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AMERICAN ORIENTAL BIOENGINEERING INC
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Accelerated Filer
2011
10-K
2011-12-31
0001090514
--12-31
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt">Preferred Stock</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
Company has 1,000,000 shares of Series A preferred stock (“Series A”) issued and outstanding. Pursuant to the terms
of the Series A, the holder holds aggregate voting power equal to 25% of the combined voting power of common stock and preferred
stock. The percentage of voting power represented by the Series A cannot be diluted by the issuance of additional shares of common
stock. The Series A has a liquidation preference equal to its initial issue price that will be paid to the holders of the Series
A upon liquidation, dissolution or winding up and prior to any distributions being made to holders of common stock. The series
A does not participate in profits and dividends with common stock.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt">Common Stock</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"><u>Stock-Based Compensation</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt">  </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">At
the Annual Shareholders’ Meeting held on October 21, 2006, the shareholders of the Company approved the stock incentive
plan (the “2006 Plan”), which allows the Company’s Board of Directors, at its discretion, to offer stock options
and common stock awards to employees, directors and consultants of the Company.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
Company has reserved 5,000,000 shares of common stock for issuance upon the exercise of stock options and common stock awards
granted under the 2006 Plan. The term of the options granted under the 2006 Plan should be no more than 10 years from the grant
date. Options will be granted with an exercise price not less than the fair market value of a share of common stock on the date
of the grant.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"><u>Common Stock Awards issued to consultants
and employee directors</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Common
stock awards are issued to consultants as partial payment in connection with the consulting services rendered or to be rendered,
or to directors as compensation for participating in the Company’s board meetings. Number of shares granted and expenses
recognized were insignificant during the years presented.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">In
connection with common stocks awards described above, the Company recorded “Common stock to be issued” for vested
but yet to be issued shares. Number of shares to be issued was insignificant during the years presented.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt">  </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"><u>Stock Options
and Common Stock Awards issued to employees</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Stock
options and common stock awards granted to employees vest over a five year service period using a graded vesting schedule of 20%
per fully completed year (based on each subsequent one-year anniversary of the date of grant). Compensation expense for all stock
options and common stock awards granted is recognized over the grantee’s respective requisite service period.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">    </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"><i>Stock
options</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
Company calculated the estimated fair value of the options of the grant date using the Black-Scholes-Merton Option Pricing Model
with the following assumptions:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">  </font></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt">Grant Date</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 1.5pt"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt">April
10,</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt">2009</font></p></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 1.5pt"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt">November
25,</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt">2008</font></p></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 1.5pt"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt">April
9,</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt">2008</font></p></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 1.5pt"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt">August
20,</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt">2007</font></p></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="border-bottom: black 1pt solid"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt">April
20,</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt">2007</font></p></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td colspan="2"><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td colspan="2"><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td colspan="2"><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td colspan="2"><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td colspan="2"><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: #EEEEEE">
<td style="width: 30%; padding-left: 0.25in; text-indent: -0.25in"><font style="font-size: 8pt">Risk-free interest rate</font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 11%; text-align: right"><font style="font-size: 8pt">2.33%</font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 11%; text-align: right"><font style="font-size: 8pt">2.41%</font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 11%; text-align: right"><font style="font-size: 8pt">2.93%</font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 11%; text-align: right"><font style="font-size: 8pt">4.45%</font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 11%; text-align: right"><font style="font-size: 8pt">4.59%</font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Expected term</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">6.5</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">6.5</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">6.5</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">6.5</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">6.5</font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: #EEEEEE">
<td style="padding-left: 0.25in; text-indent: -0.25in"><font style="font-size: 8pt">Expected volatility</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">65.70%</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">64.81%</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">56.89%</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">71.71%</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">74.69%</font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Expected dividend yield</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">0.00%</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">0.00%</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">0.00%</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">0.00%</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">0.00%</font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: #EEEEEE">
<td style="padding-left: 0.25in; text-indent: -0.25in"><font style="font-size: 8pt">Fair value of share option</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">2.64</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">3.34</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">4.81</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">5.87</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">7.44</font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt">     </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
model requires the input of subjective assumptions including the expected stock price volatility and the expected dividend yield.
The Company uses historical experience of employee turnover and future expectation to estimate forfeiture rate. For expected volatilities,
the Company has made reference to historical volatilities of the Company’s stock. The risk-free interest rate for periods
within the contractual life of the option is based on the U.S. Treasury Bills yield in effect at the time of grant.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
Company recorded $1,898,550, $1,898,552 and $1,922,769 compensation cost for years ended December 31, 2011, 2010 and 2009, respectively,
with corresponding credits to additional paid-in capital. Compensation cost of all stock option awards are recorded in selling,
general and administrative expenses. The total fair value of the options granted to employees at the respective grant dates was
$9,194,987, of which the unrecognized portion of $1,674,627 is expected to be recognized following the straight-line method over
the remaining weighted average vesting period of 1.2 years as of December 31, 2011.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
expected forfeiture rate of the stock options granted as of December 31, 2011 is 0%.The following table summarizes the stock option
activities of the Company:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">Activity</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">Weighted 
<br />Average <br />Exercise Price</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="width: 74%; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Outstanding as of January
1, 2010</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">1,018,102</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">15.81</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Granted</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Exercised</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-bottom: 1pt; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Cancelled/Forfeited</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(102,463</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">17.47</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Outstanding as of January 1, 2011</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">915,639</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">15.63</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Granted</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Exercised</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="padding-bottom: 1pt; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Cancelled/Forfeited</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(32,000</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">13.64</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-bottom: 2.5pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Outstanding as
of December 31, 2011</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">883,639</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">15.70</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-bottom: 2.5pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Vested and expected
to vest as of December 31, 2011</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">883,639</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
following table summarizes information about stock options outstanding as of December 31, 2011:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td colspan="8" style="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><font style="font-size: 8pt">Options
Outstanding</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td colspan="6" style="border-bottom: black 1pt solid; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif; color: black"> <b>Options
Exercisable</b></font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: black 1pt solid; font-weight: bold"><font style="font-size: 8pt">Range of Exercise Prices</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="border-bottom: black 1pt solid"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt"><b>Number
of</b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt"><b>Shares</b></font></p></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="border-bottom: black 1pt solid"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt"><b>Weighted</b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt"><b>Average</b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt"><b>Exercise</b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt"><b>Price</b></font></p></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: black 1pt solid"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt"><b>Weighted Average</b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt"><b>Remaining</b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt"><b>Contractual Life</b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt"><b>(in years)</b></font></p></td>
<td><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="border-bottom: black 1pt solid"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt"><b>Number of</b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt"><b>Shares</b></font></p></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="border-bottom: black 1pt solid"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt"><b>Weighted</b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt"><b>Average</b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt"><b>Exercise</b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt"><b>Price</b></font></p></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: #EEEEEE">
<td style="width: 15%"><font style="font-size: 8pt">$17.08 - 21.48</font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 14%; text-align: right"><font style="font-size: 8pt">416,350</font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 14%; text-align: right"><font style="font-size: 8pt">20.04</font></td>
<td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 15%; text-align: center"><font style="font-size: 8pt">5.44</font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 14%; text-align: right"><font style="font-size: 8pt">333,080</font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 14%; text-align: right"><font style="font-size: 8pt">20.04</font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">$9.90 -16.70</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">323,040</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">13.53</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: center"><font style="font-size: 8pt">6.60</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">193,824</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">13.53</font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: #EEEEEE">
<td><font style="font-size: 8pt">$8.02</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: black 1pt solid"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">144,249</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">8.02</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: center"><font style="font-size: 8pt">7.33</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: black 1pt solid"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">57,700</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">8.02</font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">883,639</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">584,604</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt">    </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Options
granted have no intrinsic value at grant date and at the date of these financial statements as the exercise price of all vested
and unvested options was higher than the market price.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
weighted average fair value per share of the 883,639 options issued under the Company’s 2006 Plan is $10.41 per share. As
of December 31, 2011, the Company has 584,604 outstanding vested stock options, with an exercise price above the average market
price.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"><i>  </i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"><i>Common
Stock Awards</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">  </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">On
April 10, 2009, April 8, 2010 and April 10, 2011, the Compensation Committee of the Board of Directors of the Company approved
the grant of common stock awards to the Company’s executive officer and certain senior management members. Common stocks
awards granted vest over a five-year service period. Compensation expense is recognized for the fair value of common stocks on
the grant date on a straight-line basis over five years, the requisite service period of the awards.  The number of
shares granted and the grant date market price of the Company’s common stock determines the fair value of the common stocks
awards under the 2006 Plan.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
expected forfeiture rate of the common stock awards granted as of December 31, 2011 is 7%. </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
following is a summary of the status of the Company’s common stock awards for the year ended December 31, 2011:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="border-bottom: black 1pt solid; padding-bottom: 1.5pt"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt"><b>Number
of</b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt"><b>Common
Stocks</b></font></p></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="border-bottom: black 1pt solid"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt"><b>Weighted</b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt"><b>Average
Grant</b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 8pt"><b>Date
Fair Value</b></font></p></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: #EEEEEE">
<td style="width: 72%; padding-left: 0.25in; text-indent: -0.25in"><font style="font-size: 8pt">Non-vested common stocks at
beginning of year</font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 11%; padding-left: 0.25in; text-align: right; text-indent: -0.25in"><font style="font-size: 8pt">506,338 </font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 11%; padding-left: 0.25in; text-align: right; text-indent: -0.25in"><font style="font-size: 8pt">8.19</font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 0.25in; text-indent: -0.25in"><font style="font-size: 8pt">Granted</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="padding-left: 0.25in; text-align: right; text-indent: -0.25in"><font style="font-size: 8pt">444,337 </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="padding-left: 0.25in; text-indent: -0.25in"><font style="font-size: 8pt">$</font></td>
<td style="padding-left: 0.25in; text-align: right; text-indent: -0.25in"><font style="font-size: 8pt">3.40</font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: #EEEEEE">
<td style="padding-left: 0.25in; text-indent: -0.25in"><font style="font-size: 8pt">Forfeited</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="padding-left: 0.25in; text-align: right; text-indent: -0.25in"><font style="font-size: 8pt">(75,675)</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="padding-left: 0.25in; text-align: right; text-indent: -0.25in"><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 0.25in; text-indent: -0.25in"><font style="font-size: 8pt">Vested</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: black 1pt solid"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: black 1pt solid; padding-left: 0.25in; text-align: right; text-indent: -0.25in"><font style="font-size: 8pt">(111,601)</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="padding-left: 0.25in; text-align: right; text-indent: -0.25in"><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: #EEEEEE">
<td style="padding-left: 0.25in; text-indent: -0.25in"><font style="font-size: 8pt">Non-vested common stocks at December 31,
2011</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: black 2.25pt double; padding-left: 0.25in; text-align: right; text-indent: -0.25in"><font style="font-size: 8pt">763,399 </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="padding-left: 0.25in; text-indent: -0.25in"><font style="font-size: 8pt">$</font></td>
<td style="padding-left: 0.25in; text-align: right; text-indent: -0.25in"><font style="font-size: 8pt">5.69</font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: #EEEEEE">
<td style="text-align: justify"><font style="font-size: 8pt">Expected to vest as of December 31, 2011</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: black 2.25pt double; padding-left: 0.25in; text-align: right; text-indent: -0.25in"><font style="font-size: 8pt">763,399 </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
Company recorded selling, general and administrative expenses of $995,763, $787,458 and $323,401 in connection with such awards
for the years ended December 31, 2011, 2010 and 2009, respectively.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
total fair value of the common stock awards granted as of the respective grant date was $5,666,538, of which the unrecognized
portion of $3,567,201 is expected to be recognized following the straight-line method over the remaining weighted average vesting
period of 3.42 years as of December 31, 2011. </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"><i>Treasury Stock</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">On
March 20, 2011, the Board of Directors authorized the Company to repurchase up to $20 million of the Company’s outstanding
common stock over the next two years in the open market, in privately negotiated transactions, block trades and accelerated stock
repurchase transactions or otherwise, as determined by the Company and will be funded from available working capital. The timing
and extent of any purchases depend upon the trading price of the Company’s common stock, general business and market conditions
and other investment opportunities. The Company entered into a share buyback program and engaged a financial institution
to act as a broker on behalf of the Company to repurchase common stock based on a predetermined quantity and price range (“Share
Buyback Program”).</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">Any
common stock repurchased by the Company became part of its treasury stock which will be shown as a separate item in the consolidated
statements of changes in shareholders’ equity. The treasury stock may be retired or used by the Company to finance or execute
acquisitions or other arrangements. As of December 31, 2011, the Company had repurchased 224,582 shares of its common stock at
a total cost of $799,999 pursuant to this Share Buyback Program.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"><i>Basis of Consolidation</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
consolidated financial statements include the financial statements of American Oriental Bioengineering, Inc. and its wholly owned
subsidiaries and its 55% owned subsidiary, Yushuntang. Inter-company balances and transactions between the Company and its subsidiaries
are eliminated upon consolidation. Results of acquired subsidiaries are consolidated from the date on which control is transferred
to the Company and are no longer consolidated from the date that control ceases.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"><i>Reverse Stock Split</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"><i> </i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
Company filed with the Nevada Secretary of State an Amendment to its Articles of Incorporation. The amendments (i) decreased its
authorized common stock from 150,000,000 shares, $0.001 par value to 75,000,000 shares, $0.002 par value; and (ii) effected a
reverse split of its common stock in a ratio of one-for-two. The amendment became effective on February 24, 2012. All references
in these financial statements to quantities of common stock or per share values have been adjusted to reflect the retroactive
effect of the one-for-two reverse stock split. </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"><i> </i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"><i>Use of Estimates</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
preparation of financial statements in conformity with generally accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue
and expenses during the reporting period. Significant estimates reflected in the consolidated financial statements include, but
are not limited to, the recoverability of the carrying amount and estimated useful lives of long-lived assets, and goodwill allowance
for accounts receivable, realizable values for inventories, valuation allowance of deferred tax assets, purchase price allocation
of acquisitions, and valuation of share-based compensation expenses. Changes in facts and circumstances may result in revised
estimates. Actual results could differ from these estimates.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"><i>Foreign Currency</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
accompanying consolidated financial statements are presented in United States dollars (“US$”). The Renminbi (RMB”)
is the functional currency of Three Happiness, HSLP, GLP, HQLP, CCXA, Boke, NuoHua, and GHK (the Operating Subsidiaries”)
as it is the currency of the PRC, which is the primary economic environment the Operating Subsidiaries operate in and the environment
in which the Company primarily generates and expends cash.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">  Assets
and liabilities are translated into U.S. dollars at the noon buying rate certified by the Federal Reserve Bank of New York on
December 31, 2011 and 2010. Income and expense items are translated at average exchange rates prevailing during the period. The
resulting translation adjustments are recorded as a component of shareholders’ equity. Gains and losses from foreign currency
transactions are included in net income.  </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="width: 46%"><font style="font-size: 8pt"> </font></td>
<td style="width: 3%"><font style="font-size: 8pt"> </font></td>
<td style="width: 12%; border-bottom: black 1pt solid; font-weight: bold; text-align: center"><font style="font-size: 8pt">2011</font></td>
<td style="width: 3%"><font style="font-size: 8pt"> </font></td>
<td style="width: 3%"><font style="font-size: 8pt"> </font></td>
<td style="width: 12%; border-bottom: black 1pt solid; font-weight: bold; text-align: center"><font style="font-size: 8pt">2010</font></td>
<td style="width: 3%"><font style="font-size: 8pt"> </font></td>
<td style="width: 3%"><font style="font-size: 8pt"> </font></td>
<td style="width: 12%; border-bottom: black 1pt solid; font-weight: bold; text-align: center"><font style="font-size: 8pt">2009</font></td>
<td style="width: 3%"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: #EEEEEE">
<td style="padding-left: 0.25in; text-align: justify; text-indent: -0.25in"><font style="font-size: 8pt">Year end RMB : US$
exchange rate</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: center"><font style="font-size: 8pt">6.3647</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: center"><font style="font-size: 8pt">6.6118</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: center"><font style="font-size: 8pt">6.8372</font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 0.25in; text-align: justify; text-indent: -0.25in"><font style="font-size: 8pt">Average yearly RMB
: US$ exchange rate</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: center"><font style="font-size: 8pt">6.4883</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: center"><font style="font-size: 8pt">6.7245</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: center"><font style="font-size: 8pt">6.8457</font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Long-term
investments and advances include our equity investment in Aoxing Pharmaceutical Company, Inc. (“AXN”) and Hezhou Jinji
Color Printing Co., Ltd. (“Jinji”). AXN is a PRC-based pharmaceutical company, listed on the NYSE AMEX, specializing
in the research, development, manufacture and distribution of narcotic and pain-management products in the PRC. Jinji is a color
printing company focusing on the printing of external packaging materials. Long-term investments are accounted for using the equity
accounting method.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 30pt"><font style="font-size: 8pt">As
of December 31, 2011, the Company owns a 33.98% equity interest in AXN through an initial $18 million direct investment of its
common stock in April 2008 and a subsequent conversion of a promissory note into additional common stock in August 2009. The promissory
note represents an advance of RMB30 million (Approximately $4.4 million) to AXN in May 2008. Upon conversion, the balance of such
advance was reclassified to investment. The Company owns a 40% equity interest in Jinji through the acquisition of GLP in April
2006.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
cost of investments in excess of the estimate of the underlying equity in net assets at the time of the investments was goodwill
of $1,369,799. The following table summarizes the changes in investments in and advances to equity investments as of and
for the years ended December 31, 2011, 2010 and 2009.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="font-weight: bold; text-align: center; padding-left: 5.4pt; padding-bottom: 1pt"><font style="font-size: 8pt"> <br /></font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">AXN</font><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"></p>
</td><td style="font-weight: bold; text-align: left; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">Jinji</font><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"></p>
</td><td style="font-weight: bold; text-align: left; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">NuoHua
<br /> Affiliate</font><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"></p>
</td><td style="font-weight: bold; text-align: left; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"><b> </b></font></td>
<td colspan="2" style="text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt"><b>Total</b></font></td><td style="text-align: left; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="width: 48%"><font style="font-size: 8pt">Balance, January 1, 2009</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">20,939,865</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">250,761</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">33,772,438</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">54,963,064</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td><font style="font-size: 8pt">Investments</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">4,759,612</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">4,759,612</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td><font style="font-size: 8pt">Advances</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(4,516,909</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(41,332</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(4,558,241</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left"><font style="font-size: 8pt">Income (loss)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(328,900</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">2,853</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">2,401,186</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">2,075,139</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 1pt"><font style="font-size: 8pt">Foreign currency translation</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">–</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">324</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">85,989</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">86,313</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td><font style="font-size: 8pt">Balance, December 31, 2009</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">20,853,668</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">212,606</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">36,259,613</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">57,325,887</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td><font style="font-size: 8pt">Advances</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(3,300</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">58,195</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">54,895</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left"><font style="font-size: 8pt">Income (loss)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(1,947,002</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">553</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">2,159,626</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">213,177</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td><font style="font-size: 8pt">Disposal of investment</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(39,651,047</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(39,651,047</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt"><font style="font-size: 8pt">Foreign currency translation</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">–</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">4,515</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">1,231,808</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">1,236,323</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td><font style="font-size: 8pt">December 31, 2010</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">18,903,366</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">275,869</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">19,179,235</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td><font style="font-size: 8pt">Advances</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">43,166</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(101,338</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(58,172</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left"><font style="font-size: 8pt">Income (loss)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(1,258,000</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">3,027</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(1,254,973</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td><font style="font-size: 8pt">Impairment of investment</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(11,937,037</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(11,937,037</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 1pt"><font style="font-size: 8pt">Foreign currency translation</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">–</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">5,369</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">–</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">5,369</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-bottom: 2.5pt"><font style="font-size: 8pt">Balance, December 31, 2011</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">5,751,495</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">182,927</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">–</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">5,934,422</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
advances to AXN and Jinji were unsecured, non-interest-bearing and repayable on demand.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">As
of December 31, 2011 and 2010, the value based on quoted market price is as follows:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">   </font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">December 31,</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2011</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2010</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="width: 74%; text-align: left; padding-bottom: 1pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Investment
in AXN based on quoted market price</font></td><td style="width: 2%; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">5,708,329</font></td><td style="width: 1%; padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">46,841,875</font></td><td style="width: 1%; padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
Company considered AXN’s declining stock price, as well as other information found in the public filings of AXN, and
various internet articles and websites, as indicators that the decline in the value of AXN was other than temporary and
accordingly performed an asset impairment test at December 31, 2011. Such factors as AXN’s write off of its Goodwill and
a “going concern” paragraph in its most recent audit report were two of the factors. The Company considered the
market value of the publicly traded stock of AXN, as well as adjusting the carrying value of the investment for the step up
in value of the net assets and goodwill recognized upon the original investment, as indicators of the current value of the
investment. After considering these methodologies the Company estimated the value of its equity investment in AXN to be
$5,708,329, and recognized an impairment amounted to $11,937,037 in the equity investment for the year ending December 31,
2011.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"><b>Disposal of
NuoHua Affiliate and acquisition of Liaoning Baicao</b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">On
September 27, 2010, the Company entered into a share transfer agreement with an unrelated third party buyer to transfer an
equity interest in NuoHua Affiliate for a consideration of RMB 255,000,000 ($38,567,410), including cash of RMB 148,543,200
($22,466,378) and an equity interest of RMB 106,456,800 ($16,101,032) of another company owned by the third party buyer. The
legal transfer of NuoHua Affiliate was completed in October 2010 and the difference between the sales price and the carrying
value of the Company’s equity interest in NuoHua Affiliate of $1,083,637 was recognized as a loss on disposal of NuoHua
Affiliate during the year ended December 31, 2010. At December 31, 2010, the total consideration of RMB 255,000,000
($38,567,410) was recognized as receivable for disposal of NuoHua affiliate.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">On
October 29, 2011, the equity interest to be transferred to the Company was determined to be 100% of Liaoning Baicao, which distributes
pharmaceutical products through its sales network covering major urban and rural areas in Liaoning province in the PRC. On December
28, 2011, the acquisition of Liaoning Baicao was completed.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
receivable to be paid with the equity interest of Liaoning Baicao was RMB 106,456,800 ($16,101,032 plus a translation gain of
$600,412, or $16,701,444). The estimated fair value of the tangible and identifiable intangible assets acquired and liabilities
assumed of Liaoning Baicao was determined to be RMB 52,534,719 ($8,254,076). The difference of RMB 53,922,081 ($8,447,368) between
the receivable balance and the fair value of at the acquisition date was recognized as a loss on receivable for disposal of NuoHua
affiliate.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">In
November 2011, the Company was paid cash consideration of RMB 33,000,000 (approximately $5,180,000. </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 4.95pt; text-align: justify; text-indent: 31pt"><font style="font-size: 8pt">As
of December 31, 2011, the Company was due cash consideration from the third party of RMB 115,543,200 ($18,153,754) which was subsequently
collected in cash in May, 2012.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
Company accounted for the acquisition of Liaoning Baicao as a business combination and allocated the purchase price to the tangible
and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition
date. The Company engaged an independent third-party valuation firm to assist in the determination of the fair value of the net
assets of Liaoning Baicao. As there was only three days from the transfer date of December 28, 2011 to the year end of December
31, 2011, the operating results for three days were not considered in the consolidated financial statements due to the immaterial
impact.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<table cellpadding="0" cellspacing="0" align="center" style="border-collapse: collapse; width: 40%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="width: 27%; text-align: left"><font style="font-size: 8pt">Receivable for disposal of NuoHua Affiliate</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">16,101,032</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left"><font style="font-size: 8pt">Translation gain</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">600,412</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 1pt"><font style="font-size: 8pt">Loss on disposal of NuoHua Affiliate</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(8,447,368</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-bottom: 2.5pt"><font style="font-size: 8pt">Purchase price</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">8,254,076</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left"><font style="font-size: 8pt">Current assets</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">11,757,080</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left"><font style="font-size: 8pt">Property and equipment</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">2,243,409</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left"><font style="font-size: 8pt">Intangible assets-distribution network</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">5,521,077</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left"><font style="font-size: 8pt">Other long-term assets</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">69,148</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt"><font style="font-size: 8pt">Total liabilities</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(11,336,638</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font-size: 8pt">Total net assets acquired</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">8,254,076</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr></table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Inventories
are summarized as follows:</font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">December 31,</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2011</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2010</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="width: 70%; text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Raw materials</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 11%; text-align: right"><font style="font-size: 8pt">6,228,319</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 11%; text-align: right"><font style="font-size: 8pt">6,711,961</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Work in process</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">3,652,867</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">2,274,499</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 1pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Finished
goods</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">9,633,260</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">3,511,163</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left"><font style="font-size: 8pt">Total inventories</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">19,514,446</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">12,497,623</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 1pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Less:
provision against slow-moving inventories</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(624,516</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(22,734</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Inventories,
net</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">18,889,930</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">12,474,889</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Capitalized
agricultural costs are summarized as follows:</font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">December 31,</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2011</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2010</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="width: 70%; text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Raw materials</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 11%; text-align: right"><font style="font-size: 8pt">993,126</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 11%; text-align: right"><font style="font-size: 8pt">190,697</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Payments for long-term
crop contracts</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">17,012,586</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">7,724,069</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left"><font style="font-size: 8pt">Prepaid land leasing costs for long-term supply contracts</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">4,292,345</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">439,487</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-bottom: 1pt"><font style="font-size: 8pt">Others</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">35,880</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">4,324</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Capitalized
agricultural costs</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">22,333,937</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">8,358,577</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify; text-indent: 30pt; background-color: white; color: #222222"><font style="font-size: 8pt">To
mitigate the impact of the increasing cost and supply of raw materials, the Company entered into long-term supply contracts with
various third parties to grow Millettia and Xanthoceras Sorbifolia Bge (“XSB”), which are its major raw materials.
Through these supply contracts, the Company believes that it will stabilize the supply of its major material in a long run and
reduce the risk of increasing cost in future periods.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt; background-color: white; color: #222222"><font style="font-size: 8pt">  As
such, in 2009 and 2010, the Company’s GLP subsidiary entered into long-term supply contracts with various third parties
to grow Millettia, a major raw material of the Company, on behalf of the Company through leasing land use rights and production
arrangements. Under these contracts, the Company bears the costs in relation to Millettia cultivation and in return entitled
to a supply price at fair value discounted at a pre-determined rate when delivered. The purchase commitment is unconditional and
the Millettia is not expected to be harvest until after 2018. The Company expects the initial supply of Millettia to occur between
year nine and year eleven of the contract period as Millettia is a stem from a certain plant which requires an eight to ten-year
period to mature. These contracts expire after 30 years but entitle the Company to renew with terms to be negotiated. As of December
31, 2011 and 2010, the Company capitalized agricultural costs in relation to Millettia cultivation of $14,123,280 and $630,184,
respectively.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt; background-color: white; color: #222222"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt; background-color: white; color: #222222"><font style="font-size: 8pt">On
October 17, 2009, AOB subsidiary 3H entered into a long-term supply contract with a third party to secure the supply of Xanthoceras
Sorbifolia Bge (“XSB”), which is a major raw material of the Company. The Company expects such supply to start from
year four of the contract as XSB is a fruit from a certain plant which requires a three-year period to mature. The contract expires
after 10 years while the Company is entitled to renewal with terms to be negotiated. Under the contract the Company is entitled
to a supply price at fair value when delivered. As of December 31, 2011 and 2010, the Company capitalized agricultural costs in
relation to Millettia cultivation of $8,174,777 and $7,724,069, respectively.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt; background-color: white; color: #222222"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt; background-color: white; color: #222222"><font style="font-size: 8pt">Pre-harvest
agricultural costs, including irrigation, fertilization, seeding, laboring, land leasing costs, and other ongoing crop and land
maintenance activities, are capitalized as inventory and cease to be accumulated when the crops reach maturity and is ready to
be harvested. Land leasing costs incurred prior to harvest are capitalized as they are an essential pre-condition to the cultivation
and an inevitable cost component of the total growing cost during the cultivation period. All costs incurred subsequent to the
crops reaching maturity will be expensed as incurred.  The Company has reflected the capitalized agriculture costs as
a long term asset as it does not expect to utilize this asset currently.</font></p>
67483532
53196298
80455358
27848917
18153754
38567410
22333937
8358577
10728658
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14086927
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41421150
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1.11
37862413
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15624998
33164121
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4314281
446736
3442034
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52627928
91126486
94568520
68060769
184431
13477797
7909086
27848917
5097698
614522
18032
1119264
6397106
21334
53838
-61784
238795
-2761082
-273266
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6252963
6176461
6236504
6658671
5437481
11401681
7639554
14754027
7686271
152305
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 9pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 9pt">American
Oriental Bioengineering, Inc. (“AOB”) is a fully integrated pharmaceutical company dedicated to improving health through
the development, manufacture, commercialization and distribution of a broad range of pharmaceutical and healthcare products in
the People’s Republic of China(the “PRC”). AOB and its subsidiaries are collectively referred to herein as the
“Company,” “we,” “us,” “our” and “ourselves,” unless the context indicates otherwise.
The following list contains the particulars of our operating subsidiaries and major affiliate companies:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 9pt"> </font></p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="width: 35%; border-bottom: black 1pt solid; font-weight: bold; text-align: center"><font style="font-size: 9pt">Name
of Subsidiary</font></td>
<td style="width: 1%"><font style="font-size: 9pt"> </font></td>
<td style="width: 44%; border-bottom: black 1pt solid; font-weight: bold; text-align: center"><font style="font-size: 9pt">Principal
activities</font></td>
<td style="width: 1%"><font style="font-size: 9pt"> </font></td>
<td style="width: 7%; border-bottom: black 1pt solid; font-weight: bold; text-align: center"><font style="font-size: 9pt">Acquired</font></td>
<td style="width: 1%"><font style="font-size: 9pt"> </font></td>
<td style="width: 11%; border-bottom: black 1pt solid"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 9pt"><b>Percentage
of</b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 9pt"><b>ownership</b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 9pt"><b>December 31,</b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 9pt"><b>2011</b></font></p></td></tr>
<tr style="vertical-align: top; background-color: #EEEEEE">
<td style="text-decoration: underline"><font style="font-size: 9pt">Operating Subsidiaries</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td style="text-align: center"><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td style="text-align: center"><font style="font-size: 9pt"> </font></td></tr>
<tr style="vertical-align: top; background-color: #EEEEEE">
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td style="text-align: center"><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td style="text-align: center"><font style="font-size: 9pt"> </font></td></tr>
<tr style="vertical-align: top; background-color: rgb(238,238,238)">
<td><font style="font-size: 9pt">Harbin Three Happiness Bioengineering Co., Ltd. (“Three Happiness”)</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt">Manufacture and commercialize a broad range of branded pharmaceutical and nutraceutical products</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td style="text-align: center"><font style="font-size: 9pt">Dec 2001</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td style="text-align: center"><font style="font-size: 9pt">100%</font></td></tr>
<tr style="vertical-align: top; background-color: White">
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td></tr>
<tr style="vertical-align: top; background-color: rgb(238,238,238)">
<td><font style="font-size: 9pt">Heilongjiang Songhuajiang Pharmaceutical Co., Ltd. (“HSPL”)</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt">Manufacture and commercialize an anti-viral injection powder, a prescription pharmaceutical
product</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td style="text-align: center"><font style="font-size: 9pt">Sept 2004</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td style="text-align: center"><font style="font-size: 9pt">100%</font></td></tr>
<tr style="vertical-align: top; background-color: White">
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td></tr>
<tr style="vertical-align: top; background-color: rgb(238,238,238)">
<td><font style="font-size: 9pt">Guangxi Lingfeng Pharmaceutical Co., Ltd. (“GLP”)</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt">Manufacture and commercialize a series of pharmaceutical products that focus on women’s
health</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td style="text-align: center"><font style="font-size: 9pt">Apr 2006</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td style="text-align: center"><font style="font-size: 9pt">100%</font></td></tr>
<tr style="vertical-align: top; background-color: White">
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td></tr>
<tr style="vertical-align: top; background-color: rgb(238,238,238)">
<td><font style="font-size: 9pt">Heilongjiang Qitai Pharmaceutical Co., Ltd. (“HQPL”)</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt">Wholesale of pharmaceutical and nutraceutical products</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td style="text-align: center"><font style="font-size: 9pt">Jul 2006</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td style="text-align: center"><font style="font-size: 9pt">100%</font></td></tr>
<tr style="vertical-align: top; background-color: White">
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td></tr>
<tr style="vertical-align: top; background-color: rgb(238,238,238)">
<td><font style="font-size: 9pt">Changchun Xinan Pharmaceutical Co., Ltd. (“CCXA”)</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt">Manufacture and distribute a broad range of generic pharmaceutical products</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td style="text-align: center"><font style="font-size: 9pt">Sept 2007</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td style="text-align: center"><font style="font-size: 9pt">100%</font></td></tr>
<tr style="vertical-align: top; background-color: White">
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td></tr>
<tr style="vertical-align: top; background-color: rgb(238,238,238)">
<td><font style="font-size: 9pt">Guangxi Boke Pharmaceutical Co., Ltd. (“Boke”)</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt">Manufacture and commercialize pharmaceutical products that alleviate nasal congestion and
provide sinus relief</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td style="text-align: center"><font style="font-size: 9pt">Oct 2007</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td style="text-align: center"><font style="font-size: 9pt">100%</font></td></tr>
<tr style="vertical-align: top; background-color: White">
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td></tr>
<tr style="vertical-align: top; background-color: rgb(238,238,238)">
<td><font style="font-size: 9pt">GuangXiHuiKe Research and Development Co., Ltd. (“GHK”)</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt">Pharmaceutical research and products development</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td style="text-align: center"><font style="font-size: 9pt">Oct 2008</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td style="text-align: center"><font style="font-size: 9pt">100%</font></td></tr>
<tr style="vertical-align: top; background-color: White">
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td style="text-align: center"><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td style="text-align: center"><font style="font-size: 9pt"> </font></td></tr>
<tr style="vertical-align: top; background-color: rgb(238,238,238)">
<td><font style="font-size: 9pt">ShenzhenNuoHua Trading Co., Ltd. (“NuoHua”)</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt">Wholesale and retail of pharmaceutical and nutraceutical products</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td style="text-align: center"><font style="font-size: 9pt">Oct 2008</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td style="text-align: center"><font style="font-size: 9pt">100%</font></td></tr>
<tr style="vertical-align: top; background-color: White">
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt"> </font></td></tr>
<tr style="vertical-align: top; background-color: rgb(238,238,238)">
<td><font style="font-size: 9pt">Liaoning North Medicated Herbs Pharmaceutical Co., Ltd.(“Liaoning Baicao”)</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt">Wholesale of pharmaceutical and nutraceutical products</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td><font style="font-size: 9pt">Dec 2011</font></td>
<td><font style="font-size: 9pt"> </font></td>
<td style="text-align: center"><font style="font-size: 9pt">100%</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 9pt"><b> </b></font></p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top; background-color: #EEEEEE">
<td style="width: 35%"><font style="font-size: 9pt">Jilin Yushuntang Pharmaceutical Co., Ltd. (“Yushuntang”)</font></td>
<td style="width: 1%"><font style="font-size: 9pt"> </font></td>
<td style="width: 44%"><font style="font-size: 9pt">Wholesale of pharmaceutical and nutraceutical products-Consolidated</font></td>
<td style="width: 1%"><font style="font-size: 9pt"> </font></td>
<td style="width: 7%; text-align: center"><font style="font-size: 9pt">Sept 2008</font></td>
<td style="width: 1%"><font style="font-size: 9pt"> </font></td>
<td style="width: 11%; text-align: center"><font style="font-size: 9pt">55%</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 9pt"><b> </b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 9pt"><u>Equity Method Investee</u></font></p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top; background-color: #EEEEEE">
<td style="width: 35%"><font style="font-size: 9pt">Aoxing Pharmaceutical Company, Inc. (“AXN”)</font></td>
<td style="width: 1%"><font style="font-size: 9pt"> </font></td>
<td style="width: 44%"><font style="font-size: 9pt">Manufacture and commercialize pain management pharmaceutical products-Not
consolidated</font></td>
<td style="width: 1%"><font style="font-size: 9pt"> </font></td>
<td style="width: 7%; text-align: center"><font style="font-size: 9pt">Apr2008</font></td>
<td style="width: 1%"><font style="font-size: 9pt"> </font></td>
<td style="width: 11%; text-align: center"><font style="font-size: 9pt">33.98%</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 9pt"><b> </b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"><i>Revenue Recognition</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Revenues
represent the invoiced value of goods sold and are recognized upon the shipment of goods to customers. The product sales price
stated in the sales contract or purchase order is final and not subject to adjustment. Revenues are recognized when all of the
following criteria are met:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt">    </font></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<tr>
<td style="width: 5%"><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top; width: 5%"><font style="font-size: 8pt">●</font></td>
<td style="width: 90%"><font style="font-size: 8pt">Persuasive evidence of an arrangement exists,</font></td></tr>
<tr>
<td><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top"><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr>
<td><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top"><font style="font-size: 8pt">●</font></td>
<td><font style="font-size: 8pt">Delivery has occurred or services have been rendered,</font></td></tr>
<tr>
<td><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top"><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr>
<td><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top"><font style="font-size: 8pt">●</font></td>
<td><font style="font-size: 8pt">The seller’s price to the buyer is fixed or determinable, and</font></td></tr>
<tr>
<td><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top"><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr>
<td><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top"><font style="font-size: 8pt">●</font></td>
<td><font style="font-size: 8pt">Collectability is reasonably assured.</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt">  </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Revenue
is recognized net of all value-added taxes imposed by governmental authorities and collected from customers concurrent with revenue-producing
transactions.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
Company establishes provisions against revenue for estimated sales returns in the same period that the related revenue is recognized
based on historical product returns. For the years ended December 31, 2011, 2010 and 2009, sales returns were $1,888,544, nil
and nil, respectively, and are netted against revenue in the consolidated statements of operations and comprehensive income.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 41pt"><font style="font-size: 8pt">No
sales rebates were offered by the Company to its customers for the years ended December 31, 2011 and 2010. For the year ended
December 31, 2009, the Company offered sales rebates to its major customers based on collections made during the year, provided
that the customers made payments prior to certain days after year end. The rebates are calculated based on different percentages
depending on settlement methods, which include settling by cash or notes receivable. Customers were entitled to either cash rebates
or receiving additional free inventories based on predetermined prices. The Company accounted for estimated cash settlement as
sales discount, and estimated free inventories as cost of sales, upon recognition of revenue.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"><i>Cost of Sales</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Cost
of sales includes direct and indirect production costs, as well as freight in and handling costs for products sold.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"><i>Selling, General
and Administrative Expenses</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Selling,
general and administrative (SG&A) expenses include salaries, benefits and other staff-related costs associated with sales
and marketing, finance and other administrative personnel; facilities and overhead costs; legal expenses and other general and
administrative costs. SG&A expenses also include the costs of selling merchandise, including preparing the merchandise for
sale, such as picking, packing, warehousing and order charges. Shipping and handling costs are expensed as incurred and outbound
freight is not billed to customers.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Shipping
and handling costs included in selling, general and administrative expenses are $3,686,959, $5,682,503 and $5,024,799 for the
years ended December 31, 2011, 2010 and 2009, respectively.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt">   </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"><i>Advertising
Costs</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
Company expenses advertising costs as incurred. Point of sale materials are accounted for as inventories and are charged to
expense as utilized. For the years ended December 31, 2011, 2010, and 2009, advertising costs were $14,910,983, $38,920,905
and $31,896,992, respectively</font>.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"><i>Research and
Development Costs</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Research
and development costs are expensed as incurred.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASB”) 805 “Business
Combinations” requires the recognition of tangible and intangible assets that result from or are to be used in research
and development activities as assets, irrespective of whether the acquired assets have an alternative future use. Acquired
In-Progress Research & Development (IPR&D) assets are required to be measured at their acquisition-date fair value.
Uncertainty about the outcome of an individual project does not affect the recognition of an IPR&D asset, but is
reflected in its fair value.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"><i>Comprehensive
Income</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Comprehensive
income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners.
Among other disclosures, items that are required to be recognized under current accounting standards as components of comprehensive
income are required to be reported in a financial statement that is presented with the same prominence as other financial statements.
The Company’s comprehensive income includes net income and foreign currency translation adjustments.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"><i>Stock-Based Compensation</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for
services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based
on the authoritative guidance provided by the FASB whereas the value of the award is measured
on the date of grant and recognized over the vesting period. The Company accounts for stock option and warrant grants issued and
vesting to non-employees in accordance with the authoritative guidance of the FASB whereas the
value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance
commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee
stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances
where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based
compensation charge is recorded in the period of the measurement date.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
fair value of the Company’s common stock option grant is estimated using the Black-Scholes-Merton option pricing model,
which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the common stock options,
and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton option pricing
model, and based on actual experience. The assumptions used in the Black-Scholes-Merton option pricing model could materially
affect compensation expense recorded in future periods.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"><i>Income Taxes</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
Company uses an asset and liability approach for financial accounting and reporting for income taxes that allows recognition and
measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and
liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance
is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to
realize their benefits, or that future deductibility is uncertain. The Company’s policy is to recognize interest and/or
penalties related to income tax matters in income tax expense.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"><i>Value-Added
Tax (“VAT”)</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Enterprises
or individuals, who sell commodities, engage in repair and maintenance or import or export goods in the PRC are subject to a value-added
tax in accordance with the PRC laws. The value-added tax’s standard rate is 17% of the gross sales price and the Company
records its revenue net of VAT. A credit is available whereby VAT paid or borne by the Company can be used to offset the VAT due
on the sales of the finished products.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"><i>Segment Reporting</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
Company has two operating segments based on its major lines of businesses: manufacturing and distribution. Each operating segment
derives its revenues from the sale of products or services, respectively and each is the responsibility of a group of senior management
of the Company who has knowledge of product and service specific operational risks and opportunities. The Company’s chief
operating decision maker reviews and evaluates separate sets of financial information for decisions regarding resources allocation
and performance assessments.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"><i>Cash and Cash
Equivalents</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Cash
and cash equivalents consist of cash on hand and bank deposits with original maturities of three months or less, which are unrestricted
as to withdrawal and use.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"><i>Restricted
Cash</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Restricted
cash represents amounts held by a bank as security for bank acceptance notes and therefore is not available for the Company’s
use. The restriction on cash is expected to be released within the next twelve months.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"><i>Accounts and
Notes Receivable</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Accounts
and notes receivable are carried at net realizable value. An allowance for doubtful accounts is recorded in the period when loss
is probable based on an assessment of specific evidence indicating troubled collection, historical experience, accounts aging
and other factors. A receivable is written off after all collection effort has ceased.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"><i>Deferred Financing
Costs</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Deferred
financing costs represent the incurred costs directly attributable to the issuance of the convertible notes. These costs, presented
as non-current assets, are deferred and amortized ratably using the effective interest method from the debt issuance date over
the earliest redemption date of the convertible notes. If the notes are converted prior to the debt maturity date, the unamortized
financing costs will be transferred to equity immediately upon occurrence of such an event.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"><i>Inventories</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Inventories
are stated at the lower of cost or market value. Cost is determined by the weighted average method. Costs of raw materials and
consumables and packaging materials are based on purchase costs while costs of work-in-progress and finished goods comprise direct
materials, direct labor and an allocation of manufacturing overhead costs.  </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt">  </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Capitalized
agricultural costs include costs relating to irrigation, fertilizing, seedling, utility, farming wages and other ongoing crop
and land maintenance activities. Recurring agricultural costs are capitalized and cease to be accumulated when the crops have
reached maturity and ready to be harvested.  Any recurring agricultural costs incurred subsequent to the crops reaching
maturity are expensed as incurred. Non recurring agricultural costs, primarily comprising soil improvements and other long-term
crop growing costs that benefit multiple harvests, are deferred and amortized over the estimated production period.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"><i> </i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"><i>Fair Value
of Financial Instruments</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">FASB
ASC 820 “Fair Value Measurements and Disclosures” establishes a three-tier fair value hierarchy, which prioritizes
the inputs used in measuring fair value. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs
used in measuring fair value are observable in the market.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">   </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">These
tiers include:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt">    </font></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<tr>
<td style="width: 5%"><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top; width: 5%"><font style="font-size: 8pt">●</font></td>
<td style="width: 90%; text-align: justify"><font style="font-size: 8pt">Level 1 - defined as observable inputs such as quoted
prices in active markets;</font></td></tr>
<tr>
<td><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top"><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr>
<td><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top"><font style="font-size: 8pt">●</font></td>
<td style="text-align: justify"><font style="font-size: 8pt">Level 2 - defined as inputs other than quoted prices in active
markets that are either directly or indirectly observable; and</font></td></tr>
<tr>
<td><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top"><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr>
<td><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top"><font style="font-size: 8pt">●</font></td>
<td style="text-align: justify"><font style="font-size: 8pt">Level 3 - defined as unobservable inputs in which little or no
market data exists, therefore requiring an entity to develop its own assumptions.</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt">     </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts and notes receivable, short-term
bank loans, accounts payable, notes payable and other payables, approximate their fair values because of the short maturity of
these instruments. The carrying values of long-term loans approximate their fair values due to the fact that the interest rates
on these loans are reset each year based on prevailing market interest rates. The convertible notes are initially recognized based
on residual proceeds after allocation to the derivative financial liabilities, if any, at fair value and subsequently carried
at amortized cost using the effective interest rate method, with any accrued and unpaid interest included under other payables
and accrued expenses.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"><i>Land Use Rights</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">According
to the PRC laws, the government owns all the land in the PRC. Companies or individuals are authorized to possess and use the land
only through land use rights granted by the PRC government. Land use rights are being amortized using the straight-line method
over the related lease terms ranging from 40 to 50 years.  </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"><b>     </b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"><i>Property,
Plant and Equipment</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Property,
plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives,
using the straight-line method. Estimated useful lives of the property, plant and equipment are as follows:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">  </font></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<tr style="background-color: #EEEEEE">
<td style="vertical-align: top; width: 45%; padding-left: 5.4pt"><font style="font-size: 8pt">Buildings</font></td>
<td style="vertical-align: bottom; width: 55%; text-align: right"><font style="font-size: 8pt">  40 years</font></td></tr>
<tr style="background-color: white">
<td style="vertical-align: top; padding-left: 5.4pt"><font style="font-size: 8pt">Machinery and equipment</font></td>
<td style="vertical-align: bottom; text-align: right"><font style="font-size: 8pt"> 10 years</font></td></tr>
<tr style="background-color: #EEEEEE">
<td style="vertical-align: top; padding-left: 5.4pt"><font style="font-size: 8pt">Motor vehicles</font></td>
<td style="vertical-align: bottom; text-align: right"><font style="font-size: 8pt">  5 years</font></td></tr>
<tr style="background-color: white">
<td style="vertical-align: top; padding-left: 5.4pt"><font style="font-size: 8pt">Office equipment</font></td>
<td style="vertical-align: bottom; text-align: right"><font style="font-size: 8pt">5 years</font></td></tr>
<tr style="background-color: #EEEEEE">
<td style="vertical-align: top; padding-left: 5.4pt"><font style="font-size: 8pt">Other equipment</font></td>
<td style="vertical-align: bottom; text-align: right"><font style="font-size: 8pt">5 years</font></td></tr>
<tr style="background-color: white">
<td style="vertical-align: top; padding-left: 5.4pt"><font style="font-size: 8pt">Leasehold improvements</font></td>
<td style="vertical-align: bottom; text-align: right"><font style="font-size: 8pt"> Shorter of 10 years or the lease
term</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or
loss is included in the statement of income. The cost of maintenance and repairs is charged to the statement of income as incurred,
whereas significant renewals and betterments are capitalized.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"><i>Construction in Progress</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">  </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Construction
in progress represents direct costs of construction or acquisition, interest and design fees incurred. Capitalization of these
costs ceases and the construction in progress is transferred to property, plant and equipment when substantially all the activities
necessary to prepare the assets for their intended use are completed. No depreciation is provided until it is completed and ready
for intended use.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
Company accounts for interest capitalization in accordance with FASB ASC 835 "Interest".  Interest costs are
capitalized if they are incurred during the acquisition, construction or production of a qualifying asset and such costs could
have been avoided if expenditures for the assets have not been made.  Capitalization of interest costs commences when
the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Interest costs are
capitalized until the assets are ready for their intended use.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"><i>Acquired Intangible Assets</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Acquired
intangible assets include product licenses, trademarks, patents and proprietary technologies, which are stated at acquisition
cost less accumulated amortization. Amortization expense is recognized using the straight-line method over the estimated useful
life. Proprietary technologies are recorded as an intangible asset only if regulatory approval from the Chinese State Food and
Drug Administration, or SFDA, has been obtained and for which the re-registration of the proprietary technologies with the SFDA
by the Company in its name is determined to be reasonably assured or perfunctory. The amortization of such intangible assets will
not commence until the technology has been re-registered with the SFDA and hence ready for its intended use.  </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
cost of the product licenses are amortized over their licensed period of 2 to 12 years; the cost of trademarks are amortized over
their registered period of 2 to 10 years; the cost of patents are amortized over their protection period of 7 to 20 years and
the cost of proprietary technologies is amortized over its protection period of 10 years.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
weighted-average amortization period of product licenses, trademarks, patents and proprietary technologies are 7.5 years,
6.4 years, 12.8 years and 9.4 years, respectively. </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"><i>Goodwill</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Goodwill
and other intangible assets are accounted for in accordance with the provisions of FASB ASC 805 and FASB ASC 350 “Intangibles
- Goodwill and Other”. Under FASB ASC 805, goodwill is measured as the excess of a over b below: </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt">    </font></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<tr>
<td style="padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt"><font style="font-size: 8pt">a.</font></td>
<td colspan="2" style="vertical-align: top; padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt"><font style="font-size: 8pt">The
aggregate of the following</font></td></tr>
<tr>
<td style="width: 5%; padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt"><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top; width: 5%; padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt"><font style="font-size: 8pt"> </font></td>
<td style="width: 90%; padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt"><font style="font-size: 8pt"> </font></td></tr>
<tr>
<td style="padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt"><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top; padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt"><font style="font-size: 8pt">1.</font></td>
<td style="padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt; text-align: justify"><font style="font-size: 8pt">The
consideration transferred measured in accordance ASC 805, which generally requires acquisition-date fair value.</font></td></tr>
<tr>
<td style="padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt"><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top; padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt"><font style="font-size: 8pt">2.</font></td>
<td style="padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt"><font style="font-size: 8pt">The fair value of
any non-controlling interest in the acquiree.</font></td></tr>
<tr>
<td style="padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt"><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top; padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt"><font style="font-size: 8pt">3.</font></td>
<td style="padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt"><font style="font-size: 8pt">In a business combination
achieved in stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree.</font></td></tr>
<tr>
<td style="padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt"><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top; padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt"><font style="font-size: 8pt"> </font></td>
<td style="padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt"><font style="font-size: 8pt"> </font></td></tr>
<tr>
<td style="padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt"><font style="font-size: 8pt">b.</font></td>
<td colspan="2" style="vertical-align: top; padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt"><font style="font-size: 8pt">The
net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance
with FASB ASC 805</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt">       </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Other
intangible assets are separately recognized from goodwill if the benefit of the intangible asset is obtained through contractual
or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of an intent
to do so.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Under
FASB ASC 350, goodwill, including any goodwill included in the carrying value of investments accounted for using the equity method
of accounting, and certain other intangible assets deemed to have indefinite useful lives are not amortized.       </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"><i>Impairment</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">The
annual evaluation of impairment of goodwill involves comparing the current fair value of each of the Company’s reporting
units to their recorded value, including goodwill. The Company utilizes a two-step method to perform a goodwill impairment review
in the fourth quarter of each fiscal year or when facts and circumstances indicate goodwill may be impaired. In the first step,
the Company determines the fair value of the reporting unit using expected future discounted cash flows and estimated terminal
values. If the net book value of the reporting unit exceeds the fair value, the Company would then perform the second step of
the impairment test which requires allocation of the reporting unit’s fair value of all of its assets and liabilities in
a manner similar to a purchase price allocation, with any residual fair value being allocated to goodwill. The implied fair value
of the goodwill is then compared to the carrying value to determine impairment, if any.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">During
the year ended December 31, 2011, the Company considered the on-going decline in its stock price and the significant
reduction in revenues as impairment indicators and conducted a goodwill impairment assessment at the subsidiary level. Based
on the first step of the goodwill impairment test, the fair value of the reporting units did not exceed the net book value.
Therefore, the Company performed additional procedures to test for goodwill impairment and goodwill impairment loss was
recognized as of December 31, 2011 (See Note 11).</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">Finite-lived
intangible assets are amortized over their respective useful lives and, along with other long-lived assets, are evaluated for
impairment periodically whenever events or changes in circumstances indicate that their related carrying amounts may not be recoverable
in accordance with FASB ASC 360, “Property, Plant and Equipment”.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">In
evaluating long-lived assets for recoverability, including finite-lived intangibles and property and equipment, the Company uses
its best estimate of future cash flows expected to result from the use of the asset and eventual disposition in accordance with
FASB ASC 360. To the extent that estimated future, undiscounted cash inflows attributable to the asset, less estimated future,
undiscounted cash outflows, are less than the carrying amount, an impairment loss is recognized in an amount equal to the difference
between the carrying value of such asset and its fair value. Assets to be disposed of and for which there is a committed plan
of disposal, whether through sale or abandonment, are reported at the lower of carrying value or fair value less costs to sell.
The Company determined that the long-lived assets associated with our BOKE, CCXA and 3H manufacturing facilities were not expected
to be fully recoverable. For the year ended December 31, 2011, the Company recorded an impairment charge of $6,928,064 for BOKE
and CCXA, and $733,688 for 3H representing the excess of the carry value of those assets over their respective fair market values
(See Note 12).</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"><i>Equity method
Investments </i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"><i> </i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
equity method of accounting is used for investments in entities in which the Company exercises significant influence but which
do not meet the requirements for consolidation. Under the equity method, the Company initially records its investment at cost
and adjusts the carrying amount of the investment to recognize the Company’s proportionate share of each equity investee’s
net income or loss into consolidated statements of income after the date of acquisition.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
Company monitors its equity method investments for other-than-temporary impairment by considering factors including, but not limited
to, current economic and market conditions, the operating performance of the investee companies including current earnings trends
and other company-specific information.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">An
impairment loss on the equity method investments is recognized in the consolidated statements of income when the decline in value
is determined to be other-than-temporary (see note 13).</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"><i> </i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"><i>Economic and Political Risks</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">The
Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results
of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC
economy.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">The
Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with
companies in North America and Western Europe. These include risks associated with, among others, the political, economic and
legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political
and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion, remittances abroad, rates and methods of taxation and price controls, among other things.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">The
Company’s products are subject to price control by the PRC government. The maximum prices of the products are published
by the PRC price administration authorities from time to time. Any changes in product pricing announced by the PRC price administration
authorities affect future sales transactions.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"><i>Newly Adopted Accounting Pronouncements</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 30pt"><font style="font-size: 8pt">In
May 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-04,
“Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS”. ASU No.
2011-4 does not require additional fair value measurements and is not intended to establish valuation standards or affect valuation
practices outside of financial reporting. The ASU is effective for interim and annual periods beginning after December 15, 2011.
The Company will adopt ASU No. 2011-04 effective January 1, 2012 and it is not expected to affect the Company’s results
of operations, financial condition or liquidity.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 35pt"><font style="font-size: 8pt">In
June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income”. The ASU eliminates the option
to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity, and
instead requires consecutive presentation of the statement of net income and other comprehensive income either in a continuous
statement of comprehensive income or in two separate but consecutive statements. ASU No. 2011-5 is effective for interim and annual
periods beginning after December 15, 2011. The Company will adopt ASU 2011-05 effective January 1, 2012 and it is not expected
to affect the Company’s results of operations, financial condition or liquidity.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 35pt"><font style="font-size: 8pt">In
September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment”, an update to existing guidance on
the assessment of goodwill impairment. This update simplifies the assessment of goodwill for impairment by allowing companies
to consider qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less
than its carrying amount before performing the two step impairment review process. It also amends the examples of events or circumstances
that would be considered in a goodwill impairment evaluation. The amendments are effective for annual and interim goodwill impairment
tests performed for fiscal years beginning after December 15, 2011. The Company will adopt ASU 2011-08 effective January 1, 2012.
We do not believe that the adoption of this new accounting guidance will have a significant effect on our goodwill impairment
assessments in the future.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 30pt"><font style="font-size: 8pt">In
December 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.”
This ASU requires an entity to disclose information about offsetting and related arrangements to enable users of its financial
statements to understand the effect of those arrangements on its financial position. ASU No. 2011-11 will be applied retrospectively
and is effective for annual and interim reporting periods beginning on or after January 1, 2013. The Company does not expect adoption
of this standard to have a material impact on its consolidated results of operations, financial condition, or liquidity.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 30pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 25pt"><font style="font-size: 8pt">Other
recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the Securities
Exchange Commission (the "SEC") did not or are not believed by management to have a material impact on the Company's
present or future consolidated financial statements.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt; font-weight: normal"><i>Concentration
of credit risks</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Assets
that potentially subject the Company to significant concentration of credit risk primarily consist of cash and cash equivalents,
accounts receivable and prepaid forward repurchase contract (Note 16). As of December 31, 2011, substantially all of the Company’s
cash and cash equivalents were deposited in financial institutions located in PRC, which management believes are of high credit
quality. Accounts receivable are typically unsecured and mainly derived from revenue earned from customers in the PRC, which are
exposed to credit risk. The risk is mitigated by credit evaluations the Company performs on its customers and its ongoing monitoring
process of outstanding balances. The Company maintains reserves for estimated credit losses, which have generally been within
its expectations. The Company is potentially subject to significant concentration of credit risk with respect to the prepaid forward
repurchase contract. The initial contract was done with an affiliate of Merrill Lynch. The fact that the Merrill affiliate has
merged with Bank of America reduced the bankruptcy and default risk. The Company will closely monitor the third depositary and
may request early settlement of the contract prior to the maturity of the Notes.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><font style="font-size: 8pt"><i>Current vulnerability
due to certain other concentrations</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
Company’s operations may be adversely affected by significant political, economic and social uncertainties in the PRC. Although
the PRC government has been pursuing economic reform policies for more than 30 years, no assurance can be given that the PRC government
will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change
in leadership, social or political disruption or unforeseen circumstances affecting the PRC’s political, economic and social
conditions. There is also no guarantee that the PRC government’s pursuit of economic reforms will be consistent or effective.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><font style="font-size: 8pt"><i>Currency convertibility
risk</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"><i> </i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
Company transacts the majority of its business in RMB, which is not freely convertible into foreign currencies. On January 1,
1994, the PRC government abolished the dual rate system and introduced a single rate of exchange as quoted daily by the People’s
Bank of China (the ‘‘PBOC’’).However, the unification of the exchange rates does not imply that the RMB may
be readily convertible into United States dollars or other foreign currencies. All foreign exchange transactions continue to take
place either through the PBOC or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the
PBOC. Approval of foreign currency payments by the PBOC or other institutions requires submitting a payment application form together
with suppliers’ invoices, shipping documents and signed contracts. Additionally, the value of the RMB is subject to changes
in central government policies and international economic and political developments affecting supply and demand in the PRC foreign
exchange trading system market.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt">Accounts receivable consist of the
following:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"><b> </b></font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">December 31,</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2011</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2010</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="width: 70%; text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Accounts
receivable</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 11%; text-align: right"><font style="font-size: 8pt">69,551,171</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 11%; text-align: right"><font style="font-size: 8pt">81,143,237</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Allowance
for doubtful accounts</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(16,354,873</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(687,879</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Accounts
receivable, net</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">53,196,298</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">80,455,358</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"><b> </b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt">Provision for
doubtful accounts activity is as follows:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">December 31,</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2011</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2010</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="width: 70%; color: black; text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Allowance
for doubtful accounts, beginning balance</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 11%; text-align: right"><font style="font-size: 8pt">687,879</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 11%; text-align: right"><font style="font-size: 8pt">522,897</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Provision for doubtful
debts</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">15,670,248</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">164,982</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Reversal</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(3,254</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt"><font style="font-size: 8pt">Written off</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">–</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">–</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Allowance
for doubtful accounts, ending balance</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">16,354,873</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">687,879</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Accounts
receivable arise from sales to our customers and are generally due and payable on terms ranging from 30 to 180 days beginning
after the invoice date. The Company assessed distributors’ credit history, operation performance, financial position, reputation
among peers, etc. to assign credit terms. The company’s management reviews credit term and conditions of the account receivable
balance for each distributor on a quarterly basis.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">In
the year of 2011, the Company offered credit extension from 30 to 90 days to certain distributors with long-term business relationships
and healthy credit records in order to match new industry practice and stimulate demand in sales. As a result, our days’
sales in accounts receivable increased to 125 days in 2011 compared to 82 days in 2010. The Company does not have plans to offer
any additional credit term extensions in the near future.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Among
the accounts receivable balance at December 31, 2011, 55% is within 1 to 3 months, 26% within 4 to 6 months, 19% are past due.
In our business history, only insignificant accounts receivable cannot be collected which have been fully recorded as allowance
for doubtful accounts.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">During
2011 the Company reviewed its accounts receivable based on the changing climate in the drug business in China and estimated that
a significant increase to its allowance was required. Through September 30, 2012, the Company has collected approximately $41,300,000
of the $53,196,298 net account receivable outstanding at December 31, 2011.The Company estimates that the remaining net receivables
will be collected.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">December 31,</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2011</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2010</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="width: 70%; text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Advance
to suppliers</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 11%; text-align: right"><font style="font-size: 8pt">15,591,318</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 11%; text-align: right"><font style="font-size: 8pt">12,292,689</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Prepaid
expenses</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">943,873</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">1,953,455</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Advances
to suppliers and prepaid expenses</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">16,535,191</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">14,246,144</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">Advances
to suppliers mainly represent interest-free cash deposits paid to suppliers for future purchases of raw materials. Prepaid expenses
mainly relate to the prepaid research and development expenses to external contractors for research on new knowledge and product
development.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">On
December 28, 2011, the Company entered into an agreement to loan $27,848,917 (RMB 177,250,000) to Nanning City Small Loan Limited
Co., (“Nanning”). The loan principal was due on March 27, 2012, was unsecured, and according to the loan agreement,
the Company was to earn 20% interest per annum, less 5% business tax.  In January, 2012, the loan principal was repaid and
in addition interest income of approximately $389,000 (RMB 2,453,771) was received.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">Property,
plant and equipment consist of the following:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">December 31,</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2011</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2010</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">At cost:</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="width: 70%; color: black; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Buildings</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 11%; text-align: right"><font style="font-size: 8pt">146,410,665</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 11%; text-align: right"><font style="font-size: 8pt">104,865,498</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Machinery and equipment</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">25,851,084</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">23,512,674</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Motor vehicles</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">2,105,105</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">1,568,813</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Office equipment</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">3,162,305</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">2,529,352</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Other equipment</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">1,812,266</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">3,996,164</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 1pt; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Construction
in progress</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">25,264,200</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">22,516,044</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">204,605,625</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">158,988,545</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 1pt"><font style="font-size: 8pt"> Less: Accumulated depreciation</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(34,071,175</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(26,924,885</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Property,
plant and equipment, net</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">170,534,450</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">132,063,660</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">As
of December 31, 2011 and 2010, the net book value of property, plant and equipment pledged as collateral for bank loans was $6,249,074
and $6,243,893, respectively. See Note 15.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">Depreciation
expense for the years ended December 31, 2011, 2010 and 2009 was $5,709,259, $5,014,924 and $4,142,651, respectively.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">Construction
in progress as of December 31, 2011 and 2010 was $25,264,200 and $22,516,044, respectively. Construction in progress represents
the construction for production lines and buildings. The Company capitalizes interest as a component of construction in progress
in accordance with ASC 835.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">Total
interest costs capitalized as part of construction in progress for the years ended December 31, 2011, 2010 and 2009 amounted to
$1,069,200, $1,330,488 and $816,392, respectively. Capitalized interest included in construction in progress was $2,120,207 and
$1,640,632 as of December 31, 2011 and 2010, respectively. </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Land
use rights consist of the following:</font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">December 31,</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2011</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2010</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="width: 70%; text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Cost of
land use rights</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 11%; text-align: right"><font style="font-size: 8pt">172,055,852</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 11%; text-align: right"><font style="font-size: 8pt">165,625,682</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Less:
Accumulated amortization</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(14,127,700</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(10,192,371</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Land
use rights, net</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">157,928,152</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">155,433,311</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">As
of December 31, 2011 and 2010, the net book value of land use rights pledged as collateral was $21,020,381 and $20,729,293, respectively.
See Note 17.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Amortization
expense for the years ended December 31, 2011, 2010 and 2009 was $3,476,589, $3,329,633 and $3,239,304, respectively.  </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: right"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Amortization
expense for the next five years and thereafter is as follows:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">    </font></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<tr style="vertical-align: bottom; background-color: #EEEEEE">
<td style="width: 86%; padding-left: 0.25in; text-indent: -0.25in"><font style="font-size: 8pt">2012</font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 11%; text-align: right"><font style="font-size: 8pt">3,529,312</font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 0.25in; text-indent: -0.25in"><font style="font-size: 8pt">2013</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">3,529,312</font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: #EEEEEE">
<td style="padding-left: 0.25in; text-indent: -0.25in"><font style="font-size: 8pt">2014</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">3,529,312</font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 0.25in; text-indent: -0.25in"><font style="font-size: 8pt">2015</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">3,529,312</font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: #EEEEEE">
<td style="padding-left: 0.25in; text-indent: -0.25in"><font style="font-size: 8pt">2016</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">3,529,312</font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 0.25in; text-indent: -0.25in"><font style="font-size: 8pt">Thereafter</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: black 1pt solid"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">140,281,592</font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: #EEEEEE">
<td style="padding-left: 0.25in; text-indent: -0.25in"><font style="font-size: 8pt">Total</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">157,928,152</font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"><b> </b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"><b> </b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">The
changes in the carrying amount of goodwill for the year ended December 31, 2011, are as follows.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="font-weight: bold; text-align: center; padding-left: 10pt; padding-bottom: 1pt"></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">Manufacturing
<br />Segment</font></td><td style="font-weight: bold; text-align: left; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">Distribution
Segment</font></td><td style="font-weight: bold; text-align: left; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt"><b>Total</b></font></td><td style="text-align: left; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="width: 55%; text-align: justify; text-indent: -19.8pt; padding-left: 55.8pt"><font style="font-size: 8pt">Balance
as of January 1, 2011</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 11%; text-align: right"><font style="font-size: 8pt">27,817,108</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 11%; text-align: right"><font style="font-size: 8pt">5,347,013</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 11%; text-align: right"><font style="font-size: 8pt">33,164,121</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: justify; padding-bottom: 1pt; text-indent: -19.8pt; padding-left: 55.8pt"><font style="font-size: 8pt">Impairment
losses</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(27,817,108</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(5,347,013</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(33,164,121</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: justify; padding-bottom: 1pt; text-indent: -19.8pt; padding-left: 55.8pt"><font style="font-size: 8pt">Balance
as of December 31, 2011</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">–</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">–</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">–</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">The
manufacturing and distribution segments were tested for impairment after the annual forecasting process. Due to an increase in
competition in the generic drug market in China under the health care reform, and the governments’ downward pressure on prices,
the operating profits and cash flows for the manufacturing segment were lower than expected in the fourth quarter of 2011. Based
on that trend, the earnings forecasts for the next five years were revised. For the year ended December 31, 2011, a goodwill impairment
loss of $27,817,108 and $5,347,013 were recognized in the manufacturing reporting units and distribution reporting units respectively.
No impairments occurred with respect to the carrying value of goodwill in 2010 and 2009. The fair value of those reporting units
was estimated using the expected present value of future cash flows expected at that time.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Acquired
intangible assets are summarized as follows:</font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="font-weight: bold; text-align: center; padding-bottom: 1pt"></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="6" style="text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt"><b>December 31,</b></font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2011</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2010</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">At cost:</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="width: 70%; text-align: left; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Product licenses</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 11%; text-align: right"><font style="font-size: 8pt">16,676,940</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 11%; text-align: right"><font style="font-size: 8pt">16,053,679</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Trademarks</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">11,370,712</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">10,945,759</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Patents</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">5,165,046</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">4,972,016</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Proprietary technology</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">303,326</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">291,990</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Software</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">131,427</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">94,488</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="color: black; text-align: left; padding-bottom: 1pt; text-indent: 9pt"><font style="font-size: 8pt">Distributor
network of Liaoning Baicao</font></td><td style="color: black; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; color: black; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; color: black; text-align: right"><font style="font-size: 8pt">5,521,077</font></td><td style="padding-bottom: 1pt; color: black; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">–</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">39,168,528</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">32,357,932</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Less: Accumulated amortization</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Product licenses</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(10,437,361</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(8,891,025</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Trademarks</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(7,997,473</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(6,009,283</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Patents</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(2,889,637</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(2,448,111</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Proprietary technology</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(136,899</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(100,775</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-bottom: 1pt; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Software</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(30,189</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(19,611</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(21,491,559</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(17,468,805</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Less: Impairment</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Product licenses</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(4,407,204</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Trademarks</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(1,115,069</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Patents</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(1,247,604</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Proprietary technology</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(166,427</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="padding-bottom: 1pt; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Software</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(12,007</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">–</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(6,948,311</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">–</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Acquired
intangible assets, net</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">10,728,658</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">14,889,127</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Amortization
expense for the years ended December 31, 2011, 2010 and 2009 was $3,283,901, $4,354,074 and $5,049,117, respectively.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Amortization
expense for the next five years and thereafter is as follows:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<tr style="vertical-align: bottom; background-color: #EEEEEE">
<td style="width: 86%; padding-left: 0.25in; text-indent: -0.25in"><font style="font-size: 8pt">2012</font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 11%; text-align: right"><font style="font-size: 8pt">5,080,917</font></td>
<td style="width: 1%"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 0.25in; text-indent: -0.25in"><font style="font-size: 8pt">2013</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">3,760,140</font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: #EEEEEE">
<td style="padding-left: 0.25in; text-indent: -0.25in"><font style="font-size: 8pt">2014</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">1,852,172</font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 0.25in; text-indent: -0.25in"><font style="font-size: 8pt">2015</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">11,813</font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: #EEEEEE">
<td style="padding-left: 0.25in; text-indent: -0.25in"><font style="font-size: 8pt">2016</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="text-align: right"><font style="font-size: 8pt">11,813</font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 0.25in; text-indent: -0.25in"><font style="font-size: 8pt">Thereafter</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: black 1pt solid"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">11,803</font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: #EEEEEE">
<td style="padding-left: 0.25in; text-indent: -0.25in"><font style="font-size: 8pt">Total</font></td>
<td><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">10,728,658</font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in; background-color: white; color: #222222"><font style="font-size: 8pt">As
of December 31, 2010 the Company had recorded acquired intangible assets with a net book value of $14,889,127. These intangible
assets relate to product licenses, trademarks, patents and other intangibles the company had acquired in prior years from third
parties or acquisitions.  During 2011, as part of acquisition of Liaoning Baicao (Note 13), the Company also acquired a distributor
network that was valued at $5,521,077 through the purchase price allocation. The distribution network will be amortized on
a straight line method over 3 years. As of December 31, 2011, the net book value of these intangible assets was $10,728,658.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; background-color: white; color: #222222"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in; background-color: white; color: #222222"><font style="font-size: 8pt">For
the years ended December 31, 2011, 2010 and 2009 the Company conducted annual impairment tests to determine if recorded
amounts for these assets all active, being used in production of products or would be utilized in future production. 
The assessment also included an evaluation of the ongoing cash flows from these assets. In performing such analysis as of
December 31, 2011, the Company identified certain product licenses, trademarks and patents that would no longer be used due
to change in product lines, customer acceptance or expiration of the underlying right.  As such, the Company determined
that $6,928,064 of such items had been impaired or abandoned during the year ended December 31, 2011.  The Company
believes the remaining product licenses, patents, trademarks, distributor network, and other intangibles still have value
and are used in ongoing operations.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
components of other payables and accrued expenses are as follows:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">December 31,</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2011</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2010</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="width: 74%; text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Other taxes
payable</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">228,597</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">295,702</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Other payables</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">6,949,196</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">5,587,335</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Accrued expenses</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">7,943,568</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">8,365,841</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">VAT payable</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">2,904,509</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">3,790,679</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Due to employees</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">448,374</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">2,803,189</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Advances from customers</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">1,375,760</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">2,194,450</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Other current liabilities</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">71,088</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">68,431</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Accrued
payroll</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">1,280,441</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">1,218,037</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Other
payables and accrued expenses</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">21,201,533</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">24,323,664</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Other
payables balance mainly represent VAT-output for manufacturing subsidiaries.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Accrued
expenses mainly represent promotional fee, interest expenses accrued on convertible notes and other banks loans and accrued advertisement
expenses.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Due
to employees mainly represents commissions payable or expense reimbursements due to our salesmen.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Advances
from customers mainly represent cash received for goods not yet delivered to customer.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 33pt"><font style="font-size: 8pt">Short-term
loans obtained from local banks were $6,756,014 and $6,957,258 as of December 31, 2011 and 2010, respectively. The short-term
loans payable are due on various dates through September 19, 2012 (through September 27, 2011 at December 31, 2010), with interest
ranging from 5.8% to 7.2% per annum (5.3% to 5.6% at December 31, 2010), and secured by property, plant and equipment and land
use rights owned by the Company.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 33pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 33pt"><font style="font-size: 8pt">The
Company has outstanding long-term bank loans of $618,030 and $679,866 at December 31, 2011 and 2010, respectively. The mortgage
loans payable bears interest on daily balances at 2.50% per annum below HSBC HKD best lending rate are due December 31, 2021,
and secured by office.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
repayment schedule of long-term bank loans is as follows:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="border-bottom: Black 1pt solid; padding-left: 10pt"><font style="font-size: 8pt">Due Date</font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">Interest Rate
<br />Per Annum</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">December 31,
<br />2011</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="width: 74%; padding-left: 10pt"><font style="font-size: 8pt">December 31, 2012</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">2.50</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt">%</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">63,070</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 10pt"><font style="font-size: 8pt">December 31, 2013</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">2.50</font></td><td style="text-align: left"><font style="font-size: 8pt">%</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">64,668</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="padding-left: 10pt"><font style="font-size: 8pt">December 31, 2014</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">2.50</font></td><td style="text-align: left"><font style="font-size: 8pt">%</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">66,303</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-left: 10pt"><font style="font-size: 8pt">December 31, 2015</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">2.50</font></td><td style="text-align: left"><font style="font-size: 8pt">%</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">67,979</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="padding-left: 10pt"><font style="font-size: 8pt">December 31, 2016</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">2.50</font></td><td style="text-align: left"><font style="font-size: 8pt">%</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">69,696</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-bottom: 1pt"><font style="font-size: 8pt">Thereafter</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">2.50</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">%</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">349,384</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Total</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">681,100</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Current
portion</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">63,070</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> Long-term portion</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">618,030</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">On
July 15, 2008 the Company issued $115,000,000 of its 5% senior convertible notes (the “Notes”). The net
proceeds from the sale of the Notes were $110,358,550. This liability of the Company is in default, which was caused by the
delisting of the Company’s common stock by the NYSE as described in Form 25NSE filed on April 16, 2012 by NYSE; and by
the non-payment of the interest due on July 15, 2012. The Notes were sold to qualified institutional buyers in a
private placement exempt from the registration requirements of the Securities Act of 1933, as amended. </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
following is a brief summary of certain terms of this offering.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"><font style="font-size: 8pt">    </font></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<tr>
<td style="width: 5%"><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top; width: 5%"><font style="font-size: 8pt">●</font></td>
<td style="width: 90%; text-align: justify"><font style="font-size: 8pt">Total offering is $115,000,000 aggregate principal
amount of 5.00% Convertible Senior Notes due on July 15, 2015.</font></td></tr>
<tr>
<td><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top"><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr>
<td><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top"><font style="font-size: 8pt">●</font></td>
<td style="text-align: justify"><font style="font-size: 8pt">Interest at 5.00% per year, payable semiannually in arrears in
cash.</font></td></tr>
<tr>
<td><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top"><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr>
<td><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top"><font style="font-size: 8pt">●</font></td>
<td style="text-align: justify"><font style="font-size: 8pt">The Notes are convertible, at the option of the holder, at any
time prior to the close of business on the second business day preceding the maturity date based on an initial conversion
rate of 107.6195 shares per $1,000 principal amount of Notes, which represents an initial conversion price of $9.29 per share.</font></td></tr>
<tr>
<td><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top"><font style="font-size: 8pt"> </font></td>
<td><font style="font-size: 8pt"> </font></td></tr>
<tr>
<td><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top"><font style="font-size: 8pt">●</font></td>
<td style="text-align: justify"><font style="font-size: 8pt">The conversion rate is subject to certain adjustments. In particular,
holders who convert their Notes in connection with certain events of fundamental changes, as defined pursuant to the convertible
notes agreement, may be entitled to a make whole premium in the form of additional shares of our common stock.</font></td></tr>
<tr>
<td><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top"><font style="font-size: 8pt"> </font></td>
<td style="text-align: justify"><font style="font-size: 8pt"> </font></td></tr>
<tr>
<td><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top"><font style="font-size: 8pt">●</font></td>
<td style="text-align: justify"><font style="font-size: 8pt">The initial conversion rate may also be adjusted on January 15,
2009 if the volume weighted average price (“VWAP”) of common stock for each of the 30 consecutive trading days
ended on January 15, 2009 is less than $8.08 per share. In such an event, the conversion rate will be increased as a
one-time conversion price adjustment such that the conversion price as adjusted would represent the greater of (1) 115.0%
of such arithmetic average of the daily VWAP and (2) $8.08.</font></td></tr>
<tr>
<td><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top"><font style="font-size: 8pt"> </font></td>
<td style="text-align: justify"><font style="font-size: 8pt"> </font></td></tr>
<tr>
<td><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top"><font style="font-size: 8pt">●</font></td>
<td style="text-align: justify"><font style="font-size: 8pt">Holders may require the Company to repurchase all or a portion
of their Notes on July 15, 2013 for cash at a price equal to 100% of the principal amount of the notes to be purchased,
plus accrued and unpaid interest, if any, up to, but excluding, the repurchase date.</font></td></tr>
<tr>
<td><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top"><font style="font-size: 8pt"> </font></td>
<td style="text-align: justify"><font style="font-size: 8pt"> </font></td></tr>
<tr>
<td><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top"><font style="font-size: 8pt">●</font></td>
<td style="text-align: justify"><font style="font-size: 8pt">If a fundamental change event occurs, holders will have the right
to require the Company to repurchase for cash all or any portion of their notes. The fundamental change purchase price will
be 100% of the principal amount of the Notes to be purchased plus accrued and unpaid interest, if any, up to, but excluding,
the fundamental change repurchase date.</font></td></tr>
<tr>
<td><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top"><font style="font-size: 8pt"> </font></td>
<td style="text-align: justify"><font style="font-size: 8pt"> </font></td></tr>
<tr>
<td><font style="font-size: 8pt"> </font></td>
<td style="vertical-align: top"><font style="font-size: 8pt">●</font></td>
<td style="text-align: justify"><font style="font-size: 8pt">The Notes are unsecured, unsubordinated obligations and rank
equal in right of payment to all of the Company’s existing and future unsecured and unsubordinated indebtedness. The
Notes will be effectively subordinated to all of the Company’s existing and future secured indebtedness.</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"><font style="font-size: 8pt">           </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Notes
issuance costs incurred by the Company that were directly attributable to the issuance of the Notes were deferred and are charged
to the consolidated statements of income and comprehensive income using the effective interest rate method over the term of the
Notes. As of December 31, 2011 and 2010, the unamortized portion of the deferred financing fees was $1,347,735 and $2,359,404,
respectively.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt">    </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
Company has determined that the conversion feature embedded in the Notes is not required to be bifurcated and accounted for as
a derivative pursuant to FASB ASC 815 “Derivatives and Hedging”, since the embedded conversion feature is indexed
to the Company’s own stock and would be classified in shareholders’ equity if it was a free-standing instrument. The
holder’s put rights qualify as an embedded derivative, but bifurcation of such is not required since it is considered to
have economic characteristic and risks that are clearly and closely related to those of the debt host. On the date of issuance
of the Notes, no portion of the proceeds was attributable to the beneficial conversion feature (“BCF”) since the conversion
price of the Notes exceeded the market price of the Company’s common stock. Furthermore, no contingent BCF exists from the
one time conversion rate adjustment based on VWAP, as the adjustment is subject to a floor of $8.08, which equals market price
of the Company’s common stock on the issuance date of the Notes.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">  </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
VWAP of the Company’s common stock for each of the 30 consecutive trading days ending on January 15, 2009 was $6.02
per share and as such, the initial conversion price of $9.29 per share was adjusted to $8.08 on January 15, 2009.  </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
balance of the notes outstanding at December 31,2010 was $115,000,000. For the year ended December 31, 2011, the Company repurchased
a total of $6,500,000 in principal amount of the Notes for $3,160,004 cash consideration and expensed $97,607 of related unamortized
Notes issue cost resulting in a net gain of $3,242,389 and leaving an aggregate of $108,500,000 in principal amount outstanding
as of December 31, 2011.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
repurchases were initiated by the Note holders and are arms-length transactions and were recorded as follows:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<table cellpadding="0" cellspacing="0" align="center" style="border-collapse: collapse; width: 50%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="font-weight: bold; text-align: center; padding-bottom: 1pt; padding-left: 10pt"></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="border-bottom: Black 1pt solid; text-align: center"><font style="font-size: 8pt"><b>The Notes repurchased</b></font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="width: 37%; text-align: left"><font style="font-size: 8pt">Principal amount</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">6,500,000</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt"><font style="font-size: 8pt">Less: unamortized bond issue cost</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(97,606</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td><font style="font-size: 8pt">Net Carrying Value</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">6,402,394</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-bottom: 1pt"><font style="font-size: 8pt">Repurchase Price</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">3,160,005</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 1pt"><font style="font-size: 8pt">Gain on debt extinguishment of debt</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">3,242,389</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
effective interest rate on the convertible notes for the years ended December 31, 2011, 2010 and 2009 was 5.13%.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
amount of interest cost recognized for the years ended December 31, 2011, 2010 and 2009 was $5,570,725, $5,750,000 and $5,750,000,
respectively.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Subsequent
to year end the Company settled an additional $59,339,000 of principal amount of the Notes for $18,478,888, with an expected
$40,860,112 gain on extinguishment to be recognized for the year ended December 31, 2012.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">In
connection with the offering of the Notes, the Company entered into a prepaid forward repurchase contract with an affiliate of
the lead placement agent (“Merrill affiliate”). Pursuant to the prepaid forward repurchase contract, the Company paid
approximately $30 million to the Merrill affiliate to fund the purchase of 1.85 million shares of common stock for settlement
at or about maturity of the Notes, which will occur on July 15, 2015. The forward shares purchase transaction was also intended
to reduce the potential dilution of common stock that would result from the conversion of the Notes into shares of common stock.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">  </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
$30 million cost of the forward stock repurchase transaction qualifies as an equity transaction and was separately presented under
shareholders’ equity in the balance sheet without subsequent recognition of changes in fair value. The prepaid forward repurchase
contract contains an embedded equity forward derivative that is contingently cash settleable based on certain events.  The
contingent cash settlement feature was bifurcated from the prepaid forward repurchase contract but its value was insignificant
for any of the years presented.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">In
2012 the Company received the 1.85 million shares from Merrill Lynch to complete this part of the transaction. The Company expects
to cancel the shares received.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Under
PRC laws and regulations, there are restrictions on the Company’s PRC subsidiaries with respect to transferring certain of
their net assets to the Company either in the form of dividends, loans, or advances. Amounts restricted included paid-in capital
and statutory reserve funds of the Company’s PRC subsidiaries. Such balance as of December 31, 2011 and 2010 are summarized
below:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="font-weight: bold; text-align: justify"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">December
31,</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td style="font-weight: bold; text-align: justify"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2011</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2010</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="width: 74%; text-align: justify; text-indent: -8.8pt; padding-left: 8.8pt"><font style="font-size: 8pt">Paid-in
capital of the PRC subsidiaries</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">86,589,161</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">86,589,161</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: justify; padding-left: 5.4pt"><font style="font-size: 8pt">Statutory reserve of the PRC subsidiaries
<br />(included in retained earnings)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">26,888,517</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">26,471,124</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Full
time employees of the Company’s subsidiaries in the PRC participate in a government-mandated defined contribution plan pursuant
to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are
provided to employees. Chinese labor regulations require that the PRC subsidiaries of the Company make contributions to the government
for these benefits based on 41% of the employees’ salaries. The Company’s PRC subsidiaries have no legal obligation
for the benefits beyond the contributions made. The total amounts for such employee benefits, which were expensed as incurred,
were $5,714,921, $3,582,934, and $978,178 for the years ended December 31, 2011, 2010 and 2009, respectively and are included
in selling, general and administrative expenses.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="14" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">Quarters
Ended</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">March
31</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">June
30</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">September
30</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">December
31</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="font-weight: bold; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Year Ended December
31, 2011</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="width: 48%; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">REVENUES</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">52,002,110</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">54,051,796</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">53,934,602</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">52,701,880</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">GROSS PROFIT</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">25,075,910</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">25,844,851</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">25,204,178</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">23,625,744</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">NET INCOME/(LOSS)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">809,048</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">2,705,144</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">7,681,987</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(79,687,527</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Basic net income/(loss) per common share</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">0.02</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">0.07</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">0.20</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(2.10</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Diluted net income/(loss) per common share</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">0.02</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">0.07</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">0.20</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">(2.10</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-weight: bold; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Year Ended December 31,
2010</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">REVENUES</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">53,749,768</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">77,296,212</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">91,533,044</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">83,365,061</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">GROSS PROFIT</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">28,236,721</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">39,840,352</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">47,282,198</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">42,398,283</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">NET INCOME</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">3,117,777</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">5,117,734</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">4,239,507</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">1,583,972</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Basic net income per
common share</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">0.08</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">0.14</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">0.11</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">0.04</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Diluted net income per
common share</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">0.08</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">0.14</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">0.11</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">0.04</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
No
No
No
1000000
1000000
1000000
1000000
39124632
39160720
39299303
39476274
21236
40188
42622
42
80
85
-376335
-388000
-350500
376293
387920
350415
350500
291333
388000
388000
350500
291333
14852
46731
22748
419017
24600
160800
30
94
46
160770
418923
24554
2686010
2894313
2246170
2246170
2686010
2894313
18669832
1362038
1362038
16003105
18669832
51664
111601
103
223
-103
-223
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">Subsequent
to December 31, 2011, the Company repurchased an additional aggregate amount of $59,339,000 of its outstanding 5%senior convertible
notes in multiple negotiated transactions for a cost of $20,042,844.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">In
June 2012, the Company cancelled 965,936 shares of common stock cancellation. In August 2012, the Company received 1,856,350 shares
from the advance settlement of all shares in the prepaid forward contract with Merrill Lynch.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Basic
earnings per share is computed by dividing net income attributable to controlling interest by the weighted average number of common
shares outstanding, excluding common shares to be delivered under a prepaid forward repurchase contract (1,856,350 shares) during
the year. Diluted earnings per share is computed by dividing net income attributable to controlling interest as adjusted for the
effect of dilutive potential common shares, if any, by the weighted average number of common shares and dilutive potential common
shares outstanding during the year. The potential common stocks are stock options, common stock awards and convertible notes.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
following is a reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per share
available to common shareholders.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="10" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">Years
Ended December 31,</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2011</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2010</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2009</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="font-weight: bold; text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">EPS
Numerator:</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="width: 61%; text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Net (loss)
income attributable to controlling interest</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">(67,449,928</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt">)</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">14,086,297</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">41,421,150</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Interest expense on
convertible securities, net of taxes</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">5,750,000</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Amortization of financing
costs, net of taxes</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">928,290</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 1pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Less:
capitalization of interest on convertible securities</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">–</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">–</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(816,392</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Net
income, as adjusted</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">(67,449,928</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">14,086,297</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">47,283,048</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-weight: bold; text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">EPS
Denominator:</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Weighted average common shares outstanding
– Basic</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">37,416,241</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">37,405,008</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">37,306,301</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Effect of dilutive instruments:</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -9pt; padding-left: 0.25in"><font style="font-size: 8pt">Convertible notes</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">7,116,337</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt; text-indent: -9pt; padding-left: 0.25in"><font style="font-size: 8pt">Common
stock awards to be issued</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">–</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">457,405</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">220,672</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="padding-bottom: 2.5pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Weighted average
common shares outstanding – Diluted</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">37,416,241</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">37,862,413</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">44,643,310</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="width: 61%; text-align: left; text-indent: -9pt; padding-left: 0.25in"><font style="font-size: 8pt">EPS - Basic</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">(1.80</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt">)</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">0.38</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">1.11</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -9pt; padding-left: 0.25in"><font style="font-size: 8pt">EPS - Diluted</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">(1.80</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">0.37</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt">$</font></td><td style="text-align: right"><font style="font-size: 8pt">1.06</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
calculation of weighted average common shares outstanding for the diluted earnings per share calculation excludes consideration
of stock options for the years ended December 31, 2011, 2010 and 2009, because the exercise of these options would not have been
dilutive for those years due to the fact that the exercise prices were greater than the weighted average market price of the Company’s
common stock for each year.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">As
more fully discussed in Note 18, the Company had certain convertible notes outstanding during the years presented. The aggregate
number of shares of common stock that could be issued in the future to settle these notes is deemed outstanding for the purposes
of the calculation of diluted earnings per share. This approach, referred to as the if-converted method, requires that such shares
be deemed outstanding regardless of whether the notes are then contractually convertible into the Company’s common stock.
For this if-converted calculation, the interest expense and issuance costs (net of tax) attributable to these notes are added
back to net income attributable to controlling interest, reflecting the assumption that the notes have been converted.  The
calculation of diluted earnings per share excludes the convertible notes for the year ended December 31, 2011 because conversion
of the convertible notes under the if-converted method would have been anti-dilutive.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">For
the years ended December 31, 2011, 2010 and 2009 the Company’s segments are as follows:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="10" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">Year
Ended December 31,</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2011</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2010</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2009</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="font-weight: bold; font-style: italic; text-align: justify; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Manufacturing
Segment</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="width: 61%; text-align: justify; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Revenue
from pharmaceutical products</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">159,024,681</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">250,131,594</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">244,168,159</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: justify; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Revenue from nutraceutical
products</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">37,757,118</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">41,020,289</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">39,125,655</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: justify; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Total manufacturing
revenue</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">196,781,799</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">291,151,883</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">283,293,814</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: justify; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Total manufacturing
costs</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">96,942,439</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">133,846,985</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">116,961,988</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Depreciation and amortization
expense</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">5,615,731</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">4,973,682</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">4,562,045</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Selling, general and administrative
expenses, Research and development costs and Advertising costs</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">67,663,752</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">111,025,660</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">92,591,166</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -8pt; padding-left: 17.9pt"><font style="font-size: 8pt">Provision for doubtful
accounts-manufacturing segment</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(12,710,084</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -8pt; padding-left: 17.9pt"><font style="font-size: 8pt">Impairment of acquired
intangible assets-manufacturing segment</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(6,928,064</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-indent: -8pt; padding-left: 17.9pt"><font style="font-size: 8pt">Impairment of goodwill-manufacturing segment</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(27,817,108</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Operating (loss) income
of manufacturing segment</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(42,007,311</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">33,426,593</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">56,635,139</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-weight: bold; font-style: italic; text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Distribution
Segment</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Distribution revenue</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">15,908,589</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">14,792,202</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">12,856,966</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -8pt; padding-left: 17.9pt"><font style="font-size: 8pt">Provision for doubtful
accounts-distribution segment</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(2,914,914</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-indent: -8pt; padding-left: 17.9pt"><font style="font-size: 8pt">Impairment of goodwill-distribution</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(5,347,013</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -8pt; padding-left: 17.9pt"><font style="font-size: 8pt">Impairment of property,
plant, and equipment-manufacturing segment</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(733,688</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Operating (loss) income
of distribution segment</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(11,525,052</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(489,070</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">2,054,253</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="font-weight: bold; font-style: italic; text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Reconciliation
to Consolidated Net Income Attributable to Controlling Interest:</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Net income (loss) for
reportable segments</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(53,532,363</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">32,937,523</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">58,689,392</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Net
income (loss) for non segment subsidiaries</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">(13,917,565</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">(18,850,596</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">(17,268,242</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Consolidated
Net (Loss) Income Attributable to Controlling Interest</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">(67,449,928</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">14,086,927</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">41,421,150</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">All
operating revenues comprise amounts received from external third party customers. All of the Company’s operations are located
in the PRC.  </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><font style="font-size: 8pt">As of December
31, 2011 and 2010, total assets of the manufacturing and distribution segments are as follows:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">December 31,</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2011</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2010</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="width: 74%; text-indent: -19.8pt; padding-left: 19.8pt"><font style="font-size: 8pt">Manufacturing</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">396,854,361</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">427,354,827</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-indent: -19.8pt; padding-left: 19.8pt"><font style="font-size: 8pt">Distribution</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">51,672,762</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">54,938,520</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="padding-bottom: 1pt"><font style="font-size: 8pt">Corporate</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">116,453,934</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">127,929,799</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -19.8pt; padding-left: 19.8pt"><font style="font-size: 8pt">Total
assets</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">564,981,057</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">610,223,146</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">As
of both December 31, 2011 and 2010, goodwill of the manufacturing and distribution segments was nil and $5,347,013, respectively.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">For
the years ended December 31, 2011, 2010 and 2009, capital expenditures of the manufacturing and distribution segments are as follows:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="10" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">Year
Ended December 31,</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2011</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2010</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2009</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="width: 61%; text-align: justify; text-indent: -19.8pt; padding-left: 19.8pt"><font style="font-size: 8pt">Manufacturing</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">37,327,413</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">5,161,710</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">4,810,168</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: justify; text-indent: -19.8pt; padding-left: 19.8pt"><font style="font-size: 8pt">Distribution</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">8,234</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">18,530</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">692</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: justify; padding-bottom: 1pt; text-indent: -19.8pt; padding-left: 19.8pt"><font style="font-size: 8pt">Corporate</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">60,755</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">883,428</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">287,857</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: justify; padding-bottom: 2.5pt; text-indent: -19.8pt; padding-left: 19.8pt"><font style="font-size: 8pt">Total
capital expenditure</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">37,396,402</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">6,063,668</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">5,098,717</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 8pt Times New Roman, Times, Serif">All
of the Company’s operations are located in the PRC. </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
Company’s operating subsidiaries have their principal operations in the PRC and are subject to a PRC Enterprise Income Tax
(“EIT”) rate of 25% in2011, 2010, and 2009, subject to certain rate reductions. Each of the Company’s subsidiaries
in the PRC files separate tax returns. The Company’s subsidiaries Three Happiness, HSPL, GLP,CCXA, and Boke were granted
certification as “high and new technology” enterprises from 2008 to 2011 and benefit from a preferential income tax
rate of 15%. Beginning January 1, 2012, the preferential income tax rate of 15%was extended for Three Happiness, HSPL, GLP, CCXA,
and Boke until December 31, 2013.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
provisions for income taxes for the years ended December 31, 2011, 2010 and 2009 are summarized as follows:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="10" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">Years
Ended December 31,</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2011</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2010</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2009</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="width: 61%; color: black; text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Current
tax provision-PRC</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">7,539,007</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">9,737,875</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">14,234,251</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Deferred
tax and ASC 740 provisions-PRC</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(6,903,954</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(402,537</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(1,017,265</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Total
provision for income taxes</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">635,053</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">9,335,338</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">13,216,986</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt">     </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
reconciliation of tax computed by applying the statutory income tax rate applicable to the PRC operations to income tax expenses
is as follows:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="10" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">Years
Ended December 31,</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2011</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2010</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2009</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="width: 61%; text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Income tax
benefit at PRC statutory tax rate of 25%</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">(16,964,074</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt">)</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">5,848,582</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">13,629,798</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Preferential tax rates</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(1,787,740</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(4,569,785</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(7,051,457</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Tax rate differences</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(3,992,920</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(1,953,086</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(1,247,652</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Goodwill and intangibles
impairment</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">12,427,386</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Deferred tax impact</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"></td><td></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(959,676</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">871,749</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Uncertain tax positions</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">1,892,425</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Effect of net operating
losses</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">8,609,226</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">8,680,147</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">6,055,491</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Permanent differences:</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Tax exempted income</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(545,401</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(659,581</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Other
permanent differences</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">450,750</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">2,786,350</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">1,326,700</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Total
provision for income taxes</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">635,053</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">9,335,338</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">13,216,986</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
tax effects of temporary differences that give rise to the Company’s net deferred tax liabilities as of December 31, 2011
and 2010 are as follows:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">Year
Ended December 31,</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2011</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2010</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Deferred tax assets</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Current</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="width: 74%; text-align: left; text-indent: -0.25in; padding-left: 0.5in"><font style="font-size: 8pt">Provision
for doubtful accounts receivable</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">2,751,092</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">96,334</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.5in"><font style="font-size: 8pt">Other costs</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">–</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">190,536</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.5in; padding-bottom: 1pt"><font style="font-size: 8pt">Unrecorded
expenses</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="text-align: left; border-bottom: Black 1pt solid"><font style="font-size: 8pt"> </font></td><td style="text-align: right; border-bottom: Black 1pt solid"><font style="font-size: 8pt">474,711</font></td><td style="text-align: left; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="text-align: left; border-bottom: Black 1pt solid"><font style="font-size: 8pt"> </font></td><td style="text-align: right; border-bottom: Black 1pt solid"><font style="font-size: 8pt">362,633</font></td><td style="text-align: left; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt; text-indent: -0.25in; padding-left: 0.5in"><font style="font-size: 8pt">Total
current deferred tax assets</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">3,225,803</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">649,503</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Non-current</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-indent: -0.25in; padding-left: 0.5in"><font style="font-size: 8pt">Amortization</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">79,151</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">147,024</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.5in; padding-bottom: 1pt"><font style="font-size: 8pt">Impairment
of fixed assets</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="text-align: left; border-bottom: Black 1pt solid"><font style="font-size: 8pt"> </font></td><td style="text-align: right; border-bottom: Black 1pt solid"><font style="font-size: 8pt">183,958</font></td><td style="text-align: left; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="text-align: left; border-bottom: Black 1pt solid"><font style="font-size: 8pt"> </font></td><td style="text-align: right; border-bottom: Black 1pt solid"><font style="font-size: 8pt">–</font></td><td style="text-align: left; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Total
non-current deferred tax assets</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">263,109</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">147,024</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Total
deferred tax assets</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">3,488,912</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">796,527</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Deferred tax liabilities</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Current</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: 20pt"><font style="font-size: 8pt">Excess accrual of welfare</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(63,382</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(171,293</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-bottom: 1pt; text-indent: -0.25in; padding-left: 0.5in"><font style="font-size: 8pt">Other</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(26,688</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(72,011</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 1pt; text-indent: -0.25in; padding-left: 0.5in"><font style="font-size: 8pt">Total
current deferred tax liabilities</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(90,070</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(243,304</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Non-current</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-indent: -0.25in; padding-left: 0.5in"><font style="font-size: 8pt">Amortization</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(948,322</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(443,775</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-indent: -0.25in; padding-left: 0.5in"><font style="font-size: 8pt">Depreciation</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(128,771</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(354,451</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.5in"><font style="font-size: 8pt">GLP step up of acquired
assets</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(6,356,091</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(6,426,982</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.5in"><font style="font-size: 8pt">CCXA step up of acquired
assets</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(3,076,569</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(4,557,169</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; text-indent: -0.25in; padding-left: 0.5in"><font style="font-size: 8pt">Boke step up of acquired
assets</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(2,345,451</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">(4,055,102</font></td><td style="text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt; text-indent: -0.25in; padding-left: 0.5in"><font style="font-size: 8pt">Liaoning
Baicao step up of acquired assets</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(1,717,288</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">–</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 1pt; text-indent: -0.25in; padding-left: 0.5in"><font style="font-size: 8pt">Total
non-current deferred tax liabilities</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(14,572,492</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(15,837,479</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt; text-indent: -0.25in; padding-left: 27pt"><font style="font-size: 8pt">Total
deferred tax liabilities</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(14,662,562</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(16,080,783</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Net
deferred tax liabilities</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">(11,173,650</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">(15,284,256</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt">)</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt">      </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">In
assessing the realizability of deferred tax assets, the Company has considered whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary differences become deductible. The Company records
a valuation allowance to reduce deferred tax assets to a net amount that management believes is more-likely-than-not realizable
based on the weight of all available evidence. As of December 31, 2011, the Company recorded a full valuation allowance against
the deferred tax assets of those subsidiaries that are in a cumulative loss position.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
Company has not recorded a provision for U.S. federal income tax for the years ended December 31, 2011, 2010 and 2009 due to the
cumulative tax net operating losses in the United States. As of December 31, 2011, the Company had net operating tax losses carried
forward of $66,176,819, which includes $40,577,550, $17,622,502 and $7,976,767 in the US, PRC, and Hong Kong, respectively. Those
losses carried forward in the US expire between years 2025 and 2031 and in the PRC expire between years 2013 and 2016. Losses
incurred in Hong Kong are carried forward indefinitely. In the PRC and Hong Kong the subsidiaries with loss carryforwards are
taxed on a separate return basis and are principally non operating holding companies. The Company believes it is unlikely that
these companies will ever have significant separate profits and have determined all amounts should have full valuation allowances.
The loss carryforwards tax effect of the US, PRC, and Hong Kong would be approximately $21,477,834 at December 31, 2012. This
amount is fully valued and not presented in the table above. As of December 31, 2011, the Company intends to permanently reinvest
the undistributed earnings from its foreign subsidiaries to fund future operations. Accordingly, no provision has been made for
U.S. deferred taxes related to future repatriation of these earnings, nor is it practicable to estimate the amount of income taxes
that would have to be provided if we concluded that such earnings will be remitted to the U.S. in the future.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><font style="font-size: 8pt">The Company’s
PRC subsidiaries deemed “high technology” enterprises are subject to preferred tax rates (tax holiday). The table
below shows the effect of using the higher rates and earnings per share.</font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="10" style="text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">Year ended December
31,</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2011</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2010</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2009</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="width: 61%; text-align: left"><font style="font-size: 8pt">Income (loss) per common share-basic</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">(1.80</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt">)</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">0.38</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">1.11</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt"><font style="font-size: 8pt">Effect of tax holiday</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(0.09</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(0.12</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">(0.19</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font-size: 8pt">Pro forma income (loss) per common share-basic</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">(1.89</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt">)</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">0.26</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">0.92</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 9pt"><font style="font-size: 8pt">Accrued
Taxes</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Effective
January 1, 2007, the Company adopted the guidance for accounting for uncertainty in income taxes as provided under FASB ASC 740,
<i>Income Taxes</i> which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a
tax position taken in the tax return. As of December 31, 2011, the Company has recorded an accrued tax of $8,849,004 mainly related
to tax positions associated with deemed interest on non-trade intercompany transactions. The Company recorded a penalty of
$663,343 and $398,395 for the years ended December 31, 2011 and 2010, respectively, related to its uncertain tax positions. It
is possible that the amount accrued will change in the next 12 months; however, an estimate of the range of the possible change
cannot be made at this time. The accrued taxes, if ultimately recognized will impact the effective tax rate.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">Reconciliation
of accrued taxes excluding the penalty is as follows:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt">     </font></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">December 31,</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: right"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2011</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td><td style="font-weight: bold; padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><font style="font-size: 8pt">2010</font></td><td style="padding-bottom: 1pt; font-weight: bold"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td colspan="2"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="width: 74%; text-align: left"><font style="font-size: 8pt">Beginning balance</font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">6,055,656</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td><td style="width: 2%"><font style="font-size: 8pt"> </font></td>
<td style="width: 1%; text-align: left"><font style="font-size: 8pt">$</font></td><td style="width: 9%; text-align: right"><font style="font-size: 8pt">2,746,561</font></td><td style="width: 1%; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left"><font style="font-size: 8pt">Increases related to prior year positions</font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">162,530</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td><td><font style="font-size: 8pt"> </font></td>
<td style="text-align: left"><font style="font-size: 8pt"> </font></td><td style="text-align: right"><font style="font-size: 8pt">1,513,198</font></td><td style="text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(238,238,238)">
<td style="text-align: left; padding-bottom: 1pt"><font style="font-size: 8pt">Increases related to current year positions</font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">2,630,818</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 1pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font-size: 8pt"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 8pt">1,795,897</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="padding-bottom: 2.5pt; text-indent: -0.25in; padding-left: 0.25in"><font style="font-size: 8pt">Ending balance</font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">8,849,004</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td><td style="padding-bottom: 2.5pt"><font style="font-size: 8pt"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font-size: 8pt">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 8pt">6,055,656</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-size: 8pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 8pt">  </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt">The
Company has various open tax years between 2005 and 2010 in its significant operating jurisdictions.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">As
of December 31, 2011, the Company had entered into capital commitments for the manufacturing facilities under construction in
the People’s Republic of China. The capital commitments were $9,180,558 within one year and $3,011,925 after one year
but within five years. In addition, the Company had advertisement contract commitments of $578,189 for the next 12 months as well
as R&D commitments of $3,340,486 within one year and $2,223,074 after one year but within five years.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">The
Company also has an unconditional purchase commitment in connection with the Millettia long-term supply contracts, which is not
expected to be harvest until after 2018 (note 6). The purchase amount will be based on fair value discounted at a pre-determined
rate pursuant to the long-term supply contracts.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">In
2010 an individual named Haining Zhang sued the Company and certain of its officer(s) for breach of fiduciary duties. The Company
and its officer(s) believed the claims were bogus and moved to petition the court to dismiss the case entirely. As of the filing
date of this report, the case has not been established by the court.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt">After
the reporting period, a complaint in the form of class action litigation was filed in the Federal District Court for the Central
District of California by Kevin McGee against the Company and certain of its current and former officers and directors. Similar
complaints were brought up by different plaintiff and representative law firms. However due to the identical nature of claims,
i.e. alleging the Company in violation of Section 10(b) and 20(a) of the Exchange Act of 1934 and rules promulgated thereunder,
the court on October 16, 2012 granted the motion of Richard Deutner and Itent EDV Dienstleistungs GmbH for appointment as lead
plaintiff and, thereafter, ordered that the amended consolidated complaint be filed no later than November 19, 2012. On that date,
Plaintiff filed and served an amended consolidated complaint, which repeated the allegations set forth in the original complaint
and added allegations to the effect that the Company's restatement of its financial statements evidenced allegedly knowing and
intentional misstatements of material facts in the Company's public filings. The Company and two former and one current director
have been served with the amended consolidated complaint. Responses are due December 19, 2012. In accordance with the schedule
set by the Court, the served Defendants, including the Company, served and filed a motion seeking dismissal of the amended consolidated
complaint in the action. The motion seeks dismissal of all causes of action. The Company denies the allegations. No prediction
can be made, however, as to the final outcome of the matter.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"><font style="font-size: 8pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 27pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 25pt"><font style="font-size: 8pt">There
is no known other legal proceedings against the Company.</font></p>