**WANXING
        BIO-TECHNOLOGY LIMITED**


**AND
      CONSOLIDATED SUBSIDIARIES**




**INDEX
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  PageReport
                  of Independent Registered Public Accountanting Firm
              
              1Consolidated
                  Balance Sheet
              
              2Consolidated
                  Statements of Operations
              
              3Consolidated
                  Statements of Cash Flows
              
              4Consolidated
                  Statement of Stockholder's (Deficit)
              
              5Notes
                  to Consolidated Financial Statements
              
              6







***Report
        of Independent Registered Public Accounting Firm***
 
 Board
        of
        Directors
 Wanxing
        Bio Technology, Ltd.
 
 We
        have
        audited the accompanying balance sheet of Wanxing Bio Technology Ltd., as
        of
        December 31, 2006, and the related statements of operations, stockholders'
        equity (deficit), and cash flows for the years ended December 31, 2006 and
        2005
        These financial statements are the responsibility of the Company's management.
        Our responsibility is to express an opinion on these financial statements
        based
        on our audit.
 
 We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States of America). Those standards require
        that we plan and perform the audits to obtain reasonable assurance about
        whether
        the financial statements are free of material misstatement. The Company is
        not
        required to have, nor were we engaged to perform an audit of its internal
        control over financial reporting. Our audit included consideration of internal
        control over financial reporting as a basis for designing audit procedures
        that
        are appropriate in the circumstances, but not for the purpose of expressing
        an
        opinion on the effectiveness of the company's internal control over financial
        reporting. Accordingly, we express no such opinion. An audit includes examining,
        on a test basis, evidence supporting the amounts and disclosures in the
        financial statements. An audit also includes assessing the accounting principles
        used and significant estimates made by management, as well as evaluating
        the
        overall financial statement presentation. We believe our audit provides a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the financial statements referred to above present fairly, in all
        material respects, the financial position of Wanxing Bio Technology Ltd.
        as of
        December 31, 2006, and the results of its operations and cash flows for the
        years ended December 31, 2006 and 2005, in conformity with accounting principles
        generally accepted in the United States of America.
 
 The
        accompanying financial statements have been prepared assuming that the Company
        will continue as a going concern. As described in Note 1, the Company has
        experienced losses since commencement of operations and has negative working
        capital and a Stockholders’ (deficit), which raise substantial doubt about its
        ability to continue as a going concern. Management's plans in regard to this
        matter are also discussed in Note 1. The financial statements do not include
        any
        adjustments that might result from the outcome of this uncertainty.
 
 
 SCHUMACHER
        & ASSOCIATES, INC.
 
 Denver,
        Colorado
 May
        16,
        2007
 
 1




**WANXING
        BIO-TECHNOLOGY LIMITED**


**AND
        CONSOLIDATED SUBSIDIARIES**
 ***Consolidated
        Balance Sheet***
 ***(Expressed
        in US Dollars)***
  **December
                  31****2006**ASSETSCURRENT
                  ASSETSCash
                  - unrestricted
              
              $
              2,146,109Cash
                  - restricted (Note 3)
              
              
              171Accounts
                  receivable (Note 4)
              
              
              261,888Loans
                  to unrelated parties (Note 5)
              
              
              147,156Inventory
                  (Note 6)
              
              
              443,638Prepaid
                  expenses
              
              
              29,672Total
                  current assets
              
              
              3,028,634Fixed
                  assets (Note 7)
              
              
              6,848,398Total
                  assets
              
              $
              9,877,032LIABILITIES
                  AND STOCKHOLDERS' (DEFICIT)CURRENT
                  LIABILITIESShort-term
                  loans (Notes 8, 9 and 18)
              
              $
              19,684,058Accounts
                  payable
              
              
              202,449Interest
                  payable
              
              
              3,618,885Unearned
                  revenue
              
              
              75,143Shareholder
                  loans (Note 10)
              
              
              2,030,621Other
                  current liabilities
              
              
              1,498,372Total
                  current liabilities
              
              
              27,109,528COMMITMENTS
                  (Notes 14 and 15)MINORITY
                  INTEREST
              
              
              8,039STOCKHOLDERS'
                  (DEFICIT)Common
                  stockAuthorized
                  1,000,000 shares at par value of $ 1.00 eachIssued
                  and outstanding 1,750
              
              
              1,750Additional
                  paid-in capital
              
              
              7,665,332Accumulated
                  (deficit)
              
              
              (24,092,450
              )Accumulated
                  other comprehensive income (loss)
              
              
              (815,167
              )Total
                  stockholders' (deficit)
              
              
              (17,240,535
              )Total
                  liabilities and stockholders' (deficit)
              
              $
              9,877,032




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




2




**WANXING
        BIO-TECHNOLOGY LIMITED**


**AND
        CONSOLIDATED SUBSIDIARIES**
 ***Consolidated
        Statements of Operations***
 ***(Expressed
        in US Dollars)***
  Years
                  Ended December 312006
              
              2005REVENUESales
              
              $
              773,882
              
              $
              794,851Cost
                  of goods sold
              
              
              595,185
              
              
              794,469Gross
                  profit
              
              
              178,697
              
              
              382Income
                  from grants, consulting and outside manufacturing (Note
                  13)
              
              
              2,087,613
              
              
              224,4192,266,310
              
              
              224,801EXPENSESAdvertising
                  and promotion
              
              
              21,948
              
              
              91,963Depreciation
              
              
              67,927
              
              
              87,912Freight
              
              
              13,211
              
              
              12,997General
                  and administration
              
              
              1,210,623
              
              
              445,662Repairs
                  and maintenance
              
              
              22,129
              
              
              33,789Research
                  and development
              
              
              1,678,318
              
              
              638,408Salaries
                  and benefits
              
              
              329,411
              
              
              352,904Travel
              
              
              84,360
              
              
              52,698Total
                  expenses
              
              
              3,427,927
              
              
              1,716,333Net
                  (loss) for the year from operations
              
              
              (1,161,617
              )
              
              (1,491,532
              )OTHER
                  EXPENSESInterest
                  and bank charges (Notes 8 and 10)
              
              
              2,006,480
              
              
              1,646,385Losses
                  on loans and guarantees to other parties (Note 5)
              
              
              145,575
              
              
              321,397Net
                  (loss) for the year before minority interests(3,313,672
              )
              
              (3,459,314
              )Minority
                  interest in loss for the year
              
              
              4,970
              
              
              51,209Net
                  (loss) for the year
              
              $
              (3,308,702
              )
              $
              (3,408,105
              )Other
                  comprehensive income (loss)Foreign
                  currency translation
              
              $
              (517,224
              )
              
              (303,113
              )Comprehensive
                  (loss)
              
              
              (3,825,926
              )
              $
              (3,711,218
              )Net
                  (loss) per common share - basic and fully diluted:Net
                  (loss) for the year
              
              $
              (1,891
              )
              $
              (1,947
              )Weighted
                  average number of common stock outstanding1,750
              
              
              1,750




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




3


**WANXING
      BIO-TECHNOLOGY LIMITED**


**AND
        CONSOLIDATED SUBSIDIARIES**
 ***Consolidated
        Statements of Cash Flows***
 ***(Expressed
        in US Dollars)***
  Years
                  Ended December 312006
              
              2005Cash
                  from (used in) operating activities:Net
                  (loss)
              
              $
              (3,308,702
              )
              $
              (3,408,105
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
              
              
              680,018
              
              
              633,234Gain
                  on disposition of fixed assets
              
              
              (3,539
              )
              
              -Imputed
                  interest expense on shareholders' loans
              
              
              137,909
              
              
              133,942Minority
                  interest in net loss
              
              
              (4,970
              )
              
              (51,209
              )Write-down
                  of intangible asset
              
              
              512,400
              
              
              -Net
                  change in operating assets and liabilities:Accounts
                  receivable
              
              
              3,204,832
              
              
              28,877Inventory
              
              
              132,051
              
              
              (21,681
              )Prepaid
                  expenses
              
              
              8,643
              
              
              2,160Accounts
                  payable
              
              
              (1,272
              )
              
              (48,248
              )Interest
                  payable
              
              
              1,684,645
              
              
              1,428,999Unearned
                  revenue
              
              
              (983,965
              )
              
              824,333Other
                  current liabilities
              
              
              602,980
              
              
              421,013Net
                  cash from (used in) operating activities
              
              
              2,661,030
              
              
              (56,685
              )Cash
                  (used in) investing activities:Purchases
                  of fixed assets
              
              
              (593,845
              )
              
              (60,866
              )Proceeds
                  of disposition of fixed assets
              
              
              95,114
              
              
              -Cash
                  acquired  in reorganization
              
              
              1,000Purchase
                  of intangible assets
              
              
              (512,400
              )
              
              -Net
                  cash (used in) investing activities
              
              
              (1,010,131
              )
              
              (60,866
              )Cash
                  from (used in) financing activities:Loans
                  made to unrelated parties
              
              
              -
              
              
              (29,736
              )Repayment
                  of loans by unrelated parties
              
              
              5,200,112
              
              
              -Loans
                  made to shareholders
              
              
              -
              
              
              (286,513
              )Repayment
                  of loans by shareholders
              
              
              286,513
              
              
              -Repayments
                  of short-term loans
              
              
              (3,970,930
              )
              
              (867,300
              )Loans
                  received from shareholders
              
              
              25,314
              
              
              796,507Repayments
                  of loans from shareholders
              
              
              (1,077,155
              )
              
              (325,888
              )Net
                  cash from (used in) financing activities
              
              
              463,854
              
              
              (712,930
              )Effect
                  of other comprehensive income (loss) on cash
              
              
              (747,589
              )
              
              58,390Increase
                  (decrease) in cash
              
              
              1,367,164
              
              
              (772,091
              )Cash,
                  beginning of period
              
              
              779,116
              
              
              1,551,207Cash,
                  end of period
              
              $
              2,146,280
              
              $
              779,116




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




4




**WANXING
        BIO-TECHNOLOGY LIMITED**


**AND
        CONSOLIDATED SUBSIDIARIES**
 ***Consolidated
        Statement of Stockholders' (Deficit)***
 ***(Expressed
        in US Dollars)***
  Common
                  Stock
              
              Amount
              
              Additional
                  paid-in capital
              
              Cumulative
                  Other Comprehensive Income (loss)
              
              Accumulated
                  (Deficit)
              
              Stockholders'
                (Deficit)Balance
                  December 31, 2003
              
              
              10,000
              
              $
              1,288
              
              $
              7,378,712
              
              $
              5,165
              
              $
              (11,703,734
              )
              $
              (4,318,569
              )Imputed
                  interest on shareholders' loans
              
              
              -
              
              
              -
              
              
              14,231
              
              
              -
              
              
              -
              
              $
              14,231Net
                  income (loss) for the year
              
              
              -
              
              
              -
              
              
              -
              
              
              5
              
              
              (5,671,909
              )
              $
              (5,671,904
              )Balance
                  December 31, 2004
              
              
              10,000
              
              $
              1,288
              
              $
              7,392,943
              
              $
              5,170
              
              $
              (17,375,643
              )
              $
              (9,976,242
              )Imputed
                  interest on shareholders' loans
              
              
              -
              
              
              -
              
              
              133,942
              
              
              -
              
              
              -
              
              $
              133,942Net
                  (loss) for the year
              
              
              -
              
              
              -
              
              
              -
              
              
              (303,113
              )
              
              (3,408,105
              )
              $
              (3,711,218
              )Balance
                  December 31, 2005
              
              
              10,000
              
              $
              1,288
              
              $
              7,526,885
              
              $
              (297,943
              )
              $
              (20,783,748
              )
              $
              (13,553,518
              )Capital
                  changes due to reorganization
              
              
              (8,250
              )
              
              462
              
              
              538
              
              
              -
              
              
              -
              
              $
              1,000Imputed
                  interest on shareholders' loans
              
              
              -
              
              
              -
              
              
              137,909
              
              
              -
              
              
              -
              
              $
              137,909Net
                  loss for the year
              
              
              -
              
              
              -
              
              
              -
              
              
              (517,224
              )
              
              (3,308,702
              )
              $
              (3,825,926
              )Balance
                  December 31, 2006
              
              
              1,750
              
              $
              1,750
              
              $
              7,665,332
              
              $
              (815,167
              )
              $
              (24,092,450
              )
              $
              (17,240,535
              )




5


**WANXIN
        BIO-TECHNOLOGY LIMITED**
 **AND
        CONSOLIDATED SUBSIDIARIES**
 ***Notes
        to Consolidated Financial Statements***
 ***December
        31, 2006***
 ***(Expressed
        in US Dollars)***


**1.
        BASIS OF PRESENTATION - GOING CONCERN**
 
 These
        consolidated financial statements have been prepared on a going-concern basis
        which assumes that the Company will be able to realize assets and discharge
        liabilities in the normal course of business for the foreseeable future.
 
 The
        Company has experienced losses since commencement of operations amounting
        to
        $24,092,450, and has negative working capital and a stockholder’s deficit as of
        December 31 ,
        2006,
        which raise substantial doubt about the Company's ability to continue as
        a going
        concern. The ability of the Company to meet its commitments as they become
        payable is dependent on the ability of the Company to obtain necessary financing
        or achieving a profitable level of operations. There are no assurances that
        the
        Company will be successful in achieving these goals.
 
 The
        Company is in the process of researching, developing, testing and evaluating
        proposed new pharmaceutical products and has not yet determined whether these
        products are technically or economically feasible. The underlying value of
        the
        company is entirely dependent on the successful implementation of one or
        more of
        these products, the ability of the Company to obtain the necessary financing
        to
        complete development and upon future profitable production or sufficient
        proceeds from the disposition of manufacturing rights. Management’s plan is to
        actively search for new sources of capital, including government and
        non-government grants toward research projects and new equity
        investment.
 
 These
        financial statements do not give effect to adjustments to the amounts and
        classifications to assets and liabilities that would be necessary should
        the
        Company be unable to continue as a going concern.
 
 
 **2.
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 **Organization
        and Description of Business**
 
 The
        Company was incorporated under the laws of the British Virgin Islands on
        July 3,
        2002. From the date of incorporation until October 15, 2006, the Company
        remained dormant. On October 15, 2006 the Company acquired all the shares
        of
        Manhing Enterprises Limited (“Manhing”), a company incorporated under the laws
        of Hong Kong, in return for 750 shares of the Company. The purposes of this
        transaction was to expatriate the operating companies’ ownership and to align
        legal and beneficial ownership of the group of companies prior to a reverse
        takeover of a publicly traded company. Accordingly the transaction has been
        treated as a reorganization of capital rather than a business
        combination.
 
 Manhing
        was incorporated under the laws of Hong Kong on July 2, 1991.
 
 6
 
  **WANXIN
            BIO-TECHNOLOGY LIMITED**
 **AND
            CONSOLIDATED SUBSIDIARIES**
 ***Notes
            to Consolidated Financial Statements***
 ***December
            31, 2006***
 ***(Expressed
            in US Dollars)***
 On
        June
        28, 1996, Manhing and two other unrelated companies founded Shanghai Pudong
        New
        District Wanxing Living Things Co., Ltd. (“Wanxing Bio-Pharmaceuticals”), a
        Sino- Foreign Joint Venture company incorporated with limited liability under
        the laws of the People’s Republic of China. Wanxing Bio-Pharmaceuticals has a
        term of 30 years from the date of incorporation, at which time it is to be
        liquidated. Manhing’s original investment and proportionate interest in Wanxing
        Bio-Pharmaceuticals were $1.3 Million and 52%, respectively. On August 19,
        1996,
        Wanxing Bio-Pharmaceuticals changed its name to Shanghai Wanxing Living Things
        Co., Ltd. On the same date Manhing transferred a 1% interest in Wanxing
        Bio-Pharmaceuticals to another company for consideration of $25,000. On the
        same
        date Wanxing Bio-Pharmaceuticals increased its registered capital and Manhing
        contributed an additional $895,500 to keep its interest at 51%. In 1998 Manhing
        acquired an additional interest in Wanxing Bio-Pharmaceuticals for $1,445,000
        and contributed an additional $2,087,500 upon Wanxing Bio-Pharmaceuticals
        increasing its registered capital. After these transactions Manhing held
        a
        63.33% interest in Wanxing Bio-Pharmaceuticals.
 
 In
        2000,
        Wanxing Bio-Pharmaceuticals changed it name to its current name, Shanghai
        Wanxing Bio-pharmaceuticals Co., Ltd.
 
 In
        2002
        Manhing transferred an 18% interest in Wanxing Bio-Pharmaceuticals to another
        investor.
 
 In
        2003
        Manhing acquired an additional combined 36.6% interest in Wanxing
        Bio-Pharmaceuticals from other shareholders over three transactions. Subsequent
        to these transactions, Manhing’s interest in Wanxing Bio-Pharmaceuticals is 82%,
        or $7.38 Million of Wanxing Bio-Pharmaceuticals’ registered capital of $9.0
        Million.
 
 Wanxing
        Bio-Pharmaceuticals’ business is research, development, manufacture and sale of
        pharmaceutical products, primarily for the Chinese market. There are two
        product
        lines currently manufactured and sold as at December 31, 2006 and several
        other
        potential products in various stages of research and development. The product
        lines currently sold are Wanferon/Wanferin, formulations of recombinant human
        interferon for treating hepatitis and viral diseases and Leflunomide, a drug
        for
        the treatment of rheumatoid arthritis. Wanxing Bio-Pharmaceuticals received
        a
        new drug licence for a third product, acidic Fibroblast Growth Factor (“aFGF”),
        in January 2007. This product will enter commercial production when Good
        Manufacturing Practice (“GMP”) certification is received, expected in June 2007
        (Note 17). Wanxing Bio-Pharmaceuticals’ offices and manufacturing facility are
        in owned premises located on land used under license in the Pudong New Area
        of
        Shanghai, China.
 
 On
        April
        14, 2004, Wanxing Bio-Pharmaceuticals and two other unrelated companies founded
        Shanghai Wanxing Bio-science Cosmetic Co., Ltd. (“Wanxing Cosmetic”). Wanxing
        Cosmetic’s registered capital is $3.0 Million and Wanxing Bio-Pharmaceuticals’
interest is 50.33% or $1,510,000.. Wanxing Cosmetic has a term of thirty
        years
        from the date of issue of the business license, at which time it is to be
        liquidated. Wanxing Cosmetic manufactures skin-care products under the brand
        name KaiYing.
 
 7
  **WANXIN
          BIO-TECHNOLOGY LIMITED**
 **AND
          CONSOLIDATED SUBSIDIARIES**
 ***Notes
          to Consolidated Financial Statements***
 ***December
          31, 2006***
 ***(Expressed
          in US Dollars)***
 
 **Principles
        of Consolidation**
 
 The
        consolidated financial statements include accounts of the Company and its
        subsidiaries, Manhing, Wanxing Bio-Pharmaceuticals, and Wanxing
        Cosmetic.
 
 All
        significant inter-company balances and transactions are eliminated. Minority
        interest represents the other shareholders’ interests in the net assets of the
        subsidiaries after deducting the minority interest share of net losses of
        the
        companies.
 
 **Cash
        and Cash Equivalents**
 
 Cash
        equivalents comprise certain highly liquid instruments with a maturity of
        three
        months or less when purchased. As at December 31, 2006, the Company did not
        have
        any cash equivalents.
 
 **Inventory**
 
 Inventory
        is carried at the lower of cost and estimated net realizable value. Raw
        materials cost is determined on the first in, first out basis. Manufacturing
        costs are applied to goods in process on a full cost basis. Cost of finished
        goods on hand at the balance sheet date is determined on the first in, first
        out
        basis.
 
 **Revenue
        recognition**
 
 Revenues
        are recognized in accordance with SEC Staff Accounting Bulletin (SAB) No.
        104,
        "Revenue Recognition." Under SAB 104, product revenues (or service revenues)
        are
        recognized when persuasive evidence of an arrangement exists, delivery has
        occurred (or service has been performed), the sales price is fixed and
        determinable and collectibility is reasonably assured.
 
 **Concentrations**
 
 The
        Interferon product line is subject to increasing competition in the marketplace,
        with the result that gross margin per unit on sales has decreased markedly
        over
        the years 2005 and 2006.
 
 **Research
        and Development Expenditures**
 
 Expenditures
        on research and development activities, including assets acquired for use
        in
        research and development activities, are charged to operations as incurred.
 
 **Asset
        Retirement Obligations**
 
 The
        Company has adopted SFAS No. 143, *Accounting
        for Asset Retirement Obligations* which
        requires that the fair value of a liability for an asset retirement obligation
        be recognized in the period in which it is incurred. The Company has no asset
        retirement obligations.
 
 8
 
  **WANXIN
            BIO-TECHNOLOGY LIMITED**
 **AND
            CONSOLIDATED SUBSIDIARIES**
 ***Notes
            to Consolidated Financial Statements***
 ***December
            31, 2006***
 ***(Expressed
            in US Dollars)***
 **Fixed
        Assets**
 
 Fixed
        assets are carried at cost less a provision for depreciation on a straight-line
        basis over their estimated useful lives. Each asset is estimated to have
        a
        residual value of 10% of cost at the end of its useful life. Estimated useful
        lives are as follows:
 
 Buildings
              20
                  yearsClimate
                  control equipment
              8
                  yearsComputer
                  software
              5
                  yearsLand
                  license
              29
                  yearsManufacturing
                  equipment
              5
                  -
                  8 yearsOffice
                  furniture and equipment
              5
                  yearsOther
                  equipment and fixtures
              5
                  yearsRoad
              20
                  yearsVehicles
              5
                  years
 
 **Advertising
        Expenses**
 
 Advertising
        expenses are expensed as incurred.
 
 **Foreign
        Currency**
 
 The
        parent company’s operation of the Company is located in the British Virgin
        Islands. It maintains no bank accounts. The functional currency is the U.S.
        Dollar. Transactions in foreign currencies, if any, are remeasured into the
        functional currency at the rate in effect at the time of the transaction.
        Remeasurement gains and losses that arise from exchange rate fluctuations
        are
        included in income or loss from operations. Monetary assets and liabilities
        denominated in foreign currencies are presented in the balance sheet at the
        rate
        in effect at the balance sheet date.
 
 Manhing’s
        operation of the Company is located in Hong Kong. It maintains no bank accounts.
        The functional currency is the U.S. Dollar. Transactions in foreign currencies,
        if any, are remeasured into the functional currency at the rate in effect
        at the
        time of the transaction. Remeasurement gains and losses that arise from exchange
        rate fluctuations are included in income or loss from operations. Monetary
        assets and liabilities denominated in foreign currencies are presented in
        the
        balance sheet at the rate in effect at the balance sheet date.
 
 The
        operations of Wanxing Bio-Pharmaceuticals and Wanxing Cosmetic are located
        in
        China, and their accounting records are maintained in Chinese Renminbi Yuan.
        The
        functional currency is the Chinese Renminbi Yuan. Transactions in foreign
        currencies other than the functional currency, if any, are remeasured into
        the
        functional currency at the rate in effect at the time of the transaction.
        Remeasurement gains and losses that arise from exchange rate fluctuations
        are
        included in income or loss from operations. Monetary assets and liabilities
        of
        the subsidiaries denominated in the functional currency are translated into
        U.S.
        Dollars at the rate in effect at the balance sheet date. Revenue and expenses
        denominated in the functional currency are translated at the average exchange
        rate. Other comprehensive income includes the foreign exchange gains and
        losses
        that arise from translating from the functional currency into U.S.
        Dollars.
  9
 
  **WANXIN
            BIO-TECHNOLOGY LIMITED**
 **AND
            CONSOLIDATED SUBSIDIARIES**
 ***Notes
            to Consolidated Financial Statements***
 ***December
            31, 2006***
 ***(Expressed
            in US Dollars)***
 **Use
        of Estimates**
 
 The
        preparation of the Company’s consolidated financial statements in conformity
        with generally accepted accounting principles of the United States of America
        requires management to make estimates and assumptions that affect the reported
        amounts of assets and liabilities and disclosure of contingent assets and
        liabilities at the date of the financial statements and the reported amounts
        of
        revenues and expenses during the reporting period. Management makes its best
        estimate of the ultimate outcome for these items based on historical trends
        and
        other information available when the financial statements are prepared. Actual
        results could differ from those estimates.
 
 **Loss
        Per Share**
 
 Basic
        earnings (loss) per share of common stock is computed by dividing the net
        earnings (loss) by the weighted average number of common shares outstanding
        during the period .
        For
        purposes of determining the weighted average number of common shares
        outstanding, the number of shares outstanding as at December 31, 2006 is
        given
        effect on a pro forma basis as if the capital changes which occurred in 2006
        had
        occurred by January 1, 2005. Diluted
        earnings (loss) per share is equal to the basic loss per share for the year
        ended December 31, 2006 and 2005 because there are no common stock equivalents
        outstanding at December 31, 2006 and 2005.
 
 **Fair
        Value of Financial Instruments**
 
 The
        Company’s financial instruments consist of cash, accounts receivable, loans
        receivable, short term loans payable and accounts payable at December 31,
        2006.
        Accounts receivable and loans receivable are carried at estimated net realizable
        values net of provisions for uncollectible amounts. The carrying values of
        the
        remaining financial instruments reflected in these financial statements
        approximate their fair values due to the short-term maturity of the instruments.
 
 **Comprehensive
        Income**
 
 The
        Company has adopted Statement of Financial Accounting Standards (SFAS) No.
        130,
“Reporting Comprehensive Income”. Comprehensive income includes net income and
        all changes in equity during a period that arises from non-owner sources,
        such
        as foreign currency items and unrealized gains and losses on certain investments
        in equity securities.
 
 **Income
        taxes**
 
 The
        Company records deferred taxes in accordance with Statement of Financial
        Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The
        statement requires recognition of deferred tax assets and liabilities for
        temporary differences between the tax bases of assets and liabilities and
        the
        amounts at which they are carried in the financial statements, based upon
        the
        enacted tax rates in effect for the year in which the differences are expected
        to reverse. A valuation allowance is established when necessary to reduce
        deferred tax assets to the amount expected to be realized.
 
 10
 
  **WANXIN
            BIO-TECHNOLOGY LIMITED**
 **AND
            CONSOLIDATED SUBSIDIARIES**
 ***Notes
            to Consolidated Financial Statements***
 ***December
            31, 2006***
 ***(Expressed
            in US Dollars)***
 **Impairment
        of Long-Lived Assets**
 
 The
        Company periodically analyzes its long-lived assets for potential impairment,
        assessing the appropriateness of lives and recoverability of unamortized
        balances through measurement of undiscounted operation cash flows in accordance
        with SFAS No. 144, *Accounting
        for the Impairment or Disposal of Long-lived Assets.* If
        impairment is deemed to exist, the asset will be written down to its fair
        value.
        Fair value is generally determined using a discounted cash flow analysis.
        As at
        December 31, 2006, the Company has written down $512,400 in intangible assets
        acquired in 2006 for rights to produce the Company’s Leflunomide product, due to
        uncertainty about future sales potential and profit margins which makes it
        impossible to establish a fair value for the asset. The write-down is included
        in general and administration expense.
 
 **New
        Accounting Pronouncements**
 
 In
        December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets,
        an amendment of APB No. 29, Accounting for Nonmonetary Transactions”. SFAS No.
        153 requires exchanges of productive assets to be accounted for at fair value,
        rather than at carryover basis, unless (1) neither the asset received nor
        the
        asset surrendered has a fair value that is determinable within reasonable
        limits
        or (2) the transactions lack commercial substance. SFAS 153 is effective
        for
        nonmonetary asset exchanges occurring in fiscal periods beginning after June
        15,
        2005. The adoption of FASB No. 153 does not have a material impact on the
        Company’s consolidated financial statements.
 
 In
        May
        2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”.
        SFAS No. 154 replaces APB Opinion No. 20 “Accounting Changes” and SFAS No. 3,
“Reporting Accounting Changes in Interim Financial Statements”. SFAS No. 154
        requires retrospective application to prior periods’ financial statements of
        changes in accounting principle, unless it is impracticable to determine
        either
        the period-specific effects or the cumulative effect of the change. The adoption
        of SFAS No. 154 does not have any impact on the Company’s consolidated financial
        statements.
 
 In
        March
        2006, the FASB issued SFAS No. 156, *“Accounting
        for Servicing of Financial Assets,”* (“SFAS
        No. 156”), which amends SFAS No. 140, *”
        Accounting for Transfers and Servicing of Financial Assets and Extinguishments
        of Liabilities.* ”
In
        a
        significant change to current guidance, SFAS No. 156 permits an entity to
        choose
        either of the following subsequent measurement methods for each class of
        separately recognized servicing assets and servicing liabilities: (1)
        Amortization Method or (2) Fair Value Measurement Method. SFAS No. 156 is
        effective as of the beginning of an entity’s first fiscal year that begins after
        September 15, 2006. The Company is currently reviewing the effect, if any,
        that
        this new pronouncement will have on its financial statements.
 
 11
 
  **WANXIN
            BIO-TECHNOLOGY LIMITED**
 **AND
            CONSOLIDATED SUBSIDIARIES**
 ***Notes
            to Consolidated Financial Statements***
 ***December
            31, 2006***
 ***(Expressed
            in US Dollars)***
 In
        June
        2006, the FASB issued SFAS Board Interpretation No. 48, “ *Accounting
        for Uncertainty in Income Taxes - an Interpretation of FASB statement No.
        109* ”
(“FIN
        48”), which clarifies the accounting for uncertainty in income taxes recognized
        in an enterprise’s financial statements in accordance with FASB No. 109. The
        interpretation prescribes a recognition threshold and measurement attribute
        for
        the financial statement recognition and measurement of a tax position taken
        or
        expected to be taken in a tax return. This interpretation also provides guidance
        on derecognition, classification, interest and penalties, accounting in interim
        periods, disclosure, and transition. FIN 48 is effective for fiscal years
        beginning after December 15, 2006. Earlier application of the provisions
        of FIN
        48 is encouraged if the enterprise has not yet issued financial statements,
        including interim financial statements, in the period this Interpretation
        is
        adopted. The Company is currently reviewing the effect, if any, that this
        new
        guidance with have on its financial statements.
 
 In
        September 2006, the FASB issued SFAS No. 157, “ *Fair
        Value Measurements* .”
This
        statement defines fair value, establishes a framework for measuring fair
        value
        in generally accepted accounting principles, and expands disclosure about
        fair
        value measurements. This statement applies under other accounting pronouncements
        that require or permit fair value measurement, the FASB having previously
        concluded in those accounting pronouncements that fair value is the relevant
        measurement attribute. This statement does not require any new fair value
        measurements. However, for some entities, the application of the statement
        will
        change current practice. This statement is effective for financial statements
        issued for fiscal years beginning after November 15, 2007, and interim periods
        within those fiscal years. The Company is currently reviewing the effect,
        if
        any, that this new pronouncement will have on its financial
        statements.
 
 In
        September 2006, the FASB issued SFAS No. 158, “ *Employers’
        Accounting for Defined Benefit Pension and Other Postretirement Plans - an
        amendment of FASB Statements No. 87, 88, 106 and 123(R)* .”
This
        statement improves financial reporting by requiring an employer to recognize
        the
        overfunded or underfunded status of a defined benefit postretirement plan
        (other
        than a multi-employer plan) as an asset or liability in its statement of
        financial position and to recognize changes in that funded status in the
        year in
        which the changes occur through comprehensive income of a business entity
        or
        changes in unrestricted net assets for a not-for-profit organization. This
        statement also improves financial reporting by requiring an employer to measure
        the funded status of a plan as of the date of its year-end statement of
        financial position, with limited exceptions. The Company does not expect
        the
        adoption of this pronouncement to have a material impact on its financial
        statements.
 
 There
        were various other accounting standards and interpretations recently issued,
        none of which is expected to have a material impact on the Company's financial
        position, operations or cash flows.
 
 12
 
 **WANXIN
          BIO-TECHNOLOGY LIMITED**
 **AND
          CONSOLIDATED SUBSIDIARIES**
 ***Notes
          to Consolidated Financial Statements***
 ***December
          31, 2006***
 ***(Expressed
          in US Dollars)***
 
 **3.
        CASH - RESTRICTED**
 
 Restricted
        cash consists of $171 on deposit pursuant to agreement with a bank to maintain
        funds on deposit to ensure payment of interest on debt.
 
 
 **4.
        ACCOUNTS RECEIVABLE**
 
 Trade
        accounts receivable consists of receivable for sales of product on credit,
        largely to independent sales agents. The Company is required by law to sell
        to a
        sales agent rather than the ultimate purchaser when the ultimate purchaser
        is a
        hospital. Accounts receivable are net of allowance for doubtful accounts
        in the
        amount of $7,174.
 
 
 **5.
        LOANS TO UNRELATED PARTIES**
 
 The
        Company has loans receivable from other companies arising from guarantee
        arrangements under which the Company guaranteed the debt of other companies
        and
        has been called on its guarantees (Note 8). The company has $4,268,138
        receivable from these companies including interest accrued on the original
        debts
        since call of the guarantees, but has provided for the full amount of the
        receivables due to uncertainty of collectibility. $266,281 has been charged
        to
        income in 2006 (2005 - $271,741) in respect of the provision. Under the terms
        of
        the guarantee agreements, the other companies have until December 31, 2007
        to
        pay the Company.
 
 The
        Company has fully provided for $12,589 (98,273 Chinese yuan) of additional
        loans
        receivable from sales agents and employees. $71,002 recovery has been recognized
        in income in 2006 (2005 - $58,352 charged to income) in respect of the
        provision.
 
 The
        remaining loans receivable are carried at their face amounts, which approximate
        estimated net realizable values based on collection and settlement experience
        subsequent to December 31, 2006. The remaining loans receivable do not bear
        interest and have no stated terms of repayment.
 
 
 **6.
        INVENTORY**
 
 Inventory
        consists of the following:
  December
                  31,
                  2006Raw
                  materials
              
              $
              53,870Goods
                  in process
              
              
              235,559Finished
                  goods
              
              
              154,209$
              443,638
 
 13
 
  **WANXIN
            BIO-TECHNOLOGY LIMITED**
 **AND
            CONSOLIDATED SUBSIDIARIES**
 ***Notes
            to Consolidated Financial Statements***
 ***December
            31, 2006***
 ***(Expressed
            in US Dollars)***
 **7.
        FIXED ASSETS**
 
 Fixed
        assets consist of the following:
  December
                  31,
                  2006Buildings
              
              $
              5,849,461Climate
                  control equipment
              
              
              1,184,549Computer
                  software
              
              
              1,793Land
                  license
              
              
              2,152,080Manufacturing
                  equipment
              
              
              1,887,019Office
                  furniture and equipment
              
              
              137,088Other
                  equipment
              
              
              30,625Road
              
              
              32,245Vehicles
              
              
              707,96311,982,823Less:
                  Accumulated depreciation
              
              
              5,134,425$
              6,848,398
 
 The
        land
        license is for the use of the land on which the Company’s buildings are
        situated, and is for a term of 30 years from September 18, 1996. At the end
        of
        the license, the Company expects to have an option to renew the
        license.
 
 On
        June
        21, 2004 the Company’s land, building and equipment were hypoethecated by the
        People’s Court of Yangpu District, Shanghai, China pursuant to an action for non
        payment of bank debt (Note 9). The Company has had use of the assets while
        under
        hypothecation, but is not free to sell any of the hypothecated assets. The
        Company has entered an agreement to settle the debt and release the assets
        from
        hypothecation (Note 9). The amount of the debts secured by this hypothecation
        and by the mortgage on the land license and buildings approximate the carrying
        value of the assets pledged.
 
 14
 
  **WANXIN
            BIO-TECHNOLOGY LIMITED**
 **AND
            CONSOLIDATED SUBSIDIARIES**
 ***Notes
            to Consolidated Financial Statements***
 ***December
            31, 2006***
 ***(Expressed
            in US Dollars)***
 
 **8.
        SHORT-TERM LOANS**
 
 The
        Company has obligations under the following bank loan agreements, all of
        which
        are overdue
        as at December 31, 2006:
 
 Name
                  of Bank
              
              Principal
                  amount
                2006
              
              Due
                  date
              
              Interest
                  rate
                Not
                  due/ overdue
              
              Security
                (2)Industrial
                  and Commercial bank
              
              3,586,800
              
              May
                  25, 2004
              
              6.633%
                  / 9.05%
              
              GuaranteeIndustrial
                  and Commercial bank
              
              5,116,526
              
              (1)
              
              (1)
              
              GuaranteeAgriculture
                  Bank
              
              1,488,522
              
              May
                  14, 2004
              
              5.841%
                  / 7.56%
              
              GuaranteeConstruction
                  Bank
              
              2,728,530
              
              October
                  16, 2004
              
              5.31%
                  / 7.56%
              
              Building
                  mortgage (3)Shenzen
                  Development Bank
              
              1,639,680
              
              June
                  6, 2005
              
              6.372%
                  / 9.56%
              
              GuaranteeIndustrial
                  Bank
              
              5,124,000
              
              December
                  19, 2005
              
              6.138%
                  / NA
              
              Guarantee19,684,058
 
 (1)
              The
                  debt to Industrial and Commercial Bank, Jingqiao consists of 5
                  loan
                  contracts with due dates ranging from April 23, 2004 through January
                  13,
                  2005. Nominal interest rates range from 5.31% to 5.576% per annum
                  while
                  overdue interest rates range from 8.0% to
                  8.23%.
 (2)
              Guarantees
                  have been arranged with various companies under cross-guarantee
                  arrangements where each guarantees a loan for the other, or a loan
                  forward
                  basis where Wanxing Bio-Pharmaceuticals borrows and then loans
                  a specified
                  amount to the guarantor in return for the guarantee. The Company
                  has
                  guaranteed debt of two other companies under such arrangements,
                  up to an
                  amount of $3,202,500 (25,000,000 Chinese yuan) plus interest. $3,202,500
                  of the Company’s debt above arose upon the Company being called on its two
                  guarantees. The Company recorded a corresponding loan receivable
                  from the
                  other companies and has made a provision for uncollectibility in
                  the full
                  amount of the receivable (Note 5).
 (3)
              Buildings
                  with carrying value of $3,868,935 have been mortgaged as
                  security.
 
 The
        Company is involved in litigation over some of its bank loans and has negotiated
        payment terms on some of its loans as more fully described in Note
        9.
 
 
 **9.
        LITIGATION**
 
 On
        June
        21, 2004 the Company was sued by the Agriculture Bank of China to enforce
        payment under the loan agreement with that bank. The Company’s land, building
        and equipment, new medicine certificates and a bank account were hypothecated
        by
        the People’s Court of Yangpu District, Shanghai, China pursuant to the action.
        On September 15, 2006 the Company and the bank entered into a settlement
        agreement to settle the litigation and the debt. The debt at that time had
        a
        principal balance of 21.62 million yuan (approximately $US (2,680,000). Under
        the terms of the settlement agreement, the Company is obligated to pay the
        bank
        12 million yuan (approximately $US 1,487,000) before October 31, 2006, 3
        million
        yuan (approximately $US 384,000) before June 30, 2007 and 6.62 million yuan
        (approximately $US 848,000) before October 31, 2007. The Company’s new medicine
        certificates and bank account will be released upon payment of the first
        12
        million by October 31, 2006. If the Company completely meets this schedule,
        the
        Company’s property, building and equipment will be released from hypothecation.
        The Company paid 10 million yuan (approximately $US 1,281,000) pursuant to
        the
        settlement on October 25, 2006 and has subsequently received a waiver from
        the
        bank of the default in respect of the remaining 2 million yuan due. (See
        also
        Note 18.)
 
 15
 
  **WANXIN
            BIO-TECHNOLOGY LIMITED**
 **AND
            CONSOLIDATED SUBSIDIARIES**
 ***Notes
            to Consolidated Financial Statements***
 ***December
            31, 2006***
 ***(Expressed
            in US Dollars)***
 The
        Company has been sued by the Industrial and Commercial Bank of China to enforce
        payment under the loan agreement with that bank and judgment was granted
        in
        favour of the bank by the People’s Court of Pudong District. On October 25, 2006
        the Company and the bank entered into a settlement agreement to settle the
        litigation and the debt. The debt at that time had a principal balance of
        77.15
        million yuan (approximately $US 9,560,000). Under the terms of the settlement
        agreement, the Company is obligated to pay the bank 3 million yuan
        (approximately $US 384,000) plus interest at the rate of 0.561% per month
        on the
        remaining balance of the first 49,145,766 (approximately $US 6,300,000) of
        the
        principal on the 21 st day of
        each month. The Company is also obligated to pay the bank quarterly interest
        payments at the rate of 0.5775% per month commencing December 20, 2006 on
        the
        remaining balance of the last 28,000,000 yuan (approximately $US 3,587,000)
        of
        the principal. The payments will continue until the debt principal is paid.
        If
        the Company completely meets this schedule, the bank agrees to apply to the
        upper bank authority for a waiver of the interest accumulated prior to the
        entering of the agreement. The Company has made payments to December 31,
        2006 in
        compliance with the settlement but has defaulted on the settlement and
        renegotiated the settlement subsequent to the end of the year- see Note
        18.
 
 The
        Company has been sued by the Shenzhen Development Bank to enforce payment
        under
        the loan agreement with that bank and judgment was granted in favor of the
        bank
        by the 1st Secondary People’s Court of Shanghai. On October 25, 2006 the Company
        and the bank entered into a settlement agreement to settle the litigation
        and
        the debt. The debt at that time had a principal balance of 17,800,000 yuan
        (approximately $US 2,205,000). Under the terms of the settlement agreement,
        the
        Company is obligated to pay the bank 5 million yuan (approximately $US 620,000)
        before October 30, 2006, 3 million yuan (approximately $US 384,000) before
        March
        20, 2007, 3 million yuan (approximately $US 384,000) before June 20, 2007,
        3
        million yuan (approximately $US 384,000) before September 20, 2007 and 3.8
        million yuan (approximately $US 487,000) plus the balance of accrued interest
        before December 20, 2007. The Company made a payment of 5million yuan in
        compliance with the settlement but subsequent to the end of the year has
        defaulted on the settlement and has received waiver of the default- see Note
        18.
 
 
 **10.
        SHAREHOLDER LOANS**
 
 The
        loans
        from shareholders **** do
        not
        bear interest. $2,005,307 payable to a shareholder is due December 31, 2007.
        The
        remainder has no stated terms of repayment. Imputed interest has been recorded
        on the shareholder loans at an interest rate of 5.31%. The net interest
        calculated is included in interest expense and has been recorded as additional
        paid-in capital since the imputed interest is not payable.
 
 16
  **WANXIN
          BIO-TECHNOLOGY LIMITED**
 **AND
          CONSOLIDATED SUBSIDIARIES**
 ***Notes
          to Consolidated Financial Statements***
 ***December
          31, 2006***
 ***(Expressed
          in US Dollars)***
 
 **11.**  **RELATED
        PARTY TRANSACTIONS**
 
 The
        Company is indebted to the minority shareholder of a subsidiary in the amount
        of
        $2,005,307.
 
 Two
        minority shareholders of a subsidiary are indebted to the Company in the
        amount
        of $119,389. The Company has provided an allowance for the full amount of
        this
        indebtedness.
 
 
 **12.
        INCOME TAXES**
 
 The
        Company is subject to Chinese income taxes to the extent of its operations
        in
        China. The company had no income tax expense during the reported periods
        due to
        net operating losses.
 
 A
        reconciliation of income tax expense to the amount computed at the statutory
        rates is as follows:
  2006
              
              2005Loss
                  for the year
              
              $
              (3,308,702
              )
              $
              (3,408,105
              )Average
                  statutory tax rate in China
              
              
              33
              %
              
              33
              %Expected
                  income tax provision
              
              $
              (1,091,872
              )
              $
              (1,124,675
              )Tax
                  basis of deferred expenses in excess of book cost
              
              
              (605,870
              )
              
              (98,873
              )Unrecognized
                  tax losses
              
              
              1,697,741
              
              
              1,223,548Income
                  tax expense
              
              $
              --
              
              $
              --
 
 Significant
        components of deferred income tax assets are as follows:
  2006
              
              2005Operating
                  losses carried forward
              
              
              3,525,985
              
              
              1,828,244Excess
                  of tax basis over book cost of deferred expenses in China
              
              $
              3,921,911
              
              
              4,527,781Valuation
                  allowance
              
              
              (7,447,896
              )
              
              (6,356,024
              )Net
                  deferred income tax assets
              
              $
              -
              
              $
              -
 
 17
 
  **WANXIN
            BIO-TECHNOLOGY LIMITED**
 **AND
            CONSOLIDATED SUBSIDIARIES**
 ***Notes
            to Consolidated Financial Statements***
 ***December
            31, 2006***
 ***(Expressed
            in US Dollars)***
 The
        Company has tax losses carried forward for Chinese tax purposes of approximately
        $10,680,000 which will expire in 2010 if not utilized.
 
 
 **13.
        INCOME FROM GRANTS, CONSULTING AND OUTSIDE MANUFACTURING**
 
 Income
        from grants, consulting and outside manufacturing includes a grant in the
        amount
        of $1,969,530 received as funding assistance toward the research and development
        of the Company’s malaria vaccine. Unearned revenue includes $27,470 of this
        grant which remains unearned.
 
 
 **14.
        COMMITMENTS**
 
 The
        Company entered an agreement in 2003 to acquire rights to utilize technology
        developed by anther party in the Company’s aFGF product. The Company paid 5.5
        million yuan (approximately $ 705,000) in 2003 through 2006 pursuant to the
        agreement. The Company is committed to pay another 2.2 million yuan
        (approximately $ 282,000) within 30 days of the new drug license being received.
        Subsequent to the year-end, the new drug license was received in January
        2007,
        making 2.2 million yuan (approximately $ 282,000) payable by the end of
        February, 2007. The Company has not paid the required 2.2 million yuan due
        under
        the agreement as at the date of completion of the financial statements.
 
 
 **15.
        CONTINGENT PATENT RIGHTS COMMITMENTS**
 
 The
        Company has committed to payments for rights to use patented technology,
        contingent upon successful clinical trials and approval of products for
        production as follows:
 
 11
        Million yuan (approximately $1,360,000) will be payable upon completion of
        both
        Phase III clinical trials and approval of new drug certificate for Ethelphazine,
        an anti-tumor drug entering Phase III clinical trials at the end of
        2006.
 
 20
        Million yuan (approximately $2,480,000) will be payable upon completion of
        both
        Phase III clinical trials and approval of new drug certificate for the Company’s
        recombinant malaria vaccine. This drug is expected to enter Phase II clinical
        trials in mid-2007.
 
 2.5
        Million yuan (approximately $310,000) will be payable in respect of the
        Company’s recombinant Human Stem Cell factor bio-product in two stages. The
        first 1 Million yuan (approximately $124,000) will be due by the time of
        upon
        completion of Phase II trials and 1.5 Million yuan (approximately $186,000)
        will
        be payable upon completion of both Phase III clinical trials and approval
        of the
        product for production. This product is in Phase I trials in 2006.
 
 18
  **WANXIN
          BIO-TECHNOLOGY LIMITED**
 **AND
          CONSOLIDATED SUBSIDIARIES**
 ***Notes
          to Consolidated Financial Statements***
 ***December
          31, 2006***
 ***(Expressed
          in US Dollars)***
 
 **16.
        SEGMENTED INFORMATION**
 
 The
        Company is operating in a single geographic market, the People’s Republic of
        China. The Company has two operating segments, the cosmetics business and
        the
        pharmaceuticals business. Segment revenues, net loss and assets are as
        follows:
 
 **2006**
 Revenues
              
              Net
                  loss
              
              Total
                  assetsPharmaceuticals
              
              $
              2,807,119
              
              $
              3,003,666
              
              $
              9,787,387Cosmetics
              
              
              54,376
              
              
              5,036
              
              
              88,645Parent
                  company administration
              
              
              
              
              
              300,000
              
              
              1,000Total
                  consolidated
              
              $
              2,861,495
              
              $
              3,308,702
              
              $
              9,877,032
 
 **2005**
 Revenues
              
              Net
                  loss
              
              Total
                  assetsPharmaceuticals
              
              $
              963,443
              
              $
              3,355,052
              
              $
              17,184,059Cosmetics
              
              
              55,827
              
              
              51,896
              
              
              105,343Parent
                  company administration
              
              
              
              
              
              1,157Total
                  consolidated
              
              $
              1,019,270
              
              $
              3,408,105
              
              $
              17,289,402
 
 
 **17.
        MANUFACTURING SHUT-DOWN**
 
 In
        December 2006, Wanxin Bio-pharmaceuticals temporarily closed its manufacturing
        facility while it undergoes inspection and review for the purposes of obtaining
        a Good Manufacturing Practice (“GMP”) certificate in respect of its
        manufacturing processes for its aFGF product. In accordance with Chinese
        law,
        the manufacturing will remain halted until the GMP certificate is determined,
        which is expected to occur in June, 2007. The Company continues to sell its
        interferon products from inventory of finished goods in stock, and production
        of
        Leflunomide, which is manufactured under licence by another facility, are
        not
        affected.
 
 
 **18.
        SUBSEQUENT EVENTS**
 
 The
        Company has defaulted on its loan settlement agreement with Industrial and
        Commercial Bank, as described in Note 9, by not making the scheduled loan
        payments in January, February and March, 2007. In March 2007 the Company
        entered
        a new agreement for payment of debt obligations, which calls for payment
        of 3
        million yuan (approximately $US 384,000) on April 28, 2007, 2 million yuan
        (approximately $US 257,000) on May 10, 2007, 10 million yuan (approximately
        $US
        (1,281,000) on May 15, 2007, and the balance of principal of 52.94 million
        yuan
        (approximately $US 6,782,000) plus interest of 1 million (approximately $US
        128,000) on June 15, 2007. If the company meets this schedule, the debt will
        be
        repaid and accrued interest in the amount of approximately 17.9 million yuan
        (approximately $US (2,293,000) will be forgiven. If the Company does not
        meet
        this schedule, the previously-agreed payment schedule will still apply.
 
 19
 
  **WANXIN
            BIO-TECHNOLOGY LIMITED**
 **AND
            CONSOLIDATED SUBSIDIARIES**
 ***Notes
            to Consolidated Financial Statements***
 ***December
            31, 2006***
 ***(Expressed
            in US Dollars)***
 The
        Company has defaulted on its loan settlement agreement with Agriculture Bank
        of
        China, as described in Note 9, by not making a scheduled loan payment of
        2
        million yuan (approximately $US 257,000) on March 31, 2007. The bank has
        granted
        a waiver of default in respect of this payment for an unspecified
        time.
 
 The
        Company has defaulted on its loan settlement agreement with Shenzhen Development
        Bank, as described in Note 9, by not making a scheduled loan payment of 3
        million yuan (approximately $US 384,000) on March 20, 2007. The bank has
        granted
        a waiver of default in respect of this payment until May 30, 2007.
  The
        Company has notified China Construction Bank of its inability to make a
        scheduled loan payment of 6.8 million yuan (approximately $US 871,000) on
        April
        30, 2007. The bank has granted a waiver of default in respect of this payment
        for an unspecified time.
 
 In
        January 2007 the Company received a new drug licence in respect of its aFGF
        product. This product will enter commercial production and sale when GMP
        certification is received. See also Note 17.
 
 On
        January 12, 2007 the shareholders of the Company completed an agreement to
        transfer all their shares of the Company to CDoor Corp. (“CDoor”), a Delaware
        corporation seeking a listing on the over-the-counter market in the United
        States, in return for 1,750,000 shares of CDoor. The agreement is part of
        a
        series of transactions, the effect of which is to complete a reverse take-over
        of CDoor by the Company. The transactions will be accounted for in 2007 as
        a
        reverse take-over.




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