CONCENTRATIONS OF BUSINESS AND CREDIT RISK

9 Months Ended

Jul. 31, 2011

Risks and Uncertainties [Abstract]

Concentration Risk Disclosure [Text Block]

4.  CONCENTRATIONS OF BUSINESS AND CREDIT RISK

The Company conducts all of its primary trade in the PRC.  There can be no assurance that the Company will be able to successfully conduct its trade, and failure to do so would have a material adverse effect on the Company’s financial position, results of operations and cash flows. Also, the success of the Company’s operations is subject to numerous contingencies, some of which are beyond management’s control. These contingencies include general economic conditions, price of raw material, competition, governmental and political conditions, and changes in regulations. Because the Company is dependent on foreign trade in the PRC, the Company is subject to various additional political, economic and other uncertainties. Among other risks, the Company’s operations will be subject to risk of restrictions on transfer of funds, domestic and international customs, changing taxation policies, foreign exchange restrictions, and political and governmental regulations.

(1) Cash and cash equivalents

The Company maintains certain bank accounts in the PRC which are not protected by FDIC insurance or other insurance.  Cash balance held in PRC bank accounts to $ 38,321,244 and $27,826,142, as of July 31, 2011 and October 31, 2010, respectively.  No cash balances were restricted as at July 31, 2011 and October 31, 2010.

As of July 31, 2011 and October 31, 2010, substantially all of the Company’s cash and cash equivalents were held by major financial institutions located in the PRC which management believes are of high credit quality.

(2) Sales and trade receivables

The Company provides credits to its clients in the normal course of business and all clients are located in the PRC.  The Company performs ongoing credit evaluations of its clients and maintains allowances for doubtful accounts based on factors surrounding the credit risk of specific clients, historical trends, and other information. There was no client accounted for over 10% of sales revenue during the three months ended July 31, 2011 and there was one client accounted for 10% of total sales revenue during the nine months ended July 31, 2011. The Company’s products are sold throughout the PRC. For three months ended July 31, 2011 and 2010, Botanical anti-depression and nerve-regulation products accounted for 70% and 64%, respectively, of total sales. For nine months ended July 31, 2011 and 2010, botanical anti-depression and nerve-regulation products accounted for 68% and 65%, respectively, of total sales.

(3) Foreign currency

The Company operates in the PRC, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between U.S. dollars and the Chinese currency RMB.

(4) Dividends

Payments of dividends may be subject to some restrictions due to the fact that the operating activities are conducted in a subsidiary residing in the PRC.

(5) Price control

The retail prices of certain pharmaceuticals sold in the PRC, primarily those included in the national and provincial Medical Insurance Catalogs are subject to price controls in the form of fixed prices or price ceilings. As such, the retail prices for certain of the Company’s pharmaceutical products can be adjusted downward or upward from time to time. Price controls did not have a material impact on the Company’s operation during the three and nine months ended July 31, 2011 and 2010.

(6) Cost of goods sold

Cost of goods sold is subject to price fluctuations due to various factors beyond the Company’s control, including, among other pertinent factors, inflation and changes in governmental regulations and programs.  The Company expects cost of goods sold will continue to fluctuate and be affected by inflation in the future.  The Company’s raw materials are purchased from various independent suppliers, and do not rely on any one supplier.