10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 2007

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________.

Commission file number: O-24512

RENHUANG PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Nevada (State or other jurisdiction of incorporation or organization)	88-1273503 (I.R.S. Employer Identification No.)
No. 281, Taiping Road, Taiping District, Harbin, Heilongjiang Province, 150050, P. R. China (Address of principal executive offices)

Registrant's telephone number, including area code 86-451-5762-0378

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

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

Large accelerated filer _________Accelerated filer _________ Non-accelerated filer X

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

Applicable only to issuers involved in bankruptcy proceedings during the preceding five years:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes __ No __

Applicable only to corporate issuers:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of March 12, 2007, there were 35,000,181 shares of common stock, par value $0.001, issued and outstanding.

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Renhuang Pharmaceuticals, Inc.

TABLE OF CONTENTS

PART I

ITEM 1	FINANCIAL STATEMENTS	4
ITEM 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	30
ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	34
ITEM 4	CONTROLS AND PROCEDURES	35
PART II
ITEM 1	LEGAL PROCEEDINGS	37
ITEM 1A	RISK FACTORS	37
ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	37
ITEM 3	DEFAULTS UPON SENIOR SECURITIES	37
ITEM 4	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	37
ITEM 5	OTHER INFORMATION	37
ITEM 6	EXHIBITS	39

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PART I - FINANCIAL INFORMATION

This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on management's beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning possible or assumed future results of operations of the Company set forth under the heading “Management's Discussion and Analysis of Financial Condition or Plan of Operation.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider” or similar expressions are used.

Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. The Company's future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.

ITEM 1Financial Statements

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RENHUANG PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

AS OF JANUARY 31, 2007

(Amounts in United States Dollars)

ASSETS

	January 31, 2007		October 31, 2006
	(Unaudited)		(Audited)
CURRENT ASSETS
Cash and cash equivalents	$	2,786,802	$	1,021,267
Accounts receivable, net (NOTE 5)		10,614,644		7,566,096
Inventories (NOTE 6)		1,629,150		622,144
Prepayments		434,812		102,473
Other receivables, net		1,513		1,143,834
Deferred expenses (NOTE 9)		117,336		115,823
TOTAL CURRENT ASSETS		15,584,257		10,571,637
PROPERTY, PLANT AND EQUIPMENT, NET (NOTE 7)		2,639,300		2,610,285
CONSTRUCTION IN PROGRESS (NOTE 8)		151,718		106,610
TOTAL ASSETS	$	18,375,275	$	13,288,532

The accompanying notes are an integral part of the financial statements

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RENHUANG PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF JANUARY 31, 2007

(Amounts in United States Dollars)

LIABILITIES AND STOCKHOLDERS' EQUITY

	January 31, 2007		October 31, 2006
	(Unaudited)		(Audited)
CURRENT LIABILITIES
Accounts payables and accruals (NOTE 10)
- due to related parties	$	--	$	419,910
- due to third parties		619,917		366,805
Other payables (NOTE 11)
- due to related parties		135,003		--
- due to third parties		1,331,295		1,877,042
TOTAL current LIABILITIES		2,086,215		2,663,757
TOTAL LIABILITIES		2,086,215		2,663,757
COMMITMENTS AND CONTINGENCIES (NOTE 15)
STOCKHOLDERS' EQUITY
Common Stock - Authorized common shares 100,000,000, outstanding number of shares 35,000,181 at par value of 0.001; authorized preferred shares 1,000,000		35,000		35,000
Additional Paid-in capital		6,310,822		6,310,822
Reserves (NOTE 13)		1,610,192		847,133
Retained earnings		8,110,203		3,378,081
Accumulated other comprehensive income		222,843		53,739
TOTAL STOCKHOLDERS' EQUITY		16,289,060		10,624,775
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	18,375,275	$	13,288,532

The accompanying notes are an integral part of the financial statements

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RENHUANG PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

FOR THE THREE MONTHS ENDED JANUARY 31, 2007

(Amounts in United States Dollars, Except for Number of Common Shares)

	(Unaudited)
SALES	$	10,567,586
COST OF SALES		4,572,936
GROSS PROFIT		5,994,650
SELLING AND DISTRIBUTION EXPENSES		105,575
ADVERTISING		9,149
GENERAL AND ADMINISTRATIVE EXPENSES		319,785
DEPRECIATION AND AMORTIZATION		68,294
INCOME FROM OPERATIONS		5,491,847
OTHER INCOME		3,347
OTHER EXPENSES		13
INCOME BEFORE INCOME TAXES		5,495,181
INCOME TAXES		--
NET INCOME		5,495,181
NET INCOME PER COMMON SHARE BASIC AND FULLY DILUTED		0.157
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING		35,000,181

The accompanying notes are an integral part of the financial statements

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RENHUANG PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED JANUARY 31, 2007

(Amounts in United States Dollars)

										Accumulated
			Additional							Other
	Common		Paid-in				Retained			comprehensive		Total
	Stock		capital		Reserves		Earnings			income		Equity
Balance at October 31, 2006 (Audited)	$	35,000	$	6,310,822	$	847,133	$	3,378,081		$	53,739	$	10,624,775
Net income for the period		--		--		--		5,495,181			--		5,495,181
Transfer to reserves		--		--		763,059		(763,059	)		--		--
Other comprehensive income
- foreign currency translation		--		--		--		--			169,104		169,104
Balance at January 31, 2007 (Unaudited)	$	35,000	$	6,310,822	$	1,610,192	$	8,110,203		$	222,843	$	16,289,060

The accompanying notes are an integral part of the financial statements

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RENHUANG PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED JANUARY 31, 2007

(Amounts in United States Dollars)

	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	5,495,181
Adjustments to reconcile net income to net cash from
operating activities :
Depreciation and amortization		68,294
Changes in operating assets and liabilities:
Accounts receivable, net		(3,048,548	)
Inventories		(1,007,006	)
Prepayments		(332,339	)
Other receivables, net		1,142,321
Deferred expenses		(1,513	)
Accounts payable and accruals		(166,798	)
Other payables
- due to third parties		135,003
- due to related parties		(545,746	)
NET CASH FROM OPERATING ACTIVITIES		1,738,849
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment		(97,309	)
Construction in Progress		(45,108	)
NET CASH USED IN INVESTING ACTIVITIES	$	(142,417	)

The accompanying notes are an integral part of the financial statements

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RENHUANG PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

FOR THE THREE MONTHS ENDED JANUARY 31, 2007

(Amounts in United States Dollars)

NET CHANGE IN CASH AND CASH EQUIVALENTS		1,596,432
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		169,103
Cash and cash equivalents, beginning of period		1,021,267
Cash and cash equivalents, end of period	$	2,786,802
SUPPLEMENTARY CASH FLOW DISCLOSURES
Interest paid		--
Income taxes paid		--

The accompanying notes are an integral part of the financial statements

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RENHUANG PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2007

1. REORGANIZATION TRANSACTIONS

On August 11, 2006, the Company performed a one for thirty reverse stock split, rounded up to the nearest whole share.

On September 7, 2006, the Company acquired Harbin Renhuang Pharmaceutical Company Limited, a Corporation incorporated under the laws of the British Virgin Island on January 18, 2006, (the “BVI”) including its 100% owned and only subsidiary, Harbin Renhuang Pharmaceutical Co. Ltd., incorporated under the laws of the People’s Republic of China on February 15, 2006 (“Renhuang China”) in exchange for issuing 29,750,000 shares of the Company's common stock, par value $0.001 per share (the “Common Stock”) to the BVI's stockholders, representing 85% of the Company's capital stock on a fully diluted basis after taking into account the contemplated transaction. This transaction is referred to throughout this report as the “Merger”.

The Merger agreement was filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on August 29, 2006. The foregoing description of the Merger and the transactions contemplated thereby do not purport to be complete and are qualified in their entireties to the Merger agreement.

On August 31, 2006, the Company's Board of Directors approved the Merger.

Upon closing of the Merger, BVI became a wholly owned subsidiary of the Company.

After giving effect to the Merger and the rounding up of shares after reverse stock split on August 11, 2006, the Company had 35,000,181 common shares issued and outstanding and the former stockholders of BVI own approximately 85% of the issued and outstanding Common Stock of the Company. Accordingly, the Merger represented a change in control of the Company.

On May 1, 2006, principal revenue producing activities in Harbin Renhuang Pharmaceuticals Stock Co., Ltd, the predecessor company, have been transferred to Renhuang China at the carrying amounts of the transferor.

On December 5, 2006, the Company’s Board of Directors approved a change in the Company’s fiscal year end from April 30 to October 31, effective with the Company’s Transitional Report on Form 10-K for the period ended October 31, 2006.

For accounting purposes, the Merger has been accounted for as a recapitalization with the Company as the accounting acquiree and the BVI as the accounting acquirer. Upon effectiveness of the Merger, Renhuang China's business plan became the business plan of the Company.

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2. ORGANIZATION AND PRINCIPAL ACTIVITIES

Renhuang Pharmaceuticals, Inc., (“Renhuang”) or the (“Company”) was incorporated in the State of Nevada on August 18, 1988 as Solutions, Incorporated. Since that time, the Company has undergone a series of name changes as follows: Suarro Communications, Inc., e-Net Corporation, e-Net Financial Corp., e-Net.Com Corporation, e-Net Financial.Com Corporation, Anza Capital, Inc. and finally on July 28, 2006, the Company changed its name to Renhuang Pharmaceuticals, Inc.

On March 3, 2006 the Company discontinued its operations and became a “shell” company. As described above, on September 7, 2006, the Company closed the Merger transaction and became a company principally engaged in production and sales of nutraceutical and bio-pharmaceutical products.

Shares of the Company's Common Stock are trading on the NASD-Over the Counter (OTC) Bulletin Board Market under the symbol RHGP.

Unless otherwise provided in this current report, all references in this current report to “we”, “us”, “our company”, “our”, or the “Company” refer to the combined Renhuang Pharmaceuticals, Inc. entity.

The subsidiary company Harbin Renhuang Pharmaceuticals Co., Ltd (“the Subsidiary”) was incorporated at Harbin City in the People’s Republic of China (“the PRC” or “China”) in 1996. The Subsidiary is principally engaged in production and sales of nutraceutical and bio-pharmaceutical products including tablets, drinks and health food. The subsidiary’s extensive sales network covers various provinces, cities, and counties throughout China.

The products are made in the two plant facilities located at Harbin City with specialized machinery under stringent cleanliness and hygienic processes.

The Company is subject to the consideration and risks of operating in the PRC. These include risks associated with the political and economic environment, foreign currency exchange and the legal system in the PRC.

The economy of PRC differs significantly from the economies of the “western” industrialized nations in such respects as structure, level of development, gross national product, growth rate, capital reinvestment, resource allocation, self-sufficiency, rate of inflation and balance of payments position, among others. Only recently has the PRC government encouraged substantial private economic activities. The Chinese economy has experienced significant growth in the past several years, but such growth has been uneven among various sectors of the economy and geographic regions. Actions by the PRC government to control inflation have significantly restrained economic expansion in the recent past. Similar actions by the PRC government in the future could have a significant adverse effect on economic conditions in PRC.

Many laws and regulations dealing with economic matters in general and foreign investment in particular have been enacted in the PRC. However, the PRC still does not have a comprehensive system of laws, and enforcement of existing laws may be uncertain and sporadic.

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The Company’s operating assets and primary sources of income and cash flows are of interests in the PRC. The PRC economy has, for many years, been a centrally-planned economy, operating on the basis of annual, five-year and ten-year state plans adopted by central PRC governmental authorities, which set out national production and development targets. The PRC government has been pursuing economic reforms since it first adopted its “open-door” policy in 1978. There is no assurance that the PRC government will continue to pursue economic reforms or that there will not be any significant change in its economic or other policies, particularly in the event of any change in the political leadership of, or the political, economic or social conditions in, the PRC. There is no assurance that the Company will not be adversely affected by any such change in governmental policies or any unfavorable change in the political economic or social conditions, the laws or regulations, or the rate or method of taxation in the PRC.

As many of the economic reforms which have been or are being implemented by the PRC government are unprecedented or experimental, they may be subject to adjustment or refinement, which may have adverse effects on the Company. Further, through state plans and other economic and fiscal measures, it remains possible for the PRC government to exert significant influence on the PRC economy.

The Company’s financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents, accounts receivable from customers and other receivables. Cash and cash equivalents are maintained with major banks in the PRC. The company and other public business activity is primarily with customers in the PRC.

Any devaluation of the Renminbi (RMB) against the United States dollar would consequently have adverse effects on the Company’s financial performance and asset values when measured in terms of the United States dollar. Should the RMB significantly devalue against the United States dollar, such devaluation could have a material adverse effect on the Company’s earnings and the foreign currency equivalent of such earnings. The Company does not hedge its RMB - United States dollar exchange rate exposure.

3. BASIS OF PRESENTATION

The consolidated financial statements are prepared in accordance with generally accepted accounting principles of the United States of America and include the financial statements of the Company and its wholly-owned subsidiary, Harbin Renhuang Pharmaceutical Company Limited and Harbin Renhuang Pharmaceutical Co. Ltd.

These consolidated financial statements should be read in conjunction with annual audited financial statements and the notes thereto included in the Company’s annual report on Form 10-KSB, and other reports filed with the SEC.

The accompanying unaudited interim financial statements reflect all adjustments of a normal and recurring nature which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year taken as a whole.

4. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

A.CASH AND CASH EQUIVALENTS

The Company considers cash and cash equivalents to include cash on hand and demand deposits with banks with an original maturity of three months or less.

B.ACCOUNTS RECEIVABLE

Trade receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred. An account is considered past due after ninety (90) days from the invoice date. The allowance on the doubtful accounts was $53,340 as at January 31, 2007.

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C.INVENTORIES

Inventories are stated at the lower of cost and net realizable value. Cost is calculated on the weighted average basis and includes all costs to acquire and other costs incurred in bringing the inventories to their present location and condition. The Company evaluates the net realizable value of its inventories on a regular basis and records a provision for loss, if material, to reduce the computed weighted average cost if it exceeds the net realizable value.

D.PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are carried at cost. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized.

When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition.

The Company recognizes depreciation of its property, plant and equipment on a straight-line basis over the estimated useful lives of the assets based on their costs less 5% residual value. The useful lives for property, plant and equipment are estimated as follows:

Plant and machinery	10 years
Office equipment and furnishings	5 to10 years
Motor vehicles	5 to10 years

E.FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of financial instruments including cash, accounts receivables, other receivables, accounts payable, other payables and accrued expenses and debts, approximates their fair value at January 31, 2007 due to the relatively short-term nature of these instruments.

F. CONSTRUCTION IN PROGRESS

Construction in progress represents direct costs of construction or acquisition and design fees incurred. Capitalization of these costs ceases and the construction in progress is transferred to 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.

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G.INCOME TAXES

The Company accounts for income tax under the provisions of Statements of Financial Accounting Standards No. 109, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Deferred income taxes are provided using the liability method. Under the liability method, deferred income taxes are recognized for all significant temporary differences between the tax and financial statement bases of assets and liabilities. In addition, the Company is required to record all deferred tax assets, including future tax benefits of capital losses carried forward, and to record a “valuation allowance” for any deferred tax assets where it is more likely than not that the asset will not be realized.

In accordance with the relevant income tax laws applicable to wholly foreign owned enterprises (WFOE) operating in PRC, the profits of the Company are fully exempt from income tax for two years (“tax holiday”), commencing from the first profit making year of operations, followed by a 50% exemption for the immediate next three years (“tax preferential period”), after which the profits of the Company will be taxable at the full rate, currently 33%.

Had this tax holiday not been available, income tax expense would have increased by approximately US$1,813,410 for the quarter ended January 31, 2007.

H. RELATED PARTIES

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities.

I. IMPAIRMENT OF LONG-TERM ASSETS

In accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company’s policy is to record an impairment loss against the balance of a long-lived asset in the period when it is determined that the carrying amount of the asset may not be recoverable. The determination is based on an evaluation of such factors as the occurrence of a significant event, a significant change in the environment in which the business assets operate or if the expected future non-discounted cash flows of the business was determined to be less than the carrying value of the assets. If impairment is deemed to exist, the assets will be written down to fair value. Management also evaluates events and circumstances to determine whether revised estimates of useful lives are warranted. As of January 31, 2007, management expects its long-lived assets to be fully recoverable.

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J. FOREIGN CURRENCY TRANSLATION

Harbin Renhuang Pharmaceuticals Co., Ltd. maintains its books and accounting records in Renminbi (“RMB”), the PRC's currency, being the functional currency.

Foreign currency transactions in RMB are reflected using the temporal method. Under this method, all monetary items are translated into the functional currency at the rate of exchange prevailing at the balance sheet date. Non-monetary items are translated at historical rates. Income and expenses are translated at the rate in effect on the transaction dates. Transaction gains and losses if any, are included in the determination of net income (loss) for the period.

In translating the financial statements of the Company from its functional currency into its reporting currency in United States dollars, balance sheet accounts are translated using the closing exchange rate in effect at the balance sheet date and income and expense accounts are translated using an average exchange rate prevailing during the reporting period. Adjustments resulting from the transaction, if any, are included in accumulated other comprehensive income (loss) in stockholders’ equity.

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation. The Foreign exchange rate between the RMB and the United States dollar on January 31, 2007 and the average through October 31, 2006 to January 31, 2007 are:

Balance Sheet- Year end RMB : US$ exchange rate	7.7776:1
Operating Statement: Average quarterly RMB : US$ exchange rate	7.8262:1

K. USE OF ESTIMATES

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 financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates primarily related to the realizable value of accounts receivable, inventories, and the useful lives of plant and equipment. Actual results when ultimately realized could differ from those estimates.

L. REVENUE RECOGNITION

The Company recognizes revenue when the significant risks and rewards of ownership have transferred pursuant to PRC law, including factors such as when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed and determinable, and collectibility is reasonably assured. Renhuang generally recognizes products sales when the product is shipped. In the current period, no returns of any significance have occurred.

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The Company provides a rebate to the sales agents as an incentive plan. The rebate rate is setup for each product. When revenue is recognized, the revenue is reduced by the amount of rebate. On average, the rebate rate is 20% of gross revenue.

In accordance with the provisions of Staff Accounting Bulletin No. 104, revenue is recognized when merchandise is shipped, title passes to the customer and collectibility is reasonably assured.

M. CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of trade accounts receivable. The Company performs ongoing credit evaluations with respect to the financial condition of its creditors, but does not require collateral. In order to determine the value of the Company's accounts receivable, the Company records a provision for doubtful accounts to cover probable credit losses. Management reviews and adjusts this allowance periodically based on historical experience and its evaluation of the collectibility of outstanding accounts receivable

N. RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred. Engineers and technical staff are involved in the production of our products as well as on-going research, with no segregation of the portion of their salaries relating to research and development from the portion of their salaries relating to production. The total salaries are included in cost of sales. No research and development costs were incurred during this period.

.

O. ADVERTISING

Advertising costs consist primarily of promoting the Company and the Company’s products through printed advertisements in trade publications and television. Advertising costs are expensed as incurred. They are separately disclosed in income statements.

P. CLASSIFICATION OF OPERATING COSTS AND EXPENSES

The Company records its operating costs and expenses generally with the following classifications:

Cost of Goods Sold

Cost of goods sold consists primarily of raw materials, direct labor and manufacturing overhead. Manufacturing overhead includes an allocation of purchasing and receiving costs, inspection fees, warehousing utilities, supplies, factory and equipment repairs and maintenance, safety equipment and supplies, packing materials, and loading fees.

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Selling Expenses

Selling expenses includes primarily of transportation and freight charges of delivering to customers, travel and entertainment, maintenance, payroll for sales staff, payroll taxes and benefits, advertising and promotion, telephone and utilities, insurance, sales commissions and exports fees.

General and Administrative Expenses

General and administrative expenses includes primarily of general office expenses, travel and entertainment, transportation, administrative payroll, payroll taxes and benefits, maintenance, telephone, utilities, printing, professional fees, continuing education, licenses and fees.

Q. SEGMENTS

No business segment analysis is provided for the quarter ended January 31, 2007, as no revenue and no income from operations is attributable to the segment other than sales of pharmaceutical products.

Further, no geographical segment analysis is provided for the quarter ended January 31, 2007, as no revenue and no income from operations is attributable to the segment other than the Mainland China.

R. EARNINGS PER SHARE

Basic and diluted earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period since the Company does not have any stock options, warrants or other dilutive instruments. The weighted average outstanding common shares reflect the effects of the share exchange transaction and reverse stock split as described in Note 1.

S. COMPREHENSIVE INCOME

The Company has adopted the provisions of Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income” (“SFAS No. 130”). SFAS No. 130 establishes standards for the reporting and display of comprehensive income, its components and accumulated balances in a full set of general-purpose financial statements. SFAS No. 130 defines comprehensive income to include all changes in equity except those resulting from investments by owners and distributions to owners, including adjustments to minimum pension liabilities, accumulated foreign currency translation, and unrealized gains or losses on marketable securities. In the current period, the only component of other comprehensive income is foreign translation gain of $169,104, which has been recorded as the accumulative other comprehensive income in the balance sheet. Consequently, the comprehensive income for the quarter ended January 31, 2007 was $5,664,285.

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T. RECENT PRONOUNCEMENTS

In November 2005, the FASB issued Staff Position (“FSP”) FAS115-1/124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, which addresses the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. This FSP also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in this FSP amends FASB Statements No. 115, Accounting for Certain Investments in Debt and Equity Securities, and No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations, and APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock. This FSP is effective for reporting periods beginning after March 15, 2005. We do not believe the adoption of this FSP will have a material impact on our financial statements.

In November 2005, the FASB issued FSP FAS123(R)-3, Transition Election to Accounting for the Tax Effects of Share-Based Payment Awards. This FSP requires an entity to follow either the transition guidance for the additional-paid-in-capital pool as prescribed in SFAS No. 123(R), Share-Based Payment, or the alternative transition method as described in the FSP. An entity that adopts SFAS No. 123(R) using the modified prospective application may make a one-time election to adopt the transition method described in this FSP. An entity may take up to one year from the later of its initial adoption of SFAS No. 123(R) or the effective date of this FSP to evaluate its available transition alternatives and make its one-time election. This FSP became effective in November 2005. We do not believe that the adoption of this FSP will have a material impact on our financial statements.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS 154”). SFAS 154 changes the requirements for the accounting for and reporting of a change in accounting principle. These requirements apply to all voluntary changes and changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS 154 is effective for fiscal years beginning after December 15, 2005. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ended October 31, 2007. The Company is currently evaluating the impact of SFAS 154 on its consolidated financial statements.

In February 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 155, “Accounting for Certain Hybrid Financial Instruments - an amendment of FASB Statement No. 133 and 140” (“SFAS 155”). SFAS 155 resolves issues addressed in Statement 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.” SFAS 155 is effective for all financial instruments acquired or issued after the beginning of the first fiscal year that begins after September 15, 2006. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ended October 31, 2007. The Company is currently evaluating the impact of SFAS 155 on its consolidated financial statements.

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In March 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 156, “Accounting for Servicing of Financial Assets - an amendment of FASB Statement No. 140” (“SFAS 156”). SFAS 156 amends FASB Statement No. 140 with respect to the accounting for separately recognized servicing assets and servicing liabilities. SFAS 156 requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practical. SFAS 156 is effective as of the beginning of the first fiscal year that begins after September 15, 2006. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ended October 31, 2007. The Company is currently evaluating the impact of SFAS 156 on its consolidated financial statements.

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS 157, “Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Renhuang is currently evaluating the impact the adoption of this statement could have on is financial condition, results of operations or cash flows.

5. ACCOUNTS RECEIVABLE

The Company's accounts receivable as at January 31, 2007 are summarized as follows:

	January 31, 2007		October 31, 2006
Accounts receivable	$	10,667,984	$	7,566,096
Less: Allowance for doubtful accounts		53,340		--
Accounts receivable, net	$	10,614,644	$	7,566,096

6. INVENTORIES

The Company's inventories as at January 31, 2007 are summarized as follows:

	January 31, 2007		October 31, 2006
Raw materials	$	1,513,067	$	569,349
Finished goods		116,083		52,795
	$	1,629,150	$	622,144

Raw material is mainly comprised of Chinese herbs, herbal related ingredients and packing materials, and they were for manufacturing the products such as tablets and drinks.

The Company does not have obsolete inventories as of January 31, 2007 and October 31, 2006.

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7. PROPERTY, PLANT AND EQUIPMENT

	January 31, 2007		October 31, 2006
Cost:-
Plant and machinery	$	2,812,072	$	2,718,407
Office equipment and furnishings		9,508		3,966
Motor vehicles		19,929		19,672
		2,841,509		2,742,045
Less: Accumulated depreciation:-
Plant and machinery		201,204		131,405
Office equipment and furnishings		216		44
Motor vehicles		789		311
		202,209		131,760
Net book value	$	2,639,300	$	2,610,285

Depreciation expenses relating to property, plant and equipment were $68,294 for the quarter ended January 31, 2007.

8. CONSTRUCTION IN PROGRESS

The balance of construction in progress of a warehouse is $151,718 and $106,610 as at January 31, 2007 and October 31, 2006 respectively. Pursuant to the contract, the project was supposed to be complete by October, 2006, however, due to severe weather conditions, the completion date of the above project has been delayed.

9. DEFERRED EXPENSES

The deferred expenses are related to the cost of fund raising, which is disclosed in Note 17 subsequent event.

10. ACCOUNTS PAYABLES AND ACCRUALS

The balances over 10% of the total balance as at January 31, 2007 are made up of $128,574, $102,411 and $77,081, which are accounted for 21%, 16% and 12% of the total balance respectively.

The balances as at October 31, 2006 includes $419,910 payable to a related party on the purchase of plant raw materials, which accounted for 66% of the total payable balance. Another account payable balance over 10% is $93,664, or 15% of the total payable balance.

The suppliers from whom the purchased amount is over 10% of the total purchase for the three months ended January 31, 2007 are listed as:

Supplier A:	$1,089,783	29%
Supplier B:	$ 574,114	15%
Supplier C:	$ 467,629	12%
Supplier D:	$ 379,789	10%

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11. OTHER PAYABLES

As at January 31, 2007, payable to related parties includes the rental payable of $135,003. Payable to third parties includes sales rebate payable of $637,753, VAT payable of $202,189, professional fee payable $307,500, and payroll payable $183,852 as of January 31, 2007.

The balance as at October 31, 2006 includes sales, rebate payable of $1,031,101, VAT payable of $419,121, professional fee payable of $302,500 and payroll payable of $124,320.

12. INCOME TAXES

The Company is subject to state and local income taxes within the PRC at the applicable tax rate as reported in their PRC statutory financial statements in accordance with the relevant income tax laws.

For the year of 2006 and 2007, the Company was granted tax holiday and concession and is entitled to full exemption from corporation income taxes up to December 2007. From 2008 onwards, the Company also receives a special income tax rate of 15% as it is wholly foreign owned company where there is tax exemption for certain enterprises.

13. RESERVES

The reserve funds at January 31, 2007 are comprised of the following:

	January 31, 2007		October 31, 2006
Statutory surplus reserve fund	$	1,073,461	$	564,756
Public welfare fund		536,731		282,377
	$	1,610,192	$	847,133

Pursuant to the relevant laws and regulations of the PRC, the profits of the Company, which are based on their PRC statutory financial statements, are available for distribution in the form of cash dividends after they have satisfied all the PRC tax liabilities, provided for losses of previous years, and made appropriations to reserve funds, as determined by the Board of Directors in accordance with the PRC accounting standards and regulations.

As stipulated by the relevant laws and regulations for enterprises operating in the PRC, companies are required to make annual appropriations to two reserve funds, consisting of the statutory surplus and public welfare funds. In accordance with the relevant PRC regulations and the articles of association of the respective companies, the companies are required to allocate a percentage of their profits after taxation, as determined in accordance with the PRC accounting standards applicable to the companies, to the statutory surplus reserve until such reserve reaches 50% of the registered capital of the companies.

Net income as reported in the US GAAP financial statements differs from that as reported in the PRC statutory financial statements. In accordance with the relevant laws and regulations in the PRC, the profits available for distribution are based on the statutory financial statements. If the Company has foreign currency available after meeting its operational needs, it may make its profit distributions in foreign currency to the extent foreign currency is available. Otherwise, it is necessary to obtain approval and convert such distributions at an authorized bank.

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14. RELATED PARTY TRANSACTIONS

The Company had the following significant related party transactions during the period:

n   Machinery and equipment of $2,700,062 was transferred from Harbin Renhuang Pharmaceutical Stock Co. Ltd., with which the Company is under the common control, as part of the paid - in capital of the Company. The machinery and equipment were transferred at the carrying amounts of the transferor.

n   The Company rented property and plant from its Predecessor Harbin Renhuang Pharmaceutical Stock Co. Ltd. The lease term is from May 1, 2006 to April 30, 2007, with monthly rental payment of $44,722. The rental is fair value as appraised by a third party property company.

15. COMMITMENTS AND CONTINGENCIES

A. CAPITAL AND LEASE COMMITMENTS

As of January 31, 2007, the Company has the following significant capital and lease commitments outstanding:

The Company rented property and plant from Harbin Renhuang Pharmaceutical Stock Co. Ltd. The lease term is from May 1, 2006 to April 30, 2007, with monthly rental payment $44,722. The rental is fair value as appraised by a third party property company.

B. LEGAL PROCEEDINGS

The Company is not currently involved in any litigation. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of the Company.

16. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS

The Company faces a number of risks and challenges since its operations are in the PRC. 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. 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 and remittance abroad, and rates and methods of taxation, among other things.

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17. SUBSEQUENT EVENT

On March 3, 2007, the Company acquired all the assets and assumed a bank loan with accrued interest of Qingyang Extracting Factory, from Zhongfa Industrial Group Yerui Pharmaceutical Co., Ltd. for a total amount of RMB 3.7 million or approximately USD $480,000. The assets acquired included inventories, customer purchase orders, accounts receivables, corporate name, patents, trademarks, equipment, customer lists and records and other assets that are used or held for use in connection with Business of Qingyang Extracting Factory. The Company paid USD $310,000 in cash and assumed a bank loan with China Agriculture Bank in the principal amount of USD $140,000 and accrued interest of USD $30,000 collateralized by the acquired assets. The transaction closed on March 3, 2007, and the Company has paid for the cash portion of the consideration USD $310,000 (RMB 2,415,000).

18. COMPARATIVE FINANCIAL INFORMATION

As discussed in Note 1- reorganization transactions, the Company acquired Harbin Renhuang Pharmaceutical Company Limited and its wholly owned subsidiary, Harbin Renhuang Pharmaceutical Co., Ltd.

The comparative numbers are results of operations of Harbin Renhuang Pharmaceutical Stock Co. Ltd. from November 1, 2005 to January 31, 2006.

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HARBIN RENHUANG PHARMACEUTICALS, INC.

BALANCE SHEET

AS OF JANUARY 31, 2006

(Amounts in United States Dollars)

ASSETS

	January 31, 2006
	(Unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	1,386,447
Trade receivables, net		6,267,018
Inventories		2,956,977
TOTAL CURRENT ASSETS		10,610,442
PROPERTY, PLANT AND EQUIPMENT, NET		12,143,464
TOTAL ASSETS	$	22,753,906

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RENHUANG PHARMACEUTICALS, INC.

BALANCE SHEET

AS OF JANUARY 31, 2006

(Amounts in United States Dollars)

LIABILITIES AND STOCKHOLDERS' EQUITY

	January 31, 2006
	(Unaudited)
CURRENT LIABILITIES
Accounts payables and accruals	$	1,817,653
Bank loans		3,089,023
Other payables		2,496,891
TOTAL CURRENT LIABILITIES		7,403,567
NON-CURRENT LIABILITIES
Long-term bank loan		3,721,715
TOTAL LIABILITIES		11,125,282
STOCKHOLDERS' EQUITY
Register capital		9,665,922
Reserves		1,249,367
Retained earnings		470,847
Accumulated other comprehensive income		242,488
TOTAL STOCKHOLDERS' EQUITY		11,628,624
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	22,753,906

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RENHUANG PHARMACEUTICALS, INC.

STATEMENT OF INCOME

FOR THE THREE MONTHS ENDED JANUARY 31, 2006

	(Unaudited)
SALES	$	9,401,684
COST OF SALES		(4,942,186	)
GROSS PROFIT		4,459,498
SELLING AND DISTRIBUTION EXPENSES		(108,078	)
ADVERTISING		(1,954,509	)
GENERAL AND ADMINISTRATIVE EXPENSES		(574,729	)
RESEARCH AND DEVELOPMENT		(713,621	)
AMORTIZATION AND DEPRECIATION		(144,901	)
INCOME/(LOSS) FROM OPERATIONS		963,660
FINANCE COST		(56,366	)
OTHER INCOME		4,767
GOVERNMENT GRANT		154,294
INCOME BEFORE INCOME TAXES		1,066,355
INCOME TAXES		--
NET INCOME	$	1,066,355

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RENHUANG PHARMACEUTICALS, INC.

STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED JANUARY 31, 2006

(Amounts in United States Dollars)

	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,066,355
Adjustments to reconcile net income to net cash used in
operating activities :
Depreciation and amortization		144,901
Changes in operating assets and liabilities:
Trade receivables, net		(2,211,371	)
Inventories		556,346
Prepayments		442,826
Other receivables, net		377,206
Accounts payable and accruals		720,734
Other payables		(1,178,570	)
NET CASH USED IN OPERATING ACTIVITIES		(81,573	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment		(494,127	)
NET CASH USED IN INVESTING ACTIVITIES	$	(494,127	)

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RENHUANG PHARMACEUTICALS, INC.

STATEMENT OF CASH FLOWS (CONTINUED)

FOR THE THREE MONTHS ENDED JANUARY 31, 2006

(Amounts in United States Dollars)

CASH FLOWS FROM FINANCING ACTIVITIES:
Inception of bank loans, net		613,415
Due to a director		(756,350	)
Due to related parties		(1,363,411	)
NET CASH USED IN FINANCING ACTIVITIES		(1,506,346	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(2,082,046	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		29,091
Cash and cash equivalents, beginning of period		3,439,402
Cash and cash equivalents, end of period	$	1,386,447
SUPPLEMENTARY CASH FLOW DISCLOSURES
Interest paid	$	59,958
Income taxes paid	$	--

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ITEM 2Managements Discussion and Analysis of Financial Condition and Results of Operations.

Overview

The following discussion of the financial condition and results of operation of Renhuang Pharmaceuticals, Inc. should be read in conjunction with the financial statements and the notes to those statements included in this Quarterly Report on Form 10-Q. This discussion includes forward-looking statements that involve risk and uncertainties. As a result of many factors, actual results may differ materially from those anticipated in the forward-looking statements.

As of March 3, 2006 we discontinued our previous operations as a company specializing in the providing of home financing through the brokerage of residential home loans. On September 7, 2006, we acquired 100% of the issued and outstanding shares of Harbin Renhuang Pharmaceutical Company Limited, a corporation incorporated under the laws of the British Virgin Islands, (‘‘BVI’’), whose only assets are 100% of Harbin Renhuang Pharmaceutical Co. Ltd., incorporated under the laws of the People’s Republic of China (“Renhuang China”) mainly focused on the research, production and sales of traditional Chinese and Western medical and bio-pharmaceutical products in China.

On May 1, 2006, Harbin Renhuang Pharmaceutical Stock Co. Ltd., (“Old Renhuang”) transferred the majority of its operating assets to Renhuang China, with the exception of the buildings Old Renhuang owns (including where we rent our office space and production facilities), and Old Renhuang’s account receivables, inventories and other assets with zero or insignificant value. The principal business activities of Renhuang remained unchanged. On March 3, 2006, Renhuang Medicine for Animals Co. Ltd. a company controlled by our President and Chief Executive Officer, Mr. Li Shaoming, invested 25 million RMB (about US $3.3 million) in cash in Renhuang China.

Our pharmaceutical products are distributed through more than 60 sales offices with more than 2,000 commission-based sales people. Upon the effectiveness of the Merger, we adopted the business of Renhuang China, which we have continued as our sole line of business.

Upon closing of the Merger, BVI and its subsidiary Renhuang China became our wholly owned subsidiaries. The Former stockholders of BVI own approximately 85% of our issued and outstanding common stock.

Since we will operate Renhuang China as our sole line of business, the analysis of the pro forma financial statements for the three months ended on January 31, 2006 is the operation of Harbin Renhuang Pharmaceutical Co, Ltd. (Renhuang China).

Reverse Merger

Our acquisition of the BVI company and its subsidiary Renhuang China was accounted for as a reverse merger, because, after giving effect to the share exchanges, the former stockholders of BVI hold a majority of our outstanding common stock on a voting and fully diluted basis. As a result of the share exchanges, Renhuang was deemed to be the acquirer for accounting purposes. Accordingly, the financial statements presented are those of Renhuang China for all periods prior to our acquisition of the BVI company on September 7, 2006, and the financial statements of the consolidated companies from the acquisition date forward.

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Change in Fiscal Year

On December 5, 2006, our Board of Directors approved the change of our fiscal year end from April 30 to October 31. As a result we filed a Transitional Report for the six months ended October 31, 2006 on Form 10-K. For Old Renhuang’s three month comparative numbers for the same period in 2006, see Note 18 to the financial statements filed attached hereto. For our numbers from the same period one year ago (when we were Anza Capital, Inc.) please see our Quarterly Report on Form 10-Q for the three months ended January 31, 2006.

Since the change in our fiscal year occurred in conjunction with our shift from a shell company to a company specializing in the research, production and sales of traditional Chinese and Western medical and bio-pharmaceutical products in China our previous operations are not relevant to our current operations and our previous operations are covered in our previous Quarterly Reports on Form 10-Q, therefore, this discussion focuses on the three month period from November 1, 2006 to January 31, 2007 and a comparison the Old Renhuang’s financial statements for the same period in 2006 (see Note 18 to the attached financial statements for Old Renhuang’s unaudited financial statements for the three months ended January 31, 2006).

Three Months Ended January 31, 2007 Compared to Three Months Ended January 31, 2006

Introduction

For the three months ended January 31, 2007, we generated $10,567,586 in revenues on cost of sales of $4,572,936. With these revenues and cost of sales for the three months ended January 31, 2007, we had a net income from operations and a net income attributable to shareholders of $5,495,181. As noted above, we acquired the majority of our current operations from Old Renhuang. For the three months ended January 31, 2006, Old Renhuang had revenues of $9,401,684, on cost of sales of $4,942,186. With these revenues and costs of sales Old Renhuang had a net income from operations and a net income attributable to shareholders of $1,066,355.

Revenues, Expenses and Profit from Operations

	Three Months  Ended January 31, 2007			Three Months Ended January 31, 2006 (Old Renhuang)
Revenue	$	10,567,586		$	9,401,684
Cost of Sales		(4,572,936	)		(4,942,186	)
Selling and Distribution Expenses		105,575			(108,078	)
Advertising Expenses		9,149			(1,954,509	)
General and Administrative Expenses		319,785			(574,729	)
Research and Development		--			(713,621	)
Depreciation and Amortization		68,294			(144,901	)
Other Income/(Expenses)		3,334			102,695
Net Income	$	5,495,181		$	1,066,355

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Revenues

Our revenues of $10,567,586 increased by over 12.4% when compared to Old Renhuang’s revenues from the same period one year ago of $9,401,684. Our revenues for the three months ended January 31, 2007 consisted primarily of sales of the following products: Acanthopanax products, Shark Power Health Care products, and other Chinese traditional medical products. The value percentage on the sales of those products are 51%, 18% and 31%, respectively.

Cost of Sales

Our cost of sales for the three months ended January 31, 2007, were $4,572,936, representing 43.3% of revenue and consisted primarily of raw material, labor and production costs, compared to Old Renhuang’s cost of sales for the same period one year ago of $4,942,186, representing approximately 52.6% of sales in that period. The improvement of the percentage of cost to revenue is due to the economy of scales resulted from the growth of the production and sales. Costs allocated to the aforementioned products, Acanthopanax products, Shark Power Health Care products, and other Chinese traditional medical products, are 48%, 7% and 45%, respectively.

Selling and Distribution Expenses

Our selling and distribution expenses are those expenses we have related to the actual sales of our products and the costs we incur in distributing those products. For the three-month period ended January 31, 2007, our selling and distribution expenses were $105,575, compared to Old Renhuang’s selling and distribution expenses of $108,078, for the same period one year ago.

Advertising Expenses

For the three months ended January 31, 2007, we had advertising expenses of $9,149. These advertising expenses were primarily related to the advertising of Acanthopanax. Old Renhuang’s advertising expenses were $1,954,509 for the same period one year ago. This significant decrease was due to the fact Old Renhuang had a more aggressive advertising strategy a year ago in order to increase name recognition in the South of China.

General and Administrative Expenses

Our general and administrative expenses were $319,785 for the three-month period ended January 31, 2007, compared to $574,729 during the same period one year ago for Old Renhuang. Of our current $319,785 general and administrative expenses, the primary expenses were as follows: $34,680 for traveling expenses, $134,093 for payroll, and $51,568 for office expenses. While for the same period one year ago, the expense include: $83,875 for traveling expenses, $90,482 for payroll and $137,956 for office expenses, and inventory obsolescence of $167,941.

Research and Development

For the three months ended January 31, 2007, we spent $0 on research and development compared to $713,621 for Old Renhuang during the same period one year ago. Our research and development expenses were significantly less when compared to Old Renhuang during the same period one year ago because the majority of the costs related to R&D activities are upfront one time payments paid to universities and research institutions, and thus, R&D expenses were incurred and recorded by Old Renhuang. For the current period the Company does not have new significant R&D projects.

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Depreciation and Amortization

We had depreciation and amortization expenses of $68,294 for the three months from November 1, 2006 to January 31, 2007, which related to property, plant and equipment. This is compared to $144,901 for Old Renhuang for the same period one year ago, which included depreciation on buildings that were not transferred to the Company.

Net Income (Loss) from Operations

Our net income for the three months ended January 31, 2007, was $5,495,181, which increased by over 81% when compared to $1,066,355 for Old Renhuang for the same period one year ago. This increase in net income compared to Old Renhuang for the same period one year ago is primarily due to a 12% increase in sales and a decrease in our costs and expenses for the three months ended January 31, 2007, primarily a significant decrease in advertising costs, as discussed above.

Liquidity and Capital Resources

Introduction

Our cash, current assets, total assets, current liabilities, and total liabilities as of January 31, 2007 and 2006 (Old Renhuang), respectively, are as follows:

	January 31, 2007		January 31, 2006 (Old Renhuang)
Cash and Cash Equivalents	$	2,786,802	$	1,386,447
Total Current Assets		15,584,257		10,610,442
Total Assets		18,375,275		22,753,906
Total Current Liabilities		2,086,215		7,403,567
Total Liabilities	$	2,086,215	$	11,125,282

Sources and Uses of Cash

Operations

Net cash from operating activities was $1,738,849 for the three months ended January 31, 2007, compared to net cash used in operating activities of $81,573 for Old Renhuang for the three months ended January 31, 2006. Our net cash used in operating activities for the current three month period was primarily ($3,048,548) in net accounts receivables, ($1,007,006) in inventories, $1,142,321 in other net receivables, ($166,798) in total accounts payable and accruals, and ($410,743) in other payables.

Investments

Net cash used in investing activities was ($142,417) for the three months ended January 31, 2007, compared to ($497,127) for Old Renhuang for the same period one year ago. For the three months ended January 31, 2007, our cash used in investing activities related to the acquisition of property, plant and equipment in the amount of ($97,309) and construction in progress in the amount of ($45,108).

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Financing

Net cash from financing activities was $0 for the three months ended January 31, 2007, compared to net cash used in financing activities in the amount of $1,506,346 for Old Renhuang for the three months ended January 31, 2006. The contributors to the cash used in financing activities during three months ended January 31, 2006 included inception of bank loans for $613,415, payable to related parties of ($1,363,411), and payable to a director of ($756,350).

Debt Instruments, Guarantees, and Related Covenants

The Company does not have any long term debt and no significant short term debt, and has not entered into any guarantee arrangements or other related covenants.

Critical Accounting Policies

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. As such, in accordance with the use of accounting principles generally accepted in the United States of America, our actual realized results may differ from management’s initial estimates as reported. A summary of our significant accounting policies are located in the notes to the financial statements which are an integral component of this filing.

Off-balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Contractual Obligations

	Payments due by period
Obligations	Total		1 Year		1-3 Years		3-5 Years		5 Years
Long-Term Debt Obligations		-0-		-0-		-0-		-0-		-0-
Capital Lease Obligations		-0-		-0-		-0-		-0-		-0-
Operating Lease Obligations	$	134,165	$	134,165		-0-		-0-		-0-
Purchase Obligations		-0-		-0-		-0-		-0-		-0-
Other Long-Term Liabilities		-0-		-0-		-0-		-0-		-0-
Total Contractual Obligations		-0-		-0-		-0-		-0-		-0-

As noted above, we do lease office space from Old Renhuang, but we rent the space pursuant to a one year lease and therefore, in accordance with GAAP, we have not capitalized this expense.

ITEM 3Quantitative and Qualitative Disclosures About Market Risk

Our primary operations are located in China. As a result we are exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to certain sales and product purchases. We are also exposed to foreign currency gains and losses resulting from domestic transactions that are not denominated in U.S. dollars, and to fluctuations in interest rates related to our variable rate debt. Furthermore, we are exposed to gains and losses resulting from the effect that fluctuations in foreign currency exchange rates have on the reported results in our consolidated financial statements due to the translation of the operating results and financial position.

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Our primary financial instruments are cash in banks and money market instruments. We do not believe that these instruments are subject to material potential near-term losses in future earnings from reasonably possible near-term changes in market rates or prices. We do not have derivative financial instruments for speculative or trading purposes. We are not currently exposed to any material currency exchange risk.

ITEM 4Controls and Procedures

Evaluation of disclosure controls and procedures

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation, with the participation of our Chief Executive Officer of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of January 31, 2006, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer have concluded that as of January 31, 2007, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below.

In light of the material weaknesses described below, we performed additional analysis and other post-closing procedures to ensure our consolidated financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management has identified the following two material weaknesses which have caused management to conclude that, as of January 31, 2007, our disclosure controls and procedures were not effective at the reasonable assurance level:

We were unable to meet our requirements to timely file our Transitional Report on Form 10-K for the six months ended October 31, 2006. Management evaluated the impact of our inability to timely file periodic reports with the Securities and Exchange Commission on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted in the inability to timely make these filings represented a material weakness.

We did not maintain a sufficient complement of finance and accounting personnel with adequate depth and skill in the application of generally accepted accounting principles. In addition, we did not maintain a sufficient complement of finance and accounting personnel to handle the matters necessary to timely file our Transitional Report Form 10-K for the six months ended October 31, 2006. Management evaluated the impact of our lack of sufficient finance and accounting personnel on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted in our lack of sufficient personnel represented a material weakness.

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To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.

Remediation of Material Weaknesses

To remediate the material weaknesses in our disclosure controls and procedures identified above, subsequent to October 31, 2006, in addition to working with our independent auditors, we accepted the resignation of our Chief Financial Officer on January 25, 2007, appointed an interim Chief Financial Officer that is familiar with our operations and generally accepted accounting principals, and we are conducting a search for new permanent Chief Financial Officer. In conjunction with the hiring of a new Chief Financial Officer we will reassess our internal control structure and procedures for financial reporting to ensure they are sufficient.

Changes in Internal Control over Financial Reporting

Except as noted above, there were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal six months that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1Legal Proceedings

We are not a party to, or threatened by, any litigation or procedures.

ITEM 1ARisk Factors

There are no material changes to the risk factors in our most recent Transitional Report on Form 10-K/A for the fiscal year ended October 31, 2006.

ITEM 2Unregistered Sales of Equity Securities and Use of Proceeds

There have been no events that are required to be reported under this Item.

ITEM 3Defaults Upon Senior Securities

There have been no events that are required to be reported under this Item.

ITEM 4Submission of Matters to a Vote of Security Holders

There have been no events that are required to be reported under this Item.

ITEM 5Other Information

Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers

On September 16, 2006, we entered into an oral agreement with Ms. Edith Kong under which she was hired to be our interim Chief Financial Officer and appointed to the Board of Directors. On January 25, 2007, Ms. Kong resigned from her positions as interim Chief Financial Officer and a Director. At the time of her resignation we agreed to pay Ms. Kong $32,000 in cash for her services. This is the only compensation we agreed to pay Ms. Kong for her services.

Effective on January 25, 2007, our Board of Directors hired Mr. Wang Zuoliang as our interim Chief Financial Officer to replace Ms. Kong. Mr. Wang has served as Chief Accounting Officer of Harbin Renhuang Pharmaceutical Co. Ltd., our wholly-owned subsidiary, since 2005. Mr. Wang has more than 10 years experience in accounting and is familiar with our financial condition and the internal preparation of our financial statements. From 2004 to 2005, Mr. Wang served as the Chief Financial Officer of Harbin Huijiabei Food Co. Ltd. From 2001 to 2004, Mr. Wang served as the manager of the accounting department of China Resource Breweries Limited, Harbin Office. Mr. Wang Zuoliang graduated from Qiqihaer Mechanic Institute in 1994 with a bachelor degree in engineering management.

We are in the process of interviewing candidates for a permanent Chief Financial Officer and hope to have a new permanent Chief Financial Officer hired in the near future. Once a new Chief Financial Officer is hired we will file a Form 8-K with information regarding the Chief Financial Officer, as required.

Effective on January 25, 2007, Mr. Pi Dianjun resigned from his position as a Director.

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Effective on January 25, 2007, our Board of Directors appointed Mr. Andy Wu to the Board of Directors as an independent Director and as Chairman of our Audit Committee. Mr. Wu is currently a Tax Manager at PWC Beijing responsible for the overall operations of the Dalian office, including IIT filing, tax health check, assistance on setting up new enterprise/RO, assistance in tax audit defense, tax due diligence, tax review for IPO projects, assistance in negotiation for deemed profit rates, and general tax and business consulting. Mr. Wu has held this position since January, 2006. During 2005, Mr. Wu was an Assistant Tax Manager at KPMG Shanghai, with his main responsibilities involving general tax and business consulting and due diligence work. From August 2004 to March 2005, Mr. Wu was a Senior Tax Consultant with Deloitte’s Suzhou Office, primarily responsible for tax review, Due Diligence, IIT compliance, and general tax advisory projects. From March 1998 to August 2001, Mr. Wu was the Chief Officer of the Collections Division for the Nangang Branch of Harbin State Tax Bureau, where he was responsible for managing the operations of the Collections Division. Mr. Wu received a Doctorate Finance and Taxation from Xiamen University in June 2004, a Master in Finance and Taxation from Dongbei University of Finance in January 2001, and his Bachelor in Taxation from Xiamen University in July 1992.

Correction of Audit Fees in Annual Report on Form 10-K/A

Our Annual Report on Form 10-K/A for the fiscal year ended October 31, 2006 filed with the Securities and Exchange Commission on February 22, 2007 reported the $125,000 in fees Schwartz Levitsky Feldman LLP billed us for the audit of our financial statements under “Audit-Related Fees.” These fees should have been listed under “Audit Fees” and not under “Audit-Related Fees.”

Acquisition of Extracting Factory

On March 3, 2007, we acquired all the assets and assumed a bank loan with accrued interest of Qingyang Extracting Factory, from Zhongfa Industrial Group Yerui Pharmaceutical Co., Ltd. for a total amount of RMB 3.7 million or approximately USD $480,000. The assets acquired included inventories, customer purchase orders, accounts receivables, corporate name, patents, trademarks, equipment, customer lists and records and other assets that are used or held for use in connection with Business of Qingyang Extracting Factory. We paid USD $310,000 in cash and assumed a bank loan with China Agriculture Bank in the principal amount of USD $140,000 and accrued interest of USD $30,000 collateralized by the acquired assets. The transaction closed on March 3, 2007, and we have paid the cash portion of the consideration USD $310,000 (RMB 2,415,000). The Qingyang Extracting Factor, located in Yanshou Township Harbin, China, is a manufacturing facility that processes raw herbal plants into extracts, which is the intermediate material for Chinese herbal medicine finished products. The factory is capable of processing approximately 18,000 tons of herbal raw materials into extract, doubling our current herbal extracting capacity.

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ITEM 6Exhibits

(a)Exhibits

3.1 (1)	Restated Articles of Incorporation, as filed with the Nevada Secretary of State on April 21, 2003.
3.2 (5)	Amendment to Articles of Incorporation, as filed with the Nevada Secretary of State on July 28, 2006.
3.3 (1)	Second Restated Bylaws
10.1 (2)	Common Stock Purchase Agreement dated September 19, 2005.
10.2 (2)	Securities Purchase Agreement dated September 16, 2005.
10.3 (3)	Reorganization, Stock and Asset Purchase Agreement dated September 30, 2005.
10.4 (3)	Stock Purchase Agreement dated September 30, 2005.
10.5 (4)	Securities Purchase Agreement dated September 16, 2005.
10.6 (5)	Loan Agreement with Heilongjiang Yuejintiande Building and Installation Project Co.,Ltd
10.7	Acquisition Agreement between Harbin Renhuang Pharmaceutical Co., Ltd. and Zhongfa Industrial Group Yerui Pharmaceutical Co., Ltd., dated February 28, 2007
21.1 (5)	Subsidiaries of the Registrant
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1	Chief Executive Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Chief Financial Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1) Incorporated by reference to our Current Report on Form 8-K dated April 21, 2003, filed with the Commission on April 22, 2003.

(2) Incorporated by reference from our Current Report on Form 8-K filed with the Commission on September 23, 2005.

(3) Incorporated by reference from our Current Report on Form 8-K filed with the Commission on October 3, 2005.

(4) Incorporated by reference from our Current Report on Form 8-K filed with the Commission on October 14, 2005.

(5) Incorporated by reference from our First Amended Transition Report on Form 10-K/A filed with the Commission on February 22, 2007.

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SIGNATURES

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

	Renhuang Pharmaceuticals, Inc.
Dated: March 19, 2007		/s/ Li Shaoming
	By:	Li Shaoming
		President and
		Chief Executive Officer
Dated: March 19, 2007		/s/ Zuoliang Wang
	By:	Zuoliang Wang
		Interim Chief Financial Officer

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EX-10.7

ASSET PURCHASE AGREEMENT

ASSET PURCHASE AGREEMENT dated as of February 28, 2007 (this "Agreement") by and among Harbin Renhuang Pharmaceuticals Co, Ltd., (the "Buyer") a corporation incorporated in the Peoples Republic of China, “PRC”, and Zhongfa Industrial Group Yerui Pharmaceutical Co., Ltd., (the “Seller’) a corporation incorporated in the Peoples Republic of China, “PRC (the "Seller") (Buyer and Seller are each hereinafter individually referred to as a "Party" and collectively as the "Parties").

W I T N E S S E T H:

WHEREAS, the Seller is engaged in the business of extracting, producing and packaging nutraceutical and related products in and under the name of Qingyang Extracting Factory, located at Central Plaza, Changjiang Road, Yanshou Town, Heilongjiang Province, 150090, P. R. China, (the "Business");

WHEREAS, Mr. Cuilian Zhu ("Zhu") is the sole shareholder of the Seller and the Seller is wholly-owned and controlled by Zhu;

WHEREAS, upon the terms and subject to the conditions set forth in this Agreement, the Buyer desires to purchase from the Seller and the Seller desires to sell to the Buyer, the Transferred Assets (as hereinafter defined) of the Seller comprising the Business, as more particularly described herein, in consideration for the payments from the Buyer as set forth herein;

WHEREAS, the Buyer does not intend to assume any liabilities of the Seller of any nature whatsoever (other than as specifically set forth herein), whether related to the Business, the Transferred Assets or otherwise; and

WHEREAS, to induce the Buyer to proceed with the transactions described in this Agreement, Seller and Zhu are prepared to make certain representations, warranties and covenants to Buyer, and to provide certain rights of indemnification to Buyer; and

NOW, THEREFORE, in consideration of the premises and the mutual agreements set forth herein, and for other good and valuable consideration the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound hereby, the Parties hereto agree as follows:

ARTICLE I.

PURCHASE AND SALE OF TRANSFERRED ASSETS

AND ASSUMPTION OF LIABILITIES

Section 1.1. Purchase and Sale of Transferred Assets. Upon the terms and subject to the conditions of this Agreement, at the Closing the Seller shall sell, transfer, convey, assign and deliver free and clear of Encumbrances to Buyer, and Buyer shall purchase, acquire and accept from Seller on the Closing Date (as defined herein), all of the Seller's right, title and interest in and to all of the assets, properties, contracts and rights, whether tangible or intangible, as specified below, whether accrued, contingent or otherwise, and wherever located, that are used or held for use in connection with the Business, as the same may exist on the Closing Date (as defined herein) (collectively, the "Transferred Assets"):

(a) all inventories, consisting of raw materials, work in process and finished goods, supplies and similar tangible assets of the Seller related to the Business;

(b) all right, title and interest of the Seller in and to the customer purchase orders of Seller relating to the Business entered into or issued prior to the Closing Date;

(c) all notes and trade and other accounts receivable arising from goods shipped by Seller on and after the Closing Date;

(d) the corporate name of the Seller and all names under which the Seller is doing business or has conducted business;

(e) all patents, trade secrets, trademarks, inventions, processes, procedures, research records, market surveys, copyrights, service marks, trade names and know-how and other intellectual property relating to the Business ("Intellectual Property"), wherever located, of the Seller and all registrations and applications for registrations of any of the foregoing, and all claims against third parties for infringement of the Intellectual Property rights;

(f) the unused brochures, literature, advertising, catalogues, photographs, display materials, media materials, packaging materials and other similar items which have been produced by or for the Seller;

(g) the equipment used by Seller in the Business;

(h) all customer lists and customer records in any form (and all software related to any such customer records, to the extent transferable), whether of past or present customers or potential future customers, of the Business;

(i) such manufacturers' guarantees and warranties, if any, relating to the Business as may be in force at the Closing Date in favor of the Seller and the benefit of any claims against such manufacturers relating to the Business (including without limitation any claim for breach of the manufacturers' guarantees and warranties);

(j) all goodwill of the Seller in the Business ("Goodwill");

(k) all books, records, manuals, standard operating procedures, correspondence, customer relation information and any other confidential or proprietary information pertaining to the Business; and

(l) all certifications, franchises, approvals, permits, licenses, orders, registrations, certificates, variances and other similar permits or rights, if any, obtained from any Governmental Entity or professional or trade organization utilized in operating the Business and all pending applications therefore.

Section 1.2. Assumption of Liabilities; Excluded Liabilities.

(a) Subject to the terms and conditions of this Agreement, the Buyer agrees to assume and pay the Promissory Note with the Agriculture Bank of China, Loan No. 230131111 in the principal amount of RMB 1,090,000 and accrued interest in the amount of approximately RMB 230,000 on the Closing Date, hereinafter referred to as the Assumed Liabilities.

(b) It is expressly agreed and understood that Buyer shall not assume or be bound by any liabilities of the Seller, Zhu or the Business of any kind or nature, known, unknown, accrued, absolute, contingent, recorded or unrecorded or otherwise, whether now existing or hereafter arising (the “Excluded Liabilities") other than the assumption of the bank loan as described in Section 1.2(a), the (the “Assumed Liabilities”). Without limitation of the foregoing, Buyer is not assuming any other liabilities or obligations that are not Assumed Liabilities. All responsibility with respect to any other liabilities, hereinafter referred to as Excluded Liabilities shall remain with the Seller and Zhu. The assumption of the Assumed Liabilities by Buyer hereunder shall not enlarge any rights of third parties under any arrangements or understanding with Buyer, Seller or Zhu or any of their respective affiliates or subsidiaries, as applicable.

c) Except for the Assumed Liabilities, the Buyer shall not assume or be bound by any obligations or liabilities of Seller, Zhu, or any Affiliate of Seller or Zhu of any kind or nature, known, unknown, accrued, absolute, contingent or otherwise, whether now existing or hereafter arising.

d) Seller shall be solely (as between Seller and the Buyer) responsible for and pay any and all debts, losses, damages, obligations, liens, assessments, judgments, fines, disposal and other costs and expenses, liabilities and claims, including, without limitation, interest, penalties and fees of counsel and experts, as the same are incurred, of every kind or nature whatsoever (all the foregoing being a "Claim" or the "Claims"), made by or owed to any person to the extent any of the foregoing relates to (i) the assets of the Seller not transferred hereunder or (ii) the operations and assets of the Business arising in connection with or on the basis of events, acts, omissions, conditions, or any other state of facts occurring or existing prior to or on the Closing Date.

(e) Buyer shall be solely (as between the Buyer and Seller) responsible for and pay any and all Claims made by or owed to any Person to the extent they relate to (i) the Assumed Liabilities or (ii) the operations and assets (including the Assets) of the Buyer's business after the Closing Date, in each case, to the extent they arise in connection with or on the basis of events, acts, omissions, conditions or any other state of facts occurring or existing solely after the Closing Date.

Section 1.3. Purchase Price. Subject to the other provisions of this Agreement, the purchase price for the Transferred Assets shall be payable as set forth below:

(a) On the Closing Date, Buyer shall make a cash payment to Seller of RMB 2,415,000;

(b) On the Closing Date, Buyer shall assume Loan with the Agricultural Bank of China, Loan No. 230131111 with principal RMB 1,090,000 and approximately RMB 230,000 in accrued interest as of the Closing Date.

(c) On the Closing Date, Seller shall pay any and all municipal, county, state and federal sales and documentary transfer taxes, impositions, liens, leases, assessments and similar charges if any, in connection with the transaction contemplated by this Agreement.

Section 1.4. Closing; Closing Date. Unless this Agreement shall have been terminated and the transactions shall have been abandoned, and subject to the fulfillment or waiver of the conditions set forth in Articles IV and V of this Agreement, the closing of the purchase and sale provided for in this Agreement (herein called the "Closing") shall be held at the offices of Renhuang No. 281, Taiping Road, Taiping District, Harbin, Heilongjiang Province, 150050, P. R. China, on the date hereof, or a date which is expected to be on or within five (5) business days of the execution of this Agreement, or such other location, date and time as to which the parties may agree (such date and time being referred to herein as the "Closing Date").

Section 1.5. Items to be delivered at the Closing by Seller. At the Closing, Seller shall deliver or cause to be delivered to the Buyer:

(a) All such other instruments of assignment, transfer or conveyance as, in the reasonable opinion of Buyer and its counsel, shall be necessary to vest in Buyer, good, valid and marketable title to the Transferred Assets, subject to no Encumbrances and to put Buyer in actual possession or control of the Transferred Assets.

(b) A payoff letter from Agricultural bank of China and any other documentation relating to the release of all security interests as necessary.

(c) Acceptance documents from the Agriculture Bank of China that loan No. 230131111 has been transferred to the Buyer including a Release Letter that the Seller has been released from its loan obligation related to the same loan.

Section 1.6. Items to be Delivered at the Closing by Buyer. At the Closing, Buyer shall deliver:

(a) To the Seller, a copy of the resolutions of Buyer, certified by its authorized officer, authorizing the execution, delivery and performance of this Agreement and all the transactions contemplated hereby.

(b) The cash payment required by Section 1.3(a)

ARTICLE II.

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller hereby represents and warrants to and for the benefit of the Buyer, as of the date hereof, as follows:

Section 2.1. Organization and Qualifications. Seller is a corporation duly formed, validly existing and in good standing under the laws of the Peoples Republic of China with all requisite corporate or other power and authority to own, operate or lease its Transferred Assets and to carry on its business as currently conducted. Seller is duly qualified or licensed to conduct business as a foreign corporation and is in good standing in each jurisdiction where the nature of its business or the ownership, operation or leasing of its properties requires such qualification or licensing. The copies of the certificate of incorporation and bylaws of the Seller, as heretofore made available to Buyer, are correct and complete in all respects.

Section 2.2. Authority; Binding Obligation. Seller has the requisite authority and power to enter into, execute and deliver this Agreement and each agreement, certificate document and instrument to be executed and delivered by Seller pursuant to this Agreement and to perform its respective obligations hereunder. The execution, delivery and performance by Seller of this Agreement and each such other agreement, document and instrument have been duly authorized by all necessary corporate action of Seller. This Agreement has been duly executed and delivered by the Seller and constitutes a valid and binding obligation of Seller enforceable in accordance with its terms hereof and each of the Seller Documents constitutes, or when executed and delivered will constitute, valid and binding obligations of Seller enforceable in accordance with their terms.

Section 2.3. No Conflict; Required Consents. The execution, delivery and performance by Seller of this Agreement and the Seller Documents, the fulfillment of and compliance with the terms and provisions hereof and thereof and the consummation by the Seller of the transactions contemplated hereby and thereby, do not and will not conflict with or result in any violation by the Seller, under any provisions of or result in acceleration, termination, cancellation or modification of, or constitute a default under: (i) the certificate or articles of incorporation, bylaws or similar governing documents of the Seller; (ii) any material note, bond, mortgage, indenture, deed of trust, license, franchise, permit, concession, contract, lease, agreement, or other material instrument, obligation or agreement of any kind relating to the Business to which the Seller is a party or by which Seller, or any of the Transferred Assets, may be bound or affected; (iii) any Requirements of Law; or (vi) any Governmental Entity. Nor shall such execution, delivery or performance result in the creation or imposition of any Encumbrance of any nature whatsoever upon the Business or Transferred Assets or require any filing with, or permit, authorization, consent or approval of, a Governmental Entity or other Person.

Section 2.4. Compliance.

(a) With regards to the Business and the Transferred Assets, neither Seller nor any of its respective employees or agents has in the last three years been given notice of, or been charged with, any material violation of, any law, order, regulation, ordinance or judgment of any Governmental Entity, including laws relating to wages, hours, safety and health, equal employment opportunity, withholding, unemployment compensation, workers compensation and employee privacy, nor, to the best of Seller's knowledge, is Seller in violation of same.

(b) Seller has all permits, licenses and franchises, if applicable and material, from Governmental entities necessary to conduct the Business as currently conducted, including all business, telecommunication and other permits, if any, from Governmental Entities and is in full compliance with the terms thereof. No material violations have been reported in respect of such permits, licenses and franchises, nor, to the best of Seller's knowledge do any exist.

Section 2.5. No Subsidiaries. Seller is wholly owned by its sole shareholder, Zhu. The Business is wholly owned by Seller. Other than the Business subject to this Agreement, neither the Seller nor Zhu owns, of record or beneficially, or controls, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, association or business entity that is engaged in the Business or that owns any of the Transferred Assets of the Business, nor is the Seller nor Zhu, directly or indirectly, a participant in any joint venture, partnership or other non-corporate entity that is engaged in the Business or that owns any of the Transferred Assets of the Business.

Section 2.6. Absence of Liabilities. Seller, has no material Indebtedness or Liabilities of any nature, whether accrued, absolute, contingent or otherwise, whether due or to become due and whether or not the amount thereof is readily ascertainable, that are not reflected as a Liability in the Financial Statements except for Liabilities incurred by the Seller in the ordinary course of conducting the Business consistent with past practices which are not otherwise prohibited by, in violation of or which will result in a breach of the representations, warranties and covenants of the Seller contained in this Agreement.

Section 2.7. Title to Transferred Assets and Condition of Inventory. The Seller has good and valid title to all of the Transferred Assets, free and clear of any lien, charge or other encumbrance. The Transferred Assets are in good condition and have no material defects which would interfere with, or materially detract from the value or impair the use of the Transferred Assets subject thereto and, except for certain equipment, are sufficient to conduct, the Business as presently conducted or to be conducted by the Buyer after the date of this Agreement assuming the Business is operated in a manner consistent with past practices. To the best Knowledge of Seller, all inventory of the Seller relating to the Business, including but not limited to raw materials, consists of a quality and quantity usable in the ordinary course of business.

Section 2.8. Products Liability. Neither the Seller nor any insurance company or other third party acting on their behalf has, in the preceding five years, paid any amount or damages to any third party for deaths of or injuries to persons or damage to property, or for breach of warranty arising out of any alleged defect in quality, materials, workmanship or design of any of the products sold or services performed by the Seller relating to the Business. There is no material claim nor has there been a material claim against Seller concerning any product manufactured, shipped, sold or delivered by Seller which is pending or, to the knowledge of Seller, threatened, which alleges the occurrence of any bodily injury or other adverse health condition resulting from either an alleged failure to warn as to the manufacture or materials of any such product, or an alleged breach of implied warranties or representations made with respect to any such product.

Section 2.9. Environmental Laws. The Seller is in compliance with all Environmental Laws known by the Seller to be applicable to the Real Property owned or leased by the Seller, except where the failure to comply would not have a material adverse effect on the Business or the transactions contemplated hereby or result in liability to Buyer (a "Material Adverse Effect"). The Seller has no liability under any Environmental Law which, individually or in the aggregate, would have a Material Adverse Effect.

Section 2.10. Financial Statements. Seller has delivered to the Buyer a copy of the following financial statements:

(a) the balance sheet and related statements of operations of the Business for the fiscal years ending on December 31,2005 and December 31, 2004 audited pursuant to Chinese GAAP; and

(b) the interim unaudited balance sheet as of June 30, 2006 and the related statements of operations of the Business for the period then ended (the "Interim Financials").

(c) Except for the transactions contemplated by this Agreement, since June 30, 2006, the Seller has conducted the Business only in the ordinary course of business consistent with past practice and there has not been any of the following, but solely insofar as they relate to the Business or the Transferred Assets: (i) any material damage, destruction or loss, whether or not covered by insurance; (ii) any mortgage or pledge of any of the Business' property or Transferred Assets, tangible or intangible (except in connection with Seller's financings); (iii) any sale, transfer, lease or disposal of material Transferred Assets or any Intellectual Property or incurrence, assumption, cancellation or compromise of any Indebtedness or claim (other than accounts receivable compromised in the ordinary course of business consistent with its past practice), or waiver or release of any right; (iv) receipt of any notice or threat of termination of any material purchase order; (v) cancelled or compromised any debt or claim, or waived or released any right of material value; (vi) any material change in any method of accounting or auditing practice; (vii) entered into any transaction other than in the ordinary course of business; (viii) made any acquisition of any material assets or become involved in any other material transaction, other than for fair value in the ordinary course of business; or (ix) agreed to do any of the foregoing other than pursuant hereto.

Section 2.11. Taxes.

(a) All Chinese, and applicable foreign Tax Returns, if any, of the Seller relating to the Business or the Transferred Assets for all periods which end prior to or which include the Closing Date that were required to be filed on or before the Closing Date have been filed on a timely basis in accordance with the Applicable Law of each applicable Governmental Entity, and all such Tax Returns are true, correct and complete. The Seller shall timely file or cause to be filed all Tax Returns of the Seller relating to the Business or the Transferred Assets including Tax Returns relating to the sale contemplated by this Agreement, that relate to periods including the Closing Date but that are required to be filed after the Closing Date, and all such Tax Returns shall, be true, correct and complete when filed.

(b) Seller has paid all Taxes relating to the Business or the Transferred Assets that have become due for all periods which end prior to the Closing Date, including all Taxes reflected on the Tax Returns referred to in this Section 2.11, or set forth in any written assessment, proposed assessment or notice, either formal or informal, received by the Seller that are being contested in good faith and as to which adequate reserves have been provided. All Taxes that the Seller is or was required by law to withhold or collect with respect to the Business or the Transferred Assets have been duly withheld or collected and, to the extent required, have been paid to the appropriate governmental authority in all material respects. There are no Liens with respect to Taxes on the Transferred Assets.

Section 2.12. Labor Relations. There are no collective bargaining or other labor union agreements relating to the Business to which Seller is a party.

Section 2.13. There are no claims of any employee of the Seller seeking legal recourse against the Seller or any of its Affiliates or subsidiaries with regards to the Business, and, to the Seller's Knowledge, there have been no threats of legal actions. No employee affiliated with the Business who has been terminated by the Seller (or will be terminated by the Seller as a result of the transactions contemplated hereby) is entitled to any severance, termination allowance or similar payments as a result of their termination.

Section 2.14. There is no material claim, counterclaim, action, suit, order, proceeding or investigation pending or, to Seller's knowledge, threatened against, probable of assertion against or affecting Seller with respect to the Business or the Transferred Assets or any of the employees, agents or directors affiliated with the Business, or relating to the transactions contemplated hereby, before any court, agency, regulatory, administrative or other governmental body or officer or before any arbitrator; nor, to the knowledge of the Seller, is there any reasonable basis for any such claim, action, suit, proceeding or governmental, administrative or regulatory investigation. Seller is not directly subject to or materially affected by any order, judgment, decree or ruling of any court or governmental agency with respect to the Business. The Seller has not received any written opinion or memorandum of legal advice from legal counsel to the effect that it is exposed to any liability which may be materially adverse to the Business or the Transferred Assets. Seller is not engaged in any material legal action to recover monies due it or for damages sustained by it with respect to the Business.

Section 2.15. Insurance. Seller confirms it have had adequate insurance policies maintained for the benefit of the Business or protection of the Transferred Assets, up until the day of Close.

Section 2.16. Transactions With Interested Persons. Zhu does not directly or indirectly own, on an individual or joint basis, any material interest in, nor does he serve as an officer or director or in another similar capacity of, any competitor, distributor or supplier of Seller relating to the Business or any organization which has a contract or arrangement with Seller relating to the Business. Except for Zhu's interest as a shareholder, no officer, management employee or director of Seller or any of their respective spouses or family members (collectively, "Related Parties") has any right to the Business or the Transferred Assets.

Section 2.17. Assigned Receivables. No receivables for goods shipped or otherwise has been assigned or is a part to this transaction;

Section 2.18. Copies of Documents. Seller has made available for inspection and copying by the Buyer complete and correct copies of all documents as requested by Buyer.

Section 2.19. Disclosure. None of the representations or warranties of Seller contained in this Agreement and in the certificates, exhibits and schedules delivered by Seller pursuant to this Agreement contain any untrue statement of a material fact, or omit to state a material fact necessary in order to prevent such representations and warranties from being misleading in light of the circumstances under which they were made, the best of Seller's knowledge, provided, however, that any disclosure made by Seller or contained in the Seller Disclosure Schedule shall be deemed made under this Agreement for all intents and purposes, irrespective of the section number or other designation thereof contained in the Seller Disclosure Schedule.

Section 2.20. Broker Fees. No broker or finder is entitled to any brokerage fees, commission or finders' fee in connection with the transactions contemplated by this Agreement or any other agreement contemplated hereby.

Section 2.21. Intellectual Property; Seller Name. Seller has no registered patents, trademarks or copyrights.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer hereby makes the following representations and warranties to Seller and Zhu:

Section 3.1. Organization of the Buyer. Buyer is duly organized, validly existing and in good standing under the laws of the Peoples Republic of China.

Section 3.2. Authority; Binding Obligation. Buyer has the requisite authority and power to enter into, execute and deliver this Agreement and each agreement, document and instrument to be executed and delivered by the Buyer pursuant to this Agreement (the "Buyer Documents") and to perform its obligations hereunder. The execution, delivery and performance by the Buyer of this Agreement and each such other agreement, document and instrument have been duly authorized by all necessary action of the Buyer. This Agreement has been duly executed and delivered by the Buyer and each of the Buyer Documents constitutes, or when executed and delivered will constitute, valid and binding obligations of the Buyer, as the case may be, enforceable in accordance with their terms.

Section 3.3. No Conflict; Required Consents. The execution, delivery and performance by the Buyer of this Agreement and the Buyer Documents, the fulfillment of and compliance with the terms and provisions hereof and thereof and the consummation by the Buyer of the transactions contemplated hereby and thereby, do not and will not: (i) conflict with, or violate or result in any violation pursuant to any provision of, the Certificate of Incorporation or By-Laws of the Buyer, as the case may be; (ii) conflict with, result in any material breach of, or constitute a material default (or an event that with notice or lapse of time or both would become a default) or result in the termination or acceleration under any material agreement to which the Buyer is a party or by which the Buyer may be bound or notification to, any Person not a party to this Agreement.

Section 3.4. Broker Fees. No broker or finder is entitled to any brokerage fees, commission or finders' fee in connection with the transactions contemplated by this Agreement or any other agreement contemplated hereby.

ARTICLE IV.

COVENANTS

Section 4.1. Consummation of Agreement. The Parties hereto shall use their best efforts to perform and fulfill all conditions and obligations on its part to be performed and fulfilled under this Agreement, to the end that the transactions contemplated by this Agreement shall be fully carried out. Until the Closing or the termination of this Agreement, except as mutually agreed in writing by the Parties, neither the Buyer nor Zhu or any of their respective employees, subsidiaries, representatives or agents shall, directly or indirectly, solicit, encourage, initiate or induce the making of any inquiries or proposals for the acquisition of any of the Assets or the Business, or furnish information to, or engage in negotiations relating to the foregoing or otherwise cooperate in any way with, or accept any proposal relating to the foregoing from, any Person or group other than the Buyer and their respective officers, employees, representatives or agents, and the Seller and Zhu shall restrict any such employee, representative or agent from doing any of the foregoing.

Section 4.2. Ordinary Course of Business. Seller shall conduct the Business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted and use commercially reasonable efforts to preserve the Assets and the Business, preserve relationships with customers, suppliers, franchisors, distributors and others having business dealings with it and keep available the services of their present officers and employees and maintain insurance currently in effect on the Transferred Assets, in each case in the ordinary course of business consistent with past practice. Seller will not take any action with the purpose of causing any of the conditions to the Buyer's obligations set forth in Article V hereof to not be satisfied.

ARTICLE V.

CONDITIONS OF CLOSING

Section 5.1. Conditions to the Obligations of the Buyer. The obligation of the Buyer to consummate this Agreement and the transactions contemplated hereby is subject to the fulfillment, prior to or at the Closing, of all of the following conditions precedent and the delivery of the following documents:

(a) Representations; Warranties; Covenants. Each of the representations and warranties of Seller contained in Article II shall be true and correct in all material respects as though made on and as of the losing and Seller shall, on or before the Closing, have performed in all material respects all of its obligations hereunder which by the terms hereof are to be performed on or before the Closing.

(b) Covenants. The covenants and agreements contained in this Agreement to be complied with by the Seller at or before the Closing shall have been complied with in all material respects.

(d) Deliveries of Seller. All deliveries required to have been made by Seller under Section 1.5 at the Closing shall have been delivered.

Section 5.2. Conditions to Obligations of Seller. Seller's obligation to consummate this Agreement and the transactions contemplated hereby is subject to the fulfillment, prior to or at the Closing, of all of the following conditions precedent and the delivery of the following documents:

(a) Representations; Warranties; Covenants. Each of the representations and warranties the Buyer contained in Article III shall be true and correct in all material respects as though made on and as of the Closing and; the Buyer shall, on or before the Closing, have performed in all material respects all of its obligations hereunder which by the terms hereof are to be performed on or before the Closing.

(b) Covenants. The covenants and agreements contained in this Agreement to be complied with by the Buyer at or before the Closing shall have been complied with in all material respects.

(d) Deliveries of Buyer. All deliveries required to have been made by Buyer under Section 1.3 and Section 1.6 at the Closing shall have been delivered.

Section 5.3. Conditions to Obligations of All Parties to Close. The respective obligations of each Party hereunder are subject to the satisfaction, at or before the Closing, of all of the conditions set out below.

(a) Absence of Litigation. There shall not have been issued and be in effect any preliminary or permanent injunction or other order of any court or tribunal of competent jurisdiction which (i) prohibits or makes illegal the purchase by the Buyer of the Assets, (ii) would require the divestiture by the Buyer of all or a material portion of the Assets, the Business or the assets of the Buyer as a result of the transactions contemplated hereby, or (iii) would impose limitations on the ability of the Buyer to effectively exercise full rights of ownership of the Assets, or of a material portion of the Business as a result of the transactions contemplated by this Agreement, nor (iv) under any applicable law which enjoins or otherwise materially impairs the consummation of the transactions contemplated by this Agreement

Section 5.4. No Injunction. On the Closing Date there shall be no effective injunction, writ, preliminary restraining order or any order of any nature issued by a court of competent jurisdiction directing that the transactions provided for herein or any of them not be consummated as so provided or imposing any conditions on the consummation of the transactions contemplated hereby which the Buyer deems unacceptable in its sole discretion.

Section 5.5. Lender's Consent. Each party shall have obtained the requisite consent from Agricultural Bank of China related to the assumptions of the loan as referred to in Section 1.2 (a) and 1.3 (b).

ARTICLE VI.

RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING

Section 6.1. Post-Closing Access. After the Closing, each Party shall provide to the other and its accountants and attorneys, for any reasonable legal or business purpose, including defending third party claims and preparing such tax returns as may be reasonably required after the Closing, copies of relevant

portions of the books and records of Seller delivered to the Buyer under this Agreement and/or retained by Seller after the Closing.

Section 6.2. Survival of Warranties. With the sole exception of those covenants which are to be performed after the Closing which shall survive until a claim thereon is barred by the applicable statute of limitation, each representation and warranty contained herein or in any Seller Document or Buyer Document shall survive the execution and delivery of this Agreement and shall thereafter terminate and expire on the first anniversary of the date hereof. If written notice of a claim has been given prior to the expiration of the applicable representation or warranty, then such claim shall survive the expiration of the relevant representation, warranty, covenant or agreement until the final resolution of such claim.

Section 6.3. Collection of Accounts Receivable. The receivables of Seller are an Excluded Asset. Buyer agrees to use reasonable efforts to assist with the collection of accounts receivable of Seller arising for goods shipped prior to March 3, 2006 and to transfer the proceeds of such to Seller, in the weekly distribution next following receipt. Seller and Zhu each agree to cooperate with Buyer in connection with such collections. Seller and Zhu on the one hand, and Buyer on the other hand shall coordinate with each other in regard to such collections or otherwise commencing any action to collect same.

Section 6.4. No Distribution to Seller Shareholder. Seller agrees that no shareholder distributions or payments of any kind will be made to Zhu unless and until all creditors of Seller have been paid in full or sufficient reserves have been set aside for the payment of Seller's creditors.

Section 6.5. Confidentiality. Seller agrees that, after the Closing has been consummated, Seller and its officers, directors, agents, representatives and employees and affiliates (collectively, its "Representatives") will hold in strict confidence, and will not distribute or make available, any confidential or proprietary data or information that is used in connection with or related to the Business, except:

(a) information which, as of the date hereof, is published or otherwise generally available to the public;

(b) information which after the date hereof becomes available to the public other than through an act or omission of Seller, Zhu or their Representatives which is in violation of the provisions hereof;

(c) information rightfully acquired from a third party which did not obtain such information under a pledge of confidentiality;

(d) information which is developed by the disclosing Party independently of the relationship established by this Agreement;

(e) information which is compelled to be disclosed by legal process, in which case Seller and Zhu shall notify Buyer as soon as practicable after it becomes aware of such requirement, and shall cooperate with Buyer in obtaining a protective order; or

(f) information which is required to be disclosed to the Securities and Exchange Commission of the United States, Seller’s auditors or to be in compliance with any and all rules and regulations in the Peoples Republic of China or the Untied States of America.

Section 6.6. Compliance. Each Party shall use its best efforts to take or cause to be taken, all action and do or cause to be done all things necessary, proper or advisable to consummate the transactions contemplated by this Agreement, including, without limitation, to obtain all consents, approvals and authorization of third parties, and to make all filings with and give all notices to third parties which may be necessary or required to be obtained by it in order to effectuate the transactions contemplated hereby and to otherwise comply and fulfill such Party's obligations hereunder and thereunder.

Section 6.7. Further Assurances.

(a) Each Party shall, from time to time on being reasonably required to do so by the other Party, now or at any time in the future, do or procure the doing of all such acts and/or execute or procure the execution of all such documents in a form reasonably satisfactory to the other Party as the other Party may reasonably consider necessary for giving full effect to this Agreement and securing to the other Party the full benefit of the rights, powers and remedies conferred upon the other Party in this Agreement.

(b) Seller shall promptly transfer or deliver to the Buyer any of the Transferred Assets or proceeds thereof delivered to, or retained or received by, Seller after the Closing Date.

ARTICLE VII.

TERMINATION

Section 7.1. Right to Terminate. Notwithstanding anything to the contrary set forth in this Agreement, if the Closing does not occur on the date hereof, this Agreement may be terminated and the transactions contemplated herein abandoned at any time prior to the Closing:

(a) by mutual written consent of the Seller and Buyer hereto;

(b) by either the Buyer or the Seller if the Closing shall not have occurred by March 15, 2007; provided, however, that the right to terminate this Agreement under this Section 7.1(b) shall not be available to any Party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing Date to occur on or before such date;

(c) by the Seller if the Buyer (i) breaches its representations and warranties, (ii) fails to comply with any of its covenants or agreements contained herein, or (iii) if any of the conditions to closing set forth inSection 5.2 are not satisfied or capable of being satisfied on or before March 15, 2007; or

(d) by the Buyer if the Seller (i) breaches its representations and warranties, (ii) fails to comply with any of its covenants or agreements contained herein, or (iii) if any of the conditions to closing set forth in Section 5.1 are not satisfied or capable of being satisfied on or before March 15, 2007.

Section 7.2. Obligations to Cease. If this Agreement is terminated pursuant to Section 7.1 hereof, all rights and obligations of the Parties under this Agreement shall thereafter terminate and there shall be no liability of any party hereto to any other Party except (x) for the obligations set forth in Sections 9.1 hereof and (y) if such termination was pursuant to Section 7.1(c) or 7.1(d), the terminating Party shall have all legal remedies available to it with respect to such termination. Termination of this Agreement pursuant to

Section 7.1 shall not, however, limit or impair any remedies that the terminating Party may have with respect to a breach or default by the other Party prior to the date of termination of its representations, warranties, covenants or agreements or obligations under this Agreement.

ARTICLE VIII.

INDEMNIFICATION

Section 8.1. Indemnification of Seller. Buyer shall, from and after the Closing, defend and promptly indemnify and hold harmless Seller and Zhu, each of their Affiliates, and each of their respective stockholders, members, partners, directors, officers, managers, employees, agents, attorneys and representatives (collectively the "Seller Indemnified Parties"), from, against, for, and in respect of and pay any and all Losses, suffered or incurred by any such party and which may arise out of or result from (i) any breach of any representation, warranty, covenant or agreement of Buyer contained in this Agreement or in any other Buyer Documents, (ii) the Assumed Liabilities or (iii) any breach or failure of observance or performance of any covenant, agreement or commitment made by the Buyer hereunder or under any document or instrument relating hereto or executed pursuant hereto, (iv) any claim, other than for Excluded Liabilities, arising out of the operation by Buyer of the Business and any of the Transferred Assets subsequent to the Closing Date; or (v) the enforcement by any Seller Indemnified Party of any of its rights under this Section 8.1 or any other covenants contained in this Agreement or any other Buyer Document.

Section 8.2. Indemnification of the Buyer. Seller shall, from and after the Closing, defend, indemnify, and hold harmless the Buyer, and its officers, directors, stockholders and Affiliates (collectively "Buyer Indemnified Parties") from, against, for and in respect of and pay any and all Losses suffered, sustained, incurred or required to be paid by Buyer Indemnified Parties by reason of (i) any and all obligations and liabilities of Seller, other than obligations arising and required to be performed under the Assumed Liabilities after the Closing; (ii) any breach of any representation, warranty, covenant or agreement of Seller contained in this Agreement or any other Seller Document, (iii) the enforcement by any Buyer Indemnified Party of any of its rights under this Section 8.2 or any other indemnification covenant contained in this Agreement or any other Seller Document, (iv) any claims, suits, actions, complaints, allegations or demands which have been or may be brought against either Seller or the Buyer, or any of its Affiliates and any of their respective officers, directors, employees or agents.

Section 8.3. Notice to Indemnifying Party. Any party (the "Indemnified Party") seeking indemnification pursuant to this Agreement shall promptly give the party from whom such indemnification is sought (the "Indemnifying Party") written notice of the matter with respect to which indemnification is being sought, which notice shall specify in reasonable detail, if known, the amount or an estimate of the amount of the liability arising therefrom and the basis of the claim or indemnification obligation. Such notice shall be a condition precedent to any liability of the Indemnifying Party for indemnification hereunder, but the failure of the Indemnified Party to give such prompt notice shall not adversely affect the Indemnified Party's right to indemnification hereunder except, and only to the extent that, in the case of a claim made by a third party, the defense of that claim is materially prejudice by such failure.

Section 8.4. Limitations Upon Indemnification.

(a) Invoices. Any request for indemnification of specific costs shall include invoices and supporting documents containing reasonably detailed information about the Losses for which indemnification is being sought.

ARTICLE IX.

MISCELLANEOUS

Section 9.1. Fees and Expenses. Except as otherwise provided in this Agreement, each Party will bear its own direct expenses incurred in connection with the negotiation and preparation of this Agreement and the other Seller Documents and Buyer Documents, as the case may be, and the consummation and performance of the transactions contemplated by herein and therein. Except as otherwise provided in this Agreement in the event that a dispute should arise between the parties to this Agreement, the prevailing party shall be entitled to reimbursement of its reasonable attorneys' fees and expenses (including court costs).

Section 9.2. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been given if delivered personally, overnight courier, or certified, registered or express mail, postage prepaid as follows:

To Buyer: Renhuang Pharmaceuticals, Inc.

No. 281, Taiping Road, Taiping District,

Harbin, Heilongjiang Province, 150050, P. R. China

Attention: Mr. Shaoming Li

To Seller: Zhongfa Industrial Group Yerui Pharmaceutical Co., Ltd

Address: Room 25E, Central Plaza, Changjiang Road,

Yanshou Town, Heilongjiang Province, 150090, P. R. China

Attention: Cuilian Zhu

Any notice given hereunder may be given on behalf of any Party by his counsel or other authorized representatives. The address of any Party may be changed on notice to the other Party duly served in accordance with the foregoing provisions.

Section 9.3. Governing Law; Forum; Process. This Agreement shall be construed in accordance with, and governed by, the laws of the State of New York as applied to contracts made and to be performed entirely in the State of New York without regard to principles of conflicts of law. Each of the parties hereto hereby irrevocably and unconditionally submits to the exclusive jurisdiction of any competent court of the City and State of New York for purposes of any suit, action or other proceeding arising out of this Agreement (and agrees not to commence any action, suit or proceedings relating hereto except in such courts). Each of the parties hereto agrees that service of any process, summons, notice or document by U.S. registered mail at its address set forth herein shall be effective service of process for any action, suit or proceeding brought against it in any such court. Each of the parties hereto hereby irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement, which is brought by or against it, in any competent court in the City and State of New York and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.

Section 9.4. Entire Agreement. This Agreement is the complete, final and exclusive agreement among the Parties with respect to the purchase of the Transferred Assets and the related transactions and are intended to supersede all previous negotiations, commitments and writings agreements and representations, written or oral, with respect thereto and may not be contracted by evidence of any such prior or contemporaneous agreement, understanding or representations, whether written of oral.

Section 9.5. Assignability; Binding Effect. This Agreement may not be assigned by Seller or Zhu without the prior written consent of Buyer. Buyer may, in its discretion, transfer and assign this Agreement to an Affiliate or to a successor of Buyer by merger or sale of assets. This Agreement and the rights, covenants, conditions and obligations of the respective parties hereto and any instrument or agreement executed pursuant hereto shall be binding upon and enforceable by, and shall inure to the benefit of, the Parties hereto and their respective heirs, successors and permitted assigns and legal representatives.

Section 9.6. Execution in Counterparts. For the convenience of the Parties and to facilitate execution, this Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document. In making proof of this Agreement, it shall not be necessary to produce or account for more than one counterpart evidencing execution by each party hereto. Delivery of a telecopied version of one or more signatures on this Agreement shall be deemed adequate delivery for purposes of this Agreement. Delivery of a facsimile version of one or more signatures to this Agreement shall be deemed adequate delivery for purposes of this Agreement.

Section 9.7. Amendments. This Agreement may not be amended or modified, nor may compliance with any condition or covenant set forth herein be waived, except by a writing duly and validly executed by each Party hereto. Whenever this Agreement requires or permits a waiver or consent by or on behalf of any Party hereto, such waiver or consent shall be given in writing.

Section 9.8. Agreement to Continue in Full Force. This Agreement shall, insofar as it remains to be performed, continue in full force and effect notwithstanding Closing.

Section 9.9. Severability. In the event that any one or more of the provisions contained in this Agreement, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained in this Agreement shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the Parties hereto shall be enforceable to the fullest extent permitted by law.

Section 9.10. Section Headings. The Section headings of this Agreement are for convenience of reference only and shall not be deemed to alter or affect any provision hereof.

Section 9.11. Gender and Tenure. Where the context or construction requires, all words applied in the plural shall be deemed to have been used in the singular, and vice versa; the masculine shall include the feminine and neuter, and vice versa; and the present tense shall include the past and future tense and vice versa.

Section 9.12. Third-Party Rights. Nothing in this Agreement, whether express or implied, is intended to confer rights or remedies under or by reason of this Agreement on any Persons other than the parties to it, each Indemnified Party and their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third Persons to any party to this Agreement, nor shall any provisions give any third Persons any right of subrogations over or action against any party to this Agreement.

Section 9.13. Construction. The language in all parts of this Agreement shall in all cases be construed simply, accurately to its fair meaning, and not strictly for our against any of the parties hereto, without limitation, there shall be no presumption against any party on the ground that such party was responsible for drafting this Agreement or any part thereof, and any rule of law, or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application and is expressly waived.

Section 9.14. Other Interpretive Provisions. References in this Agreement to "Articles," "Sections," "Exhibits" and "Schedules," shall be to the Articles, Sections, Exhibits and Schedules of this Agreement, unless otherwise specifically provided; any of the terms defined in this Agreement may, unless the context otherwise requires, be used in the singular or the plural and in any gender depending on the reference; the words "herein", "hereof" and "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and except as otherwise specified in this Agreement, all references in this Agreement (i) to any Person shall be deemed to include such Person's permitted heirs, personal representatives successors and permitted assigns; and (ii) to any agreement, any document or any other written instrument shall be a reference to such agreement, document or instrument together with all exhibits, schedules, attachments and appendices thereto, and in each case as amended restated, supplemented or otherwise modified from time to time in accordance with the terms thereof, and (iii) to any law, statute or regulation shall be deemed references to such law statute or regulation as the same may be supplemented amended, consolidated, superseded or modified from time to time.

[SIGNATUREAS APPEARS ON THE NEXT PAGE]

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in their respective names by their respective officers duly authorized, as of the date first written above.

Renhuang Pharmaceuticals, Inc.

/s/ Shaoming Li	Date: February 28, 2007
Name: Shaoming Li
Title: Chairman, President and CEO

Zhongfa Industrial Group Yerui Pharmaceutical Co., Ltd.

/s/ Cuilian Zhu	Date: February 28, 2007
Name: Cuilian Zhu
Title: Chairman

EX-31.1

EXHIBIT 31.1

13a-14(a)/15d-14(a) Certification of Chief Executive Officer

I, Li Shaoming, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Renhuang Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant‘s internal control over financial reporting.

Dated: March 19, 2007
		/s/ Li Shaoming
	By:	Li Shaoming
		Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

I, Zuoliang Wang, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Renhuang Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(c) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant‘s internal control over financial reporting.

Dated: March 19, 2007
		/s/ Zuoliang Wang
	By:	Zuoliang Wang
		Interim Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 USC, SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Renhuang Pharmaceuticals, Inc. (the “Company”) on Form 10-Q for the quarter ended January 31, 2007, as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), I, Li Shaoming, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 19, 2007	/s/ Li Shaoming
	By: Li Shaoming
	Its: Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to Renhuang Pharmaceuticals, Inc. and will be retained by Renhuang Pharmaceuticals, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 USC, SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Renhuang Pharmaceuticals, Inc. (the “Company”) on Form 10-Q for the quarter ended January 31, 2007, as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), I, Zuoliang Wang, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 19, 2007	/s/ Zuoliang Wang
	By: Zuoliang Wang
	Its: Interim Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Renhuang Pharmaceuticals, Inc. and will be retained by Renhuang Pharmaceuticals, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.