revenue generated in Renminbi to fund
our business activities outside China that are denominated in foreign
currencies.

      
        
           

        

        
          A-12

          
            

          

        

        
           

        

      

       

      All of
our income is derived from the consulting fees we receive from Bohai through the
VIE Agreements.  SAFE restrictions may delay the payment of dividends,
since we have to comply with certain procedural requirement and we may
experience difficulties in completing the administrative procedures necessary to
obtain and remit foreign currency for the payment of dividends from the profits
of WFOE, and it thus may delay our payment of interest to the Notes
holders.

      

      Foreign
exchange transactions by PRC operating subsidiaries under the capital account
continue to be subject to significant foreign exchange controls and require the
approval of or need to register with PRC government authorities, including
SAFE.  In particular, if Bohai, our PRC operating subsidiary, borrows
foreign currency through loans from us or other foreign lenders, these loans
must be registered with SAFE, and if we finance Bohai by means of additional
capital contributions, these capital contributions must be approved by certain
government authorities, including the Ministry of Commerce, or their respective
local counterparts.  These limitations could affect Bohai’s ability to
obtain foreign exchange through debt or equity financing.

      

      The PRC
government also may at its discretion restrict access in the future to foreign
currencies for current account transactions.  If the foreign exchange
control system prevents us from obtaining foreign currency, we may be unable to
pay the interest and principal on the Notes, pay dividends or meet obligations
that may be incurred in the future that require payment in foreign
currency.

      

      The
PRC State Administration of Foreign Exchange restrictions on the use of offshore
holding companies in mergers and acquisitions in China may create regulatory
uncertainties that could restrict or limit our ability to operate.

      

      In
November 2005, SAFE issued a public notice, known as Circular 75, concerning
foreign exchange registrations that are required in order to use of offshore
holding companies in mergers and acquisitions in China.  The public
notice provides that if an offshore company controlled by PRC residents intends
to acquire a PRC company, such acquisition will be subject to registration with
the relevant foreign exchange authorities.  The public notice also
suggested that registration with the relevant foreign exchange authorities is
required for any sale or transfer by the PRC residents of shares in an offshore
holding company that owns an onshore company.  PRC residents must each
submit a registration form to the local SAFE branch with respect to their
ownership interests in the offshore company, and must also file an amendment to
such registration if the offshore company experiences material events, such as
changes in the share capital, share transfer, mergers and acquisitions, spin-off
transactions or use of assets in China to guarantee offshore
obligations.

      

      Internal
implementing guidelines issued by SAFE, which became public in June 2007 (known
as Notice 106), expanded the reach of Circular 75 by: (i) purporting to cover
the establishment or acquisition of control by PRC residents of offshore
entities which merely acquire “control” over domestic companies or assets, even
in the absence of legal ownership; (ii) adding requirements relating to the
source of the PRC resident’s funds used to establish or acquire the offshore
entity; (iii) covering the use of existing offshore entities for offshore
financings; (iv) purporting to cover situations in which an offshore special
purpose vehicle, or SPV, establishes a new subsidiary in China or acquires an
unrelated company or unrelated assets in China; and (v) making the domestic
affiliate of the SPV responsible for the accuracy of certain documents which
must be filed in connection with any such registration, notably, the business
plan which describes the overseas financing and the use of
proceeds.  Amendments to registrations made under Circular 75 are
required in connection with any increase or decrease of capital, transfer of
shares, mergers and acquisitions, equity investment or creation of any security
interest in any assets located in China to guarantee offshore obligations, and
Notice 106 makes the offshore SPV jointly responsible for these
filings.  In the case of an SPV which was established, and which
acquired a related domestic company or assets, before the implementation date of
Circular 75, as applied by SAFE in accordance with Notice 106, may result in
fines and other penalties under PRC laws for evasion of applicable foreign
exchange restrictions.  Any such failure could also result in the
SPV’s affiliates being impeded or prevented from distributing their profits and
the proceeds from any reduction in capital, share transfer or liquidation to the
SPV, or from engaging in other transfers of funds into or out of
China.

      

      The PRC
regulatory authorities may take the view that our acquisition of indirect
ownership and controlling interest in Bohai through VIE arrangements shall be
subject to SAFE approval and registration. Any adverse action taken against us
by PRC regulatory authorities could significantly and negatively impact our
operations and the trading market for our common stock.

      
        
           

        

        
          A-13

          
            

          

        

        
           

        

      

      PRC
regulations and potential registration requirements relating to acquisitions of
PRC companies by foreign entities may create regulatory uncertainties that could
restrict or limit our ability to operate.  Similarly, our failure to
obtain the prior approval of PRC authorities for our January 2010 private
placement and the listing and trading of our common stock could have a material
adverse effect on our business, operating results, reputation and trading price
of our common stock.

      

      On August
8, 2006, the PRC Ministry of Commerce (“MOC”), joined by the State-owned Assets
Supervision and Administration Commission of the State Council, the State
Administration of Taxation, the State Administration for Industry and Commerce,
the China Securities Regulatory Commission (“CSRC”) and SAFE, released a
substantially amended version of the Provisions for Foreign Investors to Merge
with or Acquire Domestic Enterprises (the “Revised M&A Regulations”), which
took effect September 8, 2006.  These new rules significantly revised
China’s regulatory framework governing onshore-to-offshore restructurings and
foreign acquisitions of domestic enterprises.  These new rules signify
greater PRC government attention to cross-border merger, acquisition and other
investment activities, by confirming MOC as a key regulator for issues related
to mergers and acquisitions in China and requiring MOC approval of a broad range
of merger, acquisition and investment transactions.  Further, the new
rules establish reporting requirements for acquisition of control by foreigners
of companies in key industries, and reinforce the ability of the Chinese
government to monitor and prohibit foreign control transactions in key
industries.

      

      Among
other things, the revised M&A Regulations include new provisions that
purport to require that an offshore SPV, formed for listing purposes and
controlled directly or indirectly by PRC companies or individuals must obtain
the approval of the CSRC prior to the listing and trading of such SPV’s
securities on an overseas stock exchange.  On September 21, 2006, the
CSRC published on its official website procedures specifying documents and
materials required to be submitted to it by SPVs seeking CSRC approval of their
overseas listings.  However, the application of this PRC regulation
remains unclear with no consensus currently existing among the leading PRC law
firms regarding the scope and applicability of the CSRC approval
requirement.

      

      Our
principal stockholder, Glory Period, is 100% owned by Joshua Tan, a Singapore
citizen.  As of September 21, 2010, Glory Period holds 54.19% of our
outstanding common stock.  Mr. Tan and Mr. Qu (the principal founder
of Bohai and our Chairman, President and Chief Executive Officer) entered into
the Call Option Agreement on December 7, 2009 by which Mr. Qu has an option to
acquire all the issued and outstanding shares of Glory Period within three years
for nominal consideration.  Chance High, as the wholly owned
subsidiary of our company, formed WFOE on November 23, 2009 and WFOE obtained
effective and substantial control over Bohai further through executing the VIE
Agreements on December 7, 2009 by and among WFOE, Bohai and the three
shareholders of Bohai (including Mr. Qu).  The PRC regulatory
authorities may take the view that entry into the VIE Agreements by WFOE and
Bohai resulting in Mr. Qu, a PRC resident becoming the majority owner and
effective controlling party of our company which acquired 100% indirect
ownership of Bohai.  The PRC regulatory authorities may also take the
view that the relevant parties should fully disclose to SAFE or MOC of the
overall restructuring arrangements, the existence of the Share Exchange and
related VIE Agreements.  If the PRC regulatory authorities take the
view that the Share Exchange and VIE arrangement constitutes a reverse ,merger
or round-trip investment under the M&A Regulations, we cannot assure you we
may be able to obtain the approval required from the national offices of
MOC.

      

      If the
PRC regulatory authorities take the view that the Share Exchange and the VIE
Agreements constitutes a reverse merger acquisition or round-trip investment
without the approval of the national offices of MOC, they could invalidate the
Share Exchange and VIE Agreements.  Additionally, the PRC regulatory
authorities may take the view that any public offering plan of us will require
the prior approval of CSRC.  If we cannot obtain MOC or CSRC approval
in case we are required to do so, our business and financial performance will be
materially adversely affected.  We may also face regulatory actions or
other sanctions from the MOC or other PRC regulatory agencies.  These
regulatory agencies may impose fines and penalties on our operations in the PRC,
limit our operating privileges in the PRC, delay or restrict the repatriation of
the proceeds from the Private Placement into the PRC, or take other actions that
could have a material adverse effect on our business, financial condition,
results of operations, reputation and prospects, as well as the trading price of
our common stock.

      
        
           

        

        
          A-14

          
            

          

        

        
           

        

      

       

       Also, if later the CSRC
requires that we obtain its approval, we may be unable to obtain a waiver of the
CSRC approval requirements, if and when procedures are established to obtain
such a waiver. Any uncertainties and/or negative publicity regarding this CSRC
approval requirement could have a material adverse effect on the trading price
of our common stock.  Furthermore, published news reports in China
recently indicated that the CSRC may have curtailed or suspended overseas
listings for Chinese private companies. These news reports have created further
uncertainty regarding the approach that the CSRC and other PRC regulators may
take with respect to transactions that we have engaged in our may in the future
engage in.  Any adverse action taken against us by PRC regulatory
authorities could significantly and negatively impact our operations and the
trading market for our common stock.

      

      Because
our assets are located outside of the United States and half of our directors,
including our Chairman, and the majority of our officers reside outside of the
United States, it may be difficult for you to enforce your rights based on the
United States federal securities laws against us and these persons in the United
States or to enforce judgments of United States courts against us or him in the
PRC.

      

      Our
Chairman of the Board and principal executive officer, Mr. Qu, resides outside
of the United States in China.  In addition, another of our directors
and a majority of our officers are also located in
China.  Furthermore, our operating subsidiary is located in the PRC
and all of its assets are located outside of the United States.  China
does not have a treaty with United States providing for the reciprocal
recognition and enforcement of judgments of courts.  It may therefore
be difficult for investors in the United States to enforce their legal rights
based on the civil liability provisions of the United States federal securities
laws against us in the courts of either the United States or the PRC and, even
if civil judgments are obtained in courts of the United States, to enforce such
judgments in the PRC courts.  Further, it is unclear if extradition
treaties now in effect between the United States and the PRC would permit
effective enforcement against us or our officers and directors of criminal
penalties, under the United States federal securities laws or
otherwise.

      

      We
may have limited legal recourse under PRC laws if disputes arise under our
contracts with third parties.

      

      The
Chinese government has enacted some laws and regulations dealing with matters
such as corporate organization and governance, foreign investment, commerce,
taxation and trade.  However, their experience in implementing,
interpreting and enforcing these laws and regulations is limited, and our
ability to enforce commercial claims or to resolve commercial disputes is
unpredictable.  If our new business ventures are unsuccessful, or
other adverse circumstances arise from these transactions, we face the risk that
the parties to these ventures may seek ways to terminate the transactions, or,
may hinder or prevent us from accessing important information regarding the
financial and business operations of these acquired companies.  The
resolution of these matters may be subject to the exercise of considerable
discretion by agencies of the Chinese government, and forces unrelated to the
legal merits of a particular matter or dispute may influence their
determination. Any rights we may have to specific performance, or to seek an
injunction under PRC laws, in either of these cases, are severely limited, and
without a means of recourse by virtue of the Chinese legal system, we may be
unable to prevent these situations from occurring.  The occurrence of
any such events could have a material adverse effect on our business, financial
condition and results of operations.  Although legislation in China
over the past 30 years has significantly improved the protection afforded to
various forms of foreign investment and contractual arrangements in China, these
laws, regulations and legal requirements are relatively new and their
interpretation and enforcement involve uncertainties, which could limit the
legal protection available to us, and foreign investors, including
you.  The inability to enforce or obtain a remedy under any of our
future agreements could result in a significant loss of business, business
opportunities or capital and could have a material adverse impact on our
operations.

      
        
           

        

        
          A-15

          
            

          

        

        
           

        

      

       

      We
must comply with the Foreign Corrupt Practices Act.

      

      We are
required to comply with the United States Foreign Corrupt Practices Act, which
prohibits U.S. companies from engaging in bribery or other prohibited payments
to foreign officials for the purpose of obtaining or retaining business. Foreign
companies, including some of our competitors, are not subject to these
prohibitions. Corruption, extortion, bribery, pay-offs, theft and other
fraudulent practices occur from time-to-time in mainland China. If our
competitors engage in these practices, they may receive preferential treatment
from personnel of some companies, giving our competitors an advantage in
securing business or from government officials who might give them priority in
obtaining new licenses, which would put us at a disadvantage. We have not
established formal policies or procedures for prohibiting or monitoring this
conduct, and we can not assure you that our employees or other agents will not
engage in such conduct for which we might be held responsible. If our employees
or other agents are found to have engaged in such practices, we could suffer
severe penalties.

       

      If
we make equity compensation grants to persons who are PRC citizens, they may be
required to register with SAFE.  We may also face regulatory
uncertainties that could restrict our ability to adopt equity compensation plans
for our directors and employees and other parties under PRC laws.

      

      On April
6, 2007, SAFE issued the “Operating Procedures for Administration of Domestic
Individuals Participating in the Employee Stock Ownership Plan or Stock Option
Plan of An Overseas Listed Company, also know as “Circular 78.”  It is
not clear whether Circular 78 covers all forms of equity compensation plans or
only those which provide for the granting of stock options. For any plans which
are so covered and are adopted by a non-PRC listed company, such as our company,
after April 6, 2007, Circular 78 requires all participants who are PRC citizens
to register with and obtain approvals from SAFE prior to their participation in
the plan.  In addition, Circular 78 also requires PRC citizens to
register with SAFE and make the necessary applications and filings if they
participated in an overseas listed company’s covered equity compensation plan
prior to April 6, 2007.  We believe that the registration and approval
requirements contemplated in Circular 78 will be burdensome and time
consuming.

      

      In the
future, we may adopt an equity incentive plan and make numerous stock option
grants under the plan to our officers, directors and employees, some of whom are
PRC citizens and may be required to register with SAFE.  If it is
determined that any of our equity compensation plans are subject to Circular 78,
failure to comply with such provisions may subject us and participants of our
equity incentive plan who are PRC citizens to fines and legal sanctions and
prevent us from being able to grant equity compensation to our PRC employees. In
that case, our ability to compensate our employees and directors through equity
compensation would be hindered and our business operations may be adversely
affected.

      

      Due
to various restrictions under PRC laws on the distribution of dividends by our
PRC operating companies, we may not be able to pay dividends to our
stockholders.

      

      The
Wholly-Foreign Owned Enterprise Law (1986), as amended and the Wholly-Foreign
Owned Enterprise Law Implementing Rules (1990), as amended and the Company Law
of the PRC (2006) contain the principal regulations governing dividend
distributions by wholly foreign owned enterprises. Under these regulations,
wholly foreign owned enterprises, such as WFOE, may pay dividends only out of
their accumulated profits, if any, determined in accordance with PRC accounting
standards and regulations. Additionally, WFOE is required to set aside a certain
amount of their accumulated profits each year, if any, to fund certain reserve
funds.  These reserves are not distributable as cash dividends except
in the event of liquidation and cannot be used for working capital
purposes.

      

      Furthermore,
if our consolidated subsidiaries in China incur debt on their own in the future,
the instruments governing the debt may restrict its ability to pay dividends or
make other payments. If we or our consolidated subsidiaries are unable to
receive all of the revenues from our operations due to these contractual or
dividend arrangements, we may be unable to pay dividends on our common
stock.

      
        
           

        

        
          A-16

          
            

          

        

        
           

        

      

         

      We
may have difficulty establishing adequate management, governance, legal and
financial controls in the PRC.

      

      The PRC
historically has been deficient in western style management, governance and
financial reporting concepts and practices, as well as in modern banking, and
other control systems.  Our current management has little experience
with western style management, governance and financial reporting concepts and
practices, and we may have difficulty in hiring and retaining a sufficient
number of qualified employees to work in the PRC.  As a result of
these factors, and especially given that we expect to be a publicly listed
company in U.S. and subject to regulation as such, we may experience difficulty
in establishing management, governance legal and financial controls, collecting
financial data and preparing financial statements, books of account and
corporate records and instituting business practices that meet western
standards.  We may have difficulty establishing adequate management,
governance, legal and financial controls in the PRC.  Therefore, we
may, in turn, experience difficulties in implementing and maintaining adequate
internal controls as required under Section 404 of the Sarbanes-Oxley Act of
2002 and other applicable laws, rules and regulations.  This may
result in significant deficiencies or material weaknesses in our internal
controls which could impact the reliability of our financial statements and
prevent us from complying with SEC rules and regulations and the requirements of
the Sarbanes-Oxley Act of 2002.  Any such deficiencies, weaknesses or
lack of compliance could have a materially adverse effect on our business and
the public announcement of such deficiencies could adversely impact our stock
price.

      

      It
may be difficult to protect and enforce our intellectual property rights under
PRC laws.

      

      Intellectual
property rights in China are still developing, and there are uncertainties
involved in the protection and the enforcement of such rights.  We
will need to pay special attention to protecting our intellectual property and
trade secrets.  Failure to do so could lead to the loss of a
competitive advantage that could not be compensated by our damages
award.

      

      If
our land use rights are revoked, we would have no operational
capabilities.

      

      Under
Chinese law land is owned by the state or rural collective economic
organizations. The state issues to tenants the rights to use
property.  Use rights can be revoked and the tenants forced to vacate
at any time when redevelopment of the land is in the public
interest.  The public interest rationale is interpreted quite broadly
and the process of land appropriation may be less than
transparent.  Through our operating subsidiary Bohai, we rely on these
land use rights as the cornerstone of our operations for both our manufacturing
facility and our corporate headquarters.  The loss of such rights
would have a material adverse effect on our company as we would be required to
relocate our facilities and obtain new land use rights, and there is a risk that
we would not be able to accomplish such a relocation with reasonable cost or at
all.  In addition, we currently do not maintain a land use right
certificate for a piece of land located in Xingfu Twelve Village of Zhifu
District with the area of 11,222 square meters, on which we have built our
corporate headquarters.  In the process of the planning of Yantai
City, the usage of this land use right has been changed from “industrial use” to
“commercial use” and therefore, the process for the land use right certificate
on five relevant parcels of land including the land occupied by Bohai is
suspended until the completion of the planning.  We can not assure you
that we will eventually obtain the land use right certificate for this land with
reasonable cost.

      

      Risks
Related to Our Common Stock

      

      Trading
in our common stock has been extremely limited, so investors may not be able to
sell as many of their shares as they want at prevailing prices.

      

      Our
common stock is listed for quotation on OTCBB and the OTCQB under the symbol
“BOHP”, but trading in our common stock has been extremely
limited.  Trading in our common stock may not fully evolve for a
variety of reasons, and even if a market for our stock develops, it may continue
to be limited.  If limited trading in the common stock continues, it
may be difficult for investors to sell such shares in the public market at any
given time at prevailing prices.  Also, the sale of a large block of
common stock, should it occur, could depress the market price of the common
stock to a greater degree than a company that typically has a higher volume of
trading of its securities.

      

      The
registration statement concerning the shares of common stock underlying the
Notes and Warrants may not remain effective, which could impact the liquidity of
our common stock.

      

      Under the
terms of our January 2010 Registration Rights Agreement, we are obligated to
include the shares of common stock underlying the Notes and Warrants in an
effective registration statement.  From time to time, it will be
necessary for us to file post-effective amendments to the registration statement
when subsequent events so require.  We intend to use our best efforts
to keep the registration statement current, but we may not be able to do
so.  If the registration statement is not current in the future, we
will incur penalties and investors’ ability to sell the shares of common stock
underlying the Notes and Warrants will be limited, which would have a material
adverse effect on the liquidity of our common stock.

      
        
           

        

        
          A-17

          
            

          

        

        
           

        

      

       

      There
is currently limited trading in our common stock, and the limited public trading
market that may develop in the future may cause extreme volatility in our stock
price.

      

      Although
our common stock is listed for quotation on the OTCBB and the OTCQB, there has
been until only recently extremely limited trading in our stock.  Even
if a market for our common stock does develop, there is a risk that a
meaningful, consistent and liquid trading market may not
develop.  Moreover, stocks with limited trading markets have
historically experienced extreme price and volume fluctuations and have
particularly affected the market prices of many smaller companies like
us.  Our common stock is thus expected to be subject to significant
volatility when and if meaningful trading commences.  Sales of
substantial amounts of our common stock, or the perception that such sales might
occur, could adversely affect prevailing market prices of our common
stock.

      

      An
active and visible trading market for our common stock may not
develop.

      

      We cannot
predict whether an active market for our common stock will develop in the
future.  In the absence of an active trading market:

      

      
        	
                 
      

              	
                ·

              	
                Investors may have difficulty
      buying and selling or obtaining market
  quotations;

              

      

      

      
        	
                 
      

              	
                ·

              	
                Market visibility for our common
      stock may be limited; and

              

      

      

      
        	
                 
      

              	
                ·

              	
                A lack of visibility for our
      common stock may have a depressive effect on the market price for our
      common stock.

              

      

      

      The OTCBB
and OTCQB are unorganized, inter-dealer, over-the-counter markets that provides
significantly less liquidity than NASDAQ or the NYSE AMEX.  The
trading price of the common stock is expected to be subject to significant
fluctuations in response to variations in quarterly operating results, changes
in analysts’ earnings estimates, announcements of innovations by us or our
competitors, general conditions in the industry in which we operate and other
factors.  These fluctuations, as well as general economic and market
conditions, may have a material or adverse effect on the market price of our
common stock.

      

      The
market price for our stock may be volatile.

      

      The
market price for our stock may be volatile and subject to wide fluctuations due
to factors such as:

      

      
        	
                 
      

              	
                ·

              	
                actual or anticipated
      fluctuations in our quarterly operating
  results;

              

      

      

      
        	
                 
      

              	
                ·

              	
                changes in financial estimates by
      securities research
analysts;

              

      

      

      
        	
                 
      

              	
                ·

              	
                conditions in pharmaceutical
      markets;

              

      

      

      
        	
                 
      

              	
                ·

              	
                changes in the economic
      performance or market valuations of other pharmaceutical
      companies;

              

      

      

      
        	
                 
      

              	
                ·

              	
                announcements by us or our
      competitors of new products, acquisitions, strategic partnerships, joint
      ventures or capital
commitments;

              

      

      

      
        	
                 
      

              	
                ·

              	
                addition or departure of key
      personnel;

              

      

      

      
        	
                 
      

              	
                ·

              	
                fluctuations of exchange rates
      between RMB and the U.S.
dollar;

              

      

      

      
        	
                 
      

              	
                ·

              	
                intellectual property or other
      litigation; and

              

      

      
        
           

        

        
          A-18

          
            

          

        

        
           

        

      

       

      
        	
                 
      

              	
                ·

              	
                general economic or political
      conditions in China.

              

      

      

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

      

      The
accounting treatment for our convertible securities is complex and subject to
judgments concerning the valuation of embedded derivative rights within the
applicable securities.  Fluctuations in the valuation of these rights
could cause us to take charges to our earnings and make our financial results
unpredictable.

      

      Our Notes
and Warrants issued in January 2010 contain, or may be deemed to contain from
time to time, embedded derivative rights in accordance with
GAAP.  These derivative rights, or similar rights in convertible
securities we may issue in the future, need to be, or may need to be, separately
valued as of the end of each accounting period in accordance with
GAAP.  Changes in the valuations of these rights, the valuation
methodology or the assumptions on which the valuations are based could cause us
to take charges to our earnings, which would adversely impact our results of
operations.  Moreover, the methodologies, assumptions and related
interpretations of accounting or regulatory authorities associated with these
embedded derivatives are complex and in some cases uncertain, which could cause
our accounting for these derivatives, and as a result, our financial results, to
fluctuate.  There is a risk that questions could arise from investors
or regulatory authorities concerning the appropriate accounting treatment of
these instruments, which could require us to restate previous financial
statements, which in turn could adversely impact our results of operations, our
reputation and our public stock price.

      

      Shares
eligible for future sale may adversely affect the market price of our common
stock, as the future sale of a substantial amount of outstanding stock in the
public marketplace could reduce the price of our common stock.

      

      Pursuant
to the terms of the Registration Rights Agreement and Securities Purchase
Agreement, we filed a registration statement with the SEC to register the common
stock underlying the Notes, Warrants and Placement Agent Warrants for public
resale.  All of such shares may be freely sold and transferred
following conversion or exercise of the Notes and Warrants if such registration
statement remains effective.  Additionally, concurrently with the
closing of the Private Placement, we engaged in a Share Exchange, and following
the Share Exchange, the former shareholders of Chance High (other than Glory
Period) may be eligible to sell all or some of their shares of common stock by
means of ordinary brokerage transactions in the open market pursuant to such
registration statement or SEC Rule 144, subject to certain
limitations.  In general, pursuant to Rule 144, a stockholder (or
stockholders whose shares are aggregated) who has satisfied an one-year holding
period may, under certain circumstances, sell within any three-month period a
number of securities which does not exceed the greater of 1% of the then
outstanding shares of common stock or the average weekly trading volume of the
class during the four calendar weeks prior to such sale.  As of the
date of this Annual Report, and not accounting for the shares of common stock
underlying the Notes and Warrants issued in our January 2010 private placement,
1% of our issued and outstanding shares of common stock equals
approximately165,000 shares.  Rule 144 also permits, under certain
circumstances, the sale of securities, without any limitations, by a
non-affiliate that has satisfied a one-year holding period.  Any
substantial sale of common stock pursuant to any resale prospectus or Rule 144
may have an adverse effect on the market price of our common stock by creating
an excessive supply.

      

      Our
controlling stockholder may exercise significant influence over us.

      

      Our
controlling stockholder, Glory Period Limited, owns approximately 55% of our
outstanding common stock as of the closing of the Share Exchange.  Tan
is the sole shareholder of Glory Period and Qu is the sole director of Glory
Period.  Either Tan or Qu has a controlling influence in determining
the outcome of any corporate transaction or other matters submitted to our
stockholders for approval, including mergers, consolidations and the sale of all
or substantially all of our assets, election of directors, and other significant
corporate actions.  Tan and Qu may also have the power to prevent or
cause a change in control.  In addition, without the consent of Tan
and Qu, we could be prevented from entering into transactions that could be
beneficial to us.  As Qu serves as our principal executive officer and
Tan has provided consulting services to Bohai in the past, the interests of Tan
and Qu may differ from the interests of our other stockholders, which could
create conflicts of interest and the potential for approval of actions which may
not be in the best interests of all of our stockholders.

      
        
           

        

        
          A-19

          
            

          

        

        
           

        

      

       

      Compliance
with complex and changing regulation of corporate governance and public
disclosure, and our management’s inexperience with such regulations, will result
in additional expenses and creates a risk of non-compliance.

      

      Changing
laws, regulations and standards relating to corporate governance and public
legal and accounting disclosure, including the Sarbanes-Oxley Act of 2002 and
related SEC regulations, have created uncertainty for public companies and
significantly increased the costs and risks associated with accessing the public
markets and public reporting.  Our management team will need to invest
significant management time and financial resources to comply with both existing
and evolving standards for public companies, which will lead to increased
general and administrative expenses and a diversion of management time and
attention from revenue generating activities to compliance
activities.  In addition, our management located in the PRC has little
experience with compliance with U.S. laws (including securities
laws).  This inexperience may cause us to fall out of compliance with
applicable regulatory requirements, which could lead to restatements of our
financial statements, breaches of covenants in our investor agreements,
regulatory enforcement actions against us and a negative impact on our stock
price and our business generally.  The challenges we have with
properly complying with applicable disclosure and accounting regulations were
evidenced when we were required to restate our financial statements for the
period ended March 31, 2010 to account for the embedded derivative liabilities
associated with Notes and Warrants.  There is a risk that we will face
similar challenges in the future.

      

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

      

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

      
        
           

        

        
          A-20

          
            

          

        

        
           

        

      

       

      Our
common stock may be considered a “penny stock,” and thereby be subject to
additional sale and trading regulations that may make it more difficult to
sell.

      

      Our
common stock, which is currently and will be quoted for trading on OTCBB and the
OTCQB, may be considered to be a “penny stock” if it does not qualify for one of
the exemptions from the definition of “penny stock” under Section 3a51-1 of the
Exchange Act, as amended.  Our common stock may be a “penny stock” if
it meets one or more of the following conditions: (i) the stock trades at a
price less than $5 per share; (ii) it is NOT traded on a “recognized” national
exchange; (iii) it is not quoted on the Nasdaq Capital Market, or even if so,
has a price less than $5 per share; or (iv) is issued by a company that has been
in business less than three years with net tangible assets less than $5
million.  The principal result or effect of being designated a “penny
stock” is that securities broker-dealers participating in sales of our common
stock will be subject to the “penny stock” regulations set forth in Rules 15-2
through 15g-9 promulgated under the Exchange Act.  For example, Rule
15g-2 requires broker-dealers dealing in penny stocks to provide potential
investors with a document disclosing the risks of penny stocks and to obtain a
manually signed and dated written receipt of the document at least two business
days before effecting any transaction in a penny stock for the investor’s
account.  Moreover, Rule 15g-9 requires broker-dealers in penny stocks
to approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor.  This procedure requires the
broker-dealer to: (i) obtain from the investor information concerning his or her
financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor’s financial
situation, investment experience and investment
objectives.  Compliance with these requirements may make it more
difficult and time consuming for holders of our common stock to resell their
shares to third parties or to otherwise dispose of them in the market or
otherwise.

      

      We
do not foresee paying cash dividends in the foreseeable future and, as a result,
our investors’ sole source of gain, if any, will depend on capital appreciation,
if any.

      

      We do not
plan to declare or pay any cash dividends on our shares of common stock in the
foreseeable future and currently intend to retain any future earnings for
funding growth. As a result, investors should not rely on an investment in our
securities if they require the investment to produce dividend income. Capital
appreciation, if any, of our shares may be investors’ sole source of gain for
the foreseeable future. Moreover, investors may not be able to resell their
common stock at or above the price they paid for them.

      
        
           

        

        
          A-21

          
            

          

        

        
           

        

      

       

      INVESTOR
SUITABILITY QUESTIONNAIRE

      FOR
NON-U.S. INVESTORS AS DEFINED IN RULE 902 OF REGULATION S

      

      CONFIDENTIAL

      

      Bohai
Pharmaceuticals Group, Inc. (the “Company”) will use
the responses to this questionnaire to qualify prospective investors
for purposes of federal and state securities laws. Please complete, sign, date and return one copy of
this questionnaire as soon as possible, via mail or facsimile, to:

       

      [INSERT
NAME AND CONTACT INFORMATION OF COMPANY OFFICER]

      

      
        
          
            	
                    Name: 

                  	 
      

          

        

      

      (EXACT
NAME AS IT SHOULD APPEAR ON SECURITIES)

       

      
        	
                1.

              	
                Please
      indicate the country in which you maintain your principal residence and
      how long you have maintained your principal residence in that
      country.

              

      

       

      
        
          
            
              
                	
                        Country:

                      	 
      
	 
      	 
      
	
                        Duration: 

                      	 
      
	 
      	 
      
	
                        Address:

                      	 
      

              

            

          

        

      

      

      
        
          
            	
                    Email Address: 

                  	 
      

          

        

      

      

      You agree
that the Company may present this questionnaire to such parties as the Company
deems appropriate to establish the availability of exemptions from registration
under federal and state securities laws. You represent that the information
furnished in this questionnaire is true and correct and you acknowledge that the
Company and its counsel are relying on the truth and accuracy of such
information to comply with federal and state securities laws. You agree to
notify the Company promptly of any changes in the foregoing information that may
occur prior to the investment.

      

      
        
          
            
              
                
                  
                    
                      	 
      	 
      
	 
      	
                              (Signature)

                            
	 
      	 
      
	 
      	 
      
	 
      	
                              Title
      or capacity of signing party if the subscriber is partnership,
      corporation, trust or other non-individual
  entity

                            

                    

                  

                

              

            

          

        

      

         

      
        
          
            
              	
                      Date: 

                    	 
      

            

          

        

      

       

      
        
           

        

        
          B-1

          
            

          

        

        
           

        

      

       

      I. INDIVIDUAL
INVESTORS:

       

      (Investors
other than individuals should turn to Part II)

       

      INITIAL
EACH BOX TRUE
OR FALSE OR COMPLETE, AS APPROPRIATE

       

      Disclosure of Foreign
Citizenship.

       

      
        
          
            	
                    1.

                  	 
      	
                    ______ ________

                    True       False

                  	 
      	
                    You
      are a citizen of a country other than the United
States.

                  
	 	 	 	 	 
	
                    2.

                  	
                      

                  	
                    _________________

                  	
                      

                  	
                    If
      the answer to the preceding question is true, specify the country of which
      you are a citizen.

                  

          

        

      

       

      Verification of Status as a
Non-“U.S. Person” under Regulation S.

       

      
        
          	
                  3.

                	
                    

                	
                  ______ ________

                  True       False

                	
                    

                	
                  You
      are a natural person resident in the United
  States.

                

        

      

       

      PLEASE
PROVIDE COPIES OF THE IDENFICATION DOCUMENTS ISSUED BY THE COUNTRY OF WHICH YOU
ARE A CITIZEN.

       

      PLEASE
TURN TO PART III AND SIGN AND DATE THIS QUESTIONNAIRE

      
        
           

        

        
          B-2

          
            

          

        

        
           

        

      

       

      II.
NON-INDIVIDUAL
INVESTORS:*

       

      (Please
answer Part II only if the purchase is proposed to be undertaken by a
corporation, partnership, trust or other entity)

       

      
        	
                 
      

              	
                ·

              	
                If
      the investment will be made by more than one affiliated entity, please
      complete a copy of this questionnaire for EACH
      entity.

              

      

       

      
        	
              	
                ·

              	
                PLEASE PROVIDE COPIES
      OF THE FORMATION DOCUMENTS ISSUED BY THE COUNTRY IN WHICH YOU WERE
      FORMED.

              

      

       

      INITIAL
EACH BOX TRUE OR FALSE

       

      Disclosure of Foreign
Ownership.

       

      
        
          
            
              
                	
                        1.

                      	 
      	
                        _____
      _________

                        True     False

                      	 
      	
                        You
      are an entity organized under the laws of a jurisdiction other than those
      of the United States or any state, territory or possession of the United
      States (a "Foreign Entity").

                      
	 	 	 	 	 
	
                        2.

                      	 
      	
                        _____
      _________

                        True     False

                      	 
      	
                        You
      are a corporation of which, in the aggregate, more than one-fourth of the
      capital stock is owned of record or voted by Foreign Citizens, Foreign
      Entities, Foreign Corporations (as defined below) or Foreign partnerships
      (as defined below) (a "Foreign Corporation")

                      
	 	 	 	 	 
	
                        3.

                      	 
      	
                        _____
      _________

                        True    
      False

                      	 
      	
                        You
      are a general or limited partnership of which any general or limited
      partner is a Foreign Citizen, Foreign Entity, Foreign Government, Foreign
      Corporation or Foreign Partnership (as defined below) (a "Foreign
      Partnership")

                      
	 	 	 	 	 
	
                        4.

                      	
                          

                      	
                        _____
      _________

                        True     False

                      	
                          

                      	
                        You
      are a representative of, or entity controlled by, any of the entities
      listed in items 1 through 3
above.

                      

              

            

          

        

      

      

                   
Verification of
Status as a Non-“U.S. Person” under Regulation S.

       

      
        
          
            	
                    1.

                  	 
      	
                    _____
      _________

                    True     False

                  	 
      	
                    You
      are a partnership or corporation organized or incorporated under the laws
      of the United States.

                  
	 	 	 	 	 
	
                    2.

                  	 
      	
                    _____
      _________

                    True     False

                  	 
      	
                    You
      are an estate of which any executor or administrator is a U.S. Person. If
      the preceding sentence is true, but the executor or administrator who is a
      U.S. Person is a professional fiduciary and (i) there is another executor
      or administrator who is a non-U.S. Person who has shared or sole
      investment discretion with respect to the assets of the estate; and (ii)
      the estate is governed by foreign law, you may answer
    “False.”

                  

          

        

      

       

      
        
           

        

        
          B-3

          
            

          

        

        
           

        

      

      

      
        
          
            
              
                
                  
                    
                      
                        	
                                3.

                              	 
      	
                                _____
      _________

                                True     False

                              	 
      	
                                You
      are a trust of which any trustee is a U.S. Person. If the preceding
      sentence is true, but the trustee who is a U.S. Person is a professional
      fiduciary and (i) there is another trustee who is a non-U.S. Person who
      has shared or sole investment discretion with respect to the trust assets;
      and (ii) no beneficiary of the trust is a U.S. Person, you may answer
      “False.”

                              
	 	 	 	 	 
	
                                4.

                              	 
      	
                                _____
      _________

                                True     False

                              	 
      	
                                You
      are an agency or branch of a foreign entity located in the United
      States.

                              
	 	 	 	 	 
	
                                5.

                              	 
      	
                                _____
      _________

                                True     False

                              	 
      	
                                You
      are a non-discretionary or similar account (other than an estate or trust)
      held by a dealer or fiduciary for the benefit or account of a U.S.
      Person.

                              
	 	 	 	 	 
	
                                6.

                              	 
      	
                                _____
      _________

                                True     False

                              	 
      	
                                You
      are a discretionary account or similar account (other than an estate or
      trust) held by a dealer or other fiduciary organized or incorporated, or
      (if an individual) resident in the United States. If the preceding
      sentence is true, but such account is held by a dealer or other
      professional fiduciary organized or incorporated, or resident in the
      United States for the benefit or account of a non-U.S. Person, you may
      answer “False.”

                              
	 	 	 	 	 
	
                                7.

                              	 
      	
                                _____
      _________

                                True     False

                              	 
      	
                                You
      are a partnership or corporation that was organized under the laws of any
      foreign jurisdiction by a U.S. Person principally for the purpose of
      investing in securities not registered under the Securities Act not
      organized or incorporated. If the preceding sentence is true, but you were
      organized or incorporated and are owned by accredited investors (as
      defined in rule 501(a) of Regulation D) who are not natural persons,
      estates or trusts, you may answer “False.”

                              
	 	 	 	 	 
	
                                8.

                              	 
      	
                                _____
      _________

                                True     False

                              	 
      	
                                You
      are an employee benefit plan established and administered in accordance
      with the law and customary practices and documentation of a country other
      than the United States.

                              
	 	 	 	 	 
	
                                9.

                              	 
      	
                                _____
      _________

                                True     False

                              	 
      	
                                You
      are an agency or branch of a U.S. Person located outside the United States
      that is (i) operated for valid business reasons; (ii) engaged in the
      business of insurance or banking; and (iii) subject to substantive
      insurance or banking regulation, respectively, where
    located.

                              
	 	 	 	 	 
	
                                10.

                              	
                                  

                              	
                                _____
      _________

                                True     False

                              	
                                  

                              	
                                You
      are the International Monetary Fund, the International Bank for
      Reconstruction and Development, the Inter-American Development Bank, the
      Asian Development Bank, the African Development Bank, the United Nations,
      or one of their agencies, affiliates or pension
  plans.

                              

                      

                    

                  

                

              

            

          

        

      

      
        
           

        

        
          B-4

          
            

          

        

        
           

        

      

      III.
SIGNATURE

      

      You agree
that the Company may disclose this questionnaire to such parties as the Company
deems appropriate to establish the availability of exemptions from registration
under federal and state securities laws. You represent that the information
furnished in this questionnaire is true, complete and correct and you
acknowledge that the Company and its counsel are relying on the truth and
accuracy of such information to comply with federal and state securities laws.
You agree to notify the Company promptly of any changes in the foregoing
information that may occur prior to the investment.

      

      FOR
INDIVIDUALS:

       

      
        
          
            
              
                
                  
                    
                      
                        
                          	 
      	 
      
	 
      	
                                  (Signature)

                                
	 
      	 
      
	 
      	
                                  Date: 

                                	 
      
	 
      
	
                                  FOR
      ENTITIES:

                                
	 
      	 
      
	 
      	
                                   

                                
	 
      	
                                  Name
      of Entity

                                
	 
      	 
      
	 
      	
                                   

                                
	 
      	
                                  (Signature)

                                
	 
      	 
      
	 
      	
                                   

                                
	 
      	
                                  Name
      of Signing Party

                                
	 
      	 
      
	 
      	
                                         
      

                                
	 
      	
                                  Title
      of Signing Party

                                
	 
      	 
      
	 
      	
                                  Date:

                                	 
      

                        

                      

                    

                  

                

              

            

          

        

      

       

      
        
           

        

        
          B-5COMMON
STOCK PURCHASE WARRANT

    

    GENEREX
BIOTECHNOLOGY CORPORATION

     

    
      
        	
                Warrant
      Shares:  _____

              	
                Issuance
      Date:  January
      25,
      2011           

              

      

    

     

    THIS
COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies
that, for value received, ________ (the “Holder”) is entitled,
upon the terms and subject to the limitations on exercise and the conditions
hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise
Date”) and on or prior to the close of business on the five (5) year
anniversary of the Initial Exercise Date (the “Termination Date”)
but not thereafter, to subscribe for and purchase from Generex Biotechnology
Corporation, a Delaware corporation (the “Company”), up to
_________ shares (the “Warrant Shares”) of
Common Stock, par value $0.001 per share.  The purchase price of one
share of Common Stock under this Warrant shall be equal to the Exercise Price,
as defined in Section 2(b).

     

    Section
1.           Definitions.  Capitalized
terms used and not otherwise defined herein shall have the meanings set forth in
that certain Securities Purchase Agreement (the “Purchase Agreement”),
dated January 24, 2011, among the Company and the purchasers signatory
thereto.  For purposes of this Warrant, the following terms shall have
the following meanings:

    

    a)           “Convertible
Securities” means any stock or securities (other than Options) directly
or indirectly convertible into or exercisable or exchangeable for shares of
Common Stock.

    

    b)           “Options” means any
rights, warrants or options to subscribe for or purchase shares of Common Stock
or Convertible Securities.

    

    Section
2.            Exercise.

     

    a)           Exercise of
Warrant.  Exercise of the purchase rights represented by this
Warrant may be made, in whole or in part, at any time or times on or after the
Initial Exercise Date and on or before the Termination Date by delivery to the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the registered Holder at the address of the Holder
appearing on the books of the Company) of a duly executed facsimile copy of the
Notice of Exercise Form annexed hereto; and, within three (3) Trading Days of
the date said Notice of Exercise is delivered to the Company, the Company shall
have received payment of the aggregate Exercise Price of the shares thereby
purchased by wire transfer or cashier’s check drawn on a United States bank and,
if this Warrant is exercised in full, the Holder shall have surrendered this
Warrant to the Company.  Notwithstanding anything herein to the
contrary, the Holder shall not be required to physically surrender this Warrant
to the Company until the Holder has purchased all of the Warrant Shares
available hereunder and the Warrant has been exercised in full, in which case,
the Holder shall surrender this Warrant to the Company for cancellation within
three (3) Trading Days of the date the final Notice of Exercise is delivered to
the Company.  Partial exercises of this Warrant resulting in purchases
of a portion of the total number of Warrant Shares available hereunder shall
have the effect of lowering the outstanding number of Warrant Shares purchasable
hereunder in an amount equal to the applicable number of Warrant Shares
purchased.  The Holder and the Company shall maintain records showing
the number of Warrant Shares purchased and the date of such
purchases.  The Company shall deliver any objection to any Notice of
Exercise Form within 1 Business Day of receipt of such notice.  The Holder and any assignee, by
acceptance of this Warrant, acknowledge and agree that, by reason of the
provisions of this paragraph, following the purchase of a portion of the Warrant
Shares hereunder, the number of Warrant Shares available for purchase hereunder
at any given time may be less than the amount stated on the face
hereof.  For this purpose, the Company’s records shall be
conclusively binding on any transferee or assignee.

    

    b)           Exercise
Price.  The exercise price per share of the Common Stock under
this Warrant shall be $0.25 subject to adjustment
hereunder (the “Exercise
Price”).

     

    c)           Mechanics of
Exercise.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    i.      Delivery of Certificates
Upon Exercise.  Certificates for shares purchased hereunder
shall be transmitted by the Transfer Agent to the Holder by crediting the
account of the Holder’s prime broker with the Depository Trust Company through
its Deposit Withdrawal Agent Commission (“DWAC”) system if the
Company is then a participant in such system and there is an effective
Registration Statement permitting the issuance of the Warrant Shares to or
resale of the Warrant Shares by Holder, and otherwise by physical delivery to
the address specified by the Holder in the Notice of Exercise by the date that
is three (3) Trading Days after the latest of (i) the delivery to the Company of
the Notice of Exercise Form, (ii) surrender of this Warrant (if required) and
(iii) payment of the aggregate Exercise Price as set forth above (such date, the
“Warrant Share
Delivery Date”).  If all or any portion of a Warrant is
exercised at a time when there is an effective registration statement to cover
the issuance or resale of the Warrant Shares or if the legend is not required
under applicable securities laws, such Warrant Shares shall be issued free of
all legends.  This Warrant shall be deemed to have been exercised on
the first date on which all of the foregoing have been delivered to the
Company.  The Warrant Shares shall be deemed to have been issued, and
Holder or any other person so designated to be named therein shall be deemed to
have become a holder of record of such shares for all purposes, as of the date
the Warrant has been exercised, with payment to the Company of the Exercise
Price and all taxes required to be paid by the Holder, if any, pursuant to
Section 2(c)(vi) prior to the issuance of such shares, having been paid. If the
Company fails for any reason to deliver to the Holder certificates evidencing
the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery
Date, the Company shall pay to the Holder, in cash, as liquidated damages and
not as a penalty, for each $1,000 of Warrant Shares subject to such exercise
(based on the VWAP of the Common Stock on the date of the applicable Notice of
Exercise), $10 per Trading Day  for each Trading Day after such
Warrant Share Delivery Date until such certificates are delivered or Holder
rescinds such exercise.

    

    “VWAP” means, for any
date, the price determined by the first of the following clauses that applies:
(a) if the Common Stock is then listed or quoted on a Trading Market, the daily
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed
or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m.
(New York City time) to 4:02 p.m. (New York City time), (b)  if the Common
Stock then is listed or quoted on the OTC Bulletin Board or OTCQB and the OTC
Bulletin Board or OTCQB is not a Trading Market, the volume weighted average
price of the Common Stock for such date (or the nearest preceding date) on the
OTC Bulletin Board or OTCQB, (c) if the Common Stock is not then listed or
quoted for trading on the OTC Bulletin Board or OTCQB and if prices for the
Common Stock are then reported in the “Pink Sheets” published by Pink OTC
Markets, Inc. (or a similar organization or agency succeeding to its functions
of reporting prices), the most recent bid price per share of the Common Stock so
reported, or (d) in all other cases, the fair market value of a share of
Common Stock as determined by an independent appraiser selected in good faith by
the Holders of a majority in interest of the Securities then outstanding and
reasonably acceptable to the Company, the fees and expenses of which shall be
paid by the Company.

    

    ii.      Delivery of New Warrants
Upon Exercise.  If this Warrant shall have been exercised in
part, the Company shall, at the request of a Holder and upon surrender of this
Warrant certificate, at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to Holder a new Warrant evidencing the
rights of Holder to purchase the unpurchased Warrant Shares called for by this
Warrant, which new Warrant shall in all other respects be identical with this
Warrant.

     

    iii.     Rescission
Rights.  If the Company fails to cause the Transfer Agent to
transmit to the Holder a certificate or the certificates representing the
Warrant Shares pursuant to Section 2(c)(i) by the Warrant Share Delivery Date,
then, the Holder will have the right to rescind such exercise.

     

    iv.     No Fractional Shares or
Scrip.  No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant.  As to any
fraction of a share which the Holder would otherwise be entitled to purchase
upon such exercise, the Company shall, at its election, either pay a cash
adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the Exercise Price or round up to the next whole
share.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    v.     Charges, Taxes and
Expenses.  Issuance of certificates for Warrant Shares shall be
made without charge to the Holder for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all of which
taxes and expenses shall be paid by the Company, and such certificates shall be
issued in the name of the Holder or in such name or names as may be directed by
the Holder; provided, however, that in the
event certificates for Warrant Shares are to be issued in a name other than the
name of the Holder, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the Holder
and the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.

     

    vi.    Closing of
Books.  The Company will not close its stockholder books or
records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.

    

    vi.    Cashless
Exercise.  Cashless Exercise.  If at the time of
exercise hereof there is no effective registration statement registering, or the
prospectus contained therein is not available for the issuance of, the Warrant
Shares to the Holder and all of the Warrant Shares are not then registered for
resale by the Holder into the market at market prices from time to time on an
effective registration statement for use on a continuous basis (or the
prospectus contained therein is not available for use), then this Warrant may
also be exercised, in whole or in part, at such time by means of a “cashless
exercise” in which the Holder shall be entitled to receive a certificate for the
number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)]
by (A), where:

    

       (A)
= the VWAP on the Trading Day immediately preceding the date on which Holder
elects to exercise this Warrant by means of a “cashless exercise,” as set forth
in the applicable Notice of Exercise;

    

       (B)
= the Exercise Price of this Warrant, as adjusted hereunder; and

    

        (X)
= the number of Warrant Shares that would be issuable upon exercise of this
Warrant in accordance with the terms of this Warrant if such exercise were by
means of a cash exercise rather than a cashless exercise.

     

    d)           Holder’s Exercise
Limitations.  The Company shall not effect any exercise of this
Warrant, and a Holder shall not have the right to exercise any portion of this
Warrant, pursuant to Section 2 or otherwise, to the extent (but only to the
extent) that the Holder or any of the Holder’s Affiliates, would beneficially
own in excess of the Beneficial Ownership Limitation (as defined below). 
For purposes of this Section 2(d), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder, it being acknowledged by the Holder that the Company is
not representing to the Holder that such calculation is in compliance with
Section 13(d) of the Exchange Act and the Holder is solely responsible for any
schedules required to be filed in accordance therewith.   To the
extent that the limitation contained in this Section 2(d) applies, the
determination of whether this Warrant is exercisable (in relation to other
securities owned by the Holder together with any Affiliates) and of which
portion of this Warrant is exercisable shall be in the sole discretion of the
Holder, and the submission of a Notice of Exercise shall be deemed to be the
Holder’s determination of whether this Warrant is exercisable (in relation to
other securities owned by the Holder together with any Affiliates) and of which
portion of this Warrant is exercisable, in each case subject to the Beneficial
Ownership Limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination.  Upon the written or oral
request of a Holder, the Company shall within two Trading Days confirm orally
and in writing to the Holder the number of shares of Common Stock then
outstanding.  In any case, the number of outstanding shares of Common Stock
shall be determined after giving effect to the conversion or exercise of
securities of the Company, including this Warrant, by the Holder or its
Affiliates since the date as of which such number of outstanding shares of
Common Stock was reported.  The “Beneficial Ownership
Limitation” shall be 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock issuable upon exercise of this Warrant.  The Holder, upon not
less than 61 days’ prior notice to the Company, may increase or decrease the
Beneficial Ownership Limitation provisions of this Section 2(d), provided that
the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of
shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock upon exercise of this Warrant held by the
Holder and the provisions of this Section 2(d) shall continue to
apply.  Any such increase or decrease will not be effective until the
61st
day after such notice is delivered to the Company.  The provisions of
this paragraph shall be construed and implemented in a manner otherwise than in
strict conformity with the terms of this Section 2(d) to correct this paragraph
(or any portion hereof) which may be defective or inconsistent with the intended
Beneficial Ownership Limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such limitation.
The limitations contained in this paragraph shall apply to a successor holder of
this Warrant.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Section
3.             Certain
Adjustments.

     

    a)           Stock Dividends and
Splits. If the Company, at any time while this Warrant is outstanding:
(i) pays a stock dividend or otherwise makes a distribution or distributions on
shares of its Common Stock or any other equity or equity equivalent securities
payable in shares of Common Stock (which, for avoidance of doubt, shall not
include any shares of Common Stock issued by the Company upon exercise of this
Warrant), (ii) subdivides outstanding shares of Common Stock into a larger
number of shares, (iii) combines (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issues by reclassification of shares of the Common Stock any shares of capital
stock of the Company, then in each case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding immediately before such
event and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event, and the number of shares issuable upon
exercise of this Warrant shall be proportionately adjusted such that the
aggregate Exercise Price of this Warrant shall remain unchanged.  Any
adjustment made pursuant to this Section 3(a) shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification.

    

    b)           Issuance of Shares of Common
Stock. If the Company, at any time while this Warrant is outstanding ,
issues or sells, or in accordance with this Section 3(b) is deemed to have
issued or sold, any shares of Common Stock (including the issuance or sale of
shares of Common Stock owned or held by or for the account of the Company, but
excluding any Exempt Issuance (as defined in the Purchase Agreement) issued or
sold or deemed to have been issued or sold) for a consideration per share (the
"New Issuance
Price") less than a price equal to the Exercise Price in effect
immediately prior to such issue or sale or deemed issuance or sale (such lesser
price being referred to as the "Applicable Price")
(the foregoing a "Dilutive Issuance"),
then immediately after such Dilutive Issuance, the Exercise Price then in effect
shall be reduced to an amount equal to the New Issuance Price. For purposes of
determining the adjusted Exercise Price under this Section 3(b), the following
shall be applicable:

    

    i.          
 Issuance of
Options.  If the Company in any manner grants or sells any
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion, exercise or
exchange of any Convertible Securities issuable upon exercise of any such Option
is less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share. For
purposes of this Section 3(b)(i), the “lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such Options or upon
conversion, exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option” shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon the granting or sale of the Option, upon exercise
of the Option and upon conversion, exercise or exchange of any Convertible
Security issuable upon exercise of such Option. Except as contemplated below, no
further adjustment of the Exercise Price shall be made upon the actual issuance
of such shares of Common Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issuance of such shares of Common
Stock upon conversion, exercise or exchange of such Convertible
Securities.

    

    ii.           Issuance of Convertible
Securities.  If the Company in any manner issues or sells any
Convertible Securities and the lowest price per share for which one share of
Common Stock is issuable upon the conversion, exercise or exchange thereof is
less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the issuance or sale of such Convertible Securities for such price per
share.  For the purposes of this Section 3(b)(ii), the "lowest price
per share for which one share of Common Stock is issuable upon the conversion,
exercise or exchange thereof" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to one
share of Common Stock upon the issuance or sale of the Convertible Security and
upon conversion, exercise or exchange of such Convertible Security. Except as
contemplated below, no further adjustment of the Exercise Price shall be made
upon the actual issuance of such shares of Common Stock upon conversion,
exercise or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustment of this Warrant has been or is to be made pursuant to other
provisions of this Section 3(b), except as contemplated below, no further
adjustment of the Exercise Price shall be made by reason of such issue or
sale.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    iii.          Change in Option Price or
Rate of Conversion. If the purchase or exercise price provided for in any
Options, the additional consideration, if any, payable upon the issue,
conversion, exercise or exchange of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exercisable or
exchangeable for shares of Common Stock decreases at any time, the Exercise
Price in effect at the time of such decrease shall be adjusted to the Exercise
Price which would have been in effect at such time had such Options or
Convertible Securities provided for such decreased purchase price, additional
consideration or decreased conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section 3(b)(iii), if
the terms of any Option or Convertible Security that was outstanding as of the
date of issuance of this Warrant are decreased in the manner described in the
immediately preceding sentence, then such Option or Convertible Security and the
shares of Common Stock deemed issuable upon exercise, conversion or exchange
thereof shall be deemed to have been issued as of the date of such
decrease.  No adjustment pursuant to this Section 3(b) shall be made
if such adjustment would result in an increase of the Exercise Price then in
effect.

    

    iv.          Calculation of Consideration
Received. In case any Option is issued in connection with the issue or
sale of other securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to such Options by
the parties thereto, the Options will be deemed to have been issued for a
consideration of $0.01.  If any shares of Common Stock, Options or
Convertible Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the net
amount received by the Company therefor. If any shares of Common Stock, Options
or Convertible Securities are issued or sold for a consideration other than
cash, the amount of such consideration received by the Company will be the fair
value of such consideration, except where such consideration consists of
publicly traded securities, in which case the amount of consideration received
by the Company for such securities will be the average VWAP of such security for
the five (5) Trading Day period immediately preceding the date of receipt. If
any shares of Common Stock, Options or Convertible Securities are issued to the
owners of the non-surviving entity in connection with any merger in which the
Company is the surviving entity, the amount of consideration therefor will be
deemed to be the fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such shares of Common Stock,
Options or Convertible Securities, as the case may be. The fair value of any
consideration other than cash or publicly traded securities will be determined
jointly by the Company and the Holder. If such parties are unable to reach
agreement within ten (10) days after the occurrence of an event requiring
valuation (the "Valuation Event"),
the fair value of such consideration will be determined within five (5) Trading
Days after the tenth (10th) day following such Valuation Event by an
independent, reputable appraiser jointly selected by the Company and the Holder.
The determination of such appraiser shall be final and binding upon all parties
absent manifest error and the fees and expenses of such appraiser shall be borne
by the Company.

    

    v.           Record
Date.  For purposes of this Section 3(b), if the Company takes
a record of the holders of shares of Common Stock for the purpose of entitling
them (A) to receive a dividend or other distribution payable in shares of Common
Stock, Options or in Convertible Securities or (B) to subscribe for or purchase
shares of Common Stock, Options or Convertible Securities, then such record date
will be deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend or the
making of such other distribution or the date of the granting of such right of
subscription or purchase (as the case may be).

    

    vi.          Number of Warrant
Shares.    Simultaneously with any adjustment to the
Exercise Price pursuant this paragraph b),  the number of Warrant
Shares that may be purchased upon exercise of this Warrant shall be increased,
so that after such adjustment the aggregate Exercise Price payable hereunder for
the adjusted number of Warrant Shares shall be the same as the aggregate
Exercise Price in effect immediately prior to such adjustment (without regard to
any limitations on exercise contained herein

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    c)           Pro Rata
Distributions.  If the Company, at any time while this Warrant
is outstanding, shall distribute to all holders of Common Stock (and not to the
Holders) evidences of its indebtedness or assets (including cash and cash
dividends) ,any security other than Common Stock, or rights or warrants to
subscribe for or purchase any security other than the Common
Stock,  then and in each such event provision shall be made so that
the Holder shall receive upon exercise hereof, in addition to the Warrant Shares
issuable hereunder, the kind and amount of indebtedness, assets, securities or
rights of the Company which the Holder would have been entitled to receive had
this Warrant been exercised into Warrant Shares on the date of such event and
had the Holder thereafter, during the period from the date of such event to and
including the Exercise Date, retained any such securities receivable, giving
application to all adjustments called for during such period under this Section
3 with respect to the rights of the Holder; provided that in the event it is
impractical to distribute or issue the same evidence of indebtedness, assets,
securities or rights on the Exercise Date, the Company may pay cash equal to the
value of such  of indebtedness, assets, securities or rights, as
determined in good faith by the Board of Directors.

    

    d)           Fundamental
Transaction. If, at any time while this Warrant is outstanding, (i) the
Company, directly or indirectly, in one or more related transactions effects any
merger or consolidation of the Company with or into another Person, (ii) the
Company, directly or indirectly, effects any sale, lease, license, assignment,
transfer, conveyance or other disposition of all or substantially all of its
assets in one or a series of related transactions, (iii) any, direct or
indirect, purchase offer, tender offer or exchange offer (whether by the Company
or another Person) is completed pursuant to which holders of Common Stock are
permitted to sell, tender or exchange their shares for other securities, cash or
property and has been accepted by the holders of 50% or more of the outstanding
Common Stock, (iv) the Company, directly or indirectly, in one or more related
transactions effects any reclassification, reorganization or recapitalization of
the Common Stock or any compulsory share exchange pursuant to which the Common
Stock is effectively converted into or exchanged for other securities, cash or
property, (v) the Company, directly or indirectly, in one or more related
transactions consummates a stock or share purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person whereby such other Person
acquires more than 50% of the outstanding shares of Common Stock (not including
any shares of Common Stock held by the other Person or other Persons making or
party to, or associated or affiliated with the other Persons making or party to,
such stock or share purchase agreement or other business combination) (each a
“Fundamental
Transaction”), then, upon any subsequent exercise of this Warrant, the
Holder shall have the right to receive, for each Warrant Share that would have
been issuable upon such exercise immediately prior to the occurrence of such
Fundamental Transaction, at the option of the Holder (without regard to any
limitation in Section 2(d) on the exercise of this Warrant), the number of
shares of Common Stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and any additional consideration
(the “Alternate
Consideration”) receivable as a result of such Fundamental Transaction by
a holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such Fundamental Transaction (without regard to
any limitation in Section 2(e) on the exercise of this Warrant).  For
purposes of any such exercise, the determination of the Exercise Price shall be
appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration.  If holders of Common Stock are given any choice as to
the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any exercise of this Warrant following such Fundamental
Transaction. Notwithstanding anything to the contrary, in the event of a
Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3
transaction” as defined in Rule 13e-3 under the Exchange Act, or (3) a
Fundamental Transaction involving a person or entity not traded on a national
securities exchange, including, but not limited to, the Nasdaq Global Select
Market, the Nasdaq Global Market, or the Nasdaq Capital Market, the Company or
any Successor Entity (as defined below) shall, at the Holder’s option,
exercisable at any time concurrently with, or within 30 days after, the
consummation of the Fundamental Transaction, purchase this Warrant from the
Holder by paying to the Holder an amount of cash equal to the Black Scholes
Value of the remaining unexercised portion of this Warrant on the date of the
consummation of such Fundamental Transaction.  “Black Scholes Value”
means the value of this Warrant based on the Black and Scholes Option Pricing
Model obtained from the “OV” function on Bloomberg, L.P. (“Bloomberg”)
determined as of the day of consummation of the applicable Fundamental
Transaction for pricing purposes and reflecting (A) a risk-free interest rate
corresponding to the U.S. Treasury rate for a period equal to the time between
the date of the public announcement of the applicable Fundamental Transaction
and the Termination Date, (B) an expected volatility equal to the greater of
100% and the 100 day volatility obtained from the HVT function on Bloomberg as
of the Trading Day immediately following the public announcement of the
applicable Fundamental Transaction, (C) if applicable, the underlying price per
share used in such calculation shall be the sum of the price per share being
offered in cash, if any, plus the value of any non-cash consideration, if any,
being offered in such Fundamental Transaction and (D) a remaining option time
equal to the time between the date of the public announcement of the applicable
Fundamental Transaction and the Termination Date.  The Company shall
cause any successor entity in a Fundamental Transaction in which the Company is
not the survivor (the “Successor Entity”) to
assume in writing all of the obligations of the Company under this Warrant and
the other Transaction Documents in accordance with the provisions of this
Section 3(f) pursuant to written agreements in form and substance reasonably
satisfactory to the Holder and approved by the Holder (without unreasonable
delay) prior to such Fundamental Transaction and shall, at the option of the
holder of this Warrant, deliver to the Holder in exchange for this Warrant a
security of the Successor Entity evidenced by a written instrument substantially
similar in form and substance to this Warrant which is exercisable for a
corresponding number of shares of capital stock of such Successor Entity (or its
parent entity) equivalent to the shares of Common Stock acquirable and
receivable upon exercise of this Warrant (without regard to any limitations on
the exercise of this Warrant) prior to such Fundamental Transaction, and with an
exercise price which applies the exercise price hereunder to such shares of
capital stock (but taking into account the relative value of the shares of
Common Stock pursuant to such Fundamental Transaction and the value of such
shares of capital stock, such number of shares of capital stock and such
exercise price being for the purpose of protecting the economic value of this
Warrant immediately prior to the consummation of such Fundamental Transaction),
and which is reasonably satisfactory in form and substance to the Holder. Upon
the occurrence of any such Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Warrant and the other
Transaction Documents referring to the “Company” shall refer instead to the
Successor Entity), and may exercise every right and power of the Company and
shall assume all of the obligations of the Company under this Warrant and the
other Transaction Documents with the same effect as if such Successor Entity had
been named as the Company herein.  The provisions of this paragraph
shall apply similarly and equally to successive Fundamental Transactions and
shall be applied as if this Warrant (and any such subsequent warrants) were
fully exercisable and without regard to any limitations on the exercise of this
Warrant (provided that the Holder shall continue to be entitled to the benefit
of the Beneficial Ownership Limitation, applied however, with respect to shares
of capital stock registered under the Exchange Act and thereafter receivable
upon exercise of this Warrant (or any such other warrant)).

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    e)           Calculations. All
calculations under this Section 3 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this Section 3,
the number of shares of Common Stock deemed to be issued and outstanding as of a
given date shall be the sum of the number of shares of Common Stock (excluding
treasury shares, if any) issued and outstanding.

     

    f)           Notice to
Holder.

     

    i.      
Adjustment to Exercise
Price. Whenever the Exercise Price is adjusted pursuant to any provision
of this Section 3, the Company shall promptly mail to the Holder a notice
setting forth the Exercise Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.

    

    ii.      Notice to Allow Exercise by
Holder. If (A) the Company shall declare a dividend (or any other
distribution in whatever form) on the Common Stock, (B) the Company shall
declare a special nonrecurring cash dividend on or a redemption of the Common
Stock, (C) the Company shall authorize the granting to all holders of the Common
Stock rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any rights, (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of the Common
Stock, any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, or any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property, or (E) the Company shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Company, then, in each case, the Company shall cause to be mailed to the Holder
at its last address as it shall appear upon the Warrant Register of the Company,
at least 20 calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the holders of
the Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange; provided that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the corporate
action required to be specified in such notice.  To the extent that
any notice provided hereunder constitutes, or contains, material, non-public
information regarding the Company or any of the Subsidiaries, the Company shall
simultaneously file such notice with the Commission pursuant to a Current Report
on Form 8-K.  The Holder shall remain entitled to exercise this
Warrant during the period commencing on the date of such notice to the effective
date of the event triggering such notice except as may otherwise be expressly
set forth herein.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Section
4.             Transfer of
Warrant.

     

    a)           Transferability.  This
Warrant and all rights hereunder (including, without limitation, any
registration rights) are transferable, in whole or in part, upon surrender of
this Warrant at the principal office of the Company or its designated agent,
together with a written assignment of this Warrant substantially in the form
attached hereto duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such
transfer.  Upon such surrender and, if required, such payment, the
Company shall execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees, as applicable, and in the denomination or denominations
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be cancelled.  The Warrant, if properly
assigned in accordance herewith, may be exercised by a new holder for the
purchase of Warrant Shares without having a new Warrant issued.

    

    b)           New Warrants. This
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney.  Subject to compliance
with Section 4(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice. All Warrants issued on transfers or exchanges shall be dated
the initial issuance date set forth on the first page of this Warrant and shall
be identical with this Warrant except as to the number of Warrant Shares
issuable pursuant thereto.

     

    c)           Warrant Register. The
Company shall register this Warrant, upon records to be maintained by the
Company for that purpose (the “Warrant Register”),
in the name of the record Holder hereof from time to time.  The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the
contrary.

     

    Section
5.             Miscellaneous.

     

    a)           No Rights as Stockholder
Until Exercise.  This Warrant does not entitle the Holder to
any voting rights, dividends or other rights as a stockholder of the Company
prior to the exercise hereof as set forth in Section 2(c)(i).

     

    b)           Loss, Theft, Destruction or
Mutilation of Warrant. The Company covenants that upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant or any stock certificate relating to
the Warrant Shares, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it (which, in the case of the Warrant, shall
not include the posting of any bond), and upon surrender and cancellation of
such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.

     

    c)           Saturdays, Sundays,
Holidays, etc.  If the last or appointed day for the taking of
any action or the expiration of any right required or granted herein shall not
be a Business Day, then, such action may be taken or such right may be exercised
on the next succeeding Business Day.

    

    d)           Authorized
Shares.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    The
Company covenants that, during the period the Warrant is outstanding, it will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of the Warrant Shares upon the exercise of
any purchase rights under this Warrant.  The Company further covenants
that its issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the Warrant Shares upon the
exercise of the purchase rights under this Warrant.  The Company will
take all such reasonable action as may be necessary to assure that such Warrant
Shares may be issued as provided herein without violation of any applicable law
or regulation, or of any requirements of the Trading Market upon which the
Common Stock may be listed or quoted.  The Company covenants that all
Warrant Shares which may be issued upon the exercise of the purchase rights
represented by this Warrant will, upon exercise of the purchase rights
represented by this Warrant and payment for such Warrant Shares in accordance
herewith, be duly authorized, validly issued, fully paid and nonassessable and
free from all taxes, liens and charges created by the Company in respect of the
issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).

     

    Except
and to the extent as waived or consented to by the Holder, the Company shall not
by any action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder as set forth in this Warrant against
impairment.  Without limiting the generality of the foregoing, the
Company will (i) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (ii) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant and (iii) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof, as may be,
necessary to enable the Company to perform its obligations under this
Warrant.

     

    Before
taking any action which would result in an adjustment in the number of Warrant
Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.

     

    e)           Jurisdiction. All
questions concerning the construction, validity, enforcement and interpretation
of this Warrant shall be determined in accordance with the provisions of the
Purchase Agreement.

     

    f)           Restrictions.  The
Holder acknowledges that the Warrant Shares acquired upon the exercise of this
Warrant, if not registered pursuant to an effective registration statement may
have restrictions upon resale imposed by state and federal securities
laws.

    

    g)           Nonwaiver and
Expenses.  No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of
such right or otherwise prejudice Holder’s rights, powers or
remedies.  Without limiting any other provision of this Warrant or the
Purchase Agreement, if the Company willfully and knowingly fails to comply with
any provision of this Warrant, which results in any material damages to the
Holder, the Company shall pay to Holder such amounts as shall be sufficient to
cover any costs and expenses including, but not limited to, reasonable
attorneys’ fees, including those of appellate proceedings, incurred by Holder in
collecting any amounts due pursuant hereto or in otherwise enforcing any of its
rights, powers or remedies hereunder.

     

    h)           Notices.  Any
notice, request or other document required or permitted to be given or delivered
to the Holder by the Company shall be delivered in accordance with the notice
provisions of the Purchase Agreement.

     

    i)         
  Limitation
of Liability.  No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder, shall
give rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    j)           Remedies.  The
Holder, in addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under this Warrant.  The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Warrant and hereby agrees to waive and not to
assert the defense in any action for specific performance that a remedy at law
would be adequate.

     

    k)           Successors and
Assigns.  Subject to applicable securities laws, this Warrant
and the rights and obligations evidenced hereby shall inure to the benefit of
and be binding upon the successors and permitted assigns of the Company and the
successors and permitted assigns of Holder.  The provisions of this
Warrant are intended to be for the benefit of any Holder from time to time of
this Warrant and shall be enforceable by the Holder or holder of Warrant
Shares.

     

    l)           Amendment.  This
Warrant may be modified or amended or the provisions hereof waived with the
written consent of the Company and the Holder.

     

    m)          Severability.  Wherever
possible, each provision of this Warrant shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Warrant shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Warrant.

     

    n)           Headings.  The
headings used in this Warrant are for the convenience of reference only and
shall not, for any purpose, be deemed a part of this Warrant.

    

    ********************

    

    (Signature
Pages Follow)

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officers thereunto duly authorized as of the date first above
indicated.

    

    
      
        
          
            
              	
                      GENEREX
      BIOTECHNOLOGY CORPORATION

                    
	 
      	 
      
	
                      By:

                    	 
      
	 
      	
                      Name:  Mark
      A. Fletcher

                    
	 
      	
                      Title:  Interim
      Chief Executive Officer and President

                    
	 
      	 
      
	
                      By:

                    	 
      
	 
      	
                      Name:  Rose
      C. Perri

                    
	 
      	
                      Title:  Chief
      Financial
Officer

                    

            

          

        

      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    NOTICE
OF EXERCISE

    Warrant
Holder:  ________________

    Warrant
Date:  _____________, 2011

    Exercise
Price:  $0.25

    

    
      	
              Generex
      Biotechnology Corporation

            

    

    33
Harbour Square, Suite 202

    Toronto,
Ontario, Canada M5J 2G2

    Attention:Mark
A. Fletcher,

    Interim
Chief Executive Officer and President

    

    The
undersigned holder hereby exercises the right to purchase _________________ of
the shares of Common Stock (“Warrant Shares”) of Generex
Biotechnology Corporation, a Delaware corporation (the “Company”), evidenced by
Warrant to Purchase Common Stock No. _______ (the “Warrant”). Capitalized terms
used herein and not otherwise defined shall have the respective meanings set
forth in the Warrant.

     

    1.           Form of Exercise
Price.  The Holder intends that payment of the Exercise Price
shall be made as:

     

    
      	
               
      

            	
              ____________

            	
              a
      “Cash
      Exercise” with respect to _________________ Warrant Shares;
      and/or

            

    

     

    
      	
               
      

            	
              ____________

            	
              a
      “Cashless
      Exercise” with respect to _______________ Warrant
      Shares.

            

    

     

    2.           Payment of Exercise
Price.  In the event that the Holder has elected a Cash
Exercise with respect to some or all of the Warrant Shares to be issued pursuant
hereto, the Holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the
Warrant.

     

    Please
issue a certificate or certificates representing said Warrant Shares in the name
of the undersigned or in such other name as is specified below:

     

    _______________________________

    

    The
Warrant Shares shall be delivered to the following DWAC Account Number or by
physical delivery of a certificate to:

    

    _______________________________

    

    _______________________________

    

    _______________________________

    

    [SIGNATURE
OF HOLDER]

    

    
      
        
          	
                  Name
      of Investing Entity:

                	 
      
	
                  Signature of Authorized
      Signatory of Investing Entity:

                	 
      

        

      

    

    
      
        
          
            	
                    Name
      of Authorized Signatory:

                  	 
      
	
                    Title
      of Authorized Signatory:

                  	 
      
	
                    Date:

                  	 
      

          

        

      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    ASSIGNMENT
FORM

    

    (To
assign the foregoing warrant, execute

    this form
and supply required information.

    Do not
use this form to exercise the warrant.)

    

    FOR VALUE
RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all
rights evidenced thereby are hereby assigned to

     

    _______________________________________________
whose address is

    

    _______________________________________________________________.

    

    _______________________________________________________________

    

    Dated:  ______________,
_______

    

    
      
        
          
            
              	
                      Holder’s Signature:

                    	 
      
	 
      	 
      
	
                      Holder’s Address:

                    	 
      
	 
      	 
      
	 
      	 
      

            

          

        

      

    

    

    Signature
Guaranteed:  ___________________________________________

    

    NOTE:  The
signature to this Assignment Form must correspond with the name as it appears on
the face of the Warrant, without alteration or enlargement or any change
whatsoever, and must be guaranteed by a bank or trust
company.  Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign
the foregoing Warrant.

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