**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-QSB**




**x** **QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**




**For
      the quarterly period ended March 31, 2007**





**OR**





**o** **TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**





**Commission
      File Number**


**000-51477**





**CHINA
      SHENGHUO PHARMACEUTICAL HOLDINGS, INC.**


*(Exact
      name of small business issuer as specified in its charter)*





**Delaware**
              *(State
                or other jurisdiction of incorporation*
              *or
                organization)*
            
            **20-2903562**
              *(I.R.S.
                Employer Identification*
              *No.)***No.
                2, Jing You Road,**
              **Kunming
                National Economy &**
              **Technology
                Developing District**
              **People’s
                Republic of China 650217**
              *(Address
                of principal executive offices)*
            
            **N/A**
              *(Zip
                Code)*





**0086-871-728-2628**


*(Issuer’s
      telephone number, including area code)*





Check
      whether the issuer (1) filed all reports required to be filed by
      Section 13 or 15(d) of the Exchange Act during the past 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 x No  o




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).  Yes o No x




There
      were 19,119,400 shares outstanding of registrant’s common stock, par value
      $.0001 per share, as of May 1, 2007.





Transitional
      Small Business Disclosure Format (check one):    
Yes o No x















**CHINA
      SHENGHUO PHARMACEUTICAL HOLDINGS, INC.**


**FORM
      10-QSB QUARTERLY REPORT**





**TABLE
      OF CONTENTS**





**Page**PART
                I - FINANCIAL INFORMATION
            3ITEM
                1.
            FINANCIAL
                STATEMENTS
            3Condensed
                Consolidated Balance Sheets as of March 31, 2007 and December 31,
                2006
                (Unaudited)
            3Condensed
                Consolidated Statements of Operations and Comprehensive Income for
                the
                three months ended March 31, 2007 and 2006 (Unaudited)
            4Condensed
                Consolidated Statements of Cash Flows for the Three Months Ended
                March 31,
                2007 and 2006 (Unaudited)
            5Notes
                to Condensed Consolidated Financial Statements (Unaudited)
            6ITEM
                2.
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS
            11ITEM
                3.
            CONTROLS
                AND PROCEDURES
            21PART
                II - OTHER INFORMATION
            22ITEM
                1.
            LEGAL
                PROCEEDINGS
            22ITEM
                2.
            UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
            22ITEM
                3.
            DEFAULTS
                UPON SENIOR SECURITIES
            22ITEM
                4.
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            22ITEM
                5.
            OTHER
                INFORMATION
            22ITEM
                6.
            EXHIBITS
            22SIGNATURES
            
            23










**PART
      I - FINANCIAL INFORMATION**





**ITEM
      1.**  **FINANCIAL
      STATEMENTS**





**CHINA
      SHENGHUO PHARMACEUTICAL HOLDINGS, INC.**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**(Unaudited)**


**March
                31,**
            
            **December
                31,****2007**
            
            **2006****ASSETS:****Current
                Assets:**Cash
                and cash equivalents
            
            $
            1,719,115
            
            $
            3,691,438Restricted
                cash
            
            
            106,625
            
            
            474,576Accounts
                receivable, less allowance for doubtful accounts of
                $1,519,985at
                March 31, 2007 and $794,468 at December 31, 2006,
                respectively
            
            
            11,874,301
            
            
            9,907,184Employee
                advances, less allowance for doubtful accounts of
                $1,497,080and
                $1,429,426 at March 31, 2007 and December 31, 2006,
                respectively
            
            
            4,027,954
            
            
            3,130,045Advances
                to suppliers
            
            
            299,362
            
            
            46,620Inventory,
                net of reserve for obsolescence of $120,297 and $111,128at
                March 31, 2007 and December 31, 2006, respectively
            
            
            2,497,123
            
            
            2,581,519Receivable
                from related parties
            
            
            661,035
            
            
            76,751Other
                current assets
            
            
            13,562
            
            
            17,454**Total
                Current Assets**
            
            
            **21,199,077**
            
            
            **19,925,587**Property,
                plant and equipment, net of accumulated depreciation of
                $3,528,240and
                $3,333,305 at March 31, 2007 and December 31, 2006,
                respectively
            
            
            7,509,883
            
            
            7,554,747Intangible
                assets, net of accumulated amortization of $27,242 and
                $22,569at
                March 31, 2007 and December 31, 2006, respectively
            
            
            625,765
            
            
            624,426Deferred
                income taxes
            
            
            699,026
            
            
            655,223**TOTAL
                ASSETS**
            
            **$**
            **30,033,751**
            
            **$**
            **28,759,983****LIABILITIES
                AND STOCKHOLDERS' EQUITY:****Current
                Liabilities:**Accounts
                payable
            
            $
            800,821
            
            $
            764,636Accrued
                expenses
            
            
            1,940,717
            
            
            1,966,822Deposits
            
            
            2,809,867
            
            
            1,573,426Payable
                to related parties
            
            
            72,153
            
            
            393,213Short-term
                notes payable
            
            
            8,634,688
            
            
            12,758,426Advances
                from customers
            
            
            289,920
            
            
            342,531Taxes
                and related payables
            
            
            2,049,008
            
            
            3,057,471Current
                portion of long-term debt
            
            
            1,291,831
            
            
            -**Total
                Current Liabilities**
            
            
            **17,889,005**
            
            
            **20,856,525****Long-Term
                Debt**
            
            
            **2,583,662**
            
            
            **-****Total
                Liabilities**
            
            
            **20,472,667**
            
            
            **20,856,525****Minority
                Interest in Net Assets of Subsidiaries**
            
            
            **483,783**
            
            
            **385,067****Stockholders'
                Equity:**Preferred
                stock, $0.0001 par value, 10,000,000 shares authorized, 0
                sharesoutstanding
                at March 31, 2007 and December 31, 2006, respectively
            
            
            -
            
            
            -Common
                stock, $0.0001 par value, 100,000,000 shares authorized,19,119,400
                shares issued and outstanding
            
            
            1,912
            
            
            1,912Additional
                paid-in capital
            
            
            4,829,633
            
            
            4,829,633Statutory
                reserves
            
            
            147,023
            
            
            147,023Retained
                earnings
            
            
            3,792,125
            
            
            2,318,950Other
                comprehensive income, foreign currency translation
            
            
            306,608
            
            
            220,873**Total
                Stockholders' Equity**
            
            
            **9,077,301**
            
            
            **7,518,391****TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY**
            
            **$**
            **30,033,751**
            
            **$**
            **28,759,983**





The
      accompanying notes are an integral part of these condensed consolidated
      financial statements.





3




**CHINA
      SHENGHUO PHARMACEUTICAL HOLDINGS, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF**


**OPERATIONS
      AND COMPREHENSIVE INCOME**


**(Unaudited)**





**For
                the Three Months Ended****March
                31,****2007**
            
            **2006****Sale
                of Products**
            
            $
            4,327,125
            
            $
            4,472,521**Cost
                of Products Sold**
            
            
            1,141,698
            
            
            1,613,417**Gross
                Profit**
            
            
            3,185,427
            
            
            2,859,104**Operating
                Expenses:**Selling
                expense
            
            
            1,602,824
            
            
            951,666General
                and administrative expense
            
            
            973,605
            
            
            685,249Research
                and development expense
            
            
            2,877
            
            
            4,758**Total
                Operating Expenses**
            
            
            2,579,306
            
            
            1,641,673**Income
                from Operations**
            
            
            606,121
            
            
            1,217,431**Other
                Income (Expense):**Interest
                income
            
            
            6,462
            
            
            1,025Non-operating
                income
            
            
            1,218
            
            
            52,456Interest
                expense
            
            
            (180,183
            )
            
            (206,926
            )Non-operating
                expenses
            
            
            -
            
            
            (4,872
            )**Net
                Other Expense**
            
            
            (172,503
            )
            
            (158,317
            )**Income
                Before Income Taxes**
            
            
            433,618
            
            
            1,059,114Benefit
                from (provision for) income taxes
            
            
            1,137,478
            
            
            (228,002
            )Minority
                interest in income of subsidiaries
            
            
            (97,920
            )
            
            -**Net
                Income**
            
            $
            1,473,176
            
            $
            831,112Foreign
                currency translation adjustment
            
            
            85,735
            
            
            13,768**Comprehensive
                Income**
            
            $
            1,558,911
            
            $
            844,880**Basic
                and Diluted Earnings Per Share**
            
            $
            0.08
            
            $
            0.05**Weighted-Average
                Shares Outstanding**
            
            
            19,119,400
            
            
            16,227,200





The
      accompanying notes are an integral part of these condensed consolidated
      financial statements.





4




**CHINA
      SHENGHUO PHARMACEUTICAL HOLDINGS, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(Unaudited)**





**For
                the Three Months Ended****March
                31,****2007**
            
            **2006****Cash
                Flows from Operating Activities:**Net
                income
            
            $
            1,473,176
            
            $
            831,112Adjustments
                to reconcile net income to net cashprovided
                by operating activities:Depreciation
                and amortization
            
            
            166,155
            
            
            154,606Deferred
                income taxes
            
            
            (37,177
            )
            
            (118,929
            )Minority
                interest in income of subsidiaries
            
            
            97,920
            
            
            -Change
                in current assets and liabilities:Accounts
                receivable
            
            
            (1,861,831
            )
            
            (2,639,402
            )Employee
                advances
            
            
            (863,563
            )
            
            (114,270
            )Advances
                to suppliers
            
            
            (251,294
            )
            
            17,372Inventory
            
            
            109,494
            
            
            780,414Other
                current assets
            
            
            4,048
            
            
            9,899Accounts
                payable
            
            
            28,511
            
            
            (41,231
            )Accrued
                expenses and deposits
            
            
            1,170,727
            
            
            782,881Advances
                from customers
            
            
            (55,780
            )
            
            27,103Unearned
                revenue
            
            
            -
            
            
            2,156Taxes
                and related payables
            
            
            (1,034,633
            )
            
            1,073,666**Net
                Cash (Used in) Provided by Operating Activities**
            
            
            (1,054,247
            )
            
            765,377**Cash
                Flows from Investing Activities:**Receivable
                from related parties
            
            
            (579,050
            )
            
            153,695Restricted
                cash
            
            
            371,186
            
            
            -Capital
                expenditures
            
            
            (42,233
            )
            
            3,723Notes
                receivable
            
            
            -
            
            
            151,137**Net
                Cash (Used in) Provided by Investing Activities**
            
            
            (250,097
            )
            
            308,555**Cash
                Flows from Financing Activities:**Payable
                to related parties
            
            
            (323,676
            )
            
            (645,013
            )Proceeds
                from short and long-term loans
            
            
            8,470,252
            
            
            -Payments
                on short-term loans
            
            
            (8,843,200
            )
            
            (633,941
            )**Net
                Cash Used in Financing Activities**
            
            
            (696,624
            )
            
            (1,278,954
            )Effect
                of exchange rate changes on cash
            
            
            28,645
            
            
            6,537Net
                Increase in Cash and Cash Equivalents
            
            
            (1,972,323
            )
            
            (198,485
            )Cash
                and Cash Equivalents at Beginning of Period
            
            
            3,691,438
            
            
            1,488,438**Cash
                and Cash Equivalents at End of Period**
            
            $
            1,719,115
            
            $
            1,289,953**Supplemental
                Information**Cash
                paid for interest
            
            $
            180,183
            
            $
            206,926





The
      accompanying notes are an integral part of these condensed consolidated
      financial statements.





5




**CHINA
      SHENGHUO PHARMACEUTICAL HOLDINGS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**





**NOTE
      1 - BASIS OF PRESENTATION**





The
      accompanying unaudited condensed consolidated financial statements of China
      Shenghuo Pharmaceutical Holdings, Inc., (formerly known as SRKP 8, Inc.) (the
      “Company”) were prepared pursuant to the rules and regulations of the United
      States Securities and Exchange Commission. Certain information and footnote
      disclosures normally included in financial statements prepared in accordance
      with accounting principles generally accepted in the United States of America
      have been condensed or omitted pursuant to such rules and regulations.
      Management of the Company (“Management”) believes that the following disclosures
      are adequate to make the information presented not misleading. These condensed
      consolidated financial statements should be read in conjunction with the audited
      consolidated financial statements and the notes thereto included in the
      Company’s Registration Statement on Form SB-2/A filed with the Securities and
      Exchange Commission on April 25, 2007.





These
      unaudited condensed consolidated financial statements reflect all adjustments
      (consisting only of normal recurring adjustments) that, in the opinion of
      Management, are necessary to present fairly the consolidated financial position
      and results of operations of the Company for the periods presented. Operating
      results for the three months ended March 31, 2007, are not necessarily
      indicative of the results that may be expected for the year ending December
      31,
      2007.





***Translating
      Financial Statements*** - The
      consolidated financial statements have been prepared in accordance with
      accounting principles generally accepted in the United States of America. The
      functional currency of the operating subsidiaries in the PRC is the Chinese
      Yuan
      Renminbi (“CNY”); however, the condensed consolidated financial statements have
      been expressed in United States Dollars (“USD”). The accompanying condensed
      consolidated balance sheets have been translated into USD at the exchange rates
      prevailing at each balance sheet date. The condensed consolidated statements
      of
      operations have been translated using the weighted average exchange rates
      prevailing during the operating periods of each statement.





**NOTE
      2 - ORGANIZATION AND NATURE OF OPERATIONS**





***Nature
      of Business*** - China
      Shenghuo Pharmaceutical Holdings, Inc. (the “Company” or “the Parent” or “the
      Group”) and its subsidiaries designs, develops, markets, exports and sells
      pharmaceutical, nutritional supplements and cosmetic products throughout the
      People’s Republic of China (PRC) and abroad. The Company also conducts research
      and development for third parties as well as for itself using the medicinal
      herb
      Panax notoginseng, also known as Sanqi, Sanchi, or Tienchi and sells
      pharmaceutical, nutritional supplements and cosmetic products that contain
      this
      herb, which is grown in two provinces in the PRC. Sales from the cosmetic
      products represent less than 10% of total Company sales and revenue. The Company
      does not maintain accounting records by line of business as the Company’s
      subsidiaries sell products from multiple lines of business and management
      evaluates each subsidiary as a separate entity.





***Organization***  **** - The
      Company was organized under the laws of the State of Delaware on May 24, 2005.
      On August 31, 2006, the Company consummated a share exchange agreement, as
      amended (“Agreement”), with Lan’s Int’l Medicine Investment Co., a Hong Kong
      corporation, and a shareholder holding 93.75% of the equity interest of Kunming
      Shenghuo Pharmaceuticals Co., Ltd. (“Shenghuo”) whereby the Company, in exchange
      for 15,213,000 shares of its common stock, acquired 93.75% of Shenghuo’s
      shares.




In
      addition, the Company agreed to cancel 2,036,000 shares of its common stock;
      issue 1,242,400 shares of its common stock and warrants to purchase 100,000
      shares of its common stock (the “Warrants”) for services rendered, and issue
      2,000,000 shares for $1,800,000 cash (less costs of $535,304).





As
      part
      of several agreements, the Company agreed to register the 1,242,400 shares
      of
      its common stock and the Warrants. The Company also agreed to register the
      2,000,000 shares of common stock that were to be issued for cash and the 664,000
      shares of common stock that were held by the Company’s shareholders immediately
      prior to the Agreement.





6





**CHINA
      SHENGHUO PHARMACEUTICAL HOLDINGS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




As
      part
      of these agreements, the Company agreed to a penalty provision with certain
      shareholders. If the Company fails to register the 2,000,000 shares that were
      issued for cash due to failure on the part of the Company, the Company will
      pay
      to those shareholders a cash payment equal to 0.0333% of the purchase price
      of
      their respective shares for each business day of the failure. There is no
      maximum potential consideration to be transferred. The Company is required
      to
      file the registration statement no later than thirty days after the consummation
      of the agreement and shall use reasonable best efforts to cause such
      Registration Statement to become effective within one hundred and fifty (150)
      days after the consummation of the agreement, or one hundred eighty (180) days
      after the consummation of the agreement if the Registration Statement is subject
      to a full review by the SEC. The Company is also required to use its reasonable
      best efforts to maintain the Registration Statement effective for a period
      of
      twenty-four (24) months at the Company’s expense.





Similarly,
      if the Company fails to register 315,400 of the shares that were outstanding
      prior to the Agreement or the 1,042,400 shares issued for services rendered,
      due
      to failure on the part of the Company, additional shares of its common stock
      shall be issued to the respective shareholders in the amount of 0.0333% of
      their
      respective shares for each calendar day until the registration becomes
      effective. Correspondingly, there is no maximum potential consideration to
      be
      transferred in connection with the registration of these shares. Further, the
      Company shall file a registration statement no later than the tenth (10) day
      after the end of the six (6) month period that immediately follows the filing
      date of the initial registration statement (the “Required Filing Date”). The
      Company shall use reasonable best efforts to cause such registration statement
      to become effective within one hundred and twenty (120) days after the Required
      Filing Date or the actual filing date, whichever is earlier, or one hundred
      fifty (150) days after the Required Filing Date or the actual filing date,
      whichever is earlier, if the registration statement is subject to a full review
      by the SEC. In addition, the Company shall use its reasonable best efforts
      to
      maintain the registration statement effective for a period of twenty-four (24)
      months at the Company’s expense. There is no penalty associated with the other
      shares or the Warrants.




The
      Company considers any probability of payment of either of these penalties to
      be
      remote as both are on a best efforts basis and the Company intends to and has
      resources available to comply with all requirements listed above. Therefore,
      there are no liabilities accrued or gains or losses resulting from changes
      to
      this liability included in the financial statements.




Because
      the shares issued by the Company to Shenghuo’s shareholders in the
      aforementioned transaction represented a controlling interest, the transaction
      has been accounted for as a recapitalization or reverse merger with Shenghuo
      being considered the acquirer. The accompanying consolidated financial
      statements have been restated on a retroactive basis to present the capital
      structure of Shenghuo as though it were the reporting entity.




In
      October 1995, Shenghuo was formed under the laws of the Peoples Republic of
      China (“PRC”) and subsequently acquired an 80% interest in both Kunming Shenghuo
      Medicine Co., Ltd. (“Medicine”) and Kunming Pharmaceutical Importation and
      Exportation Co., Ltd. (“Import/Export”), and a 98.18% interest in Kunming
      Shenghuo Cosmetics Co., Ltd. (“Cosmetic”). All of these entities were also
      formed in and operate within the PRC. Stockholder’s equity was represented by
      share capital and no shares were outstanding prior to August 31, 2006. Share
      capital of Shenghuo prior to the consummation of the agreement was $2,660,760.
      On August 30, 2006, the minority shareholders of Medicine agreed to transfer
      19%
      of their 20% interest to Shenghuo for $249,800. Also on August 30, 2006, the
      minority shareholders of Import/Export agreed to transfer 19% of their 20%
      interest to Shenghuo for $24,980. Subsequent to these transfers, Shenghuo owns
      99% of the equity interests in Medicine and Import/Export.




In
      September, 2006 Shenghuo formed Kunming Beisheng Tech Development Ltd.
“Beisheng”, under the laws of the PRC as its partially owned subsidiary for the
      purpose of doing research and development on bio-tech products, health-care
      products and cosmetics, import and export business on medicines, equipment
      and
      pharmaceutical technologies. Upon formation, Shenghuo owned 70% of Beishing.
      There were no material operations for Beisheng for the quarter ended March
      31,
      2007.




7




**CHINA
      SHENGHUO PHARMACEUTICAL HOLDINGS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**NOTE
      3 - SELECTED SIGNIFICANT ACCOUNTING POLICIES**





***Cash
      and Cash Equivalents*** - The
      Company’s cash and cash equivalents are maintained in bank deposit accounts. The
      Company has not experienced any losses with respect to these deposits. Cash
      and
      cash equivalents include interest bearing and non-interest bearing bank
      deposits, money market accounts, and short-term certificates of deposit with
      original maturities of three months or less. The Company did not enter into
      any
      hedge contracts during any of the periods presented.





***Accounts
      and Other Receivables and Allowance for Doubtful
      Accounts*** - Trade
      accounts receivable and other receivables are carried at original invoiced
      amounts less an allowance for doubtful accounts. The allowance for doubtful
      accounts at March
      31,
      2007 for
      trade accounts receivable and other receivables was $1,519,985 and $1,497,080,
      respectively, and at December 31, 2006, was $794,468 and $1,429,426,
      respectively.





***Advances
      to Suppliers and Advances from Customers*** - As is
      customary in the PRC, the Company will often make advanced payments to suppliers
      for materials, which may include provisions that set the purchase price and
      delivery date of raw materials, or receive advance payments from
      customers.





***Basic
      and Diluted Earnings per Share*** - Basic
      and diluted earnings per share are calculated by dividing net earnings
      attributable to common stockholders by the weighted-average number of shares
      of
      common stock outstanding during the year. Diluted earnings per share are
      calculated to give effect to potentially issuable dilutive common shares.
      Potentially dilutive securities as of March 31, 2007 are comprised of warrants
      to purchase 100,000 shares of common stock at an exercise price of $2.50 per
      share. The effect of these warrants is excluded from the computation of diluted
      net income per share because the exercise price of the warrants is greater
      than
      the fair value of the underlying shares on March 31, 2007. Since the Company’s
      shares are not currently listed or quoted for trading in any active market,
      these shares have been valued at $0.90 which is what the Company’s shares were
      sold at in the most recent offering completed in August 2006. As a result,
      there
      are no potentially dilutive securities outstanding as of March 31, 2007. There
      were no potentially dilutive shares at March 31, 2006.





***Comprehensive
      Income (Loss)*** - Other
      comprehensive income (loss) presented in the condensed consolidated financial
      statements consists of cumulative foreign currency translation adjustments.





***Recently
      Enacted Accounting Standards*** -In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* (“SFAS
      157”). SFAS 157 defines fair value, establishes a framework for measuring
      fair value, and expands disclosures about fair value measurements; however,
      it
      does not require any new fair value measurements. SFAS 157 will be applied
      prospectively and is effective for fiscal years beginning after November 15,
      2007, and interim periods within those fiscal years. The Company is currently
      evaluating the impact of this statement on its results of operations or
      financial position of the Company.




In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* ,
      including an amendment of FASB Statement No. 115 (“SFAS 159”). This
      pronouncement permits entities to choose to measure many financial instruments
      and certain other items at fair value that are not currently required to be
      measured at fair value and to recognize the resulting gains and losses in the
      results of operations. SFAS 159 is effective as of the beginning of an entity’s
      first fiscal year that begins after November 15, 2007. The Company does not
      expect SFAS 159 to have a material impact on its results of operations or
      financial position.


8




**CHINA
      SHENGHUO PHARMACEUTICAL HOLDINGS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**NOTE
      4 - INVENTORY**





Inventory
      is stated at weighted average cost and consisted of the following:





March
                31,
            
            December
                31,2007
            
            2006Raw
                materials
            
            $
            930,408
            
            $
            843,163Work-in-process
            
            
            490,661
            
            
            546,156Finished
                goods
            
            
            927,441
            
            
            620,676Product
                on consignment
            
            
            268,870
            
            
            682,652Gross
                Inventory
            
            
            2,617,380
            
            
            2,692,647Less:
                Provision for obsolescence
            
            
            (120,257
            )
            
            (111,128
            )Net
                Inventory
            
            $
            2,497,123
            
            $
            2,581,519





**NOTE
      5 - RELATED PARTY TRANSACTIONS**





At
      March
      31, 2007 and December 31, 2006, the Company had payables due to related parties
      in the amount of $72,153 and $393,213, respectively. These amounts are due
      on
      demand and do not accrue interest.





**NOTE
      6 - INCOME TAXES**





The
      Company is not subject to any income taxes in the United States, but is subject
      to corporate income tax in the PRC at a rate of 30% and a local income tax
      rate
      of 3%. However, because the Company’s operations are located in a special region
      of the PRC, its corporate income tax rate is 15%. The Company recognizes
      deferred tax assets and liabilities for future tax consequences attributable
      to
      differences between the financial statement carrying amounts of existing assets
      and liabilities and the respective tax bases and any tax credit carry forwards
      available. Deferred tax assets and liabilities are measured using enacted tax
      rates expected to apply to taxable income in the years in which those temporary
      differences are expected to be recovered or settled. The effect on deferred
      tax
      assets and liabilities of a change in tax rates is recognized in income in
      the
      period that includes the enactment date. The Company has established a valuation
      allowance for all deferred income tax assets of Cosmetic due to the uncertainty
      of their realization. Income taxes payable are included in taxes and related
      payables on the accompanying balance sheets.





On
      March
      15, 2007, the Company’s majority owned subsidiary, Medicine was granted an
      approval of their application by the government of the PRC for relief of income
      taxes for the years ended December 31, 2006 and 2005. As a result, Medicine
      recognized an aggregate of $1,099,401 in income taxes that are no longer payable
      as of March 15, 2007. The amount has been recognized under the caption “Benefit
      from (provision for) income taxes” in the accompanying Condensed Consolidated
      Statement of Operations and Comprehensive Income for the three months ended
      March 31, 2007.





**NOTE
      7 - COMMITMENTS AND CONTINGENCIES**





***Economic
      environment*** - Since
      all of the Company’s operations are conducted in the PRC, the Company is subject
      to special considerations and significant risks not typically associated with
      companies operating in the United States of America. These risks include, among
      others, the political, economic and legal environments and foreign currency
      exchange rate fluctuations. The Company’s operational 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 medical reforms and other
      laws
      and regulations, anti-inflationary measures, currency conversion and remittance
      abroad, and rates and methods of taxation, among other things. In addition,
      all
      of the Company’s revenue is denominated in the PRC’s currency CNY, which must be
      converted into other currencies before remittance out of the PRC. Both the
      conversion of CNY into foreign currencies and the remittance of foreign
      currencies abroad require approval of the PRC government.





9





**CHINA
      SHENGHUO PHARMACEUTICAL HOLDINGS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




***Dependence
      on a single raw material*** - The
      primary ingredient in all of the Company’s products is Sanchi, an herb grown in
      two provinces of the PRC. The Company relies on its in-house purchasing
      department to acquire sufficient Sanchi at reasonable prices and may on occasion
      make advance payments to suppliers that include provisions setting the purchase
      price and delivery date. However, the Company is not reliant on a single source
      or supplier in order to obtain the Sanchi.





***Contingent
      Liability*** -
      The
      Company was sued by a former employee for violation of his contract and the
      courts entered a judgment in favor of the employee in 2003 for $128,978, which
      included litigation costs. The Company accrued the liability for this loss
      at
      December 31, 2003 and paid the amount of the judgment on April 27, 2004. In
      2006, the plaintiff has asked the court to have the Company pay a penalty for
      not paying the judgment timely in the amount of $100,000. The court had frozen
      a
      bank account that had $105,284. During the fourth quarter of 2006, the court
      rejected the request for the penalty and released the funds back to the Company.
      The employee has now asserted claims for allegedly ruining the employee’s
      reputation and causing mental anguish. No amount has been recorded in connection
      with this claim as the Company believes that no information suggests that it
      is
      probable a liability has been incurred and the amount of loss as a result of
      this litigation cannot be reasonably estimated.





On
      January 24, 2007 the Company entered into a contract with an advertising company
      for advertising services. The contract terms require the Company to pay $95,492
      monthly for the advertising agreed upon until the expiration of the contract
      in
      May 2007.





**NOTE
      8 - STOCKHOLDERS EQUITY**





The
      Company has outstanding warrants to purchase 100,000 shares of common stock
      with
      an exercise price of $2.50 which expire five years from the date of issue of
      August 31, 2006.





10




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





**Forward-Looking
      Statements**





*The
      following discussion of our financial condition and results of operations should
      be read in conjunction with our financial statements and the related notes,
      and
      the other financial information included in this quarterly
      report.*





*This
      filing contains forward-looking statements. The words “anticipated,” “believe,”
“expect, “plan,” “intend,” “seek,” “estimate,” “project,” “could,” “may,” and
      similar expressions are intended to identify forward-looking statements. These
      statements include, among others, information regarding future operations,
      future capital expenditures, and future net cash flow. Such statements reflect
      our management’s current views with respect to future events and financial
      performance and involve risks and uncertainties, including, without limitation,
      general economic and business conditions, changes in foreign, political, social,
      and economic conditions, regulatory initiatives and compliance with governmental
      regulations, the ability to achieve further market penetration and additional
      customers, and various other matters, many of which are beyond our control.
      Should one or more of these risks or uncertainties occur, or should underlying
      assumptions prove to be incorrect, actual results may vary materially and
      adversely from those anticipated, believed, estimated or otherwise indicated.
      Consequently, all of the forward-looking statements made in this quarterly
      report are qualified by these cautionary statements and there can be no
      assurance of the actual results or developments. Refer to the sections entitled
      “Risk Factors” and “Special Note Regarding Forward-Looking Statements” contained
      in this quarterly report.*





**Overview**





We
      are
      primarily engaged in the research, development, manufacture, and marketing
      of
      pharmaceutical, nutritional supplement and cosmetic products. Almost all of
      our
      products are derived from the medicinal herb Panax notoginseng, also known
      as
      Sanqi, Sanchi or Tienchi. Panax notoginseng is a greyish-brown or greyish-yellow
      plant that only grows in a few geographic locations on Earth, one of which
      is
      Yunnan Province in southwest China, where we are located. The main root of
      Panax
      notoginseng are cylindrical shaped and are most commonly one to six centimeters
      long and one to four centimeters in diameter. Panax notoginseng saponins (PNS),
      the active ingredients in Panax notoginseng, are extracted from the plant using
      high-tech equipment and in accord with Good Manufacturing Practice (GMP)
      standards. Our main product, Xuesaitong Soft Capsules, accounted for more than
      90% and 80% of our sales for the year ended December 31, 2005 and the year
      ended
      December 31, 2006, respectively.





We
      earn
      revenues mainly from the production and sale of our products and external
      processing. Moving forward, we intend to increase our efforts in research.
      We
      hope to increase profits as a result of making new products and increasing
      sales, since the sale of products is our main source for generating cash. Our
      business involves a significant degree of risk as a result of the opportunities
      and challenges we face in selling our products. We have traditionally focused
      on
      research and development of products serving cardiovascular and cerebrovascular
      disease, peptic ulcer disease and health products markets, but we intend to
      devote additional resources to research and development and to continue to
      evaluate and develop additional product candidates to expand our pipeline where
      we perceive an unmet need and commercial potential, and to improve existing
      products to enhance their efficacy.





With
      intense price competition among many similar or identical products in the
      industry, we believe that building brand equity is the primary means to generate
      and sustain profitable growth in the future. Our brand strategy is centered
      on
“Lixuwang”—the brand under which most of our products are sold. We believe that
      our relationships within the Chinese pharmaceutical industry are key to building
      brand equity, and we believe we can benefit from developing and maintaining
      relationships with professionals within the industry, especially physicians
      and
      hospitals.





Our
      marketing team maintains sales offices or agents in approximately 20 provinces
      throughout China. The sales network covers approximately 186 cities and is
      staffed by approximately 400 sales representatives. We intend to grow our
      internal marketing and sales function and increase our relationships with other
      national distributors to expand the distribution and presence of our
      non-prescription brands and cosmetics.





Xuesaitong
      Soft Capsules, which are subject to wholesale and retail price controls by
      the
      Chinese government, are primarily sold in China, but the product is also sold
      in
      various developing countries, including Malaysia, Indonesia and Kyrgyzstan.
      Sales of the product in China are regulated by the SFDA as a prescription drug
      and therefore must be sold to consumers through hospital pharmacies and cannot
      be advertised, thus limiting the ability of the company to market the brand.
      Approximately 15% of sales of Xuesaitong Soft Capsules are sold to hospitals
      directly while approximately 85% of sales are made to distributors. Our
      three
      largest customers are Yunnan Province Pharmaceutical, Ltd., Xinjiang Province
      New & Special National Pharmaceutical Co., Ltd. and Guangdong Donguan City
      Medicinal Company, all of which accounted for 11.87%, 11.27% and 8.93% of our
      sales, respectively, for the year ended December 31, 2006.




11




We
      hope
      to further expand sales beyond China into other countries where our products
      could be affordable treatment options. We intend to focus on the expansion
      of
      our cosmetics product line and devote additional marketing and sales resources
      to that end with the aim that our cosmetics products will account for a larger
      percentage of our revenue in the future.





We
      believe that among the most important economic or industry-wide factors relevant
      to our growth in the short term are reform of the medical system in China and
      the adjustment of medicine prices, which will affect the sale of our main
      product, Xuesaitong Soft Capsules, in hospitals. In order to increase long-term
      growth, we have applied for the designation of Xuesaitong Soft Capsules as
      a
      medicine with “good quality worthy of high price,” which we received in February
      2007. We believe this designation may help prevent future price reductions
      and
      possibly offset revenue decreases in case of declining future sales. Currently,
      the Chinese government supports the medical system in urban and rural
      communities. We hope to stabilize the sales channel into hospitals and widen
      the
      reach of sales in urban and rural communities at the same time. Large increases
      in medicine sales at an average lower price will ensure the growth of general
      medical sales over the next few years.





We
      do
      face certain challenges and risks, including our relatively high debt ratio,
      which is one of our main risks. If we fail to raise capital in overseas markets,
      we will encounter great difficulties as a result of the shortage of working
      capital which we will face when our new cosmetic and health products come onto
      the market. There is potential for growth in production and sales, due to the
      growth of new products and expansion of new channels into urban and rural
      communities. However, it will be uncertain which of our new products will pass
      the applicable tests and get clinical approval without difficulty because the
      uncertainty of test results and clinical approvals, which relates only to our
      new products. Over the last three years, the price of the main raw material
      we
      use - sanchi - has stabilized and is declining slightly. We will benefit from
      this trend if it continues.





**Company
      History**





We
      were
      incorporated in the State of Delaware on May 24, 2005. We were originally
      organized as a “blank check” shell company to investigate and acquire a target
      company or business seeking the perceived advantages of being a publicly held
      corporation. Our principal business operations from inception to August 31,
      2006, to closing of the Share Exchange, was to achieve long-term growth
      potential through a combination with a business rather than immediate,
      short-term earnings. On June 30, 2006, we entered into a Share Exchange
      Agreement (the “Exchange Agreement”) with Kunming Shenghuo Pharmaceutical
      (Group) Co., Ltd. (“Shenghuo China”) and Lan’s Int’l Medicine Investment Co.,
      Limited, a Hong Kong corporation and shareholder holding 93.75% of the equity
      interest of Shenghuo China (“LIMI”). On August 11 and 28, 2006, the parties
      entered into Amendment No. 1 and 2 to the Exchange Agreement, respectively.
      Pursuant to the Exchange Agreement, as amended, we agreed to issue an aggregate
      of 16,255,400 shares of our common stock to LIMI and its designees in exchange
      for 93.75% of the equity interest of Shenghuo China (the “Share Exchange”). The
      Share Exchange closed on August 31, 2006. Upon the closing of the Share
      Exchange, we (i) became the 93.75% parent of Shenghuo China, (ii) assumed the
      operations of Shenghuo China and its subsidiaries and (iii) changed our name
      from SRKP 8, Inc. to China Shenghuo Pharmaceutical Holdings, Inc.





Shenghuo
      China was formed in 1995 as a limited company under the laws of the People’s
      Republic of China (“PRC”) with an initial capitalization of approximately
      $602,000, with Kunming Nanguo Biology Source Development Institute (“Nanguo”)
      owning approximately 55% of its outstanding equity interests and Guangdong
      Maoming Huazhou Company (“Guangdong”) owning approximately 45% of its equity
      interests. In November 1999, Guangdong transferred all of its equity interests
      to Nanguo, which, as a result, became Shenghuo China’s 100% parent. Also in
      November 1999, Nanguo entered into an agreement with the Pharmaceutical
      Institute of Kunming Medical College (the “College”) to purchase the rights to
      the technology for the preparation of Sanchi, including the technology of
      extracting and separating the Sanchi from Panax notoginseng, analysis data,
      the
      conditions and methods of synthesize, manufacture and the quality-control.
      Terms
      of the agreement required an initial payment of approximately $217,000 and
      a
      final payment of approximately $3.9 million upon receiving governmental approval
      and protection for the developed techniques. In March 2000, Nanguo made an
      additional net investment of approximately $1.3 million and a new investor,
      Yunnan Yunwei (Group) Co., LTD (“Yunwei”) made a capital investment of
      approximately $3.7 million into Shenghuo China, and in May 2002, a new investor,
      SDIC Venture Capital Investment, Co., Ltd. (“SDIC”), made an investment of
      approximately $483,000. In August 2004, Nanguo sold the rights to the technology
      to Shenghuo China for approximately $3.5 million, and in January 2005, Nanguo
      purchased all of the equity interests held by Yunwei for approximately the
      same
      amount, resulting in Nanguo becoming Shenghuo China’s 93.75% parent, and SDIC’s
      percentage holding in Shenghuo China became 6.25% of Shenghuo China’s
      outstanding equity interests. In 2006, Nanguo transferred its 93.75% interest
      to
      Lan’s Int’l Medicine Investment Co., Ltd., a company formed under the laws of
      Hong Kong (“LIMI”), and Shenghuo China was restructured into Chinese Foreign
      Equity Joint Venture under the laws of the PRC. On August 31, 2006, pursuant
      to
      the terms of the Share Exchange Agreement, we issued an aggregate of 16,255,400
      shares of our common stock to LIMI and its designees in exchange for 93.75%
      of
      the equity interest of Shenghuo China.




12




**Recent
      Events**





***Principal
      Terms of the Share Exchange***





Upon
      the
      closing of the Share Exchange, we issued an aggregate of 16,255,400 shares
      of
      our common stock to LIMI and its designees in exchange for 93.75% of the equity
      interest of Shenghuo China. Pursuant to the Exchange Agreement, as amended,
      we
      issued 15,213,000 shares of common stock to LIMI and 567,600 and 474,800 shares
      of common stock to Marvel International Limited and FirstAlliance Financial
      Group, Inc., respectively, as designees of LIMI. In addition, at the closing
      of
      the Share Exchange, we issued 200,000 shares of our common stock and five year
      warrants to purchase 100,000 shares of our common stock at a per share exercise
      price of $2.50 for investor relations services (the “IR Securities”).
      Immediately following the closing of the Share Exchange and after giving effect
      to the issuance of the IR Securities, LIMI and its designees beneficially owned
      approximately 85.0% of our issued and outstanding common stock, our pre-existing
      shareholders owned approximately 3.5% and investors in the Private Placement
      (described below) conducted by us that closed concurrently with the Share
      Exchange owned approximately 10.5% of our outstanding common stock. We issued
      no
      fractional shares in connection with the Share Exchange. Immediately after
      the
      closing of the Share Exchange, we changed our corporate name from SRKP 8, Inc.
      to China Shenghuo Pharmaceutical Holdings, Inc.





FirstAlliance
      Financial Group, Inc. was hired by LIMI as a consultant to assist LIMI in
      selecting a exchange for the listing of securities, coordinating with various
      parties involved in the going public transaction (such as investment banking
      firm, law firm and audit firm) and preparing various documents. FirstAlliance’s
      services will be completed when we complete our listing process. Marvel
      International Limited is the finder in the share exchange transaction between
      us
      and LIMI. Its service was completed when the share exchange took place. Neither
      FirstAlliance nor Marvel is an affiliate of LIMI.





Immediately
      prior to the Share Exchange and Private Placement, certain of our shareholders
      agreed to cancel an aggregate of 2,036,000 shares of common stock such that
      there were 664,000 shares of common stock outstanding immediately prior to
      the
      Share Exchange and Private Placement. Immediately after the closing of the
      Share
      Exchange, Private Placement and after giving effect to the issuance of the
      IR
      Securities, we had 19,119,400 outstanding shares of common stock and warrants
      to
      purchase 100,000 shares of our common stock.





Pursuant
      to the terms of the Share Exchange, we agreed to register a total of 664,000
      shares of common stock held by our shareholders immediately prior to the Share
      Exchange. Of these 664,000 shares held by our shareholders, 348,600 shares
      would
      be covered by the resale registration statement filed in connection with the
      Private Placement (described below) and 315,400 shares, which are held by
      affiliates of WestPark Capital, Inc. (“WestPark”) are to be included in a
      subsequent registration statement filed by us within ten days after the end
      of
      the six month period that immediately follows the date on which we file the
      registration statement to register the shares issued in the Private Placement.
      WestPark acted as the placement agent in the Private Placement. We also agreed
      to register the IR Securities in the registration statement filed in connection
      with the Private Placement and to include 1,042,400 shares of common stock
      that
      were issued to FirstAlliance Financial Group, Inc. and Marvel International
      Limited as designees of LIMI upon the closing of the Share Exchange in the
      subsequent registration statement that we agreed to file to register the shares
      held by the affiliates of WestPark.





The
      transactions contemplated by the Exchange Agreement, as amended, were intended
      to be a “tax-free” incorporation pursuant to the provisions of Section 351 of
      the Internal Revenue Code of 1986, as amended.





***The
      Private Placement***





On
      August
      31, 2006, concurrently with the close of the Share Exchange, we received gross
      proceeds of $1,800,000 in a private placement transaction (the “Private
      Placement”). Pursuant to subscription agreements entered into with the
      investors, we sold an aggregate of 2,000,000 shares of common stock at $0.90
      per
      share. We agreed to file a registration statement covering the common stock
      sold
      in the private placement within 30 days of the closing of the Share Exchange
      pursuant to the subscription agreement with each investor. We filed the
      registration statement within that timeframe. The investors in the Private
      Placement also entered into a lock up agreement pursuant to which they agreed
      not to sell their shares until our common stock begins to be traded on either
      the New York Stock Exchange, American Stock Exchange, NASDAQ Global Market,
      NASDAQ Capital Market or the OTC Bulletin Board, after which their shares will
      automatically be released from the lock up on a monthly basis pro rata over
      a
      nine month period. After commissions and expenses, we received net proceeds
      of
      approximately $1.3 million in the Private Placement. WestPark acted as placement
      agent in connection with the Private Placement. For its services as placement
      agent, WestPark was paid a commission equal to 9.0% of the gross proceeds from
      the financing, in addition to a 2% non-accountable expense fee, for an aggregate
      amount fee of $198,000. Some of the controlling shareholders and control persons
      of WestPark were also, prior to the completion of the Share Exchange,
      controlling shareholders and control persons of our company, including Richard
      Rappaport, who is the Chief Executive Officer of WestPark and was the President
      and a significant shareholder of our company prior to the Share Exchange, and
      Anthony C. Pintsopoulos, who is the Chief Financial Officer of Westpark and
      was
      a controlling stockholder and an officer and director of our company prior
      to
      the Share Exchange. Each of Messrs. Rappaport and Pintsopoulos resigned from
      all
      of their executive and director positions with our company upon the closing
      of
      the Share Exchange.




13




**Critical
      Accounting Policies and Estimates**





The
      discussion and analysis of our financial condition and results of operations
      are
      based upon our consolidated financial statements, which have been prepared
      in
      accordance with generally accepted accounting principles in the United States.
      We believe the following are the critical accounting policies that impact the
      financial statements, some of which are based on management’s best estimates
      available at the time of preparation. Actual experience may differ from these
      estimates.





***Basis
      of Presentation and Translating Financial Statements*** - The
      consolidated financial statements have been prepared in accordance with
      accounting principles generally accepted in the United States of America. The
      functional currency of the operating subsidiaries in the PRC is the Chinese
      Yuan
      Renminbi (“CNY”); however, the condensed consolidated financial statements have
      been expressed in United States Dollars (“USD”). The accompanying condensed
      consolidated balance sheets have been translated into USD at the exchange rates
      prevailing at each balance sheet date. The consolidated statements of operations
      have been translated using the weighted average exchange rates prevailing during
      the operating periods of each statement.





***Cash
      and Cash Equivalents*** -
      Our
      cash and cash equivalents are maintained in bank deposit accounts. We have
      not
      experienced any losses with respect to these deposits. Cash and cash equivalents
      include interest bearing and non-interest bearing bank deposits, money market
      accounts, and short-term certificates of deposit with original maturities of
      three months or less. In connection with opening Bankers' Acceptance Bill,
      we
      have restricted cash in the amount of $106,625. No amount has been recorded
      on
      our accounting records as the outcome is uncertain. We did not enter into any
      hedge contracts during any of the periods presented.





***Accounts
      Receivable and Allowance for Doubtful Accounts*** - Trade
      accounts receivable and employee advances are carried at original invoiced
      amounts less an allowance for doubtful accounts. The allowance for doubtful
      accounts at March 31, 2007 for trade accounts receivable and employee advances
      was $1,519,985 and $1,497,080, respectively; and at December 31, 2006, was
      $794,468 and $1,429,426, respectively.




***Advances
      to Suppliers and Advances from Customers*** - As is
      customary in the PRC, we will often make advanced payments to suppliers for
      materials, which may include provisions that set the purchase price and delivery
      date of raw materials, or receive advance payments from customers.





***Basic
      and Diluted Earnings (Loss) per Share -*** Basic
      and
      diluted earnings (loss) per share are calculated by dividing net earnings
      attributable to common stockholders by the weighted-average number of shares
      of
      common stock outstanding during the year. Diluted earnings per share are
      calculated to give effect to potentially issuable dilutive common shares.
      Potentially dilutive securities as of March 31, 2007 are comprised of warrants
      to purchase 100,000 shares of common stock at an exercise price of $2.50 per
      share. The effect of these warrants is excluded from the computation of diluted
      net income per share because the exercise price of the warrants is greater
      than
      the fair value of the underlying shares on March 31, 2007. Since our shares
      are
      not currently listed or quoted for trading in any active market, these shares
      have been valued at $0.90 which is what our shares of common stock were sold
      at
      in the most recent offering completed in August 2006. As a result, there are
      no
      potentially dilutive securities outstanding as of March 31, 2007. There were
      no
      potentially dilutive shares at March 31, 2006.





***Comprehensive
      Income*** - Other
      comprehensive income presented in the consolidated financial statements consists
      of cumulative foreign currency translation adjustments.


14




**Results
      of Operations**





The
      following table sets forth our statements of operations for the three months
      ended March 31, 2007 and 2006 in U.S. dollars (unaudited):





**For
                the Three Months Ended March 31,****2007**
            
            **2006**In
                Dollars
            
            Percent
                of Revenues
            
            In
                Dollars
            
            Percent
                of Revenues***(dollar
                amounts in thousands, except for share***
              ***and
                earnings per share data)*****Sale
                of Products**
            
            $
            4,327
            
            
            100
            %
            $
            4,473
            
            
            100
            %**Cost
                of Products Sold**
            
            
            1,142
            
            
            26.38
            %
            
            1,613
            
            
            36.07
            %**Gross
                Profit**
            
            
            3,185
            
            
            73.62
            %
            
            2,859
            
            
            63.93
            %**Operating
                Expenses:**Selling
                expense
            
            
            1,603
            
            
            37.04
            %
            
            952
            
            
            21.28
            %General
                and administrative expense
            
            
            974
            
            
            22.5
            %
            
            685
            
            
            15.32
            %Research
                and development expense
            
            
            3
            
            
            0.07
            %
            
            5
            
            
            0.11
            %**Total
                Operating Expenses**
            
            
            2,579
            
            
            59.61
            %
            
            1,642
            
            
            36.71
            %**Income
                from Operations**
            
            
            606
            
            
            14.01
            %
            
            1,217
            
            
            27.22
            %**Other
                Income (Expense):**Interest
                income
            
            
            6
            
            
            0.15
            %
            
            1
            
            
            0.02
            %Non-operating
                income
            
            
            1
            
            
            0.03
            %
            
            52
            
            
            1.17
            %Interest
                expense
            
            
            (180
            )
            
            -4.16
            %
            
            (207
            )
            
            -4.63
            %Non-operating
                expenses
            
            
            -
            
            
            -
            
            
            (5
            )
            
            -0.11
            %**Net
                Other Expense**
            
            
            (173
            )
            
            -3.99
            %
            
            (158
            )
            
            -3.54
            %**Income
                Before Income Taxes**
            
            
            434
            
            
            10.02
            %
            
            1,059
            
            
            23.68
            %Benefit
                from (provision for) income taxes
            
            
            1,137
            
            
            26.29
            %
            
            (228
            )
            
            -5.1
            %Minority
                interest in income of subsidiaries
            
            
            (98
            )
            
            -2.26
            %
            
            -
            
            
            -**Net
                Income**
            
            $
            1,473
            
            
            34.05
            %
            $
            831
            
            
            18.58
            %Foreign
                currency translation adjustment
            
            
            86
            
            
            1.98
            %
            
            14
            
            
            0.31
            %**Comprehensive
                Income**
            
            $
            1,559
            
            
            36.03
            %
            $
            845
            
            
            18.89
            %**Basic
                and Diluted Earnings Per Share**
            
            $
            0.08
            
            
            
            
            $
            0.05**Weighted-Average
                Shares Outstanding**
            
            
            19,119,400
            
            
            
            
            
            16,227,200





**Three
      Months Ended March 31, 2007 and 2006**





***Revenue:*** Sale
      of
      products for the three months ended March 31, 2007 was approximately $4.33
      million, a slight decrease of approximately $0.15 million, or 3.25 %, from
      $4.47
      million for the comparable period ended March 31, 2006. The primary reason
      for
      the decline was the delay in the start of a sales contract in Guangdong Province
      to sell Xuesaitong Soft Capsules. We believe that sales will recover during
      the
      second quarter of 2007, when the contract with Guandong Province resumed after
      negotiations with the province government. The decline was also attributed,
      in
      part, to our efforts to gain better control over sales offices, which resulted
      in selecting customers with better credit while giving up some customers with
      poor credit. These changes are aimed at achieving more timely collection of
      trade receivables in the future.





***Cost
      of revenue:***  Our
      costs
      of goods sold for the three months ended March 31, 2007 was approximately $1.14
      million, a decrease of approximately $0.47 million, or 29.23%, from $1.61
      million for the period ended March 31, 2006. The decrease was primarily a result
      of the decrease in our sales revenue. As a percentage of revenue, the cost
      of
      goods sold decreased to 26.38% in the period ended March 31, 2007 from 36.07%
      in
      the corresponding period of 2006. The relative decrease in cost of sales was
      due
      to a downturn in the price of some raw materials used in our major products
      resulting from changes in medicine pricing policy in China.





***Gross
      profit:*** Our
      gross
      profit for the three months ended March 31, 2007 was $3.19 million as compared
      with $2.86 million for the period ended March 31, 2006. Gross Profit as a
      percentage of revenues was 73.62% for the period ended March 31, 2007, an
      increase of 9.69 % from 63.93% for the corresponding period ended March 31,
      2006. The increase in gross margin was due to higher sale prices and lower
      raw
      materials prices. Margins may decrease on a going forward basis due to the
      highly competitive medical industry in China, which continuously experiences
      new
      product introductions. In order to increase the sales of our products and expand
      our market, we may be forced to reduce prices in the future, leading to a
      decrease in gross profit margin.




15




***Selling
      expense:***  Selling
      expenses were approximately $1.6 million for the three months ended March 31,
      2007, an increase of $0.65 million, or 68.43%, from $0.95 million for the three
      months ended March 31, 2006. As a percentage of total revenue, selling expense
      increased by 15.76% this period from 21.28% as of the period ended March 31,
      2006. The primary reason for the increase was an increase of $0.5 million in
      sales commissions in the first three months of 2007. Commission structure and
      percentages were adjusted during the first three months of 2007 as part of
      a
      plan to improve sales performance and refocus sales on larger scale orders.
      Additional resources were also required for marketing and advertising of new
      products, particularly in our cosmetics line.





***General
      and administrative expense*** :
      General
      and administrative expenses were $0.97 million for the three months ended March
      31, 2007, an increase of $0.29 million, or 42.08%, from $0.69 million for the
      three months ended March 31, 2006. As a percentage of total revenue, general
      and
      administrative expense increased by 7.18% from 15.32% for the period ended
      March
      31, 2006 to 22.50% for the period ended March 31, 2007. The increase was
      primarily a result of the increased expenses associated with being a public
      company. There were also increased expenses associated with our recent focus
      on
      business expansion, as well as increased costs related to travel fees and
      conference fees.





***Research
      and development expense:*** Research
      and development expense for the three months ended March 31, 2007 was $2,877
      as
      compared to $4,758 for the period ended March 31, 2006. The change was primarily
      due to the staggered fulfillment of research and development in recent years.
      In
      keeping with plans made in previous years, we plan to enhance new product
      development over the next three years in order to promote sustainable
      growth.





***Net
      other expense:***  Net
      other
      expense, which includes interest income, non-operating income, interest expense
      and non-operating expenses, were an expense of $172,503 in the three months
      ended March 31, 2007 and an expense of $158,317 in the three months ended March
      31, 2006. The increase in the expense was primarily due to a decrease in
      non-operating income during the first three months ended March 31, 2007,
      partially offset by higher interest expenses during the corresponding period
      ended March 31, 2006.





***Benefits
      from (Provision for) income taxes:***  Benefits
      from income taxes was $1.14 million for the three months ended March 31, 2007
      compared with a provision for income tax of $0.23 million for the first quarter
      ended March 31, 2006. On March 15, 2007, one of our major subsidiaries, Shenghuo
      Medicine Co., Ltd., was granted an approval of their application by the PRC
      government for relief of income taxes for the years ended December 31, 2006
      and
      2005. As a result, Shenghuo Medicine Co., Ltd. recognized an aggregate of
      $1,099,401 in income taxes that are no longer payable as of March 15, 2007.
      The
      amount has been recognized under the caption “Benefit from (provision for)
      income taxes” in the accompanying Condensed Consolidated Statement of Operations
      and Comprehensive Income for the three months ended March 31, 2007.





***Net
      income:*** Net
      income increased to $1.4 millions for the three months ended March 31, 2007
      from
      a net income of $0.83 millions for the three months ended March 31, 2006.
      Considering the foreign currency translation adjustments of $85,735 and $13,768,
      for the three months ended March 31, 2007 and 2006, respectively, comprehensive
      income of $1.56 million of $0.84 million was realized for the three-month
      periods ended March 31, 2007 and 2006, respectively.





**Liquidity
      and Capital Resources**





***General
      -*** As
      of
      March 31, 2007, we had cash and cash equivalents of $1,719,115. As of March
      31,
      2007, we had borrowed from banks and other institutions and had amounts of
      approximately $8.6 million in short-term notes payable and $1.3 million in
      our
      current portion of long-term debt. The single payment notes have interest rates
      ranging from 6.12% to 6.57% per annum. A loan of approximately $2.6 million
      from
      the Heping Branch of Kunming Bank of Construction was borrowed on March 30,
      2007. As of March 31, 2007, we had receivables of $661,035 from related parties,
      an increase from $76,751 as of March 31, 2006. These amounts were lent
      temporarily and were collected in April.




16




The
      following table provides summary information about net cash flow for the three
      months ended March 31, 2007 and 2006.




**Cash
                Flow****Three
                months ended March 31,****2007**
            
            **2006****(unaudited,
                in thousands)**Net
                cash provided by (used in) operating activities
            
            $
            (1,054
            )
            $
            765Net
                cash provided by (used in) investing activities
            
            $
            (250
            )
            $
            309Net
                cash provided by (used in) financing activities
            
            $
            (697
            )
            $
            (1,279
            )**Cash
                and Cash Equivalents at End of Period**
            
            $
            1,719
            
            $
            1,290





**Operating
      Activities:** Net cash
      used in operating activities for the three months ended March 31, 2007 was
      $1,054,247, as compared to cash provided by operating activities of $765,377
      for
      the same period in 2006. The change primarily resulted from, firstly, an
      increase in accounts receivable due to a relatively long collection period
      typical of the pharmaceutical industry in China. Secondly, there were increases
      in cash flows related to inventory and accrued expenses and deposits, which
      were
      partially offset by the increases related to employee advances, advances to
      suppliers and taxes and related payables during the three months ended March
      31,
      2007.





**Investing
      Activities:** Net cash
      used in investing activities was $250,097 for the three months ended March
      31,
      2007, compared to net cash provided of $308,555 for the corresponding period
      ended March 31, 2006. The change was primarily a result of an increase in cash
      flows related to receivables from related parties, although the restricted
      cash
      decreased during the three months ended March 31, 2007. We collected the
      receivables in April 2007.





**Financing
      Activities:** Net cash
      used in financing activities was $696,624 for the three-month period ended
      March
      31, 2007 compared to $1,278,954 used as of March 31, 2006. The change in use
      of
      cash was basically because of changes in cash flows related to an increase
      in
      proceeds from short and long-term loans, though accordingly there was an
      increase in payment on short-term loans which resulted in a large cash outflow,
      approximately $8,843,200 as of March 31, 2007.





For
      the
      period ended March 31, 2007, we had no material commitments for capital
      expenditures other than for those expenditures incurred in the ordinary course
      of business.





As
      of
      March 31, 2007, our accounts receivable (less allowance for doubtful accounts
      of
      $1.5 million) were $11.9 million, an increase of $2.0 million, or 19.9% over
      accounts receivable of $9.9 million as of March 31, 2006. The collection period
      typically runs from three months to one year, considering the relatively long
      collection period in our industry. Our company normally requires one to two
      months to receive products that we order. Inventory has slightly decreased
      by
      $84,396 for the three months ended March 31, 2007. Moreover, our payment cycle
      is considerably shorter than our receivable cycle, since we typically pay our
      suppliers all or a portion of the purchase price in advance and for some
      suppliers we must maintain a deposit for future orders. Our payables decreased
      as we paid our suppliers more rapidly than we received payments from our
      customers. We require our customers to pay a certain percentage of the sales
      price as deposit before we ship products to them. The percentage varies from
      customer to customer. During the course of business, we reduce the deposit
      requirement for some customers with good credit. To the extent that we cannot
      satisfy our cash needs, whether from operations or from a financing source,
      our
      business would be impaired in that it may be difficult for us to obtain products
      which could, in turn, impair our ability to generate sales. We have implemented
      new policies aimed at improving collection of accounts receivable in the future,
      including more detailed reporting from and increased control over provincial
      sales offices and representatives, incentives for sales representatives more
      closely tied to timely collection, and more stringent enforcement of payment
      terms with distributors.





Employee
      advances were approximately $4.0 million and $3.1 million as of March 31, 2007
      and December 31, 2006, respectively. The increase was due to us loaning more
      money to sales representatives to encourage them to expand their markets and
      increase sales.





In
      addition, in the course of our business, we must make significant deposits
      to
      our suppliers when we place an order. As of March 31, 2007, our advance payments
      to our suppliers totaled approximately $299,362. We are confident that our
      available funds and cash generated from operations will provide us with
      sufficient capital for a sustainable operation; however, we may require
      additional capital for acquisitions or for the operation of the combined
      companies. As of the date of this quarterly report, we have no material
      commitments for capital expenditures. We cannot assure that such funding will
      be
      available.




17




**Seasonality**





Sales
      in
      the first quarter are usually lower due to people traveling and taking vacations
      during the traditional Chinese New Year and Chinese Spring Festival holidays.
      Sales in the fourth quarter are usually higher.





**Off-Balance
      Sheet Arrangements**





None.





**Recently
      Enacted Accounting Pronouncements**





In
      February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid
      Financial Instruments — an amendment of FASB Statements No. 133 and 140 (SFAS
      155). SFAS 155 amends SFAS No. 133, Accounting for Derivative Instruments and
      Hedging Activities and SFAS No. 140, Accounting for Transfers and Servicing
      of
      Financial Assets and Extinguishments of Liabilities, and related
      interpretations. SFAS 155 permits fair value remeasurement for any hybrid
      financial instrument that contains an embedded derivative that otherwise would
      require bifurcation and clarifies which interest-only strips and principal-only
      strips are not subject to recognition as liabilities. SFAS 155 eliminates the
      prohibition on a qualifying special-purpose entity from holding a derivative
      financial instrument that pertains to a beneficial interest other than another
      derivative financial instrument. SFAS 155 is effective for our company for
      all
      financial instruments acquired or issued beginning January 1, 2007. The impact
      of adoption of this statement on the Company’s consolidated financial
      statements, if any, has not yet been determined.





In
      March
      2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets
      - an amendment of FASB Statement No. 140 (SFAS 140). SFAS 156 amends SFAS 140
      Accounting for Transfers and Servicing of Financial Assets and Extinguishments
      of Liabilities and related interpretations. SFAS 156 requires an entity to
      recognize a servicing asset or servicing liability each time it undertakes
      an
      obligation to service a financial asset. It also requires all separately
      recognized servicing assets and servicing liabilities to be initially measured
      at fair value, if practicable. SFAS 156 permits an entity to use either the
      amortization method or the fair value measurement method for each class of
      separately recognized servicing assets and servicing liabilities. SFAS 156
      is
      effective for our company as of January 1, 2007. The impact of adoption of
      this
      statement on our consolidated financial statements, if any, has not yet been
      determined.





In
      June
      2006, the FASB issued FASB Interpretation No. 48 (“FIN-48”), “Accounting for
      Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109.” The
      interpretation clarifies the accounting for uncertainty in income taxes
      recognized in an entity's financial statements in accordance with SFAS No.
      109,
“Accounting for Income Taxes.” Specifically, FIN-48 prescribes a recognition
      threshold and a measurement attribute for the financial statement recognition
      and measurement of a tax position taken or expected to be taken. The provisions
      of FIN-48 are effective for financial statements for fiscal years beginning
      after December 15, 2006. Accordingly, the Company is to adopt FIN-48 on January
      1, 2007. The adoption of FIN-48 is not expected to have a material effect on
      the
      Company’s financial position or results of operations.





In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* ,
      to
      eliminate the diversity in practice that exists due to the different definitions
      of fair value and the limited guidance for applying those definitions in GAAP
      that are dispersed among the many accounting pronouncements that require fair
      value measurements. SFAS No. 157 retains the exchange price notion in earlier
      definitions of fair value, but clarifies that the exchange price is the price
      in
      an orderly transaction between market participants to sell an asset or liability
      in the principal or most advantageous market for the asset or liability.
      Moreover, the SFAS states that the transaction is hypothetical at the
      measurement date, considered from the perspective of the market participant
      who
      holds the asset or liability. Consequently, fair value is defined as the price
      that would be received to sell an asset or paid to transfer a liability in
      an
      orderly transaction between market participants at the measurement date (an
      exit
      price), as opposed to the price that would be paid to acquire the asset or
      received to assume the liability at the measurement date (an entry
      price).





SFAS
      No.
      157 also stipulates that, as a market-based measurement, fair value measurement
      should be determined based on the assumptions that market participants would
      use
      in pricing the asset or liability, and establishes a fair value hierarchy that
      distinguishes between (a) market participant assumptions developed based on
      market data obtained from sources independent of the reporting entity
      (observable inputs) and (b) the reporting entity’s own assumptions about market
      participant assumptions developed based on the best information available in
      the
      circumstances (unobservable inputs). Finally, SFAS No. 157 expands disclosures
      about the use of fair value to measure assets and liabilities in interim and
      annual periods subsequent to initial recognition. Entities are encouraged to
      combine the fair value information disclosed under SFAS No. 157 with the fair
      value information disclosed under other accounting pronouncements, including
      SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” where
      practicable. The guidance in this Statement applies for derivatives and other
      financial instruments measured at fair value under SFAS No.133, “Accounting for
      Derivative Instruments and Hedging Activities,” at initial recognition and in
      all subsequent periods.




18




SFAS
      No.
      157 is effective for financial statements issued for fiscal years beginning
      after November 15, 2007, and interim periods within those fiscal years, although
      earlier application is encouraged. Additionally, prospective application of
      the
      provisions of SFAS No. 157 is required as of the beginning of the fiscal year
      in
      which it is initially applied, except when certain circumstances require
      retrospective application. The Company is currently evaluating the impact of
      this statement on its results of operations or financial position of the
      Company.





In
      September 2006, the Securities Exchange Commission issued Staff Accounting
      Bulletin No. 108 (“SAB No. 108”). SAB No. 108 addresses how the effects of prior
      year uncorrected misstatements should be considered when quantifying
      misstatements in current year financial statements. SAB No. 108 requires
      companies to quantify misstatements using a balance sheet and income statement
      approach and to evaluate whether either approach results in quantifying an
      error
      that is material in light of relevant quantitative and qualitative factors.
      When
      the effect of initial adoption is material, companies will record the effect
      as
      a cumulative effect adjustment to beginning of year retained earnings and
      disclose the nature and amount of each individual error being corrected in
      the
      cumulative adjustment. SAB No. 108 will be effective beginning January 1, 2007
      and it is anticipated that the initial adoption of SAB No. 108 will not have
      a
      material impact on the Company’s financial statements.





In
      September 2006, the FASB issued SFAS No. 158, *Employers’
      Accounting for Defined Benefit Pension and Other Postretirement Plans (an
      amendment of FASB Statements No. 87, 88, 106, and 132R)* ,
      which
      will require employers to fully recognize the obligations associated with
      single-employer defined benefit pension, retiree healthcare and other
      postretirement plans in their financial statements. Under past accounting
      standards, the funded status of an employer’s postretirement benefit plan (i.e.,
      the difference between the plan assets and obligations) was not always
      completely reported in the balance sheet. Past standards only required an
      employer to disclose the complete funded status of its plans in the notes to
      the
      financial statements. SFAS No. 158 applies to plan sponsors that are public
      and
      private companies and nongovernmental not-for-profit organizations. The
      requirement to recognize the funded status of a benefit plan and the disclosure
      requirements are effective as of the end of the fiscal year ending after
      December 15, 2006, for entities with publicly traded equity securities, and
      at
      the end of the fiscal year ending after June 15, 2007, for all other entities.
      The requirement to measure plan assets and benefit obligations as of the date
      of
      the employer’s fiscal year-end statement of financial position is effective for
      fiscal years ending after December 15, 2008. The Company does not expect that
      the adoption of SFAS No. 158 will have a significant impact on the consolidated
      results of operations or financial position of the Company.





In
      February, 2007 the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities—Including an
      amendment of FASB Statement No. 115,* which
      permits companies to choose to measure many financial instruments and certain
      other items at fair value. SFAS 159 is effective for fiscal years beginning
      after November 15, 2007 and interim periods within those fiscal years. The
      Company does not expect SFAS 159 to have a material impact on its results of
      operation or financial position.





**Foreign
      Currency Risk**





Since
      all
      of our operations are conducted in the PRC, we are subject to special
      considerations and significant risks not typically associated with companies
      operating in the United States of America. These risks include, among others,
      the political, economic and legal environments and foreign currency exchange
      rate fluctuations. Our operational 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 medical reforms and other laws and
      regulations, anti-inflationary measures, currency conversion and remittance
      abroad, and rates and methods of taxation, among other things. Exchange rate
      fluctuations may adversely affect the value, in U.S. dollar terms, of our net
      assets and income derived from its operations in the PRC. In addition, all
      of
      our revenue is denominated in the Chinese Yuan Renminbi (“CNY”), which must be
      converted into other currencies before remittance out of the PRC. Both the
      conversion of CNY into foreign currencies and the remittance of foreign
      currencies abroad require approval of the PRC government. The effect of the
      fluctuations of exchange rates is not considered to be material to our business
      operations.





**Interest
      Rate Risk**





We
      do not
      have significant interest rate risk, as our debt obligations are primarily
      fixed
      interest rates.




19




**Change
      In Accountants**





As
      previously reported on our Current Report on Form 8-K, dated September 1, 2006,
      effective as of August 31, 2006 and following the change in control of our
      company on the closing of the Share Exchange, the board of directors accepted
      the resignation of AJ.
      Robbins, PC (“AJ. Robbins”) as our independent registered public accounting firm
      and approved the engagement of Hansen, Barnett & Maxwell, PC as our
      independent registered public accounting firm as of August 31, 2006. Hansen,
      Barnett & Maxwell, PC served as Shenghuo China’s independent registered
      certified public accountants for the fiscal year ended December 31, 2005.





**SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**





The
      information contained in this quarterly report, including in the documents
      incorporated by reference into this quarterly report, includes some statements
      that are not purely historical and that are “forward-looking statements.” Such
      forward-looking statements include, but are not limited to, statements regarding
      our company’s and our management’s expectations, hopes, beliefs, intentions or
      strategies regarding the future, including our financial condition, and results
      of operations. In addition, any statements that refer to projections, forecasts
      or other characterizations of future events or circumstances, including any
      underlying assumptions, are forward-looking statements. The words “anticipates,”
“believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,”
“might,” “plans,” “possible,” “potential,” “predicts,” “projects,” “seeks,”
“should,” “will,” “would” and similar expressions, or the negatives of such
      terms, may identify forward-looking statements, but the absence of these words
      does not mean that a statement is not forward-looking.





The
      forward-looking statements contained in this quarterly report are based on
      current expectations and beliefs concerning future developments and the
      potential effects on the parties and the transaction. There can be no assurance
      that future developments actually affecting us will be those anticipated. These
      forward-looking statements involve a number of risks, uncertainties (some of
      which are beyond the parties’ control) or other assumptions that may cause
      actual results or performance to be materially different from those expressed
      or
      implied by these forward-looking statements, including the
      following:





·
            our
                reliance on one product for over 80% of our
                revenues;


·
            our
                reliance on one supplier for Sanchi, a scarce plant that is the primary
                ingredient in almost all of our
                products;


·
            our
                ability to develop and market new
                products;


·
            our
                ability to establish and maintain a strong
                brand;


·
            continued
                maintenance of certificates, permits and licenses required to conduct
                business in China;


·
            protection
                of our intellectual property rights;


·
            market
                acceptance of our products;


·
            changes
                in the laws of the PRC that affect our
                operations;


·
            any
                recurrence of severe acute respiratory syndrome or avian
                flu;


·
            our
                ability to obtain all necessary government certifications and/or
                licenses
                to conduct our business;


·
            development
                of a public trading market for our securities;


·
            cost
                of complying with current and future governmental regulations and
                the
                impact of any changes in the regulations on our operations;
                and


·
            other
                factors referenced in thisquarterlyreport, including, without limitation, under the sections entitled
“Risk
                Factors” and “Management’s Discussion and Analysis of Financial Condition
                and Results of Operations.”





The
      risks
      included above are not exhaustive. Other sections of this quarterly report
      may include additional factors that could adversely impact our business and
      operating results. Moreover, we operate in a very competitive and rapidly
      changing environment. New risk factors emerge from time to time and we cannot
      predict all such risk factors, nor can we assess the impact of all such risk
      factors on our business or the extent to which any factor, or combination of
      factors, may cause actual results to differ materially from those contained
      in
      any forward looking statements.




You
      should not rely upon forward-looking statements as predictions of future events.
      We cannot assure you that the events and circumstances reflected in the
      forward-looking statements will be achieved or occur. Although we believe that
      the expectations reflected in the forward-looking statements are reasonable,
      we
      cannot guarantee future results, levels of activity, performance or
      achievements. Moreover, neither we nor any other person assume responsibility
      for the accuracy and completeness of the forward-looking statements. Except
      as
      required by law, we undertake no obligation to update publicly any
      forward-looking statements for any reason after the date of this quarterly report
      to conform these statements to actual results or to changes in our expectations.




20




You
      should read this quarterly report,
      and the documents that we reference in this quarterly report
      and have filed as exhibits to this quarterly report
      with the Securities and Exchange Commission, completely and with the
      understanding that our actual future results, levels of activity, performance
      and achievements may materially differ from what we expect. We qualify all
      of
      our forward-looking statements by these cautionary statements.





**RISK
      FACTORS**





There
      have been no material changes from the risk factors disclosed in the “Risk
      Factors” section of our Annual Report on Form 10-KSB for the year ended December
      31, 2006.





**ITEM
      3.**  **CONTROLS
      AND PROCEDURES**




*(a)
      Evaluation of disclosure controls and procedures*





As
      of
      March 31, 2007, our Chief Executive Officer (CEO) and our Chief Financial
      Officer (CFO) performed an evaluation of the effectiveness of and the operation
      of our disclosure controls and procedures as defined in Rule
      13a-15 (e)
      or Rule
      15d-15 (e)
      under
      the Exchange Act. Based on that evaluation, our CEO concluded that our
      disclosure controls and procedure as of March 31, 2007 had significant
      deficiencies that caused our controls and procedures to be ineffective. These
      deficiencies consisted of inadequate staffing and supervision that could lead
      to
      the untimely identification and resolution of accounting and disclosure matters
      and failure to perform timely and effective reviews. In addition, there are
      deficiencies in the recording and classification of accounting transactions
      and
      a lack of personnel with expertise in US generally accepted accounting
      principles and US Securities and Exchange Commission rules and
      regulations.





We
      are in
      the process of improving our controls and procedures in an effort to remediate
      these deficiencies through improving supervision, education, and training of
      our
      accounting staff. Management may also seek additional qualified in house or
      third-party accounting personnel to ensure that management will have adequate
      resources in order to attain complete reporting of financial information
      disclosures in a timely matter. We believe that the remedial steps that we
      take
      will address the conditions identified by our CEO as significant deficiencies
      in
      our disclosure controls and procedures. Additional effort is needed to fully
      remedy these deficiencies and we are continuing our efforts to improve and
      strengthen our control processes and procedures. Our CEO believes that there
      are
      no material inaccuracies, or omissions of material facts necessary to make
      the
      statements not misleading in light of the circumstances in which they were
      made,
      in this Form 10-QSB.





*(b)
      Changes in internal control over financial reporting*




There
      have been no changes in our internal control over financial reporting identified
      in connection with the evaluation required by Rule 13a-15(d) or Rule 15d-15(d)
      under the Exchange Act that occurred during the quarter ended March 31,
      2007 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
      1.**  **LEGAL
      PROCEEDINGS**





In
      2003,
      we were sued by a former employee for allegedly violating his contract and
      the
      courts entered a judgment in favor of the employee in 2003 for $128,978, which
      included litigation costs. We accrued the liability for this loss at December
      31, 2003 and paid the amount of the judgment to the employee on April 27, 2004.
      In 2006, the plaintiff asked the court to have us pay a penalty in the amount
      of
      $100,000 for not paying the judgment in a timely manner. During the court’s
      review of the request for the penalty, the court froze a bank account of ours
      that held $105,284. The court has rejected the employee’s claim and the bank
      account has been unfrozen. The employee has now asserted claims against us
      for
      allegedly ruining the employee’s reputation and causing mental anguish. No
      amount has been recorded on our books in connection with this claim as we
      believe that no information suggests that it is probable a liability has been
      incurred and the amount of loss as a result of this litigation cannot yet be
      reasonably estimated.





**ITEM
      2.**  **UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**





None.





**ITEM
      3.**  **DEFAULTS
      UPON SENIOR SECURITIES**





None.





**ITEM
      4.**  **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**





None.





**ITEM
      5.**  **OTHER
      INFORMATION**





None.





**ITEM
      6.**  **EXHIBITS**





None.


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**SIGNATURES**





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




**CHINA
                SHENGHUO PHARMACEUTICAL HOLDINGS, INC.**
              (Registrant)May
                15, 2007
            By:
            /s/ Gui
                Hua LanGui
                Hua LanChief
                Executive Officer and Chairman of the
                Board




23