NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment as of June 30, 2013 and December 31, 2012 consists of the following:

Depreciation expense for the three months ended June 30, 2013 and 2012 was $31,534 and $24,691, respectively, and $62,693 and $37,116 for the six months ended June 30, 2013 and 2012, respectively. Amortization of matured yew trees included in depreciation expense for the three months ended June 30, 2013 and 2012 was $7,376 and $0, respectively. Amortization of matured yew trees included in depreciation expense for the six months ended June 30, 2013 and 2012 was $14,664 and $0, respectively.

8

TAXUS PHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 5 – INTANGIBLE ASSETS

Intangible assets as of June 30, 2013 and December 31, 2012 consist of the following:

Intangible assets are stated at cost. Intangible assets with finite life are amortized over their estimated useful life using straight-line method. Amortization expense for the three months ended June 30, 2013 and 2012 was $1,869 and $1,837, respectively, and $3,715 and $3,677 for the six months ended June 30, 2013

and 2012, respectively.

NOTE 6 – GOODWILL

On December 27, 2011, the company completed its acquisition of 94% equity interest in Kunyuan for a consideration of $1,479,560. Goodwill, which is equal to the excess of cost over the fair value of acquired assets, has been recorded in conjunction with the acquisition. Goodwill is accounted for in accordance with ASC 350 (formerly SFAS 142 “Goodwill and Other Intangible Assets”). Under ASC 350, goodwill is not amortized and is subject to impairment test, at least annually. As of June 30, 2013, the Company concluded that there was no impairment of goodwill.

NOTE 7 – LOANS FROM UNRELATED PARTY

The loans are unsecured, non-interest bearing and payable on demand. There is no financial or non-financial covenants associated with the loans. The proceeds from the loans are utilized for working capital. As of June 30, 2013 and December 31, 2012, the Company had outstanding loans from unrelated party of $655,199 and $637,570, respectively.

NOTE 8 – DUE TO SHAREHOLDER

The Company’s shareholder, Mr. Jiayue Zhang, made certain interest-free advances to the Company for working capital needs. As of June 30, 2013 and December 31, 2012, the balance due to shareholder was $3,744,786 and $3,706,592, respectively. Mr. Zhang has agreed that no demand for payment will be made until December 31, 2015 and that he will continue providing necessary funds to the Company whenever needed.

NOTE 9 – CAPITAL LEASE OBLIGATION – FUTURE MINIMUM LEASE PAYMENTS

The Company leased a machine under a lease agreement that is classified as a capital lease obligation. The cost of the machine under capital lease obligation included in property and equipment was $77,040 and $75,471 as of June 30, 2013 and December 31, 2012, respectively. Accumulated amortization on the capital lease of the leased machinery as of June 30, 2013 and December 31, 2012 was $77,040 and $61,510, respectively. Depreciation of assets under capital leases was included in depreciation expense.

The future minimum lease payments required under the capital leases and the present values of the net minimum lease payments as of June 30, 2013 were $0.

9

TAXUS PHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 10 – AUTO LOAN

The Company entered into a series of 36-month car purchase agreements with various dealers. The cost included in the property and equipment was $78,604 and $77,003 as of June 30, 2013 and December 31, 2012, respectively. Accumulated amortization on the loan of these cars as of June 30, 2013 and December 31, 2012 was $37,601 and $30,205, respectively.

Auto loan consists of loans used to purchase vehicles with various monthly principal and interest payments.  The amounts outstanding as of June 30, 2013 and December 31, 2012 consist of the following:

NOTE 11 – COMMITMENTS AND CONTINGENCIES

The Company has leased four parcels of land from the local villages, Yuci city of Shanxi province, PRC. Three of which were leased for 65 years effective September 1, 2009; whereas one was leased for 70 years effective September 09, 2010. The leased land is mountainous and used to plant and grow yew trees. The total space of land under these four leases is 2,252 acres (13,672 Mu). Annual lease payments are approximately $25,975 (RMB163,672) beginning December 31, 2009 through December 31, 2013, and thereafter will decrease to approximately $2,170 (RMB13,672) through the end of the lease term. Lease payments for the six months ended June 30, 2013 and 2012 were expensed.

The Company has leased a parcel of land with area of 9.2 acres (56 mu) in Zibo city of Shandong province, PRC from Ping Yu, an unrelated vendor. The land is used to store yew trees for the Company’s future production. The land was leased for 30 years effective April 3, 2008 with annual payments approximately $10,666 (RMB 67,200) through the end of the lease term on April 2, 2038. Lease payments for the six months ended June 30, 2013 and 2012 were expensed.

NOTE 12 – INCOME TAX

Taxus is a U.S. holding company incorporated in the state of Nevada and does not engage in any business operations. It did not generate any revenues for the six months ended June 30, 2013 and 2012, and therefore there was no income tax provision or benefit for U.S. income tax purpose.

Stand Giant was incorporated in Hong Kong, PRC. It is exempt from taxes on income or capital gains under the tax laws thereof.

The Company’s Chinese subsidiaries and VIEs are governed by PRC’s Income Tax Law and are subject to statutory income tax rate of 25%. There is no provision for income taxes as these operating subsidiaries have incurred operating losses for the period ended June 30, 2013.

FASB ASC 740 (formerly Fin 48), Accounting for Uncertainty in Income Taxes,  clarifies the accounting for income taxes by prescribing a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined in ASC 740 as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company has evaluated its tax position and has not identified any such tax uncertainties, and therefore did not accrue for any such tax liability nor did it recognize any such benefit for the period ended June 30, 2013.

NOTE 13 – SEGMENTS

ASC 280-10 (formerly SFAS 131), “Disclosure about Segments of an Enterprise and Related Information” requires that companies disclose segment data based on how management makes decision about allocating resources to segments and evaluating their performance.

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TAXUS PHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 13 – SEGMENTS (CONTINUED)

The Company has evaluated the structure of its organization and has determined, based on the requirements of ASC 280-10, that the Company has the following three reportable segments, identified based on the nature of products, the type or class of customers, and the methods used to distribute the Company’s products:

Retail pharmacy through operation of Renji Pharmaceuticals;

Retail of dietary supplements (mainly Kunyuan 919 oral solution) through Kunyuan;

Yew tree cultivation, paclitaxel extraction and bonsai sales through Hongshan Pharmaceuticals;

The Company defines its segments as those business units whose operating results are regularly reviewed by the chief operating decision maker (“CODM”) to analyze performance and allocate resources.

For the six months ended June 30, 2013 and 2012, all of the Company’s operations were carried out in one geographical segment – P.R.C.

The following table sets out the Company’s segment information. The "Unallocated" column in the following table contains the reconciliation between the amounts for reportable segments and the consolidated amounts, which consists primarily of corporate items not allocated to the reportable segments, intersegment eliminations. Intersegment sales are accounted for at fair value as if sales were to third parties.

Summarized financial information concerning reportable segments is shown in the following table:

11

TAXUS PHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 13 – SEGMENTS (CONTINUED)

NOTE 14 – STOCK AUTHORIZATION AND ISSUANCE

According to Article III of Taxus Pharmaceuticals, Inc. Certificate of Incorporation filed on February 17, 2012, the Company is authorized to issue two classes of shares to be designated respectively preferred stock and common stock. The total number of shares of preferred stock the Company is authorized to issue is 10,000,000 with a par value of $0.0001 per share. The total number of shares of common stock the Company is authorized to issue is 100,000,000 with a par value of $0.0001 per share.

On March 13, 2012 and March 22, 2012, Taxus issued 9,398,000 shares of common stock for $0.01 per share to 45 individuals. The proceeds from the transaction were $93,980. On March 28, 2012, Taxus entered into a stock exchange agreement with Stand Giant. Pursuant to the stock exchange agreement, Taxus issued an agreement of 13,244,500 common shares in exchange for all of the issued and outstanding shares of Stand Giant. As a result of the stock exchange transaction, Stand Giant became a wholly owned subsidiary of the company. As of June 30, 2013, 22,642,500 shares of common stock were issued and outstanding.

NOTE 15 – EARNINGS (LOSS) PER SHARE

The Company presents earnings (loss) per share on a basic and diluted basis. Basic earnings (loss) per share have been computed by dividing net earnings by the weighted average number of shares outstanding. Diluted earnings (loss) per share have been computed by dividing net earnings by the weighted average number of shares outstanding including the dilutive effect of equity securities. The computation of basic net earnings (loss) per share and diluted net earnings (loss) per share for three months and six months ended June 30, 2013 and 2012 are as follows:

12

TAXUS PHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 15 – EARNINGS (LOSS) PER SHARE (CONTINUED)

NOTE 16 – RISK OF CONCENTRATIONS AND CREDIT RISK

For the six months ended June 30, 2013 and 2012, no single customer accounted for more than 10% of the Company’s sales.

For the six months ended June 30, 2013 and 2012, no single vendor accounted for more than 10% of the Company’s purchases.

Financial instruments which potentially subject the Company to credit risk consist principally of cash on deposit with financial institutions. Management believes that the financial institutions that hold the Company’s cash and cash equivalents are financially sound and minimal credit risk exists with respect to these investments.

NOTE 17 – SUBSEQUENT EVENTS

During the third quarter of 2013, the Company reclassified research and development expenses from general and administrative expenses in its consolidated statements of operations for the three months and six months ended June 30, 2013 and 2012.

In order to further govern the payment of outstanding obligation, Hongshan Pharmaceuticals entered into a supplementary agreement with the prior shareholder of Kunyuan on September 11, 2013. Pursuant to the agreement, Hongshan Pharmaceuticals shall pay $48,600 (RMB 300,000) by September 15, 2013. Then from October 2013, Hongshan Pharmaceuticals shall pay $32,400 (RMB 200,000) per month until the entire balance is paid off. As of September 27, 2013, the outstanding obligation for acquisition was $558,900.

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