**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 June 30, 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 19,579,400 shares outstanding of registrant’s common stock, par value
      $.0001 per share, as of August 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
            1ITEM
                1.
            FINANCIAL
                STATEMENTS
            1Condensed
                Consolidated Balance Sheets as of June 30, 2007 and December 31,
                2006
                (Unaudited)
            1Condensed
                Consolidated Statements of Operations and Comprehensive Income for
                the
                Three and Six Months Ended June 30, 2007 and 2006
                (Unaudited)
            2Condensed
                Consolidated Statements of Cash Flows for the Six Months Ended June
                30,
                2007 and 2006 (Unaudited)
            3Notes
                to Condensed Consolidated Financial Statements (Unaudited)
            4ITEM
                2.
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS
            9ITEM
                3.
            CONTROLS
                AND PROCEDURES
            23PART
                II - OTHER INFORMATION
            24ITEM
                1.
            LEGAL
                PROCEEDINGS
            24ITEM
                2.
            UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
            24ITEM
                3.
            DEFAULTS
                UPON SENIOR SECURITIES
            24ITEM
                4.
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            24ITEM
                5.
            OTHER
                INFORMATION
            24ITEM
                6.
            EXHIBITS
            24SIGNATURES
            
            25





**PART
      I - FINANCIAL INFORMATION**





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





**CHINA
                SHENGHUO PHARMACEUTICAL HOLDINGS, INC.****CONDENSED
                CONSOLIDATED BALANCE SHEETS****(Unaudited)**





**June
                30,**
            
            **December
                31,****2007**
            
            **2006****ASSETS:****Current
                Assets:**Cash
                and cash equivalents
            
            $
            1,878,092
            
            $
            3,691,438Restricted
                cash
            
            
            118,687
            
            
            474,576Accounts
                receivable, less allowance for doubtful accounts of
                $2,256,761at
                June 30, 2007 and $794,468 at December 31, 2006,
                respectively
            
            
            13,323,954
            
            
            9,907,184Employee
                advances, less allowance for doubtful accounts of
                $1,438,998and
                $1,429,426 at June 30, 2007 and December 31, 2006,
                respectively
            
            
            4,707,362
            
            
            3,130,045Advances
                to suppliers
            
            
            262,692
            
            
            46,620Inventory,
                net of reserve for obsolescence of $117,346 and $111,128at
                June 30, 2007 and December 31, 2006, respectively
            
            
            3,483,491
            
            
            2,581,519Receivable
                from related parties
            
            
            608,919
            
            
            76,751Other
                current assets
            
            
            40,929
            
            
            17,454**Total
                Current Assets**
            
            
            **24,424,126**
            
            
            **19,925,587**Property,
                plant and equipment, net of accumulated depreciation of
                $3,745,486and
                $3,333,305 at June 30, 2007 and December 31, 2006,
                respectively
            
            
            7,471,569
            
            
            7,554,747Intangible
                assets, net of accumulated amortization of $32,173 and
                $22,569at
                June 30, 2007 and December 31, 2006, respectively
            
            
            630,715
            
            
            624,426Deferred
                income taxes
            
            
            878,656
            
            
            655,223**TOTAL
                ASSETS**
            
            **$**
            **33,405,066**
            
            **$**
            **28,759,983****LIABILITIES
                AND STOCKHOLDERS' EQUITY:****Current
                Liabilities:**Accounts
                payable
            
            $
            1,497,344
            
            $
            764,636Accrued
                expenses
            
            
            2,716,955
            
            
            1,966,822Deposits
            
            
            2,167,766
            
            
            1,573,426Payable
                to related parties
            
            
            79,582
            
            
            393,213Short-term
                notes payable
            
            
            9,170,113
            
            
            12,758,426Advances
                from customers
            
            
            204,365
            
            
            342,531Taxes
                and related payables
            
            
            1,419,357
            
            
            3,057,471Current
                portion of long-term debt
            
            
            1,311,510
            
            
            -**Total
                Current Liabilities**
            
            
            **18,566,992**
            
            
            **20,856,525****Long-Term
                Debt**
            
            
            **2,623,020**
            
            
            **-****Total
                Liabilities**
            
            
            **21,190,012**
            
            
            **20,856,525****Minority
                Interest in Net Assets of Subsidiaries**
            
            
            **536,472**
            
            
            **385,067****Stockholders'
                Equity:**Preferred
                stock, $0.0001 par value, 10,000,000 shares authorized, 0
                sharesoutstanding
                at June 30, 2007 and December 31, 2006, respectively
            
            
            -
            
            
            -Common
                stock, $0.0001 par value, 100,000,000 shares authorized,19,579,400
                and 19,119,400 shares issued and outstanding, respectively
            
            
            1,958
            
            
            1,912Additional
                paid-in capital
            
            
            5,923,969
            
            
            4,829,633Statutory
                reserves
            
            
            147,023
            
            
            147,023Retained
                earnings
            
            
            5,109,962
            
            
            2,318,950Other
                comprehensive income, foreign currency translation
            
            
            495,670
            
            
            220,873**Total
                Stockholders' Equity**
            
            
            **11,678,582**
            
            
            **7,518,391****TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY**
            
            **$**
            **33,405,066**
            
            **$**
            **28,759,983**




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


1





**CHINA
                SHENGHUO PHARMACEUTICAL HOLDINGS, INC.****CONDENSED
                CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
                INCOME****(Unaudited)**





**For
                the Three Months Ended**
            
            **For
                the Six Months Ended****June
                30,**
            
            **June
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006****Sale
                of Products**
            
            $
            6,356,217
            
            $
            4,181,685
            
            $
            10,683,342
            
            $
            8,654,206**Cost
                of Products Sold**
            
            
            1,580,478
            
            
            1,550,138
            
            
            2,722,176
            
            
            3,163,555**Gross
                Profit**
            
            
            4,775,739
            
            
            2,631,547
            
            
            7,961,166
            
            
            5,490,651**Operating
                Expenses:**Selling
                expense
            
            
            2,031,590
            
            
            763,481
            
            
            3,634,414
            
            
            1,715,147General
                and administrative expense
            
            
            1,388,866
            
            
            346,594
            
            
            2,362,471
            
            
            1,031,843Research
                and development expense
            
            
            2,472
            
            
            40,646
            
            
            5,349
            
            
            45,404**Total
                Operating Expenses**
            
            
            3,422,928
            
            
            1,150,721
            
            
            6,002,234
            
            
            2,792,394**Income
                from Operations**
            
            
            1,352,811
            
            
            1,480,826
            
            
            1,958,932
            
            
            2,698,257**Other
                Income (Expense):**Interest
                income
            
            
            2,804
            
            
            1,180
            
            
            9,266
            
            
            2,205Non-operating
                income
            
            
            79,786
            
            
            18,692
            
            
            81,004
            
            
            71,148Interest
                expense
            
            
            (209,458
            )
            
            (163,446
            )
            
            (389,641
            )
            
            (370,372
            )Non-operating
                expenses
            
            
            -
            
            
            (9
            )
            
            -
            
            
            (4,881
            )**Net
                Other Income (Expense)**
            
            
            (126,868
            )
            
            (143,583
            )
            
            (299,371
            )
            
            (301,900
            )**Income
                Before Income Taxes**
            
            
            1,225,943
            
            
            1,337,243
            
            
            1,659,561
            
            
            2,396,357Benefit
                from (provision for) income taxes
            
            
            172,769
            
            
            (210,121
            )
            
            1,310,247
            
            
            (438,123
            )Minority
                interest in income of subsidiaries
            
            
            (80,876
            )
            
            (107,935
            )
            
            (178,796
            )
            
            (107,935
            )**Net
                Income**
            
            $
            1,317,836
            
            $
            1,019,187
            
            $
            2,791,012
            
            $
            1,850,299Foreign
                currency translation adjustment
            
            
            189,062
            
            
            15,425
            
            
            274,797
            
            
            29,193**Comprehensive
                Income**
            
            $
            1,506,898
            
            $
            1,034,612
            
            $
            3,065,809
            
            $
            1,879,492**Earnings
                Per Share:**Basic
            
            $
            0.07
            
            $
            0.05
            
            $
            0.15
            
            $
            0.11Diluted
            
            $
            0.07
            
            $
            0.05
            
            $
            0.15
            
            $
            0.11**Weighted-Average
                Shares Outstanding:**Basic
            
            
            19,175,004
            
            
            19,119,400
            
            
            19,147,356
            
            
            16,256,000Diluted
            
            
            19,228,838
            
            
            19,119,400
            
            
            19,200,691
            
            
            16,256,000







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


2





**CHINA
                SHENGHUO PHARMACEUTICAL HOLDINGS, INC.****CONDENSED
                CONSOLIDATED STATEMENTS OF CASH FLOWS****(Unaudited)**





**For
                the Six Months Ended****June
                30,****2007**
            
            **2006****Cash
                Flows from Operating Activities:**Net
                income
            
            $
            2,791,012
            
            $
            1,850,299Adjustments
                to reconcile net income to net cashprovided
                by operating activities:Depreciation
                and amortization
            
            
            332,839
            
            
            341,936Deferred
                income taxes
            
            
            (204,058
            )
            
            (98,226
            )Minority
                interest in income of subsidiaries
            
            
            178,796
            
            
            107,935Change
                in current assets and liabilities:Accounts
                receivable
            
            
            (3,123,300
            )
            
            (4,800,828
            )Employee
                advances
            
            
            (1,477,824
            )
            
            (211,224
            )Advances
                to suppliers
            
            
            (211,970
            )
            
            (7,537
            )Inventory
            
            
            (825,344
            )
            
            1,174,740Other
                current assets
            
            
            (23,170
            )
            
            49,039Accounts
                payable
            
            
            703,676
            
            
            115,515Accrued
                expenses and deposits
            
            
            1,238,609
            
            
            (790,391
            )Advances
                from customers
            
            
            (144,825
            )
            
            39,487Unearned
                revenue
            
            
            -
            
            
            4,452Taxes
                and related payables
            
            
            (1,692,042
            )
            
            1,369,807**Net
                Cash Used in Operating Activities**
            
            
            (2,457,601
            )
            
            (854,996
            )**Cash
                Flows from Investing Activities:**Receivable
                from related parties
            
            
            (517,465
            )
            
            104,143Restricted
                cash
            
            
            362,877
            
            
            -Capital
                expenditures
            
            
            (53,099
            )
            
            (95,450
            )**Net
                Cash (Used in) Provided by Investing Activities**
            
            
            (207,687
            )
            
            8,693**Cash
                Flows from Financing Activities:**Payable
                to related parties
            
            
            (319,165
            )
            
            1,249,991Issuance
                of stock for cash
            
            
            1,094,381
            
            
            -Proceeds
                from short and long-term loans
            
            
            9,145,423
            
            
            6,917Payments
                on short-term loans
            
            
            (9,121,972
            )
            
            (881,401
            )**Net
                Cash Provided by Financing Activities**
            
            
            798,667
            
            
            375,507Effect
                of exchange rate changes on cash
            
            
            53,275
            
            
            (12,732
            )Net
                Decrease in Cash and Cash Equivalents
            
            
            (1,813,346
            )
            
            (488,065
            )Cash
                and Cash Equivalents at Beginning of Period
            
            
            3,691,438
            
            
            1,488,438**Cash
                and Cash Equivalents at End of Period**
            
            $
            1,878,092
            
            $
            1,004,910**Supplemental
                Information**Cash
                paid for interest
            
            $
            343,842
            
            $
            402,021




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


3




**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 filed with the Securities and
      Exchange Commission on July 30, 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 six months ended June 30, 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.





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. The registration statement was
      filed within the prescribed time period and went effective on June 14,
      2007.


4




**CHINA
        SHENGHUO PHARMACEUTICAL HOLDINGS, INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**


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 registration statement for the shares was filed
      July
      30, 2007, but has not been declared effective to date.




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 six months ended June
      30,
      2007.





**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.


5
  **CHINA
          SHENGHUO PHARMACEUTICAL HOLDINGS, INC.**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**


***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 June
      30, 2007 for
      trade accounts receivable and employee advances was $2,256,761 and $1,438,998,
      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 June 30, 2007 are comprised of warrants
      to
      purchase 100,000 shares of common stock at an exercise price of $2.50 per share
      and warrants to purchase 40,000 shares of common stock at an exercise price
      of
      $4.20. There were no potentially dilutive shares at June 30, 2006.





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





***Advertising
      Expense*** -
      The
      Company expenses advertising costs as incurred. Advertising costs for the six
      months ended June 30, 2007 and 2006 were $22,380 and $0,
      respectively.





***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. SFAS 157 is not expected
      to
      have a material impact on the Company’s consolidated financial
      statements.





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 impact of adopting
      SFAS 159 on the Company’s consolidated financial statements, if any, has not yet
      been determined.





**NOTE
      4 - INVENTORY**





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





June
                30,
            
            December
                31,2007
            
            2006Raw
                materials
            
            $
            940,571
            
            $
            843,163Work-in-process
            
            
            1,128,704
            
            
            546,156Finished
                goods
            
            
            935,237
            
            
            620,676Product
                on consignment
            
            
            596,325
            
            
            682,652Gross
                Inventory
            
            
            3,600,837
            
            
            2,692,647Less:
                Provision for obsolescence
            
            
            (117,346
            )
            
            (111,128
            )Net
                Inventory
            
            $
            3,483,491
            
            $
            2,581,519





6
  **CHINA
          SHENGHUO PHARMACEUTICAL HOLDINGS, INC.**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**


**NOTE
      5 - RELATED PARTY TRANSACTIONS**





At
      June
      30, 2007 and December 31, 2006, the Company had payables due to related parties
      in the amount of $79,582 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 were 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 six months
      ended June 30, 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.





***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.





7
  **CHINA
          SHENGHUO PHARMACEUTICAL HOLDINGS, INC.**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 
  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.





On
      June
      19, 2007 the Company sold 460,000 shares of its common stock at a price of
      $3.50
      per share in an initial public offering for gross proceeds of $1,610,000. An
      aggregate of $1,094,381 of net proceeds, after deduction of underwriter’s fees
      and other expenses of $515,619 were received by the Company in the sale. In
      conjunction with the sale of common stock, the Company issued a warrant to
      the
      underwriter for services performed to purchase 40,000 shares of its common
      stock
      at an exercise price of $4.20 per share which expires on June 14, 2012. The
      proceeds were allocated to the warrants based upon their fair value of $206,268,
      and the remaining proceeds were allocated to the shares of common stock. The
      fair value of the warrant was determined using the Black-Scholes Option Pricing
      Model using the following assumptions: risk free interest rate of 5.0%, expected
      dividend yield of 0%, expected volatility of 91.89% and an expected life of
      5
      years. The warrant holder has unlimited piggyback registration rights, as well
      as the ability to request, at the Company’s expense a single registration of the
      shares underlying the warrant.




8


**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 80% of our sales for the six months ended June 30, 2007.





We
      earn revenues mainly from the production and sale of our products and external
      processing. 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.





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., Beijing Ai’xin Weiye
      Medicine, LTD, and Nanyang Jikang Medicine LTD, all of which accounted for
      6.52%, 5.92% and 5.88% of our sales, respectively, for the six months ended
      June
      30, 2007.





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.


9


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.





**Recent
      Events**





On
      June 19, 2007, we sold 460,000 shares of our common stock at a price of $3.50
      per share in an initial public offering for gross proceeds of $1,610,000. We
      received an aggregate of $1,094,381 of net proceeds, after deducting
      underwriter’s fees and other expenses of $515,619 incurred in connection with
      the sale. In conjunction with the sale of common stock, we issued a warrant
      to
      the underwriter for services performed to purchase 40,000 shares of our common
      stock at an exercise price of $4.20 per share which expires on June 14, 2012.
      The proceeds were allocated to the warrant based upon its fair value of
      $206,268, and the remaining proceeds were allocated to the shares of common
      stock. The warrant holder has unlimited piggyback registration rights, as well
      as the ability to request, at our expense a single registration of the shares
      underlying the warrant.





**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 $118,687. 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 June 30, 2007 for trade accounts receivable and employee advances
      was $2,256,761 and $1,438,998, respectively; and at December 31, 2006, was $794,468 and
      $1,429,426, respectively.





10


***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 June 30, 2007 are comprised of warrants
      to
      purchase 100,000 shares of common stock at an exercise price of $2.50 per share
      and warrants to purchase 40,000 shares of common stock at an exercise price
      of
      $4.20. There were no potentially dilutive shares at June 30, 2006.





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





**Results
      of Operations**





***Three
      Months Ended June 30, 2007 and 2006***





The
      following table sets forth our statements of operations for the three months
      ended June 30, 2007 and 2006 in U.S. dollars (unaudited):




**For
                the three months**
            
            **Change**
            
            **Variance****ended
                June 30,****2007**
            
            **2006***(in
              thousands, except earnings per share and share amounts)***Sale
                of Products**
            
            $
            6,356
            
            $
            4,182
            
            $
            2,175
            
            
            52.00
            %**Cost
                of Products Sold**
            
            
            1,580
            
            
            1,550
            
            
            30
            
            
            1.96
            %**Gross
                profit**
            
            
            4,776
            
            
            2,632
            
            
            2,144
            
            
            81.48
            %**Operating
                Expenses:**Selling
                expenses
            
            
            2,032
            
            
            763
            
            
            1,268
            
            
            166.10
            %General
                and administrative expenses
            
            
            1,389
            
            
            347
            
            
            1,042
            
            
            300.73
            %Research
                and development expenses
            
            
            2
            
            
            41
            
            
            (38
            )
            
            -93.92
            %**Total
                Operating Expenses**
            
            
            3,423
            
            
            1,151
            
            
            2,272
            
            
            197.46
            %**Income
                from operations**
            
            
            1,353
            
            
            1,481
            
            
            (128
            )
            
            -8.64
            %**Other
                Income (expenses):**Interest
                income
            
            
            3
            
            
            1
            
            
            2
            
            
            137.63
            %Non-operating
                income
            
            
            80
            
            
            19
            
            
            61
            
            
            326.85
            %Interest
                expense
            
            
            (210
            )
            
            (163
            )
            
            (47
            )
            
            28.15
            %Non-operating
                expenses
            
            
            -
            
            
            (0
            )
            
            0
            
            
            -100.00
            %**Net
                Other Income (Expense)**
            
            
            (127
            )
            
            (144
            )
            
            17
            
            
            -11.64
            %**Income
                Before Income Taxes**
            
            
            1,226
            
            
            1,337
            
            
            (111
            )
            
            -8.32
            %Benefit
                from (provision for) income taxes
            
            
            173
            
            
            (210
            )
            
            383
            
            
            -182.22
            %Minority
                interest in income of subsidiaries
            
            
            (81
            )
            
            (108
            )
            
            27
            
            
            -25.07
            %**Net
                Income**
            
            
            1,318
            
            
            1,019
            
            
            299
            
            
            29.30
            %Foreign
                currency translation adjustments
            
            
            189
            
            
            15
            
            
            174
            
            
            1,125.69
            %**Comprehensive
                Income**
            
            $
            1,507
            
            $
            1,035
            
            $
            472
            
            
            45.65
            %**Earnings
                Per Share**Basic
            
            $
            0.07
            
            $
            0.05
            
            $
            0.02
            
            
            40.00
            %Diluted
            
            $
            0.07
            
            $
            0.05
            
            
            0.02
            
            
            40.00
            %**Weighted-average
                Shares Outstanding**Basic
            
            
            19,175,004
            
            
            19,119,400
            
            
            55,604
            
            
            0.29
            %Diluted
            
            
            19,228,838
            
            
            19,119,400
            
            
            109,438
            
            
            0.57
            %





11





***Sale
      of products:*** Sale
      of products for the three months ended June 30, 2007 was approximately $6.36
      million, an increase of approximately $2.18 million, or 52 %, from $4.18 million
      for the three months ended June 30, 2006. The increase in sale of products
      was
      primarily due to the increase in the sales price of our products. Additionally,
      we have further developed our distribution network over a majority of the 29
      provinces or regions in China.





***Cost
      of products sold:*** Our
      costs of products sold for the three months ended June 30, 2007 was
      approximately $1.58 million, a slight increase of approximately $0.03 million,
      or 1.96%, from approximately $1.55 million for the three months ended June
      30,
      2006. Though the sale of products increased 52% for the three months ended
      June
      30, 2007 as compared to the sale of products for the three months ended June
      30,
      2006, the volume of sales and unit cost did not increase significantly, thereby
      resulting in only a slight increase in cost of products sold.




***Gross
      profit:*** Our
      gross profit for the three months ended June 30, 2007 was approximately $4.78
      million as compared with approximately $2.63 million for the three months ended
      June 30, 2006. Gross profit as a percentage of revenues was approximately 75%
      for the three months ended June 30, 2007, an increase of 12 % from approximately
      63% for the three months ended June 30, 2006. The increase in gross margin
      was
      due to the increase in the sales prices of our products.




***Selling
      expense:***  Selling expenses were approximately $2.03 million
      for the three months ended June 30, 2007, an increase of $1.27 million, or
      166.1%, from approximately $0.76 million for the three months ended June 30,
      2006. As a percentage of total revenue, selling expense increased by 14% for
      the
      three months ended June 30, 2007 as compared to 18% for the three months ended
      June 30, 2006. The primary reason for the increase was the higher commissions
      paid to sales representatives and sales offices in an effort to stimulate the
      sales market. Additional selling expenses were also incurred in connection
      with
      the marketing and advertising of new products, particularly in our cosmetics
      line.





***General
      and administrative expense:*** General and administrative expenses were approximately $1.39 million for the
      three months ended June 30, 2007, an increase of $1.04 million, or 300.72%,
      from
      approximately $0.35 million for the three months ended June 30, 2006. The
      increase was primarily a result of an increase in allowance for doubtful
      accounts due to the increase of trade receivables for the three months ended
      June 30, 2007. Moreover, in June 2007, we sold 460,000 shares of our common
      stock in an initial public offering and incurred certain consulting service
      fees
      in connection therewith.





***Research
      and development expense:*** Research
      and development expense for the three months ended June 30, 2007 was $2,472
      as
      compared to $40,646 for the period ended June 30, 2006. The decrease 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, was $126,868 for the three months
      ended June 30, 2007 and $143,583 for the three months ended June 30, 2006.
      The
      decrease in net other expenses was primarily due to a subsidy provided by the
      Chinese government to support our development, partially offset by a slight
      increase to the interest expenses during the three months ended June 30, 2007.





***Net
      income:*** Net
      income increased to $1.32 million for the three months ended June 30, 2007
      as
      compared to $1.02 million for the three months ended June 30, 2006. Considering
      the foreign currency translation adjustments of $189,062 and $15,425, for the
      three months ended June 30, 2007 and 2006, respectively, comprehensive income
      of
      $1.51 million or $1.03 million was realized for the three-months ended June
      30,
      2007 and 2006, respectively.


12





***Six
      Months Ended June 30, 2007 and 2006***





The
      following table sets forth our statements of operations for the six months
      ended
      June 30, 2007 and 2006 in U.S. dollars (unaudited):




**For
                the six months**
            
            **Change**
            
            **Variance****ended
                June 30,****2007**
            
            **2006***(in
                thousands, except earnings per share and share
                amounts)***Sale
                of Products**
            
            $
            10,683
            
            $
            8,654
            
            $
            2,029
            
            
            23.45
            %**Cost
                of Products Sold**
            
            
            2,722
            
            
            3,164
            
            
            (441
            )
            
            -13.95
            %**Gross
                profit**
            
            
            7,961
            
            
            5,491
            
            
            2,471
            
            
            44.99
            %**Operating
                Expenses:**Selling
                expenses
            
            
            3,634
            
            
            1,715
            
            
            1,919
            
            
            111.90
            %General
                and administrative expenses
            
            
            2,362
            
            
            1,032
            
            
            1,330
            
            
            128.96
            %Research
                and development expenses
            
            
            5
            
            
            45
            
            
            (40
            )
            
            -88.22
            %**Total
                Operating Expenses**
            
            
            6,002
            
            
            2,792
            
            
            3,210
            
            
            114.95
            %**Income
                from operations**
            
            
            1,959
            
            
            2,698
            
            
            (739
            )
            
            (27.40
            )%**Other
                Income (expenses):**Interest
                income
            
            
            9
            
            
            2
            
            
            7
            
            
            320.23
            %Non-operating
                income
            
            
            81
            
            
            71
            
            
            10
            
            
            13.85
            %Interest
                expense
            
            
            (390
            )
            
            (370
            )
            
            (19
            )
            
            5.20
            %Non-operating
                expenses
            
            
            -
            
            
            (5
            )
            
            5
            
            
            -100.00
            %**Net
                Other Income (Expense)**
            
            
            (299
            )
            
            (302
            )
            
            3
            
            
            -0.84
            %**Income
                Before Income Taxes**
            
            
            1,659
            
            
            2,396
            
            
            (737
            )
            
            -30.75
            %Benefit
                from (provision for) income taxes
            
            
            1,310
            
            
            (438
            )
            
            1,748
            
            
            -399.06
            %Minority
                interest in income of subsidiaries
            
            
            (178
            )
            
            (108
            )
            
            (70
            )
            
            65.65
            %**Net
                Income**
            
            $
            2,791
            
            $
            1,850
            
            $
            941
            
            
            50.81
            %Foreign
                currency translation adjustments
            
            
            275
            
            
            29
            
            
            246
            
            
            844.31
            %**Comprehensive
                Income**
            
            $
            3,065
            
            $
            1,879
            
            $
            1,186
            
            
            63.12
            %**Earnings
                Per Share**Basic
            
            $
            0.15
            
            $
            0.11
            
            $
            0.04
            
            
            36.36
            %Diluted
            
            $
            0.15
            
            $
            0.11
            
            $
            0.04
            
            
            36.36
            %**Weighted-average
                Shares Outstanding**Basic
            
            
            19,147,356
            
            
            16,256,000
            
            
            2,891,356
            
            
            17.79
            %Diluted
            
            
            19,200,691
            
            
            16,256,000
            
            
            2,944,691
            
            
            18.11
            %








***Sale
      of products:*** Sale
      of products for the six months ended June 30, 2007 was approximately $10.68
      million, an increase of approximately $2.03 million, or 23.45 %, from
      approximately $8.65 million for the six months ended June 30, 2006. The increase
      was primarily due to the increase in sales prices of our products. Additionally,
      we have further developed our distribution network over a majority of the 29
      provinces or regions in China.





***Cost
      of products sold:*** Our
      costs of products sold for the six months ended June 30, 2007 was approximately
      $2.72 million, a decrease of approximately $0.44 million, or 13.95%, from
      approximately $3.16 million for the six months ended June 30, 2006. Though
      the
      sale of products increased 23.45% for the six months ended June 30, 2007 as
      compared to the sale of products for the six months ended June 30,
      2006, there
      was a decrease in the unit price of certain raw materials that are used in
      our
      major products resulting from changes in medicine pricing policy in China,
      which
      resulted in a decrease for cost of products sold. In addition, there was a
      slight decrease in volume of sales during the six month period ended June 30,
      2007 as compared to the six month period ended June 30, 2006.





13


***Gross
      profit:*** Our
      gross profit for the six months ended June 30, 2007 was approximately $7.96
      million as compared with approximately $5.49 million for the six months ended
      June 30, 2006. Gross profit as a percentage of revenues was approximately 75%
      for the six months ended June 30, 2007, an increase of approximately 12 % from
      63% for the six months ended June 30, 2006. The increase in gross margin was
      primarily due to an increase for revenue which resulted from an increase in
      sales price and a decrease in cost of products.





***Selling
      expense:***  Selling expenses were approximately $3.63 million
      for the six months ended June 30, 2007, an increase of $1.91 million, or 111.9%,
      from approximately $1.72 million for the six months ended June 30, 2006. As
      a
      percentage of total revenue, selling expense increased by 14% for the six months
      ended June 30, 2007 as compared to 20% for the six months ended June 30, 2006.
      The primary reason for the increase was the higher commissions paid to sales
      representatives and sales offices in an effort to stimulate the sales market.
      Additional selling expenses were also incurred in connection with the marketing
      and advertising of new products, particularly in our cosmetics line.





***General
      and administrative expense:*** General and administrative expenses were $2.36 million for the six months ended
      June 30, 2007, an increase of $1.33 million, or 128.96%, from approximately
      $1.03 million for the six months ended June 30, 2006. As a percentage of total
      revenue, general and administrative expense increased by approximately 13%
      from
      12% for the six months ended June 30, 2006 to 22% for the six months ended
      June
      30, 2007. The increase was primarily a result of an increase in allowance for
      doubtful accounts attributable to the increase in trade receivables for the
      six
      months ended June 30, 2007. Moreover, in June 2007, we sold 460,000 shares
      of
      our common stock in an initial public offering and incurred certain consulting
      service fees in connection therewith.





***Research
      and development expense:*** Research
      and development expense for the six months ended June 30, 2007 was $5,349 as
      compared to $45,404 for the six months ended June 30, 2006. The decrease 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, was approximately $299,371 for
      the
      six months ended June 30, 2007 as compared to approximately $301,900 for the
      six
      months ended June 30, 2006. The slight decrease in net other expense was
      primarily due to a subsidy provided by the Chinese government to support the
      Company’s development, partially offset by a slight increase to the interest
      expense during the six months ended June 30, 2007.





***Benefits
      from (Provision for) income taxes:*** Benefits
      from income taxes was approximately $1.31 million for the six months ended
      June
      30, 2007 as compared to a provision for income tax of approximately $0.44
      million for the six months ended June 30, 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 six months ended June
      30, 2007.





***Net
      income:*** Net
      income increased to $2.79 million for the six months ended June 30, 2007 as
      compared to approximately $1.85 million for the six months ended June 30, 2006.
      Considering the foreign currency translation adjustments of $274,797 and
      $29,193, for the six months ended June 30, 2007 and 2006, respectively,
      comprehensive income of $3.07 million or $1.88 million was realized for the
      six-months ended June 30, 2007 and 2006, respectively.





**Liquidity
      and Capital Resources**





***General
      -*** As
      of June 30, 2007, we had cash and cash equivalents of $1,878,092. We
      have
      historically financed our business operations through bank loans, mostly prior
      to August 2006. As of June 30, 2007, we had borrowed from banks and other
      institutions and had amounts of approximately $9.2 million in short-term notes
      payable. As of June 30, 2007, we had also borrowed $2.6 million in our current
      portion of long-term debt. For
      the
      six months ending June 30, 2007, the net decrease in cash and cash equivalents
      was $1,813,346. The gross proceeds that the we received in June 2007 as a result
      of the sale of 460,000 shares of our common stock in an initial public offering
      was offset primarily by increases in receivables from related parties, accounts
      receivable and employee advances. As a result, we had a net decrease in cash
      and
      cash equivalents.


14





The
      following table provides summary information about net cash flow for the six
      months ended June 30, 2007 and 2006:





**Cash
                Flow****Six
                months ended June 30,****2007**
            
            **2006****(unaudited,
                in thousands)**Net
                cash provided by (used in) operating activities
            
            $
            (2,458
            )
            $
            (860
            )Net
                cash provided by (used in) investing activities
            
            
            (208
            )
            
            9Net
                cash provided by (used in) financing activities
            
            
            799
            
            
            376**Cash
                and Cash Equivalents at End of Period**
            
            $
            1,878
            
            $
            1,005




**Operating
      Activities:** Net
      cash used in operating activities for the six months ended June 30, 2007 was
      $2,457,601, as compared to cash used in operating activities of $859,533 for
      the
      six months ended June 30, 2006. The increase in cash used was primarily due
      to
      three factors. First, there was an increase in accounts receivable due to a
      relatively long collection period typical of the pharmaceutical industry in
      China. Second, we made payment on a large tax amount due. Third, there was
      an
      increase in cash flows related to inventory and employee advances, which were
      partially offset by the increases related to accrued expenses and deposits,
      and
      accounts payable during the six months ended June 30, 2007.





**Investing
      Activities:** Net
      cash used in investing activities was $207,687 for the six months ended June
      30,
      2007, as compared to net cash provided of $8,693 for the six months ended June
      30, 2006. The increase in net cash used was primarily a result of an increase
      in
      cash flow related to payables to related parties, although the restricted cash
      decreased during the six months ended June 30, 2007.





**Financing
      Activities:** Net
      cash provided by financing activities was $798,667 for the six months ended
      June
      30, 2007 compared to $375,507 provided for the six months ended June 30, 2006.
      The increase in cash provided was primarily due to our sale of stock in an
      initial public offering in June 2007 pursuant to which we sold 460,000 shares
      of
      our common stock at a price of $3.50 per share in an initial public offering
      for
      gross proceeds of $1,610,000. We received an aggregate of $1,094,381 of net
      proceeds, after deducting underwriter’s fees and other expenses of $515,619
      incurred in connection with the sale.





As
      of June 30, 2007, our accounts receivable (less allowance for doubtful accounts
      of $2.26 million) were $13.32 million, an increase of $3.42 million, or 34%
      over
      accounts receivable of $9.9 million as of December 31, 2006. The collection
      period typically runs from six 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 increased
      by
      $901,972 for the six months ended June 30, 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. 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 $4.71 million and $3.13 million as of June 30,
      2007
      and December 31, 2006, respectively. The increase was primarily due to the
      fact
      that we loaned more money to our 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 June 30, 2007, our advance payments
      to our suppliers totaled approximately $262,692. 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 June 30, 2007, we had no material commitments for capital
      expenditures other than for those expenditures incurred in the ordinary course
      of business.


15





**Off-Balance
      Sheet Arrangements**





None.





**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.





**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.”


16





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.




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 other than the addition of the following risk factor:




**If
        we make equity compensation grants to persons who are PRC citizens, they
        may be
        required to register with the State Administration of Foreign Exchange of
        the
        PRC, or SAFE. We may also face regulatory uncertainties that could restrict
        our
        ability to adopt additional equity compensation plans for our directors and
        employees and other parties under PRC law.**
  On
        April
        6, 2007, SAFE issued the “Operating Procedures for Administration of Domestic
        Individuals Participating in the Employee Stock Ownership Plan or Stock Option
        Plan of An Overseas Listed Company, Hui Zong Fa [2007] No. 78,” or “Circular
        78.” It is not clear whether Circular 78 covers all forms of equity compensation
        plans or only those which provide for the granting of stock options. For
        any
        plans which are so covered and are adopted by a non-PRC listed company such
        as
        our company after April 6, 2007, Circular 78 requires all participants who
        are
        PRC citizens to register with and obtain approvals from SAFE prior to their
        participation in the plan. In addition, Circular 78 also requires PRC citizens
        to register with SAFE and make the necessary applications and filings if
        they
        participated in an overseas listed company’s covered equity compensation plan
        prior to April 6, 2007. We believe that the registration and approval
        requirements contemplated in Circular 78 will be burdensome and time consuming.
  In
        the
        near future, we intend to adopt an equity compensation plan and make stock
        option grants under the incentive plan to our officers and directors, some
        of
        whom are PRC citizens. As a result, these optionees may be required to register
        with SAFE. In addition to our officers and directors that receive option
        grants,
        future participants of our equity incentive plan or any other equity
        compensation plan we may adopt who are PRC citizens may be required to register
        with SAFE. Circular 78 has not yet been made publicly available nor formally
        promulgated by SAFE, however, it is our understanding that SAFE has begun
        enforcing its provisions, although we cannot predict whether it will continue
        to
        enforce it or adopt additional or different requirements with respect to
        equity
        compensation plans. If it is determined that any of our equity compensation
        plans is subject to Circular 78, failure to comply with such provisions may
        subject us and participants of our equity incentive plan who are PRC citizens
        to
        fines and legal sanctions and prevent us from being able to grant equity
        compensation to our PRC employees. In that case, our business operations
        may be
        adversely affected.


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




*(a)
      Evaluation of disclosure controls and procedures*





As
      of June 30, 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 June 30, 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 seeks 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 June 30, 2007
      that
      have materially affected, or are reasonably likely to materially affect, our
      internal control over financial reporting.


17


**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**




*(a)
      Exhibits*





**Exhibit
                Number**
            **Description
                of Exhibit**31.1
            Certification
                of the Chief Executive Officer pursuant to Exchange Act Rule
                13a-14(a)31.2
            Certification
                of the Chief Financial Officer pursuant to Exchange Act Rule
                13a-14(a)32.1
            Certification
                pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of
                the
                Sarbanes Oxley Act of 2002*


______________


*
      This
      exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities
      Exchange Act of 1934 or otherwise subject to the liabilities of that section,
      nor shall it be deemed incorporated by reference in any filing under the
      Securities Act of 1933 or the Securities Exchange Act of 1934, whether made
      before or after the date hereof and irrespective of any general incorporation
      language in any filings.


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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)August
                16, 2007
            By:
            /s/ Gui
                Hua LanGui
                Hua LanChief
                Executive Officer and Chairman of the
                Board







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