China Polypeptide 10Q 2010 Q3 Quarterly report

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Unaudited Consolidated Financial Statements.	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	26
Item 4.	Controls and Procedures.	26
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings.	27
Item 1A.	Risk Factors.	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	27
Item 3.	Defaults Upon Senior Securities.	27
Item 4.	(Removed and Reserved).	27
Item 5.	Other Information.	27
Item 6.	Exhibits.	27

China Polypeptide Group, Inc. and Subsidiaries

Consolidated Balance Sheets

	June 30,			September 30,
	2010			2009
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	9,072,995		$	4,439,732
Accounts receivable, net		5,736,947			14,666,836
Inventories, net		722,355			970,685
Prepayments and other receivables		6,214,020			5,404,943
Amounts due from staff		8,193,360			5,460,867
Deferred tax assets		264,324			277,335
Other assets		412,309			411,824
Total Current Assets		30,616,310			31,632,222

Property, plant and equipment, net		11,078,668			6,943,440
Investment in equity affiliates		230,658			254,286
Land use rights, net		281,284			280,953
Deposit for land use rights		6,344,917			440,100
Goodwill		113,926			113,792
	$	48,665,763		$	39,664,793
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable	$	1,973,780		$	573,401
Accrued expenses and other liabilities		1,662,005			2,449,129
Taxes payable		4,581,463			6,404,040
Short-term loans		516,993			566,262
Deferred revenue		1,594,143			3,928,804
Amounts due to related parties		439,927			7,097,865
Total Current Liabilities		10,768,311			21,019,501
Shareholders’ equity
Common stock: 120,000,000 shares authorized, $0.0001 par value, 11,299,224 shares and 8,800,000 shares issued and outstanding as of June 30, 2010 and September 30, 2009, respectively		1,130			880
Additional paid-in capital		13,658,600			638,404
Deferred compensation		(42,389	)		-
Unappropriated retained earnings		22,121,511			16,842,439
Appropriated retained earnings		2,055,924			1,144,448
Accumulated other comprehensive income		102,676			19,121
Total Shareholders’ Equity		37,897,452			18,645,292
	$	48,665,763		$	39,664,793

See notes to consolidated financial statements.

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China Polypeptide Group, Inc. and Subsidiaries

Consolidated Statements of Income and Comprehensive Income (Unaudited)

	Three months ended						Nine months ended
	June 30,						June 30,
	2010			2009			2010			2009
Revenues	$	11,560,788		$	8,402,819		$	25,664,457		$	25,272,971
Cost of sales		685,905			313,903			1,782,788			1,597,977

Gross profit		10,874,883			8,088,916			23,881,669			23,674,994

Operating expenses
Selling and administrative expenses		6,820,092			6,020,038			16,213,354			15,022,666

Operating income		4,054,791			2,068,878			7,668,315			8,652,328

Other income (expense)
Interest expense, net		(27,904	)		(19,510	)		(63,968	)		(41,636	)
Equity in (loss)/gain in affiliates		(7,362	)		(6,843	)		(23,835	)		11,544
Other operating income (expense)		(30,300	)		426,319			(10,653	)		431,359
		(65,566	)		399,966			(98,456	)		401,267
Income before income tax expense		3,989,225			2,468,844			7,569,859			9,053,595

Income tax expense		906,963			748,673			1,379,311			2,474,763

Net income		3,082,262			1,720,171			6,190,548			6,578,832

Other comprehensive income
Foreign currency translation gain (loss)		158,903			(2,049	)		83,555			31,088

Comprehensive income	$	3,241,165		$	1,718,122		$	6,274,103		$	6,609,920

Earnings per share
Basic and diluted	$	0.276		$	0.195		$	0.595		$	0.748

Weighted average number of common shares outstanding:
Basic and diluted		11,163,767			8,800,000			10,401,417			8,800,000

See notes to consolidated financial statements.

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China Polypeptide Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

	Nine months ended
	June 30,
	2010			2009
Cash flow from operating activities
Net income	$	6,190,548		$	6,578,832
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		285,871			234,587
Bad debts provision		172,502			38,586
Amortization of stock-based compensation		31,860			-
(Gain) Loss on investment in associates		23,835			(11,544	)
Changes in operating assets and liabilities
Accounts receivable		8,738,019			(3,584,416	)
Inventories		248,506			230,510
Prepayments and other receivables		(797,701	)		(3,994,899	)
Amount due from staff		(2,715,450	)		-
Other assets		13,286			(31,619	)
Accounts payable		1,394,259			(76,673	)
Accrued expenses and other current liabilities		(3,109,344	)		(392,923	)
Taxes payable		(1,823,016	)		2,578,186
Net cash provided by operating activities		8,653,175			1,568,627

Cash flow from investing activities
Purchases of property, plant and equipment		(3,504,819	)		(77,711	)
Disposal of property, plant and equipment		(14,229	)		-
Cash paid for construction in progress		(877,812	)		(2,660	)
Cash paid to acquire land use right		(5,881,337	)		(1,465,309	)
Net cash used in investing activities		(10,278,197	)		(1,545,680	)

Cash flow from financing activities
Proceeds from private placements		6,320,144			-
Repayment of related parties loans		(44,126	)		-
Repayment of short-term bank loans		(49,743	)		(26,376	)
Net cash provided by (used in) financing activities		6,226,275			(26,376	)

Effect of exchange rate fluctuation on cash and cash equivalents		32,010			25,285
Net increase in cash and cash equivalents		4,633,263			21,856
Cash and cash equivalents, beginning of period		4,439,732			5,918,414
Cash and cash equivalents, end of period	$	9,072,995		$	5,940,270

Supplemental disclosure of cash flow information:
Income taxes paid	$	3,125,237		$	554,309
Interest paid	$	31,607		$	75,878

See notes to consolidated financial statements.

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China Polypeptide Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1 - Principal Activities and Organization

China Polypeptide Group, Inc. (“CPGI” or the “Company”), formerly known as Hamptons Extreme, Inc., was incorporated under the laws of the State of Delaware in March 2007. The Company was formed to engage in the design, manufacturing, distribution and marketing of surfboards and related equipment. Prior to the Exchange (as defined below), the Company was considered to be a development stage company with no material assets or operations and had generated no revenues since its inception.

Pursuant to a Stock Exchange Agreement dated November 13, 2009 (the “Stock Exchange Agreement”) by and among the Company, Cantix International Limited (“Cantix”), a company incorporated on January 29, 2007, under the laws of the British Virgin Islands (the “BVI”), and the shareholders of Cantix (the “Cantix Shareholders”), on November 13, 2009, the Company acquired all of the issued and outstanding capital stock of Cantix from the Cantix Shareholders in exchange for 8,800,000 shares of common stock of the Company, representing approximately 88% of the issued and outstanding capital stock of the Company (the “Exchange”), resulting in, among other items, Cantix becoming a wholly-owned subsidiary of the Company.

All shares and per share numbers set forth in this Note 1 reflect an 8-for-1 forward stock split effectuated by the Company on December 1, 2009, pursuant to which each one (1) share of CPGI’s common stock issued and outstanding on December 1, 2009 automatically converted into 8 shares of CPGI’s common stock.

Under United States Generally Accepted Accounting Principles (“US GAAP”), the Exchange is treated as a reverse acquisition, and the financial statements of the Company have been retroactively adjusted to reflect the Exchange from the beginning of the reported period. The Exchange has been accounted for as a reverse acquisition and recapitalization of the Company whereby Cantix is deemed to be the accounting acquirer (legal acquiree) and the Company to be the accounting acquiree (legal acquirer). The historical financial statements for the periods prior to November 13, 2009 are those of Cantix except that the equity section and earnings per share have been retroactively restated to reflect the Exchange. To more accurately reflect its current business post the Exchange, on December 1, 2009, the Company changed its name to China Polypeptide Group, Inc.

Cantix has a wholly owned subsidiary, Moneyeasy Industries Limited (“Moneyeasy”), a company incorporated in Hong Kong on August 25, 2006. This entity is a holding company with minimum activities. Cantix, through its operating subsidiaries in the People’s Republic of China (the “PRC”), is principally engaged in research, development, manufacturing, marketing and sales of polypeptide-based anti-aging nutritional supplements, health foods, functional foods and related material products.

Wuhan Tallyho Biological Product Co., Limited (“Wuhan Tallyho”) was founded on December 2, 1996 in the People Republic of China (the “PRC”) with a paid-in capital of $5,854,361 (RMB40,230,000) and has been engaged in research, production and sales of polypeptide-based health products and anti-aging food.

Guangdong Hopsun Polypeptide Biological Technology Co., Limited (“Guangdong Hopsun”) was founded on November 13, 2007 in the PRC. It is a wholly owned subsidiary of Wuhan Tallyho with $1,424,055 (RMB10,000,000) paid-in capital and specializes in service-based sales of health and anti-aging products.

Anti-aging Research & Development Co., Limited (“Anti-aging”) was founded on June 13, 2007 in the PRC, with $1,045,246 (RMB8,000,000) paid-in capital and specialized in research, development and sales of polypeptide-based health products and anti-aging foods. Prior to Moneyeasy’s acquisition of Anti-aging on December 18, 2007, Wuhan Tallyho had a 30% ownership interest in Anti-aging.

On November 5, 2007, Moneyeasy entered into an agreement to acquire all the equity of Wuhan Tallyho. Since Cantix, Moneyeasy and Wuhan Tallyho were controlled by the same ultimate individual, these companies were deemed to be under common control and the assets and liabilities were transferred at their carrying amounts for business acquisition. This transaction was completed on December 26, 2007 and Wuhan Tallyho became a wholly owned subsidiary of Moneyeasy and Cantix. The cash consideration was paid in October, 2009.

On December 18, 2007, Moneyeasy entered into another agreement to acquire all the equity of Anti-aging. The transaction was completed on January 3, 2008 and Anti-aging became a wholly owned subsidiary of Moneyeasy and Cantix. The relevant cash consideration was paid in July, 2009.

Upon completion of the acquisitions, Moneyeasy controls two wholly owned subsidiaries, Wuhan Tallyho and Anti-aging. CPGI, Cantix, Moneyeasy, Wuhan Tallyho, Guangdong Hopsun and Anti-aging are collectively hereinafter referred to as the “Company”.

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Note 2 - Summary of Significant Accounting Policies and Practices

(a) Basis of Presentation

The unaudited interim consolidated financial statements (“consolidated financial statements”) for the three and nine months ended June 30, 2010 and 2009 include the financial statements of CPGI, Cantix, Moneyeasy and its subsidiaries, Wuhan Tallyho, Anti-aging and Guangdong Hopsun, the subsidiary of Wuhan Tallyho, which have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to provide for fair presentation. The interim financial information should be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company’s audited consolidated financial statements on Form 8-K/A for the fiscal year ended September 30, 2009, previously filed with the SEC.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of consolidated financial position as of June 30, 2010, consolidated results of operations, and cash flows for the nine months ended June 30, 2010 and 2009, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.

(b) Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and cash equivalents represent cash on hand and deposits held at call with banks. The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.

(d) Accounts Receivable

Accounts receivable are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts, as needed. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on aging data, historical collection experience, customer specific facts and economic conditions. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. As of June 30, 2010 and September 30, 2009, $893,358 and $717,451 allowances for doubtful accounts were provided respectively.

(e) Inventories

Inventories are stated at the lower of cost or market value. Cost is determined using the weighted average cost method. Cost of finished goods comprises direct material, direct production cost and an allocated portion of production overheads based on normal operating capacity. The Company evaluates the need for reserves associated with obsolete, slow-moving and non-salable inventory by reviewing the net realizable value on a periodic basis. If inventory is written down to net realizable value, the write-down is charged to expense.

(f) Other Receivables

As needed for normal business purposes, the Company advances predetermined amounts based upon internal policy to certain employees and unrelated parties to ensure certain transactions to be performed in a timely manner. The Company has full oversight and control over the advanced accounts. As of June 30, 2010 and September 30, 2009, $52,442 and $54,263 allowances for doubtful accounts were provided respectively (note 7).

(g) Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment.

Depreciation on property, plant and equipment is calculated on the straight-line method after taking into account their respective estimated residual values over the estimated useful lives of the assets as follows:

Asset		Useful lives
Buildings		20~40 years
Machinery and equipment		5~10 years
Furniture and office equipment		2~5 years
Motor vehicles		5 years

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Maintenance and repair costs are expensed as incurred, whereas significant renewals and betterments are capitalized.

(h) Land Use Rights

Land use rights represent payments for the rights to use certain parcels of land for a certain period of time in the PRC. Land use rights are carried at cost and charged to expense on a straight-line basis over the period the rights are granted, i.e., 50 years.

(i) Accounting for the Impairment of Long-Lived Assets

Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is determined by comparing the carrying amount of an asset to future undiscounted cash flows to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

There were no impairments of long-lived assets as of June 30, 2010 and September 30, 2009.

(j) Investment in Equity Affiliates

Investment in affiliates consists of ownership in associated companies, which the Company exercises significant influence, usually a percentage ownership between 20% and 50%, and is accounted for under the equity method of accounting. Under the equity method of accounting, an investee’s accounts are not reflected within the Company’s Consolidated Balance Sheets and Statements of Income; however, the Company’s share of the earnings or losses of the investee are reflected in the caption “Equity in income or (loss) in affiliates” in the consolidated statements of income. The Company’s carrying value in an equity method investee is reflected in the caption “Long-term Investment” in the Company’s consolidated balance sheets.

When the Company’s carrying value in an equity method investee is reduced to zero, no further losses are recorded in the Company’s consolidated financial statements unless the Company guaranteed obligations of the investee or has committed additional funding. When the investee subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.

(k) Goodwill

Goodwill represents the excess of acquisition costs over the fair value of tangible net assets and identifiable intangible assets of businesses acquired. Goodwill and certain other intangible assets deemed to have indefinite lives are not amortized. Intangible assets determined to have definite lives are amortized over their useful lives. Goodwill and indefinite lived intangible assets are subject to impairment testing annually as of the fiscal year-end or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable, using the guidance and criteria described in Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“ASC Topic 350”). This testing compares carrying values to fair values and, when appropriate, the carrying value of these assets is reduced to fair value. There were no impairments of goodwill as of June 30, 2010 and September 30, 2009.

(l) Statutory Surplus Reserve

In accordance with the Company Law of the PRC, Wuhan Tallyho, Guangdong Hopsun and Anti-aging are required to set aside 10% of its income after income taxes in accordance with the PRC accounting regulations to the statutory surplus reserve until the balance reaches 50% of its registered capital, whether further appropriation will be at the directors’ recommendation. As of June 30, 2010 and September 30, 2009, $2,055,924 and $1,144,448 were provided for statutory surplus reserve.

(m) Revenue Recognition

The Company recognizes revenue in accordance with Staff Accounting Bulletin ("SAB") No. 104 (“ASC Topic 605”). All of the following criteria must exist in order for the Company to recognize revenue: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller's price to the buyer is fixed or determinable; and (4) collectability is reasonably assured.

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Sales are recognized when products are delivered and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sales price is fixed or determinable.

(n) Research and Development Costs

Research and development costs are expensed as incurred. These expenses consist of the costs of the Company’s internal research and development activities and the costs of developing new products and enhancing existing products. Research and development costs amounted to $205,552 and $201,956 for the nine months ended June 30, 2010 and 2009, and $86,158 and $47,133 for the three months ended June 30, 2010 and 2009, respectively.

(o) Foreign Currency Translation

The functional currency of the Company is RMB and RMB is not freely convertible into foreign currencies. The Company maintains its financial records in the functional currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet date. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.

For financial reporting purposes, the financial statements of the Company, which are prepared using the functional currency, have been translated into United States dollars (reporting currency). Assets and liabilities are translated at exchange rates at the balance sheet date, revenue and expenses are translated at the average exchange rates for the period, and Shareholders’ equity is translated at historical exchange rates. Translation adjustments are included in accumulated other comprehensive income, a component of Shareholders’ equity.

The exchange rates applied are as follows:

	June 30, 2010		September 30, 2009
Period (year) end RMB exchange rate		6.8086		6.8166
Average RMB exchange rate – period (year)		6.8352		6.8236

No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at the rates used in translation.

(p) Income Taxes

(i) Income tax

The Company adopted Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“ASC Topic 740”) that requires recognition of deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between income tax basis and financial reporting basis of assets and liabilities. Provision for income taxes consist of taxes currently due plus deferred taxes.

The charge for taxation is based on the results for the year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probably that taxable profit will be available against which deductible temporary differences can be utilized.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

(ii) Value added tax

Wuhan Tallyho,Anti-aging, and Guangdong Hopsun are all qualified as ordinary value-added taxpayers and the applicable tax rate for domestic sales is 17%. Input VAT on purchases of raw materials, fuel, utilities and other production materials (merchandise, transportation costs) can be deducted from output VAT. VAT payable is the net difference between output and deductible input VAT.

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(q) Commitments and Contingencies

In the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations, product and environmental liability, and tax matters. In accordance with SFAS No. 5, “Accounting for Contingencies” (“ASC Topic 450”), the Company records accruals for such loss contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Historically, the Company has not experienced any material service liability claims.

(r) Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivables from third and related parties, amounts due from and due to related parties, accounts payable, other payables and short-term borrowings approximate their fair values due to their short term nature.

The fair value is estimated by discounting the future cash flow using an interest rate which approximated the rate for which the financial institution would charge borrowers with similar credit ratings and remaining maturities.

(s) Recently Issued Accounting Pronouncements

In April 2010, the FASB issued an authoritative pronouncement, ASU 2010-13, on effect of denominating the exercise price of a share-based payment award in the currency of the market in which the underlying equity securities trades and that currency is different from (1) entity's functional currency, (2) functional currency of the foreign operation for which the employee provides services, and (3) payroll currency of the employee. The pronouncement clarifies that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity's equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition, and therefore should be considered an equity award assuming all other criteria for equity classification are met. The pronouncement is for interim and annual periods beginning on or after December 15, 2010, and will be applied prospectively. Affected companies will be required to record a cumulative catch-up adjustment for all awards outstanding as of the beginning of the annual period in which the guidance is adopted. This amendment is not expected to have a material impact on the Company’s financial statements.

In April 2010, the FASB issued Update No. 2010-17, or ASU 2010-17, Revenue Recognition—Milestone Method, which updates the guidance currently included under topic 605, Revenue Recognition. ASU 2010-17 provides guidance on defining the milestone and determining when the use of the milestone method of revenue recognition for research or development transactions is appropriate. It provides criteria for evaluating if the milestone is substantive and clarifies that a vendor can recognize consideration that is contingent upon achievement of a milestone as revenue in the period in which the milestone is achieved, if the milestone meets all the criteria to be considered substantive. ASU 2010-17 is effective for milestones achieved in fiscal years, and interim periods within those years, beginning after June 15, 2010 and should be applied prospectively. Early adoption is permitted. The Company is currently evaluating the potential impact, if any, of the new accounting guidance on its consolidated financial statements.

Note 3 - Significant Risks

(a) Foreign currency risk

As Wuhan Tallyho, Anti-aging and Guangdong Hopsun are operating in the PRC, a majority of sales and expenses transactions and a significant portion of its assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance.

(b) Risk of credit exposure

In the normal course of business, the Company may give credit to its customers after performing a credit analysis based on a number of financial and other criteria. The Company performs ongoing credit evaluations of customers’ financial condition and may require for collateral for significant credit exposure.

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The top four third-party customers accounted for approximately 9.0% of the consolidated revenues for the nine months ended June 30, 2010 and the top two third-party customers accounted for approximately 16.1% of the consolidated revenues for the nine months ended June 30, 2009. The top seven third-party customers accounted for 91.9% of the accounts receivable as of June 30, 2010 and the top seven third-party customers accounted for 91.0% of the accounts receivable as of September 30, 2009.

Note 4 – Earnings per Share

The Company reports earnings per share in accordance with the provisions of SFAS 128, “Earnings per Share” (“ASC Topic 260”). ASC Topic 260 requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. The following is a reconciliation of the basic and diluted earnings per share computations for the nine and three months ended June 30, 2010 and 2009:

	2010		2009
For the nine months ended June 30, 2010 and 2009	unaudited		unaudited

Net income for basic and diluted earnings per share	$	6,190,548	$	6,578,832

Weighted average number of common shares outstanding – basic and diluted		10,401,417		8,800,000

Earnings per share – basic and diluted	$	0.595	$	0.748

	2010		2009
For the three months ended June 30, 2010 and 2009	unaudited		unaudited

Net income for basic and diluted earnings per share	$	3,082,262	$	1,720,171

Weighted average number of common shares outstanding – basic and diluted		11,163,767		8,800,000

Earnings per share - basic and diluted	$	0.276	$	0.195

Note 5 - Accounts Receivable

	June 30, 2010			September 30, 2009
	unaudited
Accounts receivable	$	6,630,305		$	15,384,287
Allowance for doubtful accounts		(893,358	)		(717,451	)
	$	5,736,947		$	14,666,836

The movement of allowance for doubtful accounts for the nine months ended June 30, 2010 and 2009 is as follows:

	2010			2009
Allowance for doubtful accounts, September 30, 2009/2008	$	717,451		$	117,365
Addition		198,135			-
Reduction		(23,755	)		(4,623	)
Translation adjustment		1,527			533
Allowance for doubtful accounts, June 30, 2010/2009	$	893,358		$	113,275

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Note 6 – Inventories

	June 30, 2010			September 30, 2009
	unaudited
Raw materials	$	118,178		$	159,523
Work in progress		257,743			145,145
Finished goods		393,835			706,657
Low-value consumables and packaging materials		109,417			115,993
		879,173			1,127,318
Allowance for inventory obsolescence		(156,818	)		(156,633	)
	$	722,355		$	970,685

Note 7 - Prepayments and Other Receivables

	June 30, 2010			September 30, 2009
	unaudited
Other receivables	$	1,552,165		$	995,284
Advance to suppliers		701,725			456,079
ERA Bio-Technology (Shenzhen) Co., Ltd. (a)		4,012,572			4,007,843
		6,266,462			5,459,206
Allowance for doubtful accounts		(52,442	)		(54,263	)
	$	6,214,020		$	5,404,943

(a)

As of June 30, 2010, the Company had an outstanding loan balance of $4,012,572 (RMB27,320,000), in aggregate, to ERA Bio-Technology (Shenzhen) Co., Ltd. (“ERA Biotech”). $2,276,533 (RMB15,500,000) of such loans was due on August 11, 2009 and was extended to July 28, 2010 on July 28, 2009. The $1,736,040 (RMB11,820,000) balance of such loans matured on June 9, 2010. Such loans are guaranteed by a majority shareholder of ERA Biotech. The Company has entered into a non-binding letter of intent with ERA Biotech to convert such loans into shares of ERA Biotech (note 24).

Note 8 – Amounts Due from Staff

Amounts due from staff represent various advances to certain employees for business purposes and receivables from sales managers due to the cash collected from customers by sales managers. Amounts due from staff amounted to $8,193,360 and $5,460,867 as of June 30, 2010 and September 30, 2009, respectively.

Note 9 – Property, Plant and Equipment

	June 30, 2010			September 30, 2009
	unaudited
Buildings	$	2,404,992		$	2,263,059
Machinery and equipment		1,102,135			629,806
Furniture and office equipment		443,270			294,680
Motor vehicles		683,107			629,661
		4,633,504			3,817,206
Accumulated depreciation		(1,552,263	)		(1,274,766	)
		3,081,241			2,542,440
Construction in progress		7,997,427			4,401,000
	$	11,078,668		$	6,943,440

A building owned by the Company with net book value of $1,044,092 (RMB7,108,806) was pledged by the Company to Xianfeng Rural Credit Co-operative of Wuhan for a loan of $734,365 (RMB5,000,000), borrowed by Wuhan Pan-Asia Peptide Material Research Co. Limited (“Wuhan Pan-Asia”), an unrelated third party. Wuhan Pan-Asia entered into an agreement with the Company for a loan facility of $734,365(RMB5,000,000) to the Company in exchange for the pledge. As of June 30, 2010, the Company borrowed a total of $563,186 (RMB3,834,509) from Wuhan Pan-Asia (note 16).

Depreciation expense for the nine months ended June 30, 2010 and 2009 was $285,871 and $234,587, respectively. Depreciation expense for the three months ended June 30, 2010 and 2009 was $86,428 and $74,604, respectively.

- 12 - -

As of June 30, 2010, the construction of a new factory located in Wuhan, Hubei Province, the PRC, to which the construction in progress is related, is expected to be completed by October 2010 upon final assessment (note 22).

Note 10 - Land Use Rights

As of June 30, 2010, land use rights of the Company included certain parcels of land located in Wuhan City, Hubei Province, the PRC, with a net carrying value of $281,284. The land use rights for land with area of approximately 11,208 square meters and 7,947 square meters which will expire in November 2048 and January 2059 respectively.

Note 11 – Deposit for Land Use Rights

Deposit for land use rights represents the payments that are paid to the government to secure the land use rights of the land lots in Guangzhou Science Park for future regional headquarters and research and development center purpose and in Wuhan for future manufacturing facility expansion. The Company has paid deposit for land use rights, in aggregate, $6,344,917 and $440,100 as of June 30, 2010 and September 30, 2009, respectively. The relevant certificates of land use right are to be issued, and if not, such amount will be refunded.

Note 12 – Investment in Equity Affiliates

As of June 30, 2010, the Company’s investment in affiliates accounted for based on the equity method of accounting represented 40% interest in Wuhan Hopsun Biological Product Inspection Co., Limited (“Wuhan Hopsun”), which engages in biotechnological health products testing including Wuhan Tallyho’s products.

The investments in Wuhan Hopsun amounted to $230,658 and $254,286 at June 30, 2010 and September 30, 2009, respectively, which includes the Company’s share of accumulated losses in this affiliate of $23,835 for the nine months ended June 30, 2010 and a gain of $11,544 for the same period in 2009.

Note 13 - Other Assets

Other assets represented equipment held for sale. The Company acted as a guarantor for an original loan amount of $412,309 (RMB2,807,250) borrowed by Wuhan Sanrong Company Limited (“Wuhan Sanrong”) from Agriculture Bank of China in 2001. The loan was secured with elevators that belonged to Wuhan Sanrong at that time. Wuhan Sanrong encountered some cash flow difficulties and the bank requested that the Company take over the loan. The loan including the collateral was taken over by the Company in September 2002. These assets are held for disposal and are carried at lower of carrying value or fair value less cost to sell.

Wuhan Sanrong was a former shareholder of Wuhan Tallyho and ceased to be a shareholder on March 28, 2001.

Note 14 - Short-term Loans

	Interest rate per			June 30, 2010				September 30, 2009
Lender	annum			RMB		USD		RMB		USD
				Unaudited
Agriculture Bank of China
The term of the loan has expired in September 2003 (note 13)		5.84	%		2,020,000		296,683		2,360,000		346,211

Wuhan Finance Bureau
The term of the loan has expired in November 2001		5.94	%		1,500,000		220,310		1,500,000		220,051

Total bank loans					3,520,000		516,993		3,860,000		566,262

Short-term loans represent those short-term loans from financial institutions. The term of the loan from Agriculture Bank of China and Wuhan Finance Bureau expired in 2003 and 2001; however, the lenders have not demanded repayment. Interest accrued on a monthly basis base on the contractual rate.

- 13 - -

The interest expenses for the nine months ended June 30, 2010 and 2009 were $63,340 and $75,878, respectively. The interest expenses for the three months ended June 30, 2010 and 2009 were $21,018 and $26,588, respectively. The interest expenses also include those related to the loan from Wuhan Pan-Asia, an unrelated party (note 16).

Note 15 – Deferred Revenue

Deferred revenue represents the sales related to the products delivered to the third-party wholesalers or distributors for which collectability could not be reasonably assured. As of June 30, 2010 and September 30, 2009, deferred revenue amounted to $1,594,143 and $3,928,804, respectively.

Note 16 - Accrued Expenses and Other Liabilities

	June 30, 2010		September 30, 2009
	unaudited
Advance from customers	$	16,387	$	3,738
Accrued payroll		91,935		87,891
Accrued expense		207,934		134,146
Other payables
– Wuhan Pan-Asia (a)		563,186		679,223
– Guangzhou Shunfa Garment Factory		-		564,428
– Wuhan Xinwang Investment Management Company		386,532		386,077
– Malaysia Phoenix Company		117,190		117,052
Others		278,841		476,574
	$	1,662,005	$	2,449,129

(a)

As of June 30, 2010, the Company had an outstanding loan totaling RMB3,834,509 (approximately $563,186) from Wuhan Pan-Asia, an unrelated third party, under a loan facility agreement of RMB5,000,000 (approximately $734,365). Wuhan Pan-Asia borrowed the funds to lend to the Company from Xianfeng Rural Credit Co-operative for which the Company pledged an office building as collateral (note 9). Interest on the loan is paid by the Company monthly at the rate of 0.531% (note 14). This loan matures in August 2010 and will be renewed as necessary.

Note 17 - Taxes Payable

CPGI is incorporated in Delaware and is subject to US federal income tax with a system of graduated marginal tax rates ranging from 15% to 39%. As CPGI does not conduct any business in Delaware, it is not subject to Delaware state corporate income tax.

Cantix, being incorporated in BVI, is governed by the income tax law of BVI. According to current BVI income tax law, the applicable income tax rate for Cantix is 0%.

Moneyeasy, incorporated in Hong Kong, is subject to a corporate income tax rate of 16.5%. The PRC entities are subject to the PRC Enterprises Income Tax at the applicable tax rates on the taxable income.

Wuhan Tallyho, registered in the City of Wuhan in the PRC, is subject to the applicable income tax rate of 25% for the nine month periods ended June 30, 2010 and 2009.

Guangdong Hopsun, registered in the City of Guangzhou in the PRC, is subject to the Enterprise Income Tax rate of 25% for the nine months ended June 30, 2009. Guangdong Hopsun has passed all necessary examinations and was certified as a high technological enterprise by relevant governmental authorities in December 2009. According to the PRC income tax law, a certified high technological enterprise can be subject to a preferential Enterprise Income Tax rate of 15%.

Wuhan Anti-Aging, registered in the City of Wuhan in the PRC, is subject to the Enterprise Income Tax rate of 25%. Wuhan Anti-Aging incurred a net operating loss of $77,789 for the nine month periods ended June 30, 2010 which may be carried forward for 5 years to reduce future years’ taxable income. Management believes that the realization of the benefits arising from this loss appear to be remote due to the research and development nature of Wuhan Anti-Aging’s operation and its continuing losses for PRC income tax purpose.

- 14 - -

	June 30,		September 30,
	2010		2009
	unaudited
VAT payable	$	2,975,632	$	2,629,954
Income tax payable		1,393,310		3,569,913
Other taxes payable		212,521		204,173
	$	4,581,463	$	6,404,040

In June 2006, the FASB issued Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“ASC Topic 740”). This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with ASC Topic 740. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance for de-recognition of tax positions, financial statement classification, interest and penalties, accounting in interim periods, disclosure, and transition. This interpretation was effective for fiscal years beginning after December 15, 2006. The adoption of ASC Topic 740 did not have a material effect on the Company’s financial position or results of operations.

The Company and its subsidiaries file tax returns with the relevant government authorities in the PRC. The Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of the date of adoption of ASC Topic 740, the Company did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor were any interest expense recognized for the nine months ended June 30, 2010 and 2009.

Deferred tax relates to depreciation difference of fixed assets and provision of assets.

Note 18 - Related Party Transactions

The transactions with the following entities and individuals were made in the ordinary course of business and were negotiated on an arm’s length basis. A summary of balances and transactions with related parties is as follows:

	June 30, 2010		September 30, 2009
	unaudited
Due to related parties
Wuhan Hopsun Biological Products Inspection Company Limited	$	439,927	$	450,642
Xiu Chio Fa		-		898,275
Former equity holders of Wuhan Tallyho (a)		-		5,748,948
	$	439,927	$	7,097,865

(a)	Pursuant to an acquisition agreement between Moneyeasy and the former equity holders of Wuhan Tallyho on November 5, 2007, Moneyeasy acquired 100% of Wuhan Tallyho’s shares with a total consideration of $5,854,361(RMB40,230,000). The balance was settled as of December 31, 2009.

The balances due to related companies were interest free, unsecured and had no fixed term of repayment.

Note 19 - Advertising

The Company expenses all advertising costs as incurred. The advertising cost for the nine months ended June 30, 2010 and 2009 was 21,946 and $22,643, respectively.

Note 20 - Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, trade accounts receivable, prepayments and other receivables, amounts due from related parties, amounts due to related parties, and accrued liabilities and other payables, approximate their fair values because of the short maturity of these instruments.

The carrying amount of bank loans approximate the fair value based on the borrowing rates currently available for bank loans with similar terms and maturity.

- 15 - -

Note 21 - Operating Lease Commitments

The Company leases office block, workshop and warehouses under operating leases. The leases typically run for an initial period of one year, with an option to renew the lease after that date at which time all terms are renegotiated. The lease includes contingent rentals. There were no significant operating lease commitment as of June 30, 2010 and September 30, 2009. Rental expenses under these leases aggregated $94,376 and $84,321 for the nine months ended June 30, 2010 and 2009 and $29,522 and $27,184 for the three months ended June 30, 2010 and 2009.

Note 22 - Capital Commitments

Capital commitments for construction of a new factory (note 9) were approximately $1.47 million as recognized in accounts payable as of June 30, 2010 which may be adjusted according the final assessment and approximately $8.98 million combined with that for the purchase of the land use right as of September 30, 2009.

Note 23 – Shareholders’ Equity

Common stock

On November 13, 2009, as the result of closing of the Exchange disclosed in Note 1, the Company acquired all of the issued and outstanding capital stock of Cantix in exchange for the issuance of 8,800,000 (on a post 8-for-1 forward stock split basis) shares of the Company’s common stock.

On January 8, 2010, as the result of closing of an investment of $3,600,000 pursuant to a Securities Purchase Agreement dated December 16, 2009, the Company issued a) 666,667 shares of the Company’s common stock, and b) a 5 year warrant to purchase up to an additional 333,333 shares of Common Stock at an exercise price of $6.75 per share to the investor.

On March 1, 2010, the Company issued 23,000 shares of the Company’s common stock as payment for services which are worth $67,290, which has been included in deferred compensation.

On April 21, 2010, as the result of closing of an investment with gross proceeds of $3,000,000 pursuant to a Share Purchase Agreement dated as of April 16, 2010, the Company issued (i) 609,557 shares of common stock, par value U.S. $.0001 per share, and (ii) a 5 year warrant to purchase up to an additional 80,956 shares of Common Stock at an exercise price of U.S. $6.75 per share to the investor. The net proceeds is $2,761,070 after deducting commissions and other closing expenses.

Warrant

The Company issued a 5 year warrant to purchase up to an additional 333,333 shares of Common Stock at an exercise price of $6.75 per share on January 8, 2010 and a 5 year warrant to purchase up to an additional 80,956 shares of Common Stock at an exercise price of $6.75 per share on April 21, 2010 (see above for details) at which the fair value of the warrant was estimated using the Black-Scholes option–pricing model.

The following table summarizes the assumptions used in the Black-Scholes option–pricing model when calculating the fair value of the warrant:

Number of Shares Underlying the Warrant Valued	Expected Life (Years)		Exercise Price		Expected Volatility			Dividend Yield		Risk Free Interest Rate			Grant Date Fair Value
333,333		2	$	6.75		125	%		-		0.96	%	$	1,051,434
80,956		2		6.75		125	%		-		1.03	%	$	225,505

Due to the limited trading history of the Company’s common stock, the Company used a similar public company's (similar industry, similar size and similar length of operations) market prices to calculate the volatility which was estimated to be 125%.

Following is a summary of the warrant activity:

Outstanding as of October 1, 2009			-
Granted			414,289
Forfeited			-
Exercised			-
Outstanding as of June 30, 2010			414,289

- 16 - -

Note 24 - Subsequent Events

As of August 16, 2010, which is the consolidated financial statements issuance date, Management identified the following subsequent event:

On August 11, 2010, the Company entered into a non-binding letter of intent with ERA Biotech, to convert the Company’s loan receivable balance of $4,012,572 (RMB27,320,000) with them as of June 30, 2010 into a certain percentage of ERA Biotech’s shares, to be agreed upon by the Company and ERA Biotech in a future definitive agreement, following the completion of a financial due diligence review of ERA Biotech. The Company expects to complete the financial due diligence process by December 2010. As the details will be subject to further negotiation, there is a contingency that both parties might not reach a final agreement. Based on management best estimation, the possibility of not reaching an agreement for the transaction is less than probable as of August 16, 2010.

- 17 - -

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Cautionary Notice Regarding Forward-Looking Statements

We make certain forward-looking statements in this report. Statements concerning our future operations, prospects, strategies, financial condition, future economic performance (including growth and earnings), demand for our products, and other statements of our plans, beliefs, or expectations, including the statements contained under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” as well as captions elsewhere in this document, are forward-looking statements. In some cases these statements are identifiable through the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can”, “could,” “may,” “should,” “will,” “would,” and similar expressions. We intend such forward-looking statements to be covered by the safe harbor provisions contained in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and in Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks, and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. Indeed, it is likely that some of our assumptions will prove to be incorrect. Our actual results and financial position will vary from those projected or implied in the forward-looking statements and the variances may be material. You are cautioned not to place undue reliance on such forward-looking statements. These risks and uncertainties, together with the other risks described from time to time in reports and documents that we file with the SEC should be considered in evaluating forward-looking statements.

The nature of our business makes predicting the future trends of our revenues, expenses, and net income difficult. Thus, our ability to predict results or the actual effect of our future plans or strategies is inherently uncertain. The risks and uncertainties involved in our business could affect the matters referred to in any forward-looking statements and it is possible that our actual results may differ materially from the anticipated results indicated in these forward-looking statements. Important factors that could cause actual results to differ from those in the forward-looking statements include, without limitation, the following:

the effect of political, economic, and market conditions and geopolitical events;

legislative and regulatory changes that affect our business;

the availability of funds and working capital;

the actions and initiatives of current and potential competitors;

investor sentiment; and

our reputation.

We do not undertake any responsibility to publicly release any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this report. Additionally, we do not undertake any responsibility to update you on the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by any forward-looking statements.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto as filed with the SEC and other financial information contained elsewhere in this report.

Use of Certain Defined Terms

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

Throughout this report, we have converted RMB to USD as follows:

June 30, 2010
Balance sheet		RMB 6.8086 to US$1.00
Statement of income and comprehensive income		RMB 6.8352 to US$1.00
June 30, 2009
Balance sheet		RMB 6.8259 to US$1.00
Statement of income and comprehensive income		RMB 6.8245 to US$1.00

- 18 - -

Overview

CPGI was incorporated in Delaware in March 2007 to engage in the design, manufacturing, distribution and marketing of surfboards and related equipment. Prior to the acquisition of Cantix, discussed below, CPGI was a development stage company and had no material assets and no revenues. On November 13, 2009, CPGI acquired all of the issued and outstanding capital stock of Cantix. As a result of the acquisition (i) Cantix became a wholly owned subsidiary of CPGI, (ii) CPGI’s principal business became the business of Cantix, (iii) CPGI ceased to be a shell Company, (iv) CPGI changed its fiscal year end from December 31 to September 30, and (v) the shareholders of Cantix became the controlling shareholders of CPGI. The share exchange transaction with Cantix was treated as a reverse acquisition, with Cantix as the acquirer and CPGI as the acquired party. Because Cantix and its affiliates’ operations are the only significant operations of the Company, unless the context suggests otherwise, when we refer in this report to business and financial information for periods prior to the consummation of the reverse acquisition, we are referring to the business and financial information of Cantix and its consolidated subsidiaries.

Through our direct and indirect operating subsidiaries, Tallyho, Hopsun and Anti-Aging, we are principally engaged in the research, development, manufacturing, marketing and sales of polypeptide-based anti-aging nutritional supplements, health foods, functional foods and related material products. We have developed over 70 different types of polypeptide-based products. We market and sell our products through a combined network of sales personnel, wholesalers and private labeled partners in China and internationally, however China is currently our primary market.

Our products are primarily manufactured in our 16,477 square meters production facilities located in the Hannan Economic Development Zone in Wuhan, China. Our products currently being marketed and sold in China have been tested and approved by the applicable Chinese governmental hygiene and safety agencies, including by the local bureaus of the Ministry of Health and the State Food and Drug Administration. Our research and development efforts are conducted at our facilities in Wuhan, China.

We believe that we are one of the few companies in our industry with competitive prices and high quality of diversified nutritional products combined with excellent customer service. We believe that we are one of the largest companies in China focusing on the development and production of functional peptide nutritional products.

Our common stock is eligible for quotation on Over-the-Counter Bulletin Board under the trading symbol of “CHPN.”

Recent Developments

On August 11, 2010, we entered into a non-binding letter of intent with ERA Bio-Technology (Shenzhen) Co., Ltd., or ERA Biotech, to convert our loan receivable balance of $4,012,572 (RMB27,320,000) as of June 30, 2010 with them into a certain percentage of ERA Biotech’s shares, to be agreed upon by the Company and ERA Biotech in a future definitive agreement, following the completion of a financial due diligence review of ERA Biotech. We expect to complete the financial due diligence process by December 2010. As the details will be subject to further negotiation, there is a contingency that both parties might not reach a final agreement. Based on management best estimation, the possibility of not reaching an agreement for the transaction is less than probable as of August 16, 2010.

Results of Operations

The following tables set forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of sales revenues.

Comparison of Three Months Ended June 30, 2010 and 2009 (Unaudited)

	Three Months Ended June 30,
	2010						2009
	Amount			% of Revenues			Amount			% of Revenues

	(in dollars, except percentages)

REVENUES		11,560,788			100.0	%		8,402,819			100.0	%

COST OF SALES		685,905			5.9	%		313,903			3.7	%

GROSS PROFIT		10,874,883			94.1	%		8,088,916			96.3	%

SELLING AND ADMINISTRATIVES EXPENSES		6,820,092			59.0	%		6,020,038			71.6	%

OPERATING INCOME		4,054,791			35.1	%		2,068,878			24.6	%

OTHER INCOME (EXPENSE)
Interest expense, net		(27,904	)		-0.2	%		(19,510	)		-0.2	%
Equity in (loss) in affiliates		(7,362	)		-0.1	%		(6,843	)		-0.1	%
Other operating income (expense)		(30,300	)		-0.3	%		426,319			5.1	%

INCOME BEFORE INCOME TAX EXPENSE		3,989,225			34.5	%		2,468,844			29.4	%

INCOME TAX EXPENSE		906,963			7.8	%		748,673			8.9	%

NET INCOME		3,082,262			26.7	%		1,720,171			20.5	%

OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation gain (loss)		158,903			1.4	%		(2,049	)		0.0	%

COMPREHENSIVE INCOME		3,241,165			28.0	%		1,718,122			20.4	%

- 19 - -

Revenues. Revenues for the three months ended June 30, 2010 increased $3,157,969, or 37.6%, to $11,560,788, from $8,402,819 for the three months ended June 30, 2009. The increase is mainly attributable to our increased sales efforts during the quarter ended June 30, 2010.

Cost of Sales. Cost of sales for the three months ended June 30, 2010 totaled $685,905, or approximately 5.9% of revenues, compared to $313,903, or approximately 3.7% of revenues, for the three months ended June 30, 2009, an increase of $372,002 or 118.5% from period to period. The increase is mainly attributable to an increase in prices of raw materials and overhead costs during the 2010 period. Given the overall market inflation expectation in China, especially for those agricultural products which are the main raw materials for our products, management expects that the prices of our raw materials will continue to increase in 2010. We expect that the inflationary impact, if any, on our results of operations will be minimal given our historical high gross margin.

Gross Profit. Gross profit for the three months ended June 30, 2010 increased $2,785,967, or 34.4%, to $10,874,883, from $8,088,916 for the three months ended June 30, 2009. The respective gross margins are 94.1% and 96.3% for the three months ended June 30, 2010 and 2009. The increase in the value of gross profit in the 2010 period is mainly due to the increase of revenues. The decrease in gross margin is mainly due to the increase of cost of sales.

Selling and Administrative Expenses. Selling and administrative expenses for the three months ended June 30, 2010 totaled $6,820,092, or approximately 59% of revenues, compared to $6,020,038, or approximately 71.6% of revenues, for the same period in 2009, an increase of $800,054 or 13.3% from period to period. Selling and administrative expenses increased together with the increase in revenues for the three months ended March 31, 2010, as compared to the same period in 2009. However, its rate of increase of 13.3% is lower than that of revenues, i.e., 37.6%, in the same period, as a result of certain sales efficiency improvement measures which we undertook during the 2010 period, such as holding sales events at self sales locations, where feasible, instead of renting third-party locations which would incur extra expenses.

Operating Income. Operating income amounted to $4,054,791, or approximately 35.1% of revenues, for the three months ended June 30, 2010, as compared to $2,068,878, or approximately 24.6% of revenues, for the three months ended June 30, 2009, an increase of $1,985,913 or 96.0% from period to period. The increase in operating income is mainly attributable to the increase in revenues and sales efficiency improvement measures that helped save selling expenses in the same period in 2010.

Interest Expense. Net interest expense for the three months ended June 30, 2010 increased $8,394, or 43.0%, to $27,904, as compared to interest expense of $19,510 for the three months ended June 30, 2009. The increase in interest expense is due to the increase in funds borrowed by us from Wuhan Pan-Asia (as defined below), an unrelated third party, as disclosed under “Liquidity and Capital Resources – Loan Commitments”.

Equity in (Loss) in Affiliates. The equity in loss in affiliates for the three months ended June 30, 2010 amounted to $7,362, an increase of $519, as compared to the equity in loss in affiliates of $6,843 for the three months ended June 30, 2009. The increase is due to the increase in the net loss of an affiliate company in which the Company has a 40% equity interest, thus using the equity method to account for such an investment.

- 20 - -

Other Operating Income (Expense). Other operating expense was $30,300 for the three months ended June 30, 2010, as compared to other operating income of $426,319 for the three months ended June 30, 2009, an absolute change of $456,619. The change is mainly attributable to the income of $468,899 earned from transferring the technical know-how of certain of our products specifically developed for a third party health food distributor during the quarter ended June 30, 2009.

Income before Income Tax Expense. Income before income tax expense was $3,989,225, or approximately 34.5% of revenues, for the three months ended June 30, 2010, as compared to $2,468,844, or approximately 29.4% of revenues, for the three months ended June 30, 2009, an increase of $1,520,381 or 61.6%. The increase in income before income tax expense is mainly attributable to the increase of revenues and sales efficiency improvement measures that helped save selling expenses in the same period in 2010.

Net Income. Net income amounted to $3,082,262, or approximately 26.7% of revenues, for the three months ended June 30, 2010, as compared to $1,720,171, or approximately 20.5% of revenues, for the three months ended June 30, 2009, an increase of $1,362,091 or 79.2%. The increase in net income is mainly attributable to increased revenues with selling and administrative expenses increased at a lower rate as a result of sales efficiency improvement measures that helped save selling expenses during the 2010 period. Although no assurance can be given, management believes that our revenues and net income will continue to grow in future periods resulting from, among other factors, growing market demands for anti-aging nutritional supplements, health food and functional food products, our increased sales and marketing efforts after the restructuring of our sales offices, our newly added manufacturing capacity to meet such increasing demands, our expansion into other high margin peptide-based product categories as well as improved economic conditions and the government’s stimulus measures focusing on stimulating consumption in China.

Comparison of Nine Months Ended June 30, 2010 and 2009 (Unaudited)

	Nine Months Ended June 30,
	2010						2009
	Amount			% of Revenues			Amount			% of Revenues

	(in dollars, except percentages)

REVENUES		25,664,457			100.0	%		25,272,971			100.0	%

COST OF SALES		1,782,788			6.9	%		1,597,977			6.3	%

GROSS PROFIT		23,881,669			93.1	%		23,674,994			93.7	%

SELLING AND ADMINISTRATIVES EXPENSES		16,213,354			63.2	%		15,022,666			59.4	%

OPERATING INCOME		7,668,315			29.9	%		8,652,328			34.2	%

OTHER INCOME (EXPENSE)
Interest expense, net		(63,968	)		-0.2	%		(41,636	)		-0.2	%
Equity in (loss)/gain in affiliates		(23,835	)		-0.1	%		11,544			0.0	%
Other operating income (loss)		(10,653	)		0.0	%		431,359			1.7	%

INCOME BEFORE INCOME TAX EXPENSE		7,569,859			29.5	%		9,053,595			35.8	%

INCOME TAX EXPENSE		1,379,311			5.4	%		2,474,763			9.8	%

NET INCOME		6,190,548			24.1	%		6,578,832			26.0	%

OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation gain (loss)		83,555			0.3	%		31,088			0.1	%

COMPREHENSIVE INCOME		6,274,103			24.4	%		6,609,920			26.2	%

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Revenues. Revenues for the nine months ended June 30, 2010 increased by $391,486, or 1.5%, to $25,664,457, from $25,272,971 for the nine months ended June 30, 2009. The increase is mainly attributable to our increased sales efforts during the quarter ended June 30, 2010 that increased the revenues in the current quarter while revenues for the previous six month period decreased year-over-year.

Cost of Sales. Cost of sales for the nine months ended June 30, 2010 totaled $1,782,788, or approximately 6.9% of revenues, compared to $1,597,977, or approximately 6.3% of revenues, for the nine months ended June 30, 2009, an increase of $184,811, or 11.6%. The increase is mainly attributable to increase in prices of raw materials and overhead costs during the 2010 period. Given the overall market inflation expectation in China, especially for those agricultural products that are the main raw materials for our products, management expects that the prices of our raw materials will continue to increase in 2010. We expect that the inflationary impact, if any, on our results of operations will be minimal given our historical high gross margin.

Gross Profit. Gross profit for the nine months ended June 30, 2010 increased $206,675, or 0.9%, to $23,881,669, as compared to $23,674,994 for the nine months ended June 30, 2009. The respective gross margins are 93.1% and 93.7% for the nine months ended June 30, 2010 and 2009. The slight increase in gross profit is mainly due to the slightly increased revenues in the 2010 period.

Selling and Administrative Expenses. Selling and administrative expenses for the nine months ended June 30, 2010 totaled $16,213,354, or approximately 63.2% of revenues, compared to $15,022,666, or approximately 59.4% of revenues, for the same period in 2009, an increase of $1,190,688, or 7.9%. The increase is mainly attributable to (a) the increase of selling expenses, (b) the increase in professional expenses related to public company operations, and (c) the increase of bad debt allowance provided for accounts receivable. Selling expenses amounted to $13,476,133 during the nine months ended June 30, 2010, as compared to $13,146,571 in the same period of 2009, an increase of $329,562 or 2.5%, which is in line with the increase of sales revenues in the period. The Company incurred $526,401 in professional expenses related to the public company operations during the nine months ended June 30, 2010, as compared to $41,439 incurred during the same period in 2009 before the reverse merger closed in November 2009, an increase of $484,962 or 1,170.3%. The bad debt allowance provided for accounts receivable during the nine months ended June 30, 2010 was $174,380, as compared to $4,623 recovered bad debts in the same period of 2009, an absolute change of $179,003.

Operating Income. Operating income amounted to $7,668,315, or approximately 29.9% of revenues, for the nine months ended June 30, 2010, as compared to $8,652,328, or approximately 34.2% of revenues, for the nine months ended June 30, 2009, a decrease of $984,013, or 11.4%. The decrease in operating income is mainly due to the fact that revenues were rather flat while selling and administrative expenses increased.

Interest Expense. Net interest expense totaled $63,968 for the nine months ended June 30, 2010, as compared to net interest expense of $41,636 for the nine months ended June 30, 2009, an increase of $22,332, or 53.6%. The increase in interest expense is due to the increase in funds borrowed by us from Wuhan Pan Asia (as defined below), an unrelated third party, as disclosed under “Liquidity and Capital Resources – Loan Commitments”.

Equity in (Loss)/Gain in Affiliates. The equity in loss in affiliates amounted to $23,835 for the nine months ended June 30, 2010, as compared to the equity in gain in affiliates of $11,544 for the nine months ended June 30, 2009, an absolute change of $35,379. The change is due to the increase in the net loss of an affiliate company in which the Company has a 40% equity interest, thus using the equity method to account for such an investment.

Other Operating Income (Expense). Other operating expense was $10,653 for the nine months ended June 30, 2010, as compared to other operating income of $431,359 for the nine months ended June 30, 2009, an absolute change of $442,012. The change is mainly attributable to the income of $468,899 earned from transferring the technical know-how of certain of our products specifically developed for a third party health food distributor during the quarter ended June 30, 2009.

Income before Income Tax Expense. Income before income tax expense was $7,569,859, or approximately 29.5% of revenues, for the nine months ended June 30, 2010, as compared to $9,053,595, or approximately 35.8% of revenues, for the nine months ended June 30, 2009, a decrease of $1,483,736, or 16.4%. The decrease in income before income tax expense is mainly attributable to the increase of selling and administrative expenses and the decrease of other operating income while gross profit was rather flat.

Net Income. Net income amounted to $6,190,548, or approximately 24.1% of revenues, for the nine months ended June 30, 2010, as compared to $6,578,832, or approximately 26.0% of revenues, for the nine months ended June 30, 2009, a decrease of $388,284 or 5.9%. The decrease in net income is mainly attributable to the increase of selling and administrative expenses and the decrease of other operating income while gross profit was rather flat. Although no assurance can be given, management believes that our revenues and net income would continue to grow in future periods resulting from, among other factors, growing market demands for anti-aging nutritional supplements, health food and functional food products, our increased sales and marketing efforts after the restructuring of our sales offices, our newly added manufacturing capacity to meet such increasing demands, our expansion into other high margin peptide-based product categories as well as improved economic conditions and the government’s stimulus measures focusing on stimulating consumption in China.

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Liquidity and Capital Resources

Cash Flows (Unaudited)

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

	Nine Months Ended June 30,
	2010			2009
	(in dollars)

Net cash provided by operating activities		8,653,175			1,568,627
Net cash used in investing activities		(10,278,197	)		(1,545,680	)
Net cash provided by (used in) financing activities		6,226,275			(26,376	)
Effect of exchange rate fluctuation on cash and cash equivalents		32,010			25,285
Net increase in cash and cash equivalents		4,633,263			21,856
Cash and cash equivalents, beginning of period		4,439,732			5,918,414
Cash and cash equivalents, end of period		9,072,995			5,940,270

Operating Activities

Net cash provided by operating activities increased to $8,653,175 during the nine months ended June 30, 2010, an increase of $7,084,548, or 451.6%, from net cash provided by operating activities of $1,568,627 during the nine months ended June 30, 2009. The increase is mainly attributable to a significant decrease in accounts receivable due to collections by June 30, 2010.

Investing Activities

Net cash used in investing activities increased by $8,732,517, or 565.0%, to $10,278,197 during the nine months ended June 30, 2010, as compared to $1,545,680 during the nine months ended June 30, 2009. The significant increase is mainly due to (a) the increase of approximately $3.5 million in construction in progress for the current new factory construction in Wuhan, China, and (b) the payments of approximately $5.9 million to acquire the land use rights for the land lot on which the Company plans to build its regional headquarters and research and development center in Guangzhou, China and that in Wuhan, China reserved for further manufacturing capacity expansion.

Financing Activities

Net cash provided by financing activities amounted to $6,226,275 during the nine months ended June 30, 2010, as compared to net cash used in financing activities of $26,376 during the nine months ended June 30, 2009, an absolute change of $6,252,651, resulting from two equity investments with net proceeds, in aggregate, of $6.36 million made by two institutional investors during the nine months ended June 30, 2010. See “Capital Resources”.

Capital Resources

In January 2010, we sold 666,667 shares of our common stock and a warrant to purchase an additional 333,333 shares of our common stock at an exercise price of $6.75 per share to a non-U.S. institutional investor, for an aggregate purchase price for $3,600,000. The Company received $2.24 million of the $3,600,000 purchase price in December 2009 and the remaining $1.36 million in January 2010.

On April 21, 2010, we consummated a share purchase agreement, dated April 16, 2010, between the Company and a non-U.S. institutional investor, pursuant to which the investor purchased (i) 609,557 shares of our common stock, for an aggregate purchase price of $3,000,000, and (ii) a five year warrant to purchase up to an additional 80,956 shares of our common stock at an exercise price of $6.75 per share. We agreed to give the investor piggy-back resale registration rights in connection with the purchase, as well as a right of first refusal with respect to any new shares of common stock issued by us in connection with any future private offering. We also agreed to grant the investor the right to equally participate in any future sale by the principal shareholders of shares in the Company to a third party. The net proceeds is approximately $2.76 million after deducting commissions and other closing expenses.

Loan Commitments

As of June 30, 2010, the Company had the following outstanding bank loans:

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The Company had an outstanding bank loan of RMB2,020,000 (approximately $296,683) from the Agriculture Bank of China, Wuhan Branch (“Agriculture Bank”). This bank loan has been continuously extended from September 2003, the original maturity date, and will be repaid when Agriculture Bank requests repayment. The Company has been repaying the principal amount of this loan with payments of RMB20,000 (approximately $2,926) each month. Interest accrues on a monthly basis at the rate of 5.84% per annum.

The Company had an outstanding bank loan of RMB1,500,000 (approximately $220,310) from the Wuhan Finance Bureau (“WFB”). This loan has been continuously extended from November 2001, the original maturity date, and such loan will be repaid when WFB requests repayment. Interest accrues on a monthly basis at the rate of 5.94% per annum.

The Company had an outstanding loan totaling RMB3,834,509 (approximately $563,186) from Wuhan Pan-Asia Peptide Material Research Co., Ltd. (“Wuhan Pan-Asia”), an unrelated third party, under a loan facility agreement of RMB5,000,000 (approximately $734,365). Wuhan Pan-Asia borrowed the funds to lend to the Company, from time to time, from Xianfeng Rural Credit Co-operative (“Xianfeng”) for which the Company pledged an office building as collateral. Interest on the loan is paid by the Company monthly at the rate of 6.37% per annum. This loan matures in August 2010 and the Company has been in negotiations with Wuhan Pan-Asia and Xianfeng for renewal of the loan.

We believe that we will require additional capital to finance any future manufacturing expansion, market channel expansion, changes in our business plan or other future capital intensive developments, including any investments or acquisitions we may decide to pursue. To the extent it becomes necessary to raise additional capital, we may seek to raise it through the sale of debt and/or equity securities, funding from joint-venture or strategic partners, institutional debt financing or loans, or a combination of the foregoing. Other than as described above, we currently do not have any binding commitments for, or readily available sources of, additional financing. If we decide to pursue any of the above projects, we cannot provide any assurances that we will be able to secure the additional cash or working capital we may require to implement such project now or in the future, or if we do, the terms thereof.

We believe that our currently available funds, funds from operations and available financing is sufficient for us to continue our operations as presently conducted for at least the next twelve (12) months.

Obligations under Material Contracts

The capital commitments for construction of a new facility as of June 30, 2010 were approximately $1.47 million.

Off Balance Sheet Arrangements

Other than with respect to our pledge of an office building owned by us in connection with the Wuhan Pan-Asia loan as described above, we have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Seasonality

Historically, the Company’s revenues for the first and forth quarters in each fiscal year have been higher than revenues for the second and third fiscal quarters. We believe that this is partially due to a number of major festivals and holiday celebrations that occur in China around the end of our first and fourth fiscal quarters. Though it may be the case, as some Chinese festivals such as the Chinese New Year follow the Chinese Lunar calendar which usually lags the Gregorian calendar that is used worldwide, if such festivals happen to occur substantially later than the end of the first and fourth quarters, we believe a certain portion of such revenues would fall in the following quarters.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations above is based on our consolidated financial statements which have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate our estimates and assumptions on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. However, actual results could differ materially from these estimates under different assumptions or conditions.

- 24 - -

While our significant accounting policies are more fully described in Note 2 of the Notes to our consolidated financial statements in this Quarterly Report on Form 10-Q, we believe that the following accounting policies are the most critical accounting policies to assist in fully understanding and evaluating our management’s discussion and analysis:

Principles of Consolidation

The consolidated financial statements, prepared in accordance with US GAAP, include the assets, liabilities, revenues, expenses and cash flows of the Company and all its subsidiaries. This basis of accounting differs in certain material respects from that used for the preparation of the books and records of the Company's principal subsidiaries, which are prepared in accordance with the accounting principles and the relevant financial regulations applicable to enterprises with limited liabilities established in the PRC, the accounting standards used in the place of such entities’ domicile. The accompanying consolidated financial statements reflect necessary adjustments not recorded in the books and records of the Company's subsidiaries to present them in conformity with US GAAP. All significant inter-company accounts, transactions and cash flows are eliminated on consolidation. Investment in affiliates in which the Company exercises significant influence but do not control and are not the primary beneficiary are accounted for using the equity method.

Use of Estimates

The preparation of the Company’s financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The financial statements include some amounts that are based on management’s best estimates and judgments. These accounts and estimates include, but are not limited to, the valuation of accounts receivable, other receivables, inventories, taxes payable, and the estimation on useful lives of property, plant and equipment and intangible assets. These estimates may be adjusted as more current information becomes available, and any adjustment could be significant.

Revenue Recognition

Revenue from sales of the Company’s products is recognized when the significant risks and rewards of ownership have been transferred to the buyer at the time when the products are delivered to and accepted by its customers, the price is fixed or determinable, and collectability is reasonably assured. Customers do not have a general right of return on products shipped. The number of products returned to the Company was insignificant during past years. There are no post-shipment obligations, price protection and bill and hold arrangements.

Accounts Receivable

Inventories

Foreign Currency Translation

The accompanying financial statements are presented in United States dollars. The functional currency of the PRC operating subsidiaries of Cantix is Renminbi (“RMB”). The financial statements are translated into United States dollars from RMB at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

- 25 - -

Recent Accounting Pronouncements

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4.

CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures.

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 under the Exchange Act, our management, including Mr. Dongliang Chen, our Chief Executive Officer and Mr. Richard Liu, our Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2010. Based on that evaluation, Mr. Chen and Mr. Liu concluded that, because of the material weaknesses described in Item 4 “Controls and Procedures” on our quarterly report on Form 10-Q for the fiscal quarter ended December 31, 2009, which we are still in the process of remediating, as of June 30, 2010, our disclosure controls and procedures were not effective. Investors are directed to Item 4 of our quarterly report on Form 10-Q for the fiscal quarter ended December 31, 2009 for the description of these weaknesses.

Changes in Internal Control over Financial Reporting.

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

During its evaluation of the effectiveness of internal control over financial reporting as of December 31, 2009, the management concluded that: (1) we lacked qualified resources to perform our internal audit functions properly and that we have not yet fully developed the scope and effectiveness of our internal audit function; (2) we lacked an audit committee within our board to oversee the financial reporting pursuant to US GAAP and the SEC's rules and regulations; and (3) our accounting staff lacked sufficient accounting skills and experience necessary to fulfill our public reporting obligations according to US GAAP and the SEC's rules and regulations.

- 26 - -

The Company has already taken measures to remediate these material weaknesses by seeking additional financial reporting and accounting staff members with relevant accounting experience, skills and knowledge in the preparation of financial statements in accordance with of U.S. GAAP and financial reporting disclosure requirements under SEC rules. The Company’s first step in this regard is the recent appointment of Mr. Richard Liu as Chief Financial Officer by our Board of Directors. Mr. Liu is an experienced professional in the field of financial reporting and other related areas from a public accounting professional to financial executive of U.S. listed companies. Mr. Liu holds an MBA degree from UCLA and obtained his B.E. degree from Shanghai Jiao Tong University in China. Mr. Liu is also a member of the Chinese Institute of Certified Public Accountants (CICPA). The Company believes that Mr. Liu brings the sufficient accounting skills and experience necessary to enable us to implement and reinforce a rigorous process for collecting and reviewing information required for the preparation of the financial statement, and help us fulfill our public accounting obligations according to US GAAP and the SEC’s rules and regulations.

In April 2010, the Company engaged a professional consulting firm experienced in handling compliance with the requirements of the Sarbanes-Oxley Act of 2002 with respect to internal control over financial reporting in order to assist the Company with improving its internal controls and meet the requirements of Sarbanes-Oxley Act of 2002. In the meantime, the Company has been searching and negotiating with several qualified candidates to serve as the audit committee members so as to establish an audit committee within the Board of Directors of the Company. The Company is also in the process of establishing an internal audit function and will continue to hire more experienced personnel with expertise in U.S. public company financial reporting.

Other than the foregoing changes, there were no changes in our internal controls over financial reporting during the third quarter of fiscal 2010 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS.

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse impact on our business, financial condition or operating results. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business.

ITEM 1A.

RISK FACTORS.

The Company's business, financial condition, operating results and cash flows can be impacted by a number of factors, any one of which could cause the Company's actual results to vary materially from recent results or from the Company's anticipated future results. The consummation of the Acquisition caused the Company to materially change the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2008 (the prior year end). For a discussion identifying risk factors and important factors that could cause actual results to differ materially from those anticipated, see the Company's Current Report on Form 8-K filed with the SEC on November 17, 2009. Such discussion contained therein has not materially changed since then. The risks described in our Current Report on Form 8-K filed with the SEC on November 17, 2009 are not the only risks we face. Additional risks and uncertainties not currently known or that may develop in the future to us or that we currently deem to be immaterial or that may develop in the future also may materially adversely affect our future business, financial condition and/or operating results.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.

(REMOVED AND RESERVED).

ITEM 5.

OTHER INFORMATION.

We have no information to include that was required to be but was not disclosed in a report on Form 8-K during the period covered by this Form 10-Q. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.

ITEM 6.

EXHIBITS.

The following exhibits are filed as part of this report or incorporated by reference:

(a) Exhibits

- 27 - -

Exhibit Number		Description

31.1		Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certifications of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certifications of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

- 28 - -

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CHINA POLYPEPTIDE GROUP, INC.

Date: August 16, 2010	By:	/s/ Dongliang Chen
		Name: Dongliang Chen
		Title: Chairman and Chief Executive Officer
		(Principal Executive Officer)

Date: August 16, 2010	By:	/s/ Richard Liu
		Name: Richard Liu
		Title: Chief Financial Officer
		(Principal Accounting and Financial Officer)

- 29 - -

EXHIBIT INDEX

Exhibit Number		Description

31.1		Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certifications of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certifications of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	H.S. junior Avg

China Polypeptide Inactive 10-Q2010 Q3 Quarterly report

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