China Kangtai Cactus Bio-tech (IVNE) 10-Q/A 2009 Q2 Quarterly report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 1

To

FORM 10-Q

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

for the quarterly period ended June 30, 2009

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

for the transition period from ____________ to ________________

Commission File No. 000-33097

CHINA KANGTAI CACTUS BIO-TECH, INC.

(Name of Small Business Issuer in its Charter)

Nevada	87-0650263
(State or Other Jurisdiction of incorporation or organization)	(I.R.S. Employer I.D. No.)

99 Taibei Road

Limin Economic and Technological Development Zone

Harbin, Heilongjiang Province, People’s Republic of China

(Address of Principal Executive Offices)

(86) 451-57351189 ext 126

(Registrant’s Telephone Number, Including International Code and Area Code)

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

Yes x    No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨   No ¨

Indicate by check mark whether the registrant is a large accelerate filer, an accelerate filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

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

Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of August 7, 2009, the issuer had outstanding 18,035,625 shares of common stock, $0.001 par value.

EXPLANATORY NOTE

The Company has restated its consolidated financial statements at June 30, 2009 and for the three and six months ended June 30, 2009 (which were previously included in the Company's Form 10-Q filed with the SEC on August 13, 2009) in order to correct errors relating to the accounting for the Series A Convertible Preferred Stock and warrants sold on March 12, 2008 and July 16, 2008 (see Notes 9 and 10 to the consolidated financial statements). As previously reported, the Company did not reflect these financial instruments as liabilities and did not recognize changes in their fair values in operations. As restated, in accordance with EITF Issue No. 07-05, the Company reflected these financial instruments as liabilities and recognized changes in their fair values in operations.

The restatement adjustments resulted in a $2,169,955 decrease in stockholders' equity (from $27,289,360 to $25,119,405) at June 30, 2009, a $1,761,440 decrease in net income (loss) (from $1,423,954 to ($337,486)) for the three months ended June 30, 2009, and a $1,498,715 decrease in net income (from $2,117,902 to $619,187) for the six months ended June 30, 2009. See Note 15 to the consolidated financial statements.

CHINA KANGTAI CACTUS BIO-TECH INC.

FORM 10-Q

INDEX

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Notes to the Condensed Consolidated Financial Statements (unaudited)	5
Item 2.	Management's Discussion and Analysis or Plan of Operation	14
Item 3.	Quantitative and Qualitative Disclosure About Market Risk.	18
Item 4T.	Controls and Procedures	18
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	19
Item 1A.	Risk Factors	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3.	Defaults upon Senior Securities	19
Item 4.	Submission of Matters to a Vote of Security Holders	19
Item 5.	Other Information	19
Item 6.	Exhibits	19
Signatures		20

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

China Kangtai Cactus Bio-Tech Inc. and Subsidiaries

Consolidated Balance Sheets

(Expressed in US Dollars)

	June 30,		December 31,
	2009		2008
	(Unaudited as restated - Note 15)		(Audited)
ASSETS
Current Assets
Cash and cash equivalents	$	2,789,628	$	4,398,897
Accounts receivable, net of allowance for returns and doubtful accounts of $1,957,304 and $979,700, respectively		5,457,518		3,869,985
Inventories		2,853,094		3,376,635
Other receivables and prepaid expenses		1,290		1,005
Total Current Assets		11,101,530		11,646,522
Deposit for purchase of land use rights and property and equipment		2,930,600		-
Property and Equipment, net		5,994,540		6,236,914
Other Assets
Intangible assets, net		385,373		454,445
Land use rights, net		8,508,112		8,609,491
Total Assets	$	28,920,155	$	26,947,372
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities	$	215,759	$	315,639
Note payable		886,507		887,475
Taxes payable		528,529		570,855
Total current liabilities		1,630,795		1,773,969
Estimated liability for equity-based financial instruments with characteristics of liabilities (as restated - Notes 9 and 15):
Designated as Series A Convertible Preferred Stock (1,150,000 shares issued and outstanding at June 30, 2009)		862,500		-
Warrants		1,307,455		-
Total		2,169,955		-
Total liabilities		3,800,750		1,773,969
Commitments and Contingencies		-		-
Stockholders' Equity
Preferred stock, $0.001 par value; authorized 200,000,000 shares,
issued and outstanding: 0 and 1,150,000 shares, respectively		-		1,150
Common stock, $0.001 par value; authorized 200,000,000 shares,
issued and outstanding: 17,885,625 and 17,885,625 shares, respectively		17,886		17,886
Additional paid-in capital (as restated - Note 15)		7,157,617		7,819,865
Retained earnings
Appropriated		3,120,877		2,682,345
Unappropriated (as restated - Note 15)		11,803,700		11,604,285
Accumulated other comprehensive income		3,019,325		3,047,872
Total stockholders' equity		25,119,405		25,173,403
Total Liabilities and Stockholders' Equity	$	28,920,155	$	26,947,372

See notes to consolidated financial statements.

1

China Kangtai Cactus Bio-Tech Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income

(Expressed in US Dollars)

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
	(Unaudited as restated - Note 15)			(Unaudited)			(Unaudited as restated - Note 15)			(Unaudited)
Net Sales	$	6,512,744		$	5,010,920		$	9,842,696		$	7,776,416
Cost of Sales		(3,776,047	)		(3,486,955	)		(5,868,833	)		(5,222,754	)
Gross Profit		2,736,697			1,523,965			3,973,863			2,553,662
Operating Expenses
Selling expenses		21,615			23,445			57,944			75,059
General and administrative expenses		815,538			180,135			1,073,138			376,040
Depreciation		20,168			19,097			39,057			37,778
Amortization of land use rights		9,542			9,307			19,077			18,403
Amortization of intangible assets		34,312			33,465			68,595			66,171
Total operating expenses		901,175			265,449			1,257,811			573,451
Income from Operations		1,835,522			1,258,516			2,716,052			1,980,211
Other Income (Expenses)
Interest income		26			259			26			527
Income (expense) from revaluation  of Series A Preferred Stock and A, B, C, and D warrants with characteristics of liabilities at fair value (as restated in 2009 - Notes 9 and 15)		(1,761,440	)		-			(1,498,715	)		-
Imputed interest		(13,306	)		(12,978	)		(26,602	)		(25,662	)
Loss on disposal of property and equipment		(132	)		(14,049	)		(132	)		(14,049	)
Total Other Income (Expenses) (as restated in 2009 - Note 15)		(1,774,852	)		(26,768	)		(1,525,423	)		(39,184	)
Income before Income Taxes (as restated in 2009 - Note 15)		60,670			1,231,748			1,190,629			1,941,027
Income Tax Expense		(398,156	)		(193,442	)		(571,442	)		(296,205	)
Net Income (loss) (as restated in 2009 - Note 15)		(337,486	)		1,038,306			619,187			1,644,822
Deemed dividend relating to the beneficial conversion feature included in the sale of the Series A preferred stock and warrants (as restated in 2008 - Notes 10 and 15)		-			-			-			(196,500	)
Net income (loss) attributable to common stockholders (as restated in 2009 - Note 15)	$	(337,486	)	$	1,038,306		$	619,187		$	1,448,322
Net income (loss) per common share
Basic (as restated in 2009 - Note 15)	$	(0.02	)	$	0.06		$	0.03		$	0.08
Diluted (as restated in 2009 - Note 15)	$	(0.02	)	$	0.06		$	0.03		$	0.08
Weighted average number of common shares outstanding
Basic		17,885,625			17,739,625			17,885,625			17,739,625
Diluted		19,035,625			18,572,958			19,035,625			18,208,549
Comprehensive income:
Net income (loss) (as restated in 2009 - Note 15)	$	(337,486	)	$	1,038,306		$	619,187		$	1,644,822
Foreign currency translation adjustment		2,344			429,218			(28,547	)		1,154,212
Total	$	(335,142	)	$	1,467,524		$	590,640		$	2,799,034

See notes to consolidated financial statements.

2

China Kangtai Cactus Bio-Tech Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity

(Expressed in US Dollars)

	Preferred Stock $0.001 par						Common Stock $0.001 par				Additional			Unappropriated			Appropriated		Accumulated other
	value						value				paid-in			retained			retained		comprehensive
	Shares			Amount			Shares		Amount		capital			earnings			earnings		income			Total
Balance at December 31, 2006		-		$	-			17,739,625	$	17,740	$	6,558,082		$	5,266,815		$	1,361,365	$	691,037		$	13,895,039
Imputed interest on note payable		-			-			-		-		49,766			-			-		-			49,766
Transfer to statutory and																							-
staff welfare reserves		-			-			-		-		-			(483,572	)		483,572		-			-
Net income for the year ended December 31, 2007		-			-			-		-		-			2,299,700			-		-			2,299,700
Currency translation adjustment		-			-			-		-		-			-			-		1,047,589			1,047,589
Balance at December 31, 2007		-			-			17,739,625		17,740		6,607,848			7,082,943			1,844,937		1,738,626			17,292,094
Sale of Series A
preferred stock		1,250,000			1,250			-		-		719,672			-			-		-			720,922
Deemed dividends		-			-			-		-		322,750			(322,750	)		-		-			-
Issuance of shares in consideration for
the waiver of liquidated damages		-			-			46,000		46		26,634			-			-		-			26,680
Conversion of Series A preferred stock		(100,000	)		(100	)		100,000		100		-			-			-		-			-
Stock option expense		-			-			-		-		90,635						-					90,635
Imputed interest on note payable		-			-			-		-		52,326			-			-		-			52,326
Transfer to statutory and
staff welfare reserves		-			-			-		-		-			(837,408	)		837,408		-			-
Net income for the year ended December 31, 2008		-			-			-		-		-			5,681,500			-		-			5,681,500
Currency translation adjustment		-			-			-		-		-			-			-		1,309,246			1,309,246
Balance at December 31, 2008 (Audited)		1,150,000			1,150			17,885,625		17,886		7,819,865			11,604,285			2,682,345		3,047,872			25,173,403
Unaudited as restated-Note 15:
January 1, 2009 cumulative effect of change in accounting principle:
Reclassification of Series A Preferred Stock and A, B, C, and D warrants from stockholders’ equity to liabilities, including revaluation at fair value of $18,760 (Note 9)		(1,150,000	)		(1,150	)		-		-		(688,850	)		18,760			-		-			(671,240	)
Balance at January 1, 2009 after cumulative effect adjustment		-			-			17,885,625		17,886		7,131,015			11,623,045			2,682,345		3,047,872			24,502,163
Imputed interest on note payable		-			-			-		-		26,602			-			-		-			26,602
Transfer to statutory and
staff welfare reserves		-			-			-		-		-			(438,532	)		438,532		-			-
Net income for the six months ended June 30, 2009 (as restated - Note 15)		-			-			-		-		-			619,187			-		-			619,187
Currency translation adjustment		-			-			-		-		-			-			-		(28,547	)		(28,547	)
Balance at June 30, 2009 (Unaudited) (as restated - Note 15)		-		$	-			17,885,625	$	17,886	$	7,157,617		$	11,803,700		$	3,120,877	$	3,019,325		$	25,119,405

See notes to consolidated financial statements.

3

China Kangtai Cactus Bio-Tech Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Expressed in US Dollars)

	Six Months Ended June 30,
	2009			2008
	(Unaudited as restated - Note 15)			(Unaudited)
Cash Flows from Operating Activities
Net income (as restated in 2009 - Note 15)	$	619,187		$	1,644,822
Adjustmens to reconcile net income
to net cash provided by (used for) operating activities
Expense from revaluation of Series A Preferred Stock and A, B, C, and D warrants with characteristics of liabilities at fair value (as restated in 2009 - Notes 9 and 15)		1,498,715			-
Depreciation - cost of sales		196,446			192,238
Depreciation - operating expenses		39,057			37,778
Amortization of land use rights -cost of sales		68,595			-
Amortization of land use rights- operating expenses		19,077			18,403
Amortization of intangible assets		68,595			66,171
Stock option expense		-			59,225
Imputed interest		26,602			25,662
Loss on disposal of property and equipment		132			14,049
Changes in operating assets and liabilities
Accounts receivable, net		(1,587,533	)		(353,033	)
Other receivables and prepaid expenses		(285	)		(25,772	)
Inventories		523,541			988,031
Accounts payable and accrued liabilities		(99,880	)		(110,896	)
Taxes payable		(42,326	)		(70,117	)
Net cash provided by (used for) operating activities		1,329,923			2,486,561
Cash Flows from Investing Activities
Proceeds from disposals of property and equipment		-			2,570
Purchase of land use right		-			(7,255,081	)
Deposit for purchase of land use rights and property and equipment		(2,930,600	)		-
Amount due Guangdong Province, PRC in
connection with purchase of land use right		-			3,627,540
Net cash provided by (used for) investing activities		(2,930,600	)		(3,624,971	)
Cash Flows from Financing Activities
Sale of Series A preferred stock-net		-			500,000
Net cash provided by (used for) financing activities		-			500,000
Effect of exchange rate changes on cash and cash equivalents		(8,592	)		694,767
Increase (decrease) in cash and cash equivalents		(1,609,269	)		56,357
Cash and cash equivalents, beginning of period		4,398,897			509,901
Cash and cash equivalents, end of period	$	2,789,628		$	566,258
Supplemental disclosures of cash flow information:
Interest paid	$	-		$	-
Income taxes paid	$	613,768		$	102,763

See notes to consolidated financial statements.

4

CHINA KANGTAI CACTUS BIO-TECH INC. AND SUBSIDIARIES

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009

(Unaudited)

NOTE 1 – INTERIM FINANCIAL STATEMENTS

The unaudited financial statements as of June 30, 2009 and for the three and six months ended June 30, 2009 and 2008 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10-Q.  In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of June 30, 2009 and the results of operations and cash flows for the periods ended June 30, 2009 and 2008.  The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited.  The results for the three and six months ended June 30, 2009 is not necessarily indicative of the results to be expected for any subsequent quarter of the entire year ending December 31, 2009.  The balance sheet at December 31, 2008 has been derived from the audited financial statements at that date.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations.  These unaudited financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2008 as included in our report on Form 10-K/A.

The Company has evaluated subsequent events through the filing date of this Form 10-Q/A and has determined that there were no subsequent events to recognize or disclose in these financial statements.

NOTE 2 - -  ORGANIZATION AND BUSINESS OPERATIONS

China Kangtai Cactus Bio-Tech Inc. (“US China Kangtai”) was incorporated in Nevada on March 16, 2000 as InvestNet, Inc. (“InvestNet”).

China Kangtai Cactus Bio-tech Company Limited (“BVI China Kangtai”) was incorporated in the British Virgin Islands (“BVI”) on November 26, 2004. Harbin Hainan Kangda Cacti Hygienical Foods Co., Ltd. (“Harbin Hainan Kangda”), a company with limited liability, was incorporated in the People’s Republic of China (“PRC”) on December 30, 1998.

US China Kangtai and BVI China Kangtai are investment holding companies and Harbin Hainan Kangda’s principal activities are planting and developing new types of cactus, producing and trading in cactus health foods and related products in the PRC.

In 2004, BVI China Kangtai acquired Harbin Hainan Kangda. In 2005, US China Kangtai acquired BVI China Kangtai.

On June 26, 2006, Harbin Hainan Kangda acquired a 100% equity interest in Guangdong Taishan Kangda Cactus Hygienical Food Co., Ltd. (“Taishan Kangda”), a PRC company with limited liability previously owned by two stockholders, for $1,475,000 in cash. Taishan Kangda grows and sells cactus.

US China Kangtai, BVI China Kangtai, Harbin Hainan Kangda and Taishan Kangda are hereafter collectively referred to as the “Company”.

The accompanying consolidated financial statements include the financial statements of US China Kangtai and its 100% owned subsidiaries, BVI China Kangtai, Harbin Hainan Kangda and Taishan Kangda. All significant inter-company accounts and transactions have been eliminated in consolidation.

5

CHINA KANGTAI CACTUS BIO-TECH INC. AND SUBSIDIARIES

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009

(Unaudited)

NOTE 3 - INVENTORIES

Inventories consist of:

	June 30,		December 31,
	2009		2008
Cactus stock	$	2,131,711	$	2,810,861
Other raw materials and work-in-process		224,478		49,826
Finished goods		496,905		515,948
Total		2,853,094		3,376,635
Less: allowance for market adjustments to inventories		-		-
Net	$	2,853,094	$	3,376,635

NOTE 4 – DEPOSIT FOR PURCHASE OF LAND USE RIGHTS AND PROPERTY AND EQUIPMENT

On March 25, 2009, Harbin Hainan Kangda entered into an Asset Purchase Agreement (the “Agreement”) with Qitaihe Kangwei T Biotechnology Co., Ltd. (“Seller”). Under the terms of the Agreement, the Company is to acquire (i) land use rights of state-owned land located in Shuguang Village of Xinxing District in Qitaihe City, covering an area of 49 thousand square meters, with the use life of 47 years and the development area of the first phase of 13 thousand square meters, (ii) housing ownership of 5,606.20 square meters in Shuguang Village of Xinxing District in Qitaihe City and (iii) fixed assets consisting of machinery, equipment and facilities (including equipment, information, file data, spare parts and office supplies) located on the acquired premises. The land use rights, housing ownership and fixed assets are collectively referred to as the “Assets”.

The purchase price for the Assets is 37,000,000 RMB ($5,421,610). The Company is to also pay transfer fees and taxes in connection with the registration of the sale of the Assets. The purchase price is to be paid in installments: 50% within 5 days of signing the Agreement, 10% upon Seller completing the handover procedure and the remaining 40% within 5 days of Seller’s completion of the registration of the sale in the land administration and other departments in the People’s Republic of China, which was expected to be completed within 90 days of the payment of the first installment of the purchase price. As of June 30, 2009, the Company has paid 20,000,000 RMB ($2,930,600) of the 37,000,000 RMB ($5,421,610) purchase price. The registration of the sale has not yet been completed.

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, net consist of:

	June 30,			December 31,
	2009			2008
Buildings	$	2,925,354		$	2,928,548
Plant equipment and machinery		4,649,548			4,654,625
Motor vehicles		289,270			289,586
Furniture and office equipment		11,156			13,817
Total		7,875,328			7,886,576
Less accumulated depreciation		(1,880,788	)		(1,649,662	)
Net	$	5,994,540		$	6,236,914

6

CHINA KANGTAI CACTUS BIO-TECH INC. AND SUBSIDIARIES

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009

(Unaudited)

NOTE 6 - INTANGIBLE ASSETS

Intangible assets, net consist of:

	June 30,			December 31,
	2009			2008
Patents and licenses	$	1,372,986		$	1,374,485
Total		1,372,986			1,374,485
Less accumulated amortization		(987,613	)		(920,040	)
Net	$	385,373		$	454,445

The expected amortization of the above intangible assets for each of the five succeeding fiscal years ending December 31, 2010, 2011, 2012, 2013, and 2014 is $137,152, $134,705, $44,940, $0, and $0, respectively.

NOTE 7 - LAND USE RIGHTS

Land use rights, net consist of:

	June 30,			December 31,
	2009			2008
Harbin Hainan Kangda	$	8,015,887		$	8,026,397
Taishan Kangda		872,082			873,035
Total		8,887,969			8,899,432
Less accumulated amortization		(379,857	)		(289,941	)
Net	$	8,508,112		$	8,609,491

The expected amortization of the above land use rights for each of the five succeeding fiscal years ending December 31, 2010, 2011, 2012, 2013 and 2014 is $184,314.

NOTE 8 - NOTE PAYABLE

Note payable consists of:

	June 30,		December 31,
	2009		2008
Note payable to a financial institution, unsecured and due on demand.	$	886,507	$	887,475

The note payable (6,050,000 RMB) is due to a PRC provincial government financial institution which made the loan to the Company to promote the commercial cultivation of cactus. The loan was made to the Company on an interest-free and unsecured basis and is repayable on demand. Imputed interest is calculated at 6% per annum on the amount due. Total imputed interest recorded as additional paid-in capital amounted to $26,602 and $25,662 for the six months ended June 30, 2009 and 2008, respectively.

7

CHINA KANGTAI CACTUS BIO-TECH INC. AND SUBSIDIARIES

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009

(Unaudited)

NOTE 9 - ESTIMATED LIABILITY FOR EQUITY-BASED FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF LIABILITIES

Effective January 1, 2009, in accordance with EITF Issue No. 07-05 “Determining Whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock”, the Company reclassified the fair values at January 1, 2009 of the outstanding Series A Convertible Preferred Stock and the warrants comprising the March 21, 2008 and the July 16, 2009 sales of units (see note 10) from stockholders’ equity to liabilities, as follows:

	Shares/ Warrants		Fair Value
Series A Convertible Preferred Stock		1,150,000	$	333,500
A warrants		1,250,000		122,000
B warrants		1,500,000		120,150
C warrants		500,000		47,950
D warrants		600,000		47,610
Total warrants		3,850,000		337,740
Total financial instruments		5,000,000	$	671,240

Since at January 1, 2009 the carrying value of the outstanding financial instruments was $690,000 the Company recognized a cumulative effect adjustment resulting from a change in accounting principle of $18,760, or a net of $671,240. Accordingly, the unappropriated retained earnings balance at December 31, 2008 was increased from $11,604,285 to $11,623,045, as adjusted, on January 1, 2009.

The characteristics which require classification of the Series A Preferred Stock and warrants as liabilities are the Company’s obligations to reduce the conversion price of the Series A Preferred Stock and the exercise price of the warrants in the event that the Company sells, grants, or issues any shares, options, warrants, or any convertible instrument at a price below the $0.60 current conversion price of the Series A Preferred Stock or the current exercise prices of the warrants. As a result, the Company remeasures the fair values of these financial instruments each quarter, adjusts the liability balances, and reflects changes in operations as “income (expense) from revaluation of Series A Preferred Stock and A, B, C, and D warrants with characteristics of liabilities at fair values”.

At June 30, 2009, the fair values of the financial instruments consisted of:

	Shares/ Warrants		Fair Value
Series A Convertible Preferred Stock		1,150,000	$	862,500
A warrants		1,250,000		465,375
B warrants		1,500,000		475,500
C warrants		500,000		180,700
D warrants		600,000		185,880
Total warrants		3,850,000		1,307,455
Total financial instruments		4,583,333	$	2,169,955

Below is a reconciliation of the change in the fair values of the financial instruments from January 1, 2009 to June 30, 2009:

	Shares/ Warrants		Fair Value
Balance, January 1, 2009		5,000,000	$	671,240
Revaluation credited to operations		-		(262,725	)
Balance, March 31, 2009		5,000,000		408,515
Revaluation charged to operations		-		1,761,440
Balance, June 30, 2009		5,000,000	$	2,169,955

8

CHINA KANGTAI CACTUS BIO-TECH INC. AND SUBSIDIARIES

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009

(Unaudited)

NOTE 10 - SERIES A CONVERTIBLE PREFERRED STOCK

On March 21, 2008, the Company entered into a Preferred Stock Purchase Agreement (the “Purchase Agreement”) with T Squared Investments LLC (the “Investor”) to sell in a private placement to the Investor for an aggregate purchase price of $500,000, (i) 833,333 shares of the Company’s newly designated Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”) for $0.60 per share (the “Shares”), (ii) warrants to purchase up to 1,250,000 shares of Company’s common stock exercisable for a period of three years at an exercise price of $0.75 per share (the “A Warrants”) or an aggregate exercise price of $937,500 if all of the A Warrants were exercised, and (iii) warrants to purchase up to 1,500,000 shares of Company’s common stock exercisable for a period of three years at an exercise price of $1.00 per share (the “B Warrants”), or an aggregate exercise price of $1,500,000 if all the B Warrants were exercised. The Company issued the Shares, the A Warrants and B Warrants on the same day. Westernking Financial Service acted as the sole placement agent in the transaction for a fee of $30,000 (6% of the gross proceeds).

The Company also entered into a Registration Rights Agreement with the Investor, pursuant to which the Company was obligated to file and have declared effective by the SEC a registration statement registering the resale of the Shares and Common Stock issuable upon the Conversion of the Series A Preferred Stock and the exercise of the A Warrants and B Warrants. If the registration statement was not declared effective by the SEC by August 28, 2008, the Registration Rights Agreement provided for the Company to issue to the Investor as liquidated damages an additional 1,000 shares of Series A Preferred Stock for each day thereafter not declared effective (subject to a maximum of 250,000 shares). On October 17, 2008, the SEC declared effective the Company’s registration statement on Form S-1.

The Series A Stock has no voting or dividend rights, is entitled to a liquidation preference of $0.60 per share, and each share is convertible into one share of Company common stock at the option of the holder (which was adjustable to more shares if certain “defined EPS” performance thresholds were not met for the six months ended September 30, 2008 or the year ended December 31, 2008; however, the performance thresholds were met). In addition, the Investor had the right to participate in any subsequent funding by the Company on a pro-rata basis at 100% of the offering price for a three month period following the closing. In addition, the conversion price of the Series A Preferred Stock and the exercise price of the warrants is to be reduced in the event of any stock splits or stock dividends or in the event that the Company sells, grants, or issues any shares, options, warrants, or any convertible instrument at a price below the $0.60 current conversion price of the Series A Preferred Stock or the current exercise prices of the warrants.

The Company recorded as a $196,500 deemed dividend and as a $196,500 increase in additional paid-in capital, the beneficial conversion feature allocated to the convertible preferred stock only ($196,500) based on a relative allocation of the fair values of the convertible preferred stock ($625,000), the A warrants ($477,250) and the B Warrants ($488,250) to the gross actual proceeds received ($500,000). The fair value of the warrants was estimated using the Black-Scholes option pricing model and the following assumptions: stock price of $0.75 per share, exercise price of $0.75 per share for the A warrants, exercise price of $1.00 per share for the B warrants, term of 3 years, expected volatility of 74%, and risk-free interest rate of 4%.

On July 16, 2008, the Company sold the Investor, for an aggregate purchase price of $250,000, an additional 416,667 shares of Series A Preferred Stock, warrants to purchase up to 500,000 shares of Company common stock exercisable for a period of three years at an exercise price of $0.9375 per share, and warrants to purchase up to 600,000 shares of Company common stock exercisable for a period of three years at an exercise price of $1.25 per share. The Company recorded as a 126,250 deemed dividend and as a $126,250 increase in additional paid-in capital, the beneficial conversion feature allocated to the convertible preferred stock only ($126,250) based on a relative allocation of the fair values of the convertible preferred stock ($287,083), and the warrants ($281,580) to the gross actual proceeds received ($250,000). The fair value of the warrants was estimated using the Black-Scholes option pricing model and the following assumptions: stock price of $0.689 per share, exercise prices of $0.9375 and $1.25 per share, term of 3 years, expected volatility of 71.4%, and risk-free interest rate of 4%.

Below is a summary of the deemed dividends for the year ended December 31, 2008:

March 21, 2008	$	196,500
July 16, 2008		126,250
Total	$	322,750

On October 27, 2008, the Company issued 100,000 shares of common stock to the Investor for the conversion of 100,000 shares of Series A Preferred Stock.

NOTE 11 – RESTRICTED NET ASSETS

Relevant PRC statutory laws and regulations permit payments of dividends by Harbin Hainan Kangda and Taishan Kangda only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations.  In addition, PRC laws and regulations require that annual appropriations of after-tax income should be set aside prior to payments of dividends as a reserve fund.  As a result of these PRC laws and regulations Harbin Hainan Kangda and Taishan Kangda are restricted in their ability to transfer a portion of their net assets in the form of dividends, loans or advances, which restricted portion amounted to $11,219,804 and $10,185,183 at June 30, 2009 and December 31, 2008, respectively.

9

CHINA KANGTAI CACTUS BIO-TECH INC. AND SUBSIDIARIES

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009

(Unaudited)

NOTE 12 - INCOME TAXES

The Company is subject to current income taxes on an entity basis on taxable income arising in or derived from the tax jurisdiction in which each entity is domiciled.

US China Kangtai was incorporated in the United States and is subject to United States income tax. No United States income taxes were provided in 2009 and 2008 since US China Kangtai had taxable losses in those periods.

At June 30, 2009, US China Kangtai has an unrecognized deferred United States income tax liability relating to undistributed earnings of Harbin Hainan Kangda. These earnings are considered to be permanently invested in operations outside the United States. Generally, such earnings become subject to United States income tax upon the remittance of dividends and under certain other circumstances. Determination of the amount of the unrecognized deferred United States income tax liability with respect to such earnings is not practicable.

BVI China Kangtai was incorporated in the BVI and is not subject to tax on income or on capital gains.

Harbin Hainan Kangda and Taishan Kangda were incorporated in the PRC and are subject to PRC income tax which is computed according to the relevant laws and regulations in the PRC. Harbin Hainan Kangda located its factories in a special economic region in Harbin, the PRC. This economic region allows foreign owned enterprises a two-year income tax exemption beginning in the first year after they become profitable, being 2005 and 2006, and a 50% income tax reduction for the following three years, being 2007 to 2009. Harbin Hainan Kangda was approved as a wholly owned foreign enterprise in March 2005.

The provision for income taxes differs from the amount computed by applying the statutory United States federal income tax rate of 35% to income (loss) before income taxes. The sources of the difference follow:

	Six Months Ended June 30,
	2009			2008
Expected tax at 35% (as restated - Note 15)	$	416,720		$	679,359
Nondeductible expense from revaluation of Series A Preferred Stock and A, B, C, and D warrants with characteristics of liabilities at fair value (as restated - Note 15)		524,550			-
Tax effect of unutilized losses of
US China Kangtai and BVI
China Kangtai		12,160			53,776
Tax effect of PRC income taxed
at lower rate		(381,988	)		(436,930	)
Actual provision for income taxes	$	571,442		$	296,205

10

CHINA KANGTAI CACTUS BIO-TECH INC. AND SUBSIDIARIES

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009

(Unaudited)

NOTE 13 - COMMITMENTS AND CONTINGENCIES

Concentrations and risks

During 2009 and 2008, substantially all of the Company’s assets were located in China and 100% of the Company’s revenues were derived from customers located in China and Taiwan.

Substantially all of Harbin Hainan Kangda and Taishan Kangda’s business operations are conducted in the PRC and governed by PRC laws and regulations.  Because these laws and regulations are relatively new, the interpretation and enforcement of these laws and regulations involve uncertainties.

The PRC government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of the PRC.  Under existing PRC foreign exchange regulations, payment of current account items, including profit distributions, interest payments and expenditures from the transaction, can be made in foreign currencies without prior approval from the PRC State Administration of Foreign Exchange by complying with certain procedural requirements.  However, approval from appropriate governmental authorities is required where RMB is to be converted into foreign currency and remitted out of the PRC to pay capital expenses, such as the repayment of bank loans denominated in foreign currencies.  The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions.

NOTE 14 – SEGMENT AND OTHER INFORMATION

The Company operates in one industry segment – the production and sale of cactus, cactus health food, and other cactus products.  Substantially all of the Company’s identifiable assets at June 30, 2009 and December 31, 2008 were located in the PRC.  Net sales for the periods presented were all derived from PRC and Taiwan customers. During the six months ended June 30, 2009, two customers accounted for 15% and 14% of net sales respectively.

Net sales consisted of:

	Three months ended June 30,				Six months ended June 30,
	2009		2008		2009		2008
Finished goods	$	5,875,795	$	3,690,935	$	8,600,915	$	5,456,168
Cactus stock	$	636,949	$	1,319,985	$	1,241,781	$	2,320,248
Total	$	6,512,744	$	5,010,920	$	9,842,696	$	7,776,416

In the six months ended June 30, 2009 and 2008, the Company recorded provisions for returns and doubtful accounts (which has been included in general and administrative expenses in the accompanying statements of operations) of $949,384 and $134,615, respectively.

11

NOTE 15 – RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

The Company has restated its consolidated financial statements at June 30, 2009 and for the three and six months ended June 30, 2009 (which were previously included in the Company’s Form 10-Q filed with the SEC on August 13, 2009) in order to correct errors relating to the accounting for the Series A Convertible Preferred Stock and warrants sold on March 21, 2008 and July16, 2008 (see Notes 9 and 10). As previously reported, the Company did not reflect these financial instruments as liabilities and did not recognize changes in their fair values in operations. As restated, in accordance with EITF Issue No. 07-05, the Company reflected these financial instruments as liabilities and recognized changes in their fair values in operations.

The effect of the restatement adjustments on the consolidated balance sheet at June 30, 2009 follows:

	As Previously Reported		Adjustments				As Restated
Total assets	$	28,920,155	$		-		$	28,920,155
Total current liabilities	$	1,630,795	$		-		$	1,630,795
Estimated liability for equity-based financial instruments with characteristics of liabilities		-		(3)	2,169,955			2,169,955
Total liabilities		1,630,795			2,169,955			3,800,750
Stockholders’ equity:
Preferred stock		1,150		(3)	(1,150	)		-
Common stock		17,886			-			17,886
Additional paid-in capital		8,901,471		(1)	(1,086,414	)		7,157,617
				(2)	31,410
				(3)	(688,850	)
Retained earnings:
Appropriated		3,120,877			-			3,120,877
Unappropriated		12,228,651		(1)	1,086,414			11,803,700
				(2)	(31,410	)
				(3)	(1,479,955	)
Accumulated other comprehensive income		3,019,325			-			3,019,325
Total stockholders’ equity		27,289,360			(2,169,955	)		25,119,405
Total liabilities and stockholders’ equity	$	28,920,155	$		-		$	28,920,155

(1) To decrease the year 2008 deemed dividends relating to the sales of units of Series A Convertible Preferred Stock and warrants from $1,409,164 to $322,750.

(2) To record 150,000 stock options issued to the Company’s law firm on December 31, 2008.

(3) To reflect financial instruments (the Series A Convertible Preferred Stock and warrants sold on March 21, 2008 and July 16, 2008) as liabilities at fair values and to recognize changes in their fair values in operations.

12

The effect of the restatement adjustments on the consolidated statement of operations for the three months ended June 30, 2009 follows:

	As Previously Reported			Adjustments				As Restated
Income from operations	$	1,835,522		$		-		$	1,835,522
Other Income (Expenses)
Interest income		26				-			26
Income (expense) from revaluation of Series A Preferred Stock and A, B, C, and D warrants with characteristics of liabilities at fair value (Note 9)		-			(3)	(1,761,440	)		(1,761,440	)
Imputed interest		(13,306	)			-			(13,306	)
Loss on disposal of property and equipment		(132	)			-			(132	)
Total		(13,412	)			(1,761,440	)		(1,774,852	)
Income before income taxes		1,822,110				(1,761,440	)		60,670
Income tax expense		(398,156	)			-			(398,156	)
Net income (loss)	$	1,423,954		$		(1,761,440	)	$	(337,486	)
Net income (loss) per common share:
Basic	$	0.08		$		(0.10	)	$	(0.02	)
Diluted	$	0.07		$		(0.09	)	$	(0.02	)

The effect of the restatement adjustments on the consolidated statement of operations for the six months ended June 30, 2009 follows:

	As Previously							As
	Reported			Adjustments				Restated
Income from operations	$	2,716,052		$		-		$	2,716,052
Other Income (Expenses)
Interest income		26				-			26
Income (expense) from revaluation of Series A Preferred Stock and A, B, C, and D warrants with characteristics of liabilities at fair value (Note 9)		-			(3)	(1,498,715	)		(1,498,715	)
Imputed interest		(26,602	)			-			(26,602	)
Loss on disposal of property and equipment		(132	)			-			(132	)
Total		(26,708	)			(1,498,715	)		(1,525,423	)
Income before income taxes		2,689,344				(1,498,715	)		1,190,629
Income tax expense		(571,442	)			-			(571,442	)
Net income	$	2,117,902		$		(1,498,715	)	$	619,187
Net income per common share:
Basic	$	0.12		$		(0.09	)	$	0.03
Diluted	$	0.11		$		(0.08	)	$	0.03

13

Item 2. Management’s Discussion and Analysis or Plan of Operation

DISCLAIMER REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this report, including statements in the following discussion, which are not statements of historical fact, may be deemed to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 which are basically statements about the future. For that reason, these statements involve risk and uncertainty since no one can accurately predict the future. Words such as “plans,” “intends,” “will,” “hopes,” “seeks,” “anticipates,” “expects,” and the like, often identify such forward-looking statements, but are not the only indication that a statement is a forward-looking statement. Such forward-looking statements include statements concerning our plans and objectives with respect to the present and future operations of the Company, and statements which express or imply that such present and future operations will or may produce revenues, income or profits. Numerous factors and future events could cause the Company to change such plans and objectives, or fail to successfully implement such plans or achieve such objectives, or cause such present and future operations to fail to produce revenues, income or profits. Therefore, the reader is advised that the following discussion should be considered in light of the discussion of risks and other factors contained in this report on Form 10-Q and in the Company’s other filings with the Securities and Exchange Commission. No statements contained in the following discussion should be construed as a guarantee or assurance of future performance or future results. These forward-looking statements are made as of August 13, 2009; the date of the filing of the Form 10-Q and the Company undertakes no responsibility to update these forward-looking statements.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and accompanying notes and the other financial information appearing in Part I, Item 1 and elsewhere in this report. The Company’s fiscal year end is December 31.

Company Overview

The Company is principally engaged in the production, R&D, sales and marketing of products derived from cacti. The Company’s product lines include cactus nutraceuticals, cactus nutritional food and drinks, as well as cactus raw and intermediate materials.

The Company has over 387 acres of cactus-farming bases in the Guangdong and Heilongjiang Provinces of China. The Company predominantly grows three species of cacti which are Mexican Pyramid, Mexican Milpa-Alta and Mexican Queen. Mexican Pyramid and Queen cacti are used for cactus fruit drinks and nutraceutical products; Mexican Milpa-Alta is mainly used for cactus nutritional food products. Most of the cactus fruits are processed into cactus fruit juice, which is the raw material for cactus nutritional drinks. Most of the harvested edible cacti are processed into dry powders, which are raw materials for cactus nutraceuticals. The Company’s annual production capability of edible cacti in 2008 was 14,425 tons.

The Company engages with, by co-operative production agreements, local pharmaceutical, food and beverage manufacturers to produce its products. This strategy allows the Company to fill the orders quickly with short production runs and to reduce the requirements in fixed assets investment. The Company currently has entered into co-production agreements with five processors in China. They are Harbin Bin County Hualan Dairy Factory, Harbin Ice Lantern Noodle Factory, Tsingtao Brewry (Harbin) Inc., Harbin Diwang Pharmacy Co., Ltd. (a GMPcertified processor), and Mudanjiang Kangwei Health Food Company, Ltd. Pursuant to these contracts, the Company provides raw materials, quality control guidelines and technical support while the processors provide other materials, processing facilities and labor to manufacture products for the Company. These processors are required to follow strictly the Company’s guidelines and instructions for production. The Company inspects all final products. The Company currently has long term agreements with all five processors which may be renewed at expiration in 2012. 

GMP or Good Manufacturing Practice certifications are awarded by the State Food and Drug Administration of China to processors which meet the safety and quality assurance standards set by the State Food and Drug Administration of China.

14

In 2006, the Company had entered two new co-processing agreements with Huimeijia Bio-tech Ltd. to produce nutraceutical soft capsules and Kangwei Health Foods Ltd. of Mudanjiang City to produce cactus palm dry powder products.

In October 2007, the Company has signed a new agreement with Harbin Meijia Bio-Tech Co., Ltd.

All of the above co-operative production agreements have been renewed during January and March of 2008.

The Company has also established its own cactus beverage and fruit wine production facilities. The Company’s cactus beverage product category includes cactus beer, cactus fruit wine (including the brand name of Overlord Scourge Flower Imperial Wine), cactus palm juices and cactus fruit drinks,

In addition, the Company has its own R&D facility, the Heilongjiang Sino-Mexico Cactus Development and Utilization Institute, which is certified by Heilongjiang Science & Technology Committee. The Institute has independently developed many patented cactus -based nutraceuticals and nutritional food and drink product formulas and production processes.

Company History

Our Company was initially incorporated as InvestNet, Inc. (“InvestNet”) on March 16, 2000 under the laws of the State of Nevada. Prior to June 3, 2005, the Company’s operations consisted of real time software and IT solutions which the Company held through its subsidiaries, Champion Agents Limited (which wholly owned DSI Computer Technology Company Limited) and Interchance Limited. Due to the fact that the Company was unable to generate sufficient cash flows from operations, obtain funding to sustain operations nor reduce or stabilize expenses to the point where it could have realized a net positive cash flow, management and the board of directors determined that it was in the best interests of the stockholders to seek a strategic alternative so that the Company could continue to operate. On May 13, 2005, InvestNet entered into a series of agreements to effect a “reverse merger transaction” via a share exchange and through the conversion of a convertible promissory note, as described below, with China Kangtai Cactus Bio-tech Company Limited (“BVI China Kangtai”), a British Virgin Islands (“BVI”) incorporated on November 26, 2004.

These documents included a Stock Purchase Agreement, pursuant to which InvestNet issued 30,000,000 shares to a stockholder of BVI China Kangtai for $300,000. Additionally, InvestNet entered into an Agreement and Plan of Reorganization, pursuant to which the stockholders of BVI China Kangtai exchanged 12% of BVI China Kangtai’s outstanding shares for 110,130,615 shares of InvestNet. Additionally, InvestNet issued a Convertible Promissory Note to BVI China Kangtai or its designees in the amount of $8,070,000 plus accrued interest at a rate of 5% per annum or convertible at the option of the holder(s) in the event that InvestNet effected a one for seventy reverse split of InvestNet’s common stock into the remaining 88% of the outstanding shares of BVI China Kangtai (the “Convertible Note”). The Company did effect a one for seventy reverse split of all of its outstanding shares of Common Stock and changed its name (to “China Kangtai Cactus Bio-Tech Inc.”) and trading symbol on the OTC Bulletin Board (to “CKGT”) on August 25, 2005. The holders of the Convertible Note converted the Convertible Note a day later on August 26, 2005 into 14,248,395 shares of Common Stock of the Company. As the result of the share exchange and conversion of the Convertible Note, the Company completed a “reverse merger transaction” whereby InvestNet acquired 100% of BVI China Kangtai, which wholly owns Harbin Hainan Kangda Cacti Hygienical Foods Co., Ltd. (“Harbin Hainan Kangda”).

Harbin Hainan Kangda is presently our main operating subsidiary.  Harbin Hainan Kangda is in the business of selling and producing cactus and cactus related products in the PRC as more fully described below. In connection with the “reverse merger transaction”, we completely sold all the Company’s real time software and IT solutions operations by selling all of the stock held by the Company in its prior wholly owned subsidiaries, Champion Agents Limited (which wholly owned DSI Computer Technology Company Limited) and Interchance Limited to V-Capital Limited, a Republic of Mauritius corporation which is controlled by a former director of InvestNet.

15

On June 3, 2005, in connection with the reorganization of the Company and the acquisition of BVI China Kangtai and its wholly owned subsidiary, Harbin Hainan Kangda, the Company’s executive officers and directors significantly changed. Specifically, Norman Koo resigned as a director, Chief Executive Officer and President of the Company; Terence Ho resigned as a director, Chief Financial Officer, and Treasurer of the Company; Vivian Szeto resigned as a director (However, Ms. Szeto’s resignation from the Board of Directors was contingent on the Company completing its filing and mailing requirements of its Schedule 14f-1 which occurred on July 22, 2005 and so, from June 3, 2005 to July 22, 2005 she served as the Company’s sole director) and Secretary of the Company; Johnny Lu resigned as a director of the Company; and Mantin Lu resigned as a director of the Company.

In contemplation of the aforementioned resignations, also on June 3, 2005, the Board of Directors appointed in accordance with Section 3.04 of the Company’s Bylaws, Jinjiang Wang, Chengzhi Wang, Hong Bu, Jiping Wang and Song Yang as members of the Company’s Board of Directors, subject to the fulfillment of the filing and mailing requirements, including the 10 day waiting period of its Schedule 14f-1 that was sent to all stockholders of the Company pursuant to section 14(f) of the Securities Exchange Act of 1934 which occurred on July 22, 2005 and appointed the following officers to serve immediately: Jinjiang Wang, President; Chengzhi Wang, General Manager; Hong Bu, Chief Financial Officer and Treasurer; Fengxi Lang, Secretary; Changfu Wang, Vice General Manager; Zhimin Zhan, Vice General Manager; and Lixian Zhou, Assistant General Manager of the Company.

On July 20, 2005, InvestNet’s sole director, Vivian Szeto, and a majority of the Company’s stockholders unanimously approved and ratified a one for seventy reverse split (the “Reverse Split”) of the Company’s common stock and the amendment and restatement of the Company’s Articles of Incorporation to effect a name change of the Company from “Investnet, Inc.” to “China Kangtai Cactus Bio-Tech Inc.”. The Reverse Split became effective on August 25, 2005; 20 days after the Company sent an Information Statement to all of its stockholders and after the filing of the Amended and Restated Articles of Incorporation with the Secretary of State of Nevada. As a result of the Reverse Split, the number of issued and outstanding shares of common stock of the Company, now named China Kangtai Cactus Bio-Tech Inc., was reduced from a total of 200,000,000 shares outstanding to 2,857,143 shares outstanding. A day after the Reverse Split on August 26, 2005, the Convertible Note was converted by its holders(s) into 14,248,395 shares of the Company, which increased the total outstanding shares of the Company to 17,105,625 shares. The Company’s trading symbol was changed by the OTC Bulletin Board Stock Market (“OTCBB”) to “CKGT” to better reflect the Company’s new name. The Company has also changed its Web site to www.xrz.cn.

On June 26, 2006, the Company acquired a 100% equity interest in Guangdong Taishan Kangda Cactus Hygienical Food Co., Ltd. (“Taishan Kangda”), a company with limited liability formed under the laws of the People’s Republic of China for $1,574,000 in cash. Taishan Kangda’s assets include large areas of cactus plantation and production facilities in Guangdong Province in southeast China. The acquisition allows the Company to establish production facilities closer to its existing cactus plantations in Guangdong Province in order to reduce transportation cost and to distribute its products more effectively in southeast China.

The Company currently has three 100% owned subsidiaries: China Kangtai Cactus Bio-Tech Company Limited, a British Virgin Islands company (Kangtai BVI”) ; Harbin Hainan Kangda Cacti Hygienical Foods Co., Ltd., a PRC company “Harbin Hainan Kangda”); and Taishan Kangda.

Kangtai BVI is a holding company and does not have any operations. Harbin Hainan Kangda handles all of the production, research and development, sales and marketing of our products derived from edible cactus plants, fruits and extracts. Taishan Kangda handles all of the cultivation and harvest of cactus plants and the production of our cactus raw materials.

Consolidated Results of Operations

The three-month period ended June 30, 2009 as compared to the three months ended June 30, 2008

For the three months ended June 30, 2009, revenues increased by $1,501,824 or 30% to $6,512,744 from $5,010,920, in the corresponding period of the prior year.  The increase in revenues was attributable to the fact that, the Company is continuing to expand its productions and distribution, and its products are better accepted by the Chinese market customers. These products include Cactus Protein Nutrient, Cactus Calcium Peptide Soft Capsule and Cactus Shuxin Capsule, among others. In addition, the Company successfully launched two new products, cactus fish feed and cattle feed, in July 2008, which also contributed to the increase in sales.

16

For the three months ended June 30, 2009, cost of sales increased by $289,092 or 8.3% to $3,776,047 from $3,486,955, as compared to the corresponding period of the prior year. This increase was mainly due to an increase in net sales, specifically the sales of our newly launched cactus fish and cattle feed.

Our gross profit for the three months period ended June 30, 2009 was $2,736,697 which increased by $1,212,732 or 79.6% from $1,523,965 for the same period last year. This increase was mainly attributable to the decrease in the cost of sales per unit as a result of increase in production and the effect of foreign currency translation adjustment.

For the three months ended June 30, 2009, operating expenses increase by $635,726, or approximately 239% to $901,175, as compared to $265,449 for the three months ended June 30, 2008.  The increase in operating expenses is mainly attributable to increase in general and administrative expenses as a result of an increase in fees paid to our legal and accounting professionals and the increase in turnover taxes as a result of increase in sales.

For the three months ended June 30, 2009, income before income taxes decreased $1,171,078 to $60,670 from $1,231,748 for the corresponding period of the prior year. The decrease was primarily due to the $1,761,440 loss from revaluation of financial instruments liabilities in 2009, offset by an increase in gross profit.

The six-month period ended June 30, 2009 as compared to the six months ended June 30, 2008

For the six months ended June 30, 2009, revenues increased by $2,066,280 or 26.6% to $9,842,696 from $7,776,416, in the corresponding period of the prior year.  The increase in revenues was attributable to the fact that, the Company is continuing to expand its productions and distribution, and its products are better accepted by the Chinese market customers. These products include Cactus Protein Nutrient, Cactus Calcium Peptide Soft Capsule and Cactus Shuxin Capsule, among others. In addition, the Company successfully launched two new products, cactus fish feed and cattle feed, in July 2008, which also contributed to the increase in sales.

For the six months ended June 30, 2009, cost of sales increased by $646,079 or 12.4% to $5,868,833 from $5,222,754, as compared to the corresponding period of the prior year. This increase was mainly due to an increase in net sales, specifically the sales of our newly launched cactus fish and cattle feed.

Our gross profit for the six months period ended June 30, 2009 was $3,973,863 which increased by $1,420,201 or 55.6% from $2,553,662 for the same period last year. This increase was mainly attributable to the decrease in the cost of sales per unit as a result of increase in production and the effect of foreign currency translation adjustment.

For the six months ended June 30, 2009, operating expenses increase by $684,360, or approximately 119% to $1,257,811, as compared to $573,451 for the six months ended June 30, 2008.  The increase in operating expenses is mainly attributable to increase in general and administrative expenses as a result of an increase in fees paid to our legal and accounting professionals and the increase in turnover taxes as a result of increase in sales.

For the six months ended June 30, 2009, income before income taxes decreased $750,398 to $1,190,629 from $1,941,027 for the corresponding period of the prior year. The decrease was primarily due to the $1,498,715 loss from revaluation of financial instruments liabilities in 2009, offset by an increase in gross profit. As a result, net income also decreased by $1,025,635 to $619,187 from $1,644,822. Excluding the non-cash loss from revaluation of financial instruments liabilities, net income would have been $2,117,902 in 2009.

17

Liquidity and Capital Resources –June 30, 2009

Operating.  For the six months period ended June 30, 2009, the Company’s operations provided cash resources of $1,329,923 as compared to $2,486,561 for the six months period ended June 30, 2008, a decrease of cash provided by operating activities of $1,156,638, or 46.5%. The increase was mainly due to increase in accounts receivables during the first two quarters in 2009 compared to the same period last year.

Investing and financing.  For the six months period ended June 30, 2009, the Company used $2,930,600 in investment activities compared to $3,624,971 for the same period a year ago. The decrease was mainly attributable to costs associated with the acquisition of Qitaihe Kangwei biotechnology, Co., Ltd. in March of 2009.

For the six months period ended June 30, 2009, the Company did not generate any cash from financing activities, as compared to $500,000 for the same period ended June 30, 2008. The Company did not engage in any financing activities during the first two quarters in 2009 compared to the PIPEs financing transactions completed in March 2008 and July 16, 2008 whereby the company issued Series A preferred stock and two classes of warrants to T-Squared Investments, LLC.

The company had a cash position of $2,789,628 on June 30, 2009, an increase of $2,223,370, or 392.6% from $566,258 on June 30, 2008.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have, or are in the opinion of management likely to have, a current or future material effect on the Company’s financial condition or results of operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not required.

Item 4T.  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). The purpose of this evaluation is to determine if, as of the Evaluation Date, our disclosure controls and procedures were operating effectively such that the information, required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) was recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were operating effectively.

Changes in Internal Control over Financial Reporting.  There have been no changes in our internal controls over financial reporting that occurred during the second quarter of fiscal year 2009 that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

18

PART II - - OTHER INFORMATION

Item 1. Legal Proceedings

To the best knowledge of the Officers and Directors of the Company, the Company is not a party to any material legal proceeding or litigation and such persons know of no other material legal proceeding or litigation contemplated or threatened.

Item 1A. Risk Factors

As of the date of this filing, there have been no material changes from the risk factors disclosed in the Company’s Annual Report on Form 10-K filed on April 15, 2009. We operate in a changing environment that involves numerous known and unknown risks and uncertainties that could materially affect our operations. The risks, uncertainties and other factors set forth in our Annual Report on Form 10-K may cause our actual results, performances and achievements to be materially different from those expressed or implied by our forward-looking statements. If any of these risks or events occur, our business, financial condition or results of operations may be adversely affected.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.  Defaults upon Senior Securities

None.

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

None.

Item 5.  Other Information

None.

Item 6.  Exhibits

(a) Exhibits

EXHIBIT INDEX

31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended and adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended and adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

19

SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CHINA KANGTAI CACTUS BIO-TECH INC.
Date: December 24, 2009	By:	/s/ JINJIANG WANG
		JINJIANG WANG
		President, Chief Executive Officer, Director and Principal Executive Officer

Date: December 24, 2009	By:	/s/ HONG BU
		HONG BU
		Chief Financial Officer, Director and Principal Financial and Accounting Officer

20