**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 September 30, 2006**





**OR**





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


**SECURITIES
      EXCHANGE ACT OF 1934**





**Commission
      File Number**


**0-51477**





**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**
              *(Address
                of principal executive offices)*
            **N/A**
              *(Zip
                Code)*





**0086-871-728-2628**


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





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the
      registrant was required to file such reports), and (2) has been subject to
      such filing requirements for the past 90 days. Yes x No o




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




There
      were 19,119,400 shares outstanding of registrant’s common stock, par value
      $.0001 per share, as of November 14, 2006.





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 September 30, 2006 (Unaudited)
                and
                December 31, 2005
            1Condensed
                Consolidated Statements of Operations and Comprehensive Income for
                the
                three and nine months ended September 30, 2006 and 2005
                (Unaudited)
            2Condensed
                Consolidated Statements of Cash Flows for the Nine Months Ended September
                30, 2006 and 2005 (Unaudited)
            3Notes
                to Condensed Consolidated Financial Statements
            5ITEM
                2.
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATION
            9ITEM
                3.
            CONTROLS
                AND PROCEDURES
            29PART
                II - OTHER INFORMATION
            30ITEM
                1.
            LEGAL
                PROCEEDINGS
            30ITEM
                2.
            UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
            30ITEM
                3.
            DEFAULTS
                UPON SENIOR SECURITIES
            30ITEM
                4.
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            30ITEM
                5.
            OTHER
                INFORMATION
            30ITEM
                6.
            EXHIBITS
            31SIGNATURES
            
            32








**PART
      I - FINANCIAL INFORMATION**





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





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




**September
                30,**
            
            **December
                31,****2006**
            
            **2005**(Unaudited)**ASSETS:****Current
                Assets:**Cash
                and cash equivalents
            
            $
            2,092,276
            
            $
            1,104,043Restricted
                cash
            
            
            420,625
            
            
            384,395Accounts
                receivable, less allowance for doubtful accounts of
                $1,503,014at
                September 30, 2006 (unaudited) and $1,033,868 at December 31, 2005,
                respectively
            
            
            10,768,077
            
            
            2,340,346Other
                receivables, less allowance for doubtful accounts of
                $906,805at
                September 30, 2006 (unaudited) and $658,401 at December 31, 2005,
                respectively
            
            
            3,561,421
            
            
            1,976,868Advances
                to suppliers
            
            
            121,631
            
            
            84,434Inventory
            
            
            2,141,929
            
            
            4,305,377Receivable
                from related parties
            
            
            -
            
            
            178,133Other
                current assets
            
            
            13,715
            
            
            56,062**Total
                Current Assets**
            
            
            **19,119,674**
            
            
            **10,429,658**Property,
                plant and equipment, net of accumulated depreciation of $3,138,831
                atSeptember
                30, 2006 (unaudited) and $2,606,685 at December 31, 2005,
                respectively
            
            
            7,538,080
            
            
            8,161,847Intangible
                assets, net of accumulated amortization of $17,922 at September 30,
                2006(unaudited)
                and $0 at December 31, 2005, respectively
            
            
            631,481
            
            
            638,693Long-term
                restricted cash
            
            
            105,284
            
            
            -Deferred
                income taxes
            
            
            760,262
            
            
            368,247**TOTAL
                ASSETS**
            
            **$**
            **28,154,781**
            
            **$**
            **19,598,445****LIABILITIES
                AND STOCKHOLDERS' EQUITY:****Current
                Liabilities:**Accounts
                payable
            
            $
            1,012,601
            
            $
            946,216Other
                payables and accrued expense
            
            
            2,359,229
            
            
            1,876,376Payable
                to related parties
            
            
            503,097
            
            
            585,394Short-term
                notes payable
            
            
            10,041,573
            
            
            9,572,992Advances
                from customers
            
            
            437,475
            
            
            246,382Taxes
                and related payables
            
            
            3,376,837
            
            
            1,065,030Unearned
                revenue
            
            
            159,537
            
            
            201,516Current
                portion of Long-term debt
            
            
            2,946,901
            
            
            125,761**Total
                Current Liabilities**
            
            
            **20,837,250**
            
            
            **14,619,667****Long-Term
                Debt**
            
            
            **132,639**
            
            
            **2,477,277****Total
                Liabilities**
            
            
            **20,969,889**
            
            
            **17,096,944****Minority
                Interest in Net Assets of Subsidiaries**
            
            
            **337,803**
            
            
            **331,451****Stockholders'
                Equity:**Preferred
                stock, $0.0001 par value, 10,000,000 shares authorized, 0
                sharesoutstanding
                at September 30, 2006 (unaudited), and 0 shares
                outstandingat
                December 31, 2005, respectively
            
            
            -
            
            
            -Common
                stock, $0.0001 par value, 100,000,000 shares authorized,
                19,119,400shares
                outstanding at September 30, 2006 (unaudited), and 16,227,200
                sharesoutstanding
                at December 31, 2005, respectively
            
            
            1,912
            
            
            1,626Additional
                paid-in capital
            
            
            5,052,187
            
            
            2,659,134Retained
                earnings (deficit)
            
            
            1,630,083
            
            
            (535,523
            )Other
                comprehensive income, foreign currency translation
            
            
            162,907
            
            
            44,813**Total
                Stockholders' Equity**
            
            
            **6,847,089**
            
            
            **2,170,050****TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY**
            
            **$**
            **28,154,781**
            
            **$**
            **19,598,445**





The
        accompanying notes are an integral part of these 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 Nine Months Ended****September
                30,**
            
            **September
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****Sale
                of Products**
            
            $
            5,142,567
            
            $
            2,102,125
            
            $
            13,796,773
            
            $
            5,759,914**Cost
                of Products Sold**
            
            
            1,314,466
            
            $
            521,573
            
            
            4,478,021
            
            
            1,968,239**Gross
                Profit**
            
            
            3,828,101
            
            
            1,580,552
            
            
            9,318,752
            
            
            3,791,675**Operating
                Expenses:**Selling
                expense
            
            
            1,236,817
            
            
            1,092,456
            
            
            2,951,964
            
            
            2,974,099General
                and administrative expense
            
            
            1,713,412
            
            
            262,930
            
            
            2,783,368
            
            
            871,879**Total
                Operating Expenses**
            
            
            2,950,229
            
            
            1,355,386
            
            
            5,735,332
            
            
            3,845,978**Income
                (Loss) from Operations**
            
            
            877,872
            
            
            225,166
            
            
            3,583,420
            
            
            (54,303
            )**Other
                Income (Expense):**Interest
                income
            
            
            2,037
            
            
            962
            
            
            4,242
            
            
            11,510Income
                from research and development activities
            
            
            76,764
            
            
            791
            
            
            102,508
            
            
            19,035Interest
                expense
            
            
            (191,018
            )
            
            (167,742
            )
            
            (561,390
            )
            
            (345,798
            )Non-operating
                expenses
            
            
            (190
            )
            
            (2,873
            )
            
            (5,071
            )
            
            (19,824
            )(112,407
            )
            
            (168,862
            )
            
            (459,711
            )
            
            (335,077
            )**Income
                (Loss) Before Income Taxes**
            
            
            765,465
            
            
            56,304
            
            
            3,123,709
            
            
            (389,380
            )(Provision
                for) benefit from income taxes
            
            
            (259,234
            )
            
            (14,086
            )
            
            (697,357
            )
            
            110,190Minority
                interest in (income) loss of subsidiaries
            
            
            (138,144
            )
            
            6,755
            
            
            (260,746
            )
            
            64,718**Net
                Income (Loss)**
            
            $
            368,087
            
            $
            48,973
            
            $
            2,165,606
            
            $
            (214,472
            )**Net
                Income (Loss)**
            
            $
            368,087
            
            $
            48,973
            
            $
            2,165,606
            
            $
            (214,472
            )Foreign
                currency translation adjustment
            
            
            88,901
            
            
            8,972
            
            
            118,094
            
            
            8,972**Comprehensive
                Income (Loss)**
            
            $
            456,988
            
            $
            57,945
            
            $
            2,283,700
            
            $
            (205,500
            )**Basic
                and Diluted Earnings (Loss) Per Share**
            
            $
            0.03
            
            $
            0.00
            
            $
            0.14
            
            $
            (0.01
            )**Weighted-Average
                Shares Outstanding**
            
            
            17,170,309
            
            
            16,227,200
            
            
            16,545,024
            
            
            16,227,220




The
        accompanying notes are an integral part of these consolidated financial
        statements.
  2




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




**For
                the Nine Months Ended****September
                30,****2006**
            
            **2005****Cash
                Flows from Operating Activities:**Net
                income (loss)
            
            $
            2,165,606
            
            $
            (214,472
            )Adjustments
                to reconcile net income to net cashprovided
                by operating activities:Depreciation
                and amortization
            
            
            515,307
            
            
            379,380Deferred
                income taxes
            
            
            (239,262
            )
            
            (15,157
            )Minority
                interest in income of subsidiaries
            
            
            482,584
            
            
            64,718Stock
                issued for services
            
            
            1,122,912
            
            
            -Change
                in current assets and liabilities:Accounts
                receivable
            
            
            (8,275,347
            )
            
            (487,260
            )Other
                receivables, net
            
            
            (203
            )
            
            724,159Advances
                to suppliers
            
            
            (35,078
            )
            
            (62,208
            )Inventory
            
            
            2,220,140
            
            
            (769,118
            )Other
                current assets
            
            
            42,906
            
            
            (8,508
            )Accounts
                payable
            
            
            47,068
            
            
            484,906Other
                payables and accrued expenses
            
            
            440,100
            
            
            171,720Advances
                from customers
            
            
            183,863
            
            
            (190,908
            )Unearned
                revenue
            
            
            (45,383
            )
            
            132,710Taxes
                and related payables
            
            
            2,261,745
            
            
            (39,248
            )**Net
                Cash Provided by Operating Activities**
            
            
            886,958
            
            
            170,714**Cash
                Flows from Investing Activities:**Receivable
                from related parties
            
            
            179,357
            
            
            (243,128
            )Collection
                of notes receivable
            
            
            -
            
            
            3,337Restricted
                Cash
            
            
            (141,514
            )
            
            -Capital
                expenditures
            
            
            (106,287
            )
            
            (148,533
            )Acquisition
                of land use rights
            
            
            (20,202
            )
            
            (630,462
            )**Net
                Cash Used in Investing Activities**
            
            
            (88,646
            )
            
            (1,018,786
            )**Cash
                Flows from Financing Activities:**Due
                to related parties
            
            
            (92,687
            )
            
            29,122Purchase
                of minority interest
            
            
            (260,654
            )
            
            -Proceeds
                from notes payable
            
            
            2,518,830
            
            
            7,644,536Payments
                on notes payable
            
            
            (2,243,120
            )
            
            (4,229,088
            )Proceeds
                from long-term loans
            
            
            419,636
            
            
            1,213,418Payments
                on long-term loans
            
            
            -
            
            
            (3,300,498
            )**Net
                Cash Provided by Financing Activities**
            
            
            342,005
            
            
            1,357,490Effect
                of exchange rate changes on cash
            
            
            (152,084
            )
            
            (108,280
            )Net
                Increase in Cash and Cash Equivalents
            
            
            1,140,317
            
            
            509,418Cash
                and Cash Equivalents at Beginning of Period
            
            
            1,104,043
            
            
            690,267**Cash
                and Cash Equivalents at End of Period**
            
            $
            2,092,276
            
            $
            1,091,405




The
        accompanying notes are an integral part of these consolidated financial
        statements.
  3





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




**For
                the Nine Months Ended****September
                30,****2006**
            
            **2005****Supplemental
                Information**Cash
                paid during the period for interest
            
            $
            207,576
            
            $
            392,190**Noncash
                investing and financing activities**Reduction
                in carrying amount of assets related to acquisition ofminority
                interest
            
            $
            428,230
            
            $
            -Conversion
                of common shares to minority interest
            
            
            223,312
            
            
            -Proceeds
                of offering held in escrow receivable
            
            
            1,522,470
            
            
            -


The
        accompanying notes are an integral part of these consolidated financial
        statements.
  4




**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 September 29, 2006.





These
      unaudited condensed consolidated financial statements reflect all adjustments
      (consisting only of normal recurring adjustments) that, in the opinion of
      Management, are necessary to present fairly the consolidated financial position
      and results of operations of the Company for the periods presented. Operating
      results for the three and nine months ended September 30, 2006, are not
      necessarily indicative of the results that may be expected for the year ending
      December 31, 2006.





***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.





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





***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 $312,750). 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. 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. There is no penalty
      associated with the other shares or the Warrants.





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 condensed consolidated financial
      statements have been restated on a retroactive basis to present the capital
      structure of Shenghuo as though it were the reporting entity.




5




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


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.





***Nature
      of Business*** - The
      Company’s subsidiaries design, develop, market, export and sell, pharmaceutical
      and cosmetic products throughout the PRC. These subsidiaries also conduct
      research and development for third parties as well as for itself, using the
      natural herb Sanchi, and sell pharmaceutical and cosmetic products that contain
      the Sanchi 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.





**NOTE
      3 - BUSINESS CONDITION**





As
      of
      September 30, 2006 the Company had a working capital deficiency of $1,717,576
      (unaudited). Also at September 30, 2006, the Company had $10,041,573 (unaudited)
      of short-term notes payable outstanding. The Company is also involved in
      litigation with a former employee in the amount of $100,000 for not paying
      a
      judgment in a timely matter, which amount has not been accrued in the condensed
      consolidated financial statements. The Company is attempting to mitigate these
      factors by reducing their expenses, raising additional capital through equity
      financing and increasing sales. Management is confident that cash flows from
      existing operations will be sufficient for the Company to continue as a going
      concern, but there is no assurance that this will be the case.





**NOTE
      4 - 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. Pursuant to litigation referred
      to
      in Note 3, the Company has appealed a PRC’s court order to pay a penalty of
      $100,000 and has frozen a Company bank account in the amount of $105,284. No
      amount has been recorded on the Company’s books as 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. The Company did not
      enter
      into any hedge contracts during any of the periods presented.





***Accounts
      and Other Receivables and Allowance for Doubtful
      Accounts*** - Trade
      accounts receivable and other receivables are carried at original invoiced
      amounts less an allowance for doubtful accounts. The allowance for doubtful
      accounts at September 30, 2006 for trade accounts receivable and other
      receivables was $1,503,014 (unaudited) and $906,805 (unaudited), respectively,
      and at December 31, 2005, was $1,033,868 and $658,401, 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 (Loss) per Share -*** Basic
      and
      diluted earnings (loss) per share are calculated by dividing net loss
      attributable to common stockholders by the weighted-average number of shares
      of
      common stock outstanding during the year. Diluted earnings per share represent
      the effect of potentially issuable shares of common stock. The Company has
      warrants outstanding that, when exercised, are issuable into 100,000 shares
      of
      common stock and that would affect diluted earnings (loss) per share (Note
      2).




6


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


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





**NOTE
      5 - INVENTORY**





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


September
                  30,
              
              December
                  31,2006
              
              2005(unaudited)Raw
                  materials
              
              $
              618,642
              
              $
              511,224Work-in-process
              
              
              720,354
              
              
              1,180,014Finished
                  goods
              
              
              344,685
              
              
              1,574,508Product
                  on consignment
              
              
              458,248
              
              
              1,039,631Total
                  Inventory
              
              $
              2,141,929
              
              $
              4,305,377





**NOTE
      6 - RELATED PARTY TRANSACTIONS**





At
      September 30, 2006 and December 31, 2005, the Company had payables due to
      related parties in the amount of $503,097 (unaudited) and $585,394,
      respectively. These amounts are due on demand and do not accrue
      interest.





During
      1999, Shenghuo entered into an agreement with its then parent company to acquire
      the rights to utilize certain techniques for fabricating and manufacturing
      products using the natural herb Sanchi. Terms of the agreement required an
      initial payment of $217,202 and a final payment of $3,885,496 upon receiving
      governmental approval and protection for the developed techniques. On July
      13,
      2006, such approvals had not been obtained and the parties mutually agreed
      to
      terminate the agreement and Shenghuo was allowed to retain the rights to the
      techniques and ownership of any research and development that had been
      undertaken with respect to the techniques.





**NOTE
      7 - 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.





**NOTE
      8- 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.




7


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


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




8




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





**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 report.*





**Overview**





We
      are
      primarily engaged in the research, development, manufacture, and marketing
      of
      pharmaceutical, nutritional supplement and cosmetic products. Almost all of
      our
      products are derived from the medicinal herb Panax notoginseng, also known
      as
      Sanqi, Sanchi or Tienchi. Panax notoginseng is a greyish-brown or greyish-yellow
      plant that only grows in a few geographic locations on Earth, one of which
      is
      Yunnan Province in southwest China, where we are located. The main root of
      Panax
      notoginseng are cylindrical shaped and are most commonly one to six centimeters
      long and one to four centimeters in diameter. Panax notoginseng saponins (PNS),
      the active ingredients in Panax notoginseng, are extracted from the plant using
      high-tech equipment and in accord with Good Manufacturing Practice (GMP)
      standards. Our main product, Xuesaitong Soft Capsules, accounted for more than
      90% of our sales for each of the year ended December 31, 2005 and the nine
      months ended September 30, 2006.





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





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





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





Xuesaitong
      Soft Capsules, which are subject to wholesale and retail price controls by
      the
      Chinese government, is 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 is sold to hospitals
      directly while approximately 85% of sales are made to distributors. Our three
      largest customers are Yunnan Province Pharmaceutical, Ltd., Xinjiang Province
      New & Special National Pharmaceutical Co., Ltd. and Donguan City Medicinal
      Company, all of which accounted for 21.7% and 29.2% of our sales for the year
      ended December 31, 2005 and the nine months ended September 30, 2006,
      respectively.




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 is 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 and good price,” which, if granted, would help prevent
      future price reductions. This may 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 two or three
      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. But
      because the uncertainty of test results and clinical approvals relates only
      to
      new products. Over the last three years, the price of the main raw material
      we
      use—sanchi—has stabilized and is declining slightly. We will benefit from this
      trend if it continues.





**Company
      History**





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





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




10





**Principal
      Terms of the Share Exchange**





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





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





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





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





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





**The
      Private Placement**





On
      August
      31, 2006, concurrently with the close of the Share Exchange, we received gross
      proceeds of $1,800,000 in a private placement transaction (the “Private
      Placement”). Pursuant to subscription agreements entered into with the
      investors, we sold an aggregate of 2,000,000 shares of common stock at $0.90
      per
      share. We agreed to file a registration statement covering the common stock
      sold
      in the private placement within 30 days of the closing of the Share Exchange
      pursuant to the subscription agreement with each investor. We filed the
      registration statement within that timeframe. The investors in the Private
      Placement also entered into a lock up agreement pursuant to which they agreed
      not to sell their shares until our common stock begins to be traded on either
      the New York Stock Exchange, American Stock Exchange, NASDAQ Global Market,
      NASDAQ Capital Market or the OTC Bulletin Board, after which their shares will
      automatically be released from the lock up on a monthly basis pro rata over
      a
      nine month period. After commissions and expenses, we received net proceeds
      of
      approximately $1.5 million in the Private Placement. WestPark acted as placement
      agent in connection with the Private Placement. For its services as placement
      agent, WestPark was paid a commission equal to 9.0% of the gross proceeds from
      the financing, in addition to a 2% non-accountable expense fee, for an aggregate
      amount fee of $198,000. Some of the controlling shareholders and control persons
      of WestPark were also, prior to the completion of the Share Exchange,
      controlling shareholders and control persons of our company, including Richard
      Rappaport, who is the Chief Executive Officer of WestPark and was the President
      and a significant shareholder of our company prior to the Share Exchange, and
      Anthony C. Pintsopoulos, who is the Chief Financial Officer of Westpark and
      was
      a controlling stockholder and an officer and director of our company prior
      to
      the Share Exchange. Each of Messrs. Rappaport and Pintsopoulos resigned from
      all
      of their executive and director positions with our company upon the closing
      of
      the Share Exchange.




11





**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 litigation described below, we have
      appealed a PRC’s court order to pay a penalty of $100,000 and order to have
      frozen a company bank account in the amount of $105,284. No amount has been
      recorded on the our accounting records as the outcome is uncertain. We did
      not
      enter into any hedge contracts during any of the periods presented.





***Accounts
      and Other Receivables and Allowance for Doubtful
      Accounts*** - Trade
      accounts receivable and other receivables are carried at original invoiced
      amounts less an allowance for doubtful accounts. The allowance for doubtful
      accounts at September 30, 2006 for trade accounts receivable and other
      receivables was $1,503,014 (unaudited) and $906,805 (unaudited), respectively,
      and at December 31, 2005, was $1,033,868 and $658,401, respectively.





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





***Basic
      and Diluted Earnings (Loss) per Share -*** Basic
      and
      diluted earnings (loss) per share are calculated by dividing net loss
      attributable to common stockholders by the weighted-average number of shares
      of
      common stock outstanding during the year. Diluted earnings per share represent
      the effect of potentially issuable shares of common stock. We have warrants
      outstanding that, when exercised, are issuable into 100,000 shares of common
      stock and that would affect diluted earnings (loss) per share.





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





**Results
      of Operations**





The
      following table sets forth our statements of operations for the three and nine
      months ended September 30, 2006 and 2005 in U.S. dollars:





**Three
      Months Ended September 30, 2006 and 2005**





Sales
      of
      products for the three months ended September 30, 2006 was approximately $5.1
      million, an increase of approximately $3.0 million, or 144.6%, from $2.1 million
      for the comparable period of 2005. The increase was due to increased sales
      of
      our primary product, Xuesaitong Soft Capsules, which was added to China’s
      National Medical Insurance List in 2005.




12





Costs
      of
      products sold for the three months ended September 30, 2006 was approximately
      $1.3 million, an increase of approximately $0.8 million, or 152.0%, from $0.5
      million for the three months ended September 30, 2005. The increase was
      primarily related to an increase in our sales of products. Gross margin for
      the
      three months ended September 30, 2006 was 74.4% as compared with 75.2% for
      the
      three months ended September 30, 2005. The slight decrease in gross margin
      was
      due The slight decrease in gross margin was due to a slight decrease in the
      price of some of our traditional medicine products in connection with medicine
      reform of China.





Selling
      expenses was approximately $1.2 million for the three months ended September
      30,
      2006, an increase of $0.1 million, or 13.2%, from $1.1 million for the three
      months ended September 30, 2005. General and administrative expenses were $1.7
      million for the three months ended September 30, 2006, an increase of $1.5
      million, or 551.7%, from $0.3 million for the three months ended September
      30,
      2005. The increase was primarily due to legal and professional expenses
      associated with our share exchange that was completed in August 2006 and the
      attendant expenses associated with being a public company, in addition to our
      recent focus on business expansion and increased costs related to overhead,
      vehicle fees, consulting fees and the depreciation of fixed assets.





Net
      other
      income (expense), which includes net interest income, income from research
      and
      development activities, non-operating income, interest expenses and
      non-operating expenses, were an expense of $112,000 in the three months ended
      September 30, 2006 and an expense of $169,000 in the three months ended
      September 30, 2005. The decrease in the expense was primarily due to an increase
      in income from research and development activities during the three months
      ended
      September 30, 2006, partially offset by increased interest expenses during
      the
      same period related to outstanding loans.





Provision
      for income taxes was $0.3 million for the three months ended September 30,
      2006
      compared with a provision for income tax of $14,000 for the three months ended
      September 30, 2005. The change was related to increased sales of products in
      the
      three months ended September 30, 2006. We are generally subject to corporate
      income tax in the PRC at a rate of 30% and a local income tax rate of 3%;
      however, since we are located in the Economic and Technological Development
      Zone
      in the PRC, we are currently subject to a corporate income tax rate of 15%.
      In
      addition, one of our subsidiaries, Shenghuo Medicine Co., LTD, has benefited
      from income tax exemption since 2004, the year it was established.





Net
      income increased to $368,000 for the three months ended September 30, 2006
      from
      a net income of $49,000 for the three months ended September 30, 2005. In the
      three months ended September 30, 2006 and the three months ended September
      30,
      2005, we also had a foreign currency translation adjustment of $89,000 and
      $9,000, respectively, which resulted in comprehensive income of $457,000 and
      comprehensive income of $58,000, respectively.





**Nine
      Months Ended September 30, 2006 and 2005**





Sales
      of
      products for the nine months ended September 30, 2006 was approximately $13.8
      million, an increase of approximately $8.0 million, or 139.5%, from $5.8 million
      for the comparable period of 2005. The increase was due to increased sales
      of
      our primary product, Xuesaitong Soft Capsules, which was added to China’s
      National Medical Insurance List in 2005.





Costs
      of
      products sold for the nine months ended September 30, 2006 was approximately
      $4.5 million, an increase of approximately $2.5 million, or 127.5%, from $2.0
      million for the nine months ended September 30, 2005. The increase was primarily
      related to an increase in our sales of products. Gross margin for the nine
      months ended September 30, 2006 was 67.5% as compared with 65.8% for the nine
      months ended September 30, 2005. The slight increase in gross margin was due
      to
      lower raw materials prices resulting from higher purchase volumes required
      to
      support increased product sales. Margins may decrease on a going forward
      basis.





Selling
      expenses was approximately $3.0 million for each of the nine month periods
      ended
      September 30, 2006 and 2005. General and administrative expenses were $2.8
      million for the nine months ended September 30, 2006, an increase of $2.0
      million, or 225.8%, from $0.9 million for the nine months ended September 30,
      2005. The increase was primarily due to legal and professional expenses
      associated with our share exchange that was completed in August 2006 and the
      attendant expenses associated with being a public company, in addition to our
      recent focus on business expansion and increased costs related to overhead,
      vehicle fees, consulting fees and the depreciation of fixed assets.





Net
      other
      income (expense), which includes net interest income, income from research
      and
      development activities, non-operating income, interest expenses and
      non-operating expenses, was an expense of $460,000 in the nine months ended
      September 30, 2006 and an expense of $335,000 in the nine months ended September
      30, 2005. The increase in expense was primarily due to increased interest
      expenses during the nine months ended September 30, 2006 related to outstanding
      loans, partially offset by an increase in income from research and development
      activities.




13





Provision
      for income taxes was $0.7 million for the nine months ended September 30, 2006
      compared with a benefit from income tax of $0.1 million for the nine months
      ended September 30, 2005. The change was related to increased sales of products
      in the nine months ended September 30, 2006. We are generally subject to
      corporate income tax in the PRC at a rate of 30% and a local income tax rate
      of
      3%; however, since we are located in the Economic and Technological Development
      Zone in the PRC, we are currently subject to a corporate income tax rate of
      15%.
      In addition, one of our subsidiaries, Shenghuo Medicine Co., LTD, has benefited
      from income tax exemption since 2004, the year it was established.





Net
      income increased to $2.2 million for the nine months ended September 30, 2006
      from a net loss of $0.2 for the nine months ended September 30, 2005. In the
      nine months ended September 30, 2006 and the nine months ended September 30,
      2005, we also had a foreign currency translation adjustment of $118,000 and
      9,000, respectively, which resulted in comprehensive income of $2.3 million
      and
      comprehensive loss of $0.2 million, respectively.





**Liquidity
      and Capital Resources**





At
      September 30, 2006, we had cash and cash equivalents of $2,092,276. Prior to
      August 2006 we historically financed our business operations through bank loans.





We
      have
      borrowed from banks and other institutions and have amounts of approximately
      $10.0 million in short-term loans and $3.1 million in long-term loans as of
      September 30, 2006. The interest rates on our short term loans range from a
      5.49% flat fee to 6.435% per annum. In order to meet the cash flow requirements
      of our short-term debt, we intend to borrow from banks when the debts are due,
      leaving no cash shortage, but we will have to pay interest on the borrowed
      funds. On August 29, 2006, we borrowed $2.5 million from the Shuanglong Branch
      of Kunming Agriculture Bank. The loan period on the loan is from August 29,
      2006
      to August 9, 2007, and the annual interest rate is 6.435%. We have paid $1.2
      million of the short-term debt due on September 29, 2006 using the new
      short-term debt. Our long term debt is comprised of single payment notes with
      interest rates ranging from 5.76% to 6.34% per annum. Our long-term debt is
      secured by a mortgage on our assets.





We
      have
      also borrowed funds from related parties, including officers. At September
      30,
      2006, we had payables of approximately $503,000 to related parties. These
      amounts are due on demand and do not accrue interest.





On
      August
      31, 2006, concurrently with the close of the Share Exchange, we received gross
      proceeds of $ 1.8
      million (less costs of approximately $312,750) in
      a
      private placement transaction (the “Private Placement”).





Net
      cash
      provided by operating activities for the nine months ended September 30, 2006
      was $887,000, as compared to net cash of $171,000 provided for the same period
      in 2005. The change is primarily the result of a decrease in cash flows related
      to accounts receivables during the first nine months of 2006, partially offset
      by an increase related to stock issued for services and taxes and related
      payables in the same period.





Net
      cash
      used in investing activities was $88,000 for the first nine months of 2006
      compared to net cash used of $1.0 million for the same period in 2005. The
      change was primarily a result of an increase in cash flows related to receivable
      from related parties and acquisition of land use in the first nine months of
      2006.





Net
      cash
      provided by financing activities was $342,000 for the first nine months of
      2006
      compared to $1.4 million provided for the first nine months of 2005. The
      decrease was primarily a result of a changes in cash flows related to proceeds
      from notes payable and payments on notes payable, in addition to decreases
      in
      payments on long-term loans during the first nine months of 2006.





At
      September 30, 2006, we had no material commitments for capital expenditures
      other than for those expenditures incurred in the ordinary course of
      business.





As
      of
      September 30, 2006, our accounts receivable (less allowance for doubtful
      accounts of $1.5 million) were $10.8 million, an increase of $8.5 million,
      or
      360.1%, over accounts receivable of $2.3 million as of December 31, 2005. The
      increase in accounts receivable reflected the increase in sales. Because the
      collection period typically runs from three months to one year, the increase
      in
      accounts receivable reflects not only the increase in sales but also the long
      collection period. Since we require one to two months to receive products we
      order, we have been increasing our inventories in order to enable us to meet
      anticipated increases in sales. In addition, our payment cycle is considerably
      shorter than our receivable cycle, since we typically pay our suppliers all
      or a
      portion of the purchase price in advance and for some suppliers we must maintain
      a deposit for future orders. Our payable decreased as we paid our suppliers
      more
      rapidly than we received payments from our customers. In addition, our customer
      deposits declined December 31, 2005 to September 30, 2006. We require our
      customers are to pay certain percentage of the sales price as deposit before
      we
      ship products to the customers. 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.




14





We
      believe that our available funds and cash generated from operations will provide
      us with sufficient capital for at least the next 12 months; however, we may
      require additional capital for the acquisition or for the operation of the
      combined companies. As of the date of this quarterly report, we have no material
      commitments for capital expenditures. We cannot assure that such funding will
      be
      available.





In
      the
      course of our business, we must make significant deposits to our suppliers
      when
      we place an order. At September 30, 2006, our advance payments to our suppliers
      totaled approximately $122,000. At September 30, 2006, our cash and cash
      equivalents balance was approximately $2.1 million.





**Seasonality**





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





**Off-Balance
      Sheet Arrangements**





None.





**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 force us to pay a penalty in the
      amount of $100,000 for not paying the judgment in a timely manner. The court,
      which is the process of reviewing the request for the penalty, has frozen a
      bank
      account of ours that holds $105,284. No amount has been recorded on our books
      in
      connection with the claim for the penalty as the outcome is not
      certain.





**Recently
      Enacted Accounting Pronouncements**





On
      January 1, 2006, we adopted SFAS No. 151, *Inventory
      Costs - An Amendment of ARB No. 43, Chapter 4* (“SFAS
      151”). SFAS 151 amends the guidance in ARB No. 43, Chapter 4,
      Inventory Pricing, to clarify the accounting for abnormal amounts of idle
      facility expense, freight, handling costs, and wasted material (spoilage).
      Among
      other provisions, the new rule requires that items such as idle facility
      expense, excessive spoilage, double freight, and re-handling costs be recognized
      as current-period charges. Additionally, SFAS 151 requires that the
      allocation of fixed production overhead to the costs of conversion be based
      on
      the normal capacity of the production facilities. The effects of adoption of
      SFAS 151 were not material.





On
      January 1, 2006, we adopted SFAS No. 123 (revised 2004), *Share-Based
      Payment* (“SFAS 123R”), which revises SFAS No. 123, Accounting for Stock-Based
      Compensation. SFAS 123R also superseded APB 25, *Accounting
      for Stock Issued to Employees* ,
      and
      amends SFAS No. 95, *Statement
      of Cash Flows* .
      Under
      SFAS 123R, share-based payments to employees, including the fair value of grants
      of employee stock options, are recognized in the income statement at their
      fair
      value, generally over the option vesting period. The effects of adoption of
      SFAS
      123R were not material.





In
      December 2004, the FASB issued SFAS No. 153, *Exchanges
      of Non-monetary Assets—An Amendment of APB Opinion No. 29* ,
      Accounting for Non-monetary Transactions (“SFAS 153”). SFAS 153 eliminated
      the exception from fair value measurement for non-monetary exchanges of similar
      productive assets in paragraph 21(b) of APB Opinion No. 29, *Accounting
      for Non-monetary Transactions* ,
      and
      replaces it with an exception for exchanges that do not have commercial
      substance. SFAS 153 specifies that a non-monetary exchange has commercial
      substance if the future cash flows of the entity are expected to change
      significantly as a result of the exchange. The effects of adoption of SFAS
      153
      were not material.





In
      June
      2005, the FASB issued SFAS No. 154, *Accounting
      Changes and Error Corrections* ,
      a
      replacement of APB Opinion No. 20, *Accounting
      Changes* ,
      and
      FASB No. 3, *Reporting
      Accounting Changes in Interim Financial Statements* .
      Statement 154 applies to all voluntary changes in accounting principle, and
      changes the requirements for accounting for and reporting of a change in
      accounting principle. Statement 154 requires retrospective application to prior
      periods' financial statements of a voluntary change in accounting principle
      unless it is impracticable. It is effective for accounting changes and
      corrections of errors made in fiscal years beginning after December 15, 2005.
      Earlier application is permitted for accounting changes and corrections of
      errors made occurring in fiscal years beginning after June 1, 2005. The effects
      of adoption of SFAS 154 were not material.




15





In
      June
      2005, the FASB Emerging Issues Task Force ("EITF") reached a consensus on Issue
      No. 05-6, *Determining
      the Amortization Period for Leasehold Improvements* .
      The
      guidance requires that leasehold improvements acquired in a business combination
      or purchased subsequent to the inception of a lease be amortized over the lesser
      of the useful life of the assets or a term that includes renewals that are
      reasonably assured at the date of the business combination or purchase. The
      guidance is effective for periods beginning after June 29, 2005. The effects
      of
      adoption of EITF No. 05-6 were not material.





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





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





**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.





**Change
      In Accountants**





On
      August
      31, 2006, we dismissed AJ. Robbins, PC (“AJ. Robbins”) as our independent
      registered public accounting firm following the change in control of our company
      on the closing of the Share Exchange. We engaged AJ. Robbins to audit its
      financial statements for the year ended December 31, 2005. The decision to
      change accountants was approved and ratified by our Board of Directors. The
      report of AJ. Robbins on the financial statements of our company for the fiscal
      year ended December 31, 2005 did not contain any adverse opinion or disclaimer
      of opinion and was not qualified or modified as to uncertainty, audit scope,
      or
      accounting principle, except for an explanatory paragraph relative to our
      ability to continue as a going concern.




16





While
      AJ.
      Robbins was engaged by us, there were no disagreements with AJ. Robbins on
      any
      matter of accounting principles or practices, financial statement disclosure,
      or
      auditing scope or procedure with respect to our company, which disagreements
      if
      not resolved to the satisfaction of AJ. Robbins would have caused it to make
      reference to the subject matter of the disagreements in connection with its
      report on our financial statements for the fiscal year ended December 31, 2005.





We
      engaged Hansen, Barnett & Maxwell, PC as our independent registered public
      accounting firm as of August 31, 2006. Hansen, Barnett & Maxwell, PC served
      as Shenghuo China’s independent registered certified public accountants for the
      fiscal year ended December 31, 2005.





**SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**





The
      information contained in this quarterly report, including in the documents
      incorporated by reference into this quarterly report, includes some statement
      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, results
      of
      operations, and the expected impact of the Share Exchange. 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 90% 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 this quarterly report, including, without
                limitation, under the sections entitled “Risk Factors” and “Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations”




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




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




17




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**





Any
      investment in our common stock involves a high degree of risk. Investors should
      carefully consider the risks described below and all of the information
      contained in this quarterly report before deciding whether to purchase our
      common stock. Our business, financial condition or results of operations could
      be materially adversely affected by these risks if any of them actually occur.
      Our shares of common stock are not currently listed or quoted for trading on
      any
      national securities exchange or national quotation system. If and when our
      common stock is traded, the trading price could decline due to any of these
      risks, and an investor may lose all or part of his investment. Some of these
      factors have affected our financial condition and operating results in the
      past
      or are currently affecting our company. This quarterly report also contains
      forward-looking statements that involve risks and uncertainties. Our actual
      results could differ materially from those anticipated in these forward-looking
      statements as a result of certain factors, including the risks we face as
      described below and elsewhere in this quarterly report. With respect to this
      discussion, the terms “Shenghuo,” the “Company,” “we,” “us,” or “our” refer to
      China Shenghuo Pharmaceutical Holdings, Inc., our 93.75%-owned subsidiary
      Kunming Shenghuo Pharmaceutical (Group) Co., Ltd. (“Shenghuo China”) and the
      three foreign owned subsidiaries of Shenghuo China that are organized under
      the
      laws of the People’s Republic of China (“PRC” or “China”).




**RISKS
      RELATED TO OUR OPERATIONS**





**Our
      Current Business Is Primarily Based On A Single Product, Which Accounts For
      More
      Than 90% Of Our Revenues, And We May Not Be Able To Generate Significant Revenue
      If This Product Fails.**





More
      than
      90% of our revenue comes from a single product, Xuesaitong Soft Capsules, and
      our business may fail if this product fails. If we experience difficulties
      or
      obstacles in the manufacture and sale of the Xuesaitong Soft Capsules, or if
      our
      licenses and government approvals are revoked to sell the product, then we
      may
      not be able to generate significant revenues, our business may fail and you
      would lose all or part of your investment in our company.





**We
      Rely On A Few Suppliers For Sanchi, The Primary Ingredient in Most of Our
      Products, And Any Disruption With Our Suppliers Could Delay Product Shipments
      And Have a Material Adverse Impact on Our Business Operations And
      Profitability.**





Due
      to
      the limited availability of Sanchi, we currently rely on a small number of
      suppliers as our source for Sanchi, the primary raw material that is needed
      for
      us to produce our products. We believe that there are few alternative suppliers
      available to supply the Sanchi plant, and should any of our current suppliers
      terminate their business arrangements with us or increase their prices of
      materials supplied, it would delay product shipments and adversely affect our
      business operations and profitability. In addition, if the suppliers refused
      to
      sell Sanchi, or increased the sales prices of Sanchi, this would also have
      a
      material adverse impact on our results of operations.





**If
      Our Primary Product Is Replaced By Other Medicines Or Is Removed From China’s
      Insurance Catalogue In The Future, Our Revenue Will Suffer
      Substantially.**





Under
      Chinese regulations, patients purchasing medicines listed by China’s state
      and/or provincial governments in the Insurance Catalogue may be reimbursed,
      in
      part or in whole, by a social medicine fund. Accordingly, pharmaceutical
      distributors prefer to engage in the distribution of medicines listed in the
      Insurance Catalogue. Since 2005, the main product, Xuesaitong Soft Capsules,
      that we manufacture and sell is listed in the Insurance Catalogue. The content
      of the Insurance Catalogue is subject to change by the Ministry of Labor and
      Social Security of China, and new medicines may be added to the Insurance
      Catalogue by provincial level authorities as part of their limited ability
      to
      change certain medicines listed in the Insurance Catalogue. Xuesaitong Soft
      Capsules accounted for more than 90% of our revenues for the year ended December
      31, 2005 and the nine months ended September 30, 2006, and if this product
      is
      replaced by other medicines or removed from the Insurance Catalogue in the
      future, our total revenue will suffer substantially.




18





**We
      May Need To Raise Additional Capital To Fund Our Operations And Failure To
      Raise
      Additional Capital May Force Us To Delay, Reduce, Or Eliminate Our Product
      Development Programs.**





Due
      to
      the large funds required for research and development and the subsequent
      marketing of products, the pharmaceutical industry is very capital intensive.
      The industry is characterized by large receivable turnovers, which could mean
      that we will need more working capital if our revenues increase. We have
      traditionally been committed to research and development and it is possible
      that
      we will need to raise additional capital within the foreseeable future.
      Additional capital may be needed for the development of new products or product
      lines, financing of general and administrative expenses, licensing or
      acquisition of additional technologies, and marketing of new or existing
      products. There are no assurances that we will be able to raise the appropriate
      amount of capital needed for our future operations. Failure to obtain funding
      when needed may force us to delay, reduce, or eliminate our product development
      programs.





**Our
      Three Largest Customers Account For A Significant Percentage of Our Sales.
      We
      Cannot Be Certain That These Sales Will Continue; If They Do Not, Our Revenues
      Will Likely Decline.**





Our
      three
      largest customers accounted for approximately 21.7% and 29.2% of our sales
      for
      the year ended December 31, 2005 and the nine months ended September 30, 2006,
      respectively. We do not have any long-term contracts with these customers,
      each
      of whom orders only on a “purchase order” basis. There can be no assurances that
      any of these customers will continue to purchase products from us. The loss
      of
      any or all of these customers or a significant reduction in their orders would
      have a materially adverse effect on our revenues.





**The
      Failure To Manage Growth Effectively Could Have An Adverse Effect On Our
      Business, Financial Condition, And Results Of Operations**





The
      rapid
      market growth, if any, of our pharmaceutical products may require us to expand
      our employee base for managerial, operational, financial, and other purposes.
      As
      of December 31, 2005, we had 800 employees, including full-time employees,
      contracted employees, and commissioned sales representatives. The continued
      future growth will impose significant added responsibilities upon the members
      of
      our management to identify, recruit, maintain, integrate, and motivate new
      employees. Aside from increased difficulties in the management of human
      resources, we may also encounter working capital issues, as we need increased
      liquidity to finance the purchases of raw materials and supplies, research
      and
      development of new products, acquisition of new businesses and technologies,
      and
      the hiring of additional employees. For effective growth management, we will
      be
      required to continue improving our operations, management, and financial systems
      and control. Our failure to manage growth effectively may lead to operational
      and financial inefficiencies that will have a negative effect on our
      profitability.





**Our
      Planned Expansion Of Sales Into Overseas Markets Could Fail, Reduce Operating
      Results And/Or Expose Us To Increased Risks Associated With Different Market
      Dynamics And Competition In Any Of The Foreign Countries Where We Attempt To
      Sell Our Products.**





We
      would
      face many new obstacles in our planned expansion of product sales in overseas
      markets. These markets are untested for our products and we face risks in
      expanding our business overseas, which include differences in regulatory product
      testing requirements, patent protection, taxation policy, legal systems and
      rules, marketing costs, fluctuations in currency exchange rates and changes
      in
      political and economic conditions. We may not be as successful as our
      competitors in generating revenues in international markets due to the lack
      of
      recognition of our products or other factors. Developing product recognition
      overseas is expensive and time-consuming and our international expansion efforts
      may be more costly and less profitable than we expect. If we are not successful
      in our target markets, our sales could decline, our margins could be negatively
      impacted and we could lose market share, any of which could materially harm
      our
      business, results of operations and profitability.





**We
      Are Dependent On Certain Key Personnel And Loss Of These Key Personnel Could
      Have A Material Adverse Effect On Our Business, Financial Condition And Results
      Of Operations.**





Our
      success is, to a certain extent, attributable to the management, sales and
      marketing, and pharmaceutical factory operational expertise of key personnel.
      Gui Hua Lan, our Chief Executive Officer, Zheng Yi Wang, our Executive Director
      of Exports, Feng Lan, our President, Lei Lan, our Executive Director of Sales,
      and Qiong Hua Gao, our Chief Financial Officer, perform key functions in the
      operation of our business. There can be no assurance that we will be able to
      retain these officers after the term of their employment contracts expire.
      The
      loss of these officers could have a material adverse effect upon our business,
      financial condition, and results of operations. We must attract, recruit and
      retain a sizeable workforce of technically competent employees. Our ability
      to
      effectively implement our business strategy will depend upon, among other
      factors, the successful recruitment and retention of additional highly skilled
      and experienced management and other key personnel. We cannot assure that we
      will be able to hire or retain such employees.




19





**Our
      Business And The Success Of Our Products Could Be Harmed If We Are Unable To
      Maintain Our Brand Image.**





We
      believe that establishing and strengthening our Lixuwang brand is critical
      to
      achieving widespread acceptance of our products and to establishing key
      strategic relationships. The importance of brand recognition will increase
      as
      current and potential competitors enter the Chinese pharmaceutical market with
      competing products. Our ability to promote and position our Lixuwang brand
      depends largely on the success of our marketing efforts and our ability to
      provide high quality products and customer service. These activities are
      expensive and we may not generate a corresponding increase in sales to justify
      these costs. If we fail to establish and maintain our brand, or if our brand
      value is damaged or diluted, we may be unable to maintain or increase our sales
      or revenue.





**We
      Face Intense Competition In The Pharmaceutical Industry And Such Competition
      Could Cause Our Sales Revenue And Profits To Decline.**





The
      pharmaceutical industry both within China and globally is intensely competitive
      and is characterized by rapid and significant technological progress, and our
      operating environment is increasingly competitive. We face intense competitors
      that will attempt to create or are marketing products in the PRC that are
      similar to our products. Our competitors, both domestic and international,
      include large pharmaceutical companies, universities, and public and private
      research institutions that currently engage in or may engage in efforts related
      to the discovery and development of new pharmaceuticals. Many of these entities
      have substantially greater research and development capabilities and financial,
      scientific, manufacturing, marketing and sales resources than we do, as well
      as
      more experience in research and development, clinical trials, regulatory
      matters, manufacturing, marketing and sales. There can be no assurance that
      our
      products will be either more effective in their therapeutic abilities and/or
      be
      able to compete in price with that of our competitors. Failure to do either
      of
      these may result in decreased profits.





**If
      Our Pharmaceutical Products Fail To Receive Regulatory Approval Or Are Severely
      Limited In These Products’ Scope Of Use, We May Be Unable To Recoup Considerable
      Research And Development Expenditures.**





The
      production of our pharmaceutical products is subject to the regulatory approval
      of the State Food and Drug Administration (SFDA) in China. The regulatory
      approval procedure for pharmaceuticals can be quite lengthy, costly, and
      uncertain. Depending upon the discretion of the SFDA, the approval process
      may
      be significantly delayed by additional clinical testing and require the
      expenditure of resources not currently available; in such an event, it may
      be
      necessary for us to abandon our application. Even where approval of the product
      is granted, it may contain significant limitations in the form of narrow
      indications, warnings, precautions, or contra-indications with respect to
      conditions of use. If approval of our product is denied, abandoned, or severely
      limited in terms of the scope of products use, it may result in the inability
      to
      recoup considerable research and development expenditures.





Currently,
      two of our products, Wei Dingkang Soft Capsules and Dencichine Hemostat, have
      pending applications with the SFDA. Phase II clinical testing for Wei DingKang
      Soft Capsules is almost complete. Dencichine Hemostat completed a second review
      and was required to undergo neurotoxicity testing. The Chinese Military Medical
      Institute will perform these tests. The risk is that if we do not receive timely
      approval for either of these drugs, then production will be delayed and sales
      of
      the products cannot be planned for.





**If
      All Or A Significant Portion Of Our Customers With Trade Receivables Fail To
      Pay
      All Or Part Of The Trade Receivables Or Delay The Repayment, Our Net Income
      Will
      Decrease And Our Profitability Will Be Adversely Affected.**





We
      had
      trade receivables, net of allowance for doubtful accounts, of approximately
      $10.8 million (unaudited) as of September 30, 2006. The standard credit period
      for most of our clients, especially new clients, is two months, but for certain
      clients, such as old clients or very large clients, we will extend the credit
      period. Within the medical industry in China, the collection period is generally
      longer than for other industries. Our estimated average collection period for
      2005 was 150 days. There is no assurance that our trade receivables will be
      fully repaid on a timely basis. If all or a significant portion of our customers
      with trade receivables fail to pay all or part of the trade receivables or
      delay
      the payment due to us for whatever reason, our net profit will decrease and
      our
      profitability will be adversely affected.




20





**Our
      Success Is Highly Dependent On Continually Developing New And Advanced Products,
      Technologies, And Processes And Failure To Do So May Cause Us To Lose Our
      Competitiveness In The Pharmaceutical Industry And May Cause Our Profits To
      Decline.**





To
      remain
      competitive in the pharmaceutical industry, it is important to continually
      develop new and advanced products, technologies, and processes. There is no
      assurance that our competitors’ new products, technologies, and processes will
      not render our existing products obsolete or non-competitive. Our
      competitiveness in the pharmaceutical market therefore relies upon our ability
      to enhance our current products, introduce new products, and develop and
      implement new technologies and processes. The research and development of new
      products and technologies is costly and time consuming, and there are no
      assurances that our research and development of new products will either be
      successful or completed within the anticipate timeframe, if ever at all. Our
      failure to technologically evolve and/or develop new or enhanced products may
      cause us to lose our competitiveness in the pharmaceutical industry and may
      cause our profits to decline.





**If
      We Fail To Develop New Products With High Profit Margins And Our High Profit
      Margin Products Are Substituted By Competitor’s Products, Our Gross And Net
      Profit Margins Will Be Adversely Affected.**





For
      the
      year ended December 31, 2005 and the nine months ended September 30, 2006,
      the
      gross profit margin for our products was approximately 61.9% and 67.5%
      (unaudited), respectively. However, there is no assurance that we will be able
      to sustain such profit margins in the future. The pharmaceutical industry is
      very competitive, and there may be pressure to reduce sale prices of products
      without a corresponding decrease in the price of raw materials. To the extent
      that we fail to develop new products with high profit margins and our high
      profit margin products are substituted by competitors’ products, our gross
      profit margins will be adversely affected.





**The
      Commercial Success Of Our Products Depends Upon The Degree Of Market Acceptance
      Among The Medical Community And Failure To Attain Market Acceptance Among The
      Medical Community May Have An Adverse Impact On Our Operations And
      Profitability.**





The
      commercial success of our products depends upon the degree of market acceptance
      among the medical community, such as hospitals and physicians. Even if our
      products are approved by the SFDA, there is no assurance that physicians will
      prescribe or recommend our products to patients. Furthermore, a product’s
      prevalence and use at hospitals may be contingent upon our relationship with
      the
      medical community. The acceptance of our products among the medical community
      may depend upon several factors, including but not limited to, the product’s
      acceptance by physicians and patients as a safe and effective treatment, cost
      effectiveness, potential advantages over alternative treatments, and the
      prevalence and severity of side effects. Failure to attain market acceptance
      among the medical community may have an adverse impact on our operations and
      profitability.





**Our
      Primary Product Is Subject To Price Controls By The China Government, Which
      May
      Affect Both Our Revenues And Net Income.**





The
      laws
      of the PRC provide for the government to fix and adjust prices. During the
      year
      ended December 31, 2005 and the nine months ended September 30, 2006, our
      primary product Xuesaitong Soft Capsules was subject to price controls which
      affected our gross profit, gross margin and net income. It is possible that
      additional products may be subject to price control, or that price controls
      may
      be increased in the future. To the extent that we are subject to price control,
      our revenue, gross profit, gross margin and net income will be affected since
      the revenue we derive from our sales will be limited and it may face no
      limitation on our costs. Further, if price controls affect both our revenue
      and
      costs, our ability to be profitable and the extent of our profitability will
      be
      effectively subject to determination by the applicable regulatory authorities
      in
      the PRC.





**Our
      Certificates, Permits, And Licenses Related To Our Pharmaceutical Operations
      Are
      Subject To Governmental Control And Renewal And Failure To Obtain Renewal Will
      Cause All Or Part Of Our Operations To Be Terminated.**





We
      are
      subject to various PRC laws and regulations pertaining to the pharmaceutical
      industry. We have attained certificates, permits, and licenses required for
      the
      operation of a pharmaceutical enterprise and the manufacturing of pharmaceutical
      products in the PRC. We also obtained pharmaceutical products and health food
      GMP certificates. The pharmaceutical production permit and GMP certificates
      are
      valid for a term of five years and the health food certifications are valid
      for
      four year terms, and each must be renewed before their expiration. We originally
      obtained our Medicine Production Permit on November 4, 1996, which is valid
      until December 31, 2010. The Medicine Production Permit applies to products
      described as tablet, granule, capsule, soft capsule, powder, ointment and
      medicinal. If the permit expires without renewal, we will not be able to operate
      medicine production which will cause our operations to be terminated. We intend
      to apply for a renewed Medicine Production Permit before our current production
      permit expires on December 31, 2010.




21





We
      hold
      numerous GMP certificates that expire, as follows:




·
            a
                GMP certificate for ointment products that expires on June 12,
                2011;




·
            a
                GMP certificate for powder products that expires on April 21,
                2009;




·
            a
                GMP certificate for products in the form of tablet, granule, capsule,
                and
                soft capsule that expires on August 21, 2007;
                and




·
            a
                GMP certificate for health food products in the form of tablets,
                capsules,
                soft capsules, and granules that expires on October 13,
                2009.




We
      intend
      to apply for renewal of these GMP certificates prior to expiration. During
      the
      renewal process, we will be re-evaluated by the appropriate governmental
      authorities and must comply with the then prevailing standards and regulations
      which may change from time to time. In the event that we are not able to renew
      the certificates, permits and licenses, all or part of our operations may be
      terminated. Furthermore, if escalating compliance costs associated with
      governmental standards and regulations restrict or prohibit any part of our
      operations, it may adversely affect our operation and
      profitability.





**We
      Cannot Guarantee The Protection Of Our Intellectual Property Rights And If
      Infringement Or Counterfeiting Of Our Intellectual Property Rights Occurs,
      Our
      Reputation And Business May Be Adversely Affected**





To
      protect the reputation of our products, we have registered and applied for
      registration of our trademarks in the PRC where we have a major business
      presence. Our products are sold under these trademarks. There is no assurance
      that there will not be any infringement of our brand name or other registered
      trademarks or counterfeiting of our products in the future. Should any such
      infringement or counterfeiting occur, our reputation and business may be
      adversely affected. We may also incur significant expenses and substantial
      amounts of time and effort to enforce our intellectual property rights in the
      future. Such diversion of our resources may adversely affect our existing
      business and future expansion plans.





**We
      Enjoy Certain Preferential Tax Concessions And Loss Of These Preferential Tax
      Concessions Will Cause Our Tax Liabilities To Increase And Our Profitability
      To
      Decline.**





We
      enjoy
      preferential tax concessions in the PRC as a high-tech enterprise. Pursuant
      to
      the State Council’s Regulations on Encouraging Investment in and Development, we
      were granted a reduction in our income tax rate and has had an income tax rate
      of 15% since 2003. We are currently applying for a more favorable tax rate
      under
      which we could pay no income taxes for the two years and half of our current
      rate for the three years thereafter. If the application is not successful,
      the
      income tax rate for us will be 15%. In addition, there is no assurance that
      the
      preferential tax treatment in the PRC will remain unchanged and effective.
      Our
      tax liabilities will increase and our profits may accordingly decline if our
      reduced income tax rate is no longer applicable and/or the tax relief on
      investment in PRC is no longer available.





**We
      Do Not Carry Insurance To Cover Any Losses Due To Fire, Casualty Or Theft At
      Our
      Production Facility Located In Kunming, China.**





We
      have
      not obtained fire, casualty and theft insurance, and there is not insurance
      coverage of our raw materials, goods and merchandise, furniture and equipment
      and production facility in China. Any losses incurred by us will have to be
      borne by itself without any assistance, and it may not have sufficient capital
      to cover material damage to, or the loss of, our production facility due to
      fire, severe weather, flood or other cause, and such damage or loss would have
      a
      material adverse effect on our financial condition, business and
      prospects.





**We
      May Suffer As A Result Of Product Liability Or Defective
      Products**





We
      may
      produce products which inadvertently have an adverse pharmaceutical effect
      on
      the health of individuals despite proper testing. Existing PRC laws and
      regulations do not require us to maintain third party liability insurance to
      cover product liability claims. However, if a product liability claim is brought
      against us, it may, regardless of merit or eventual outcome, result in damage
      to
      our reputation, breach of contract with our customers, decreased demand for
      our
      products, costly litigation, product recalls, loss of revenue, and the inability
      to commercialize some products.




22





**We
      Rely On The Cooperation With Research Laboratories And Universities, And If
      These Institutions Cease To Cooperate With Us And We Cannot Find Other Suitable
      Substitute Research And Development Partners, Our Ability To Develop New
      Products May Be Hindered And Our Business May Be Adversely
      Affected**





We
      cooperate with several research institutions including the Shijia Research
      Center of Beijing University. We rely to a certain extent on these institutions
      for our development of new products. There is no assurance that these
      institutions will continue cooperating with us to develop new products. In
      the
      event that these institutions cease to cooperate with us and it cannot find
      other suitable substitute research and development partners, our ability to
      develop new products may be hindered and our business may be adversely affected.





**RISKS
      RELATED TO CONDUCTING BUSINESS IN CHINA**





**All
      Of Our Assets Are Located In China And Substantially All Of Our Revenues Are
      Derived From Our Operations In China, And Changes In The Political And Economic
      Policies Of The PRC Government Could Have A Significant Impact Upon The Business
      We May Be Able To Conduct In The PRC And Our Results Of Operations And Financial
      Condition.**





Our business
      operations may be adversely affected by the current and future political
      environment in the PRC. The PRC has operated as a socialist state since the
      mid-1900s and is controlled by the Communist Party of China. The Chinese
      government exerts substantial influence and control over the manner in which we must
      conduct our business activities. The PRC has only permitted provincial and
      local
      economic autonomy and private economic activities since 1988. The government
      of
      the PRC has exercised and continues to exercise substantial control over
      virtually every sector of the Chinese economy, particularly the pharmaceutical
      industry, through regulation and state ownership. Our ability
      to operate in China may be adversely affected by changes in Chinese laws and
      regulations, including those relating to taxation, import and export tariffs,
      raw materials, environmental regulations, land use rights, property and other
      matters. Under our current leadership, the government of the PRC has been
      pursuing economic reform policies that encourage private economic activity
      and
      greater economic decentralization. There is no assurance, however, that the
      government of the PRC will continue to pursue these policies, or that it will
      not significantly alter these policies from time to time without notice.





**The
      PRC Laws And Regulations Governing Our**  **Current
      Business Operations Are Sometimes Vague And Uncertain. Any Changes In Such
      PRC
      Laws And Regulations May Have A Material And Adverse Effect On Our
      Business.**





The
      PRC’s
      legal system is a civil law system based on written statutes, in which system
      decided legal cases have little value as precedents unlike the common law system
      prevalent in the United States. There are substantial uncertainties regarding
      the interpretation and application of PRC laws and regulations, including but
      not limited to the laws and regulations governing our business, or the enforcement and performance of our arrangements with customers
      in the event of the imposition of statutory liens, death, bankruptcy and
      criminal proceedings. The Chinese government has been developing a comprehensive
      system of commercial laws, and considerable progress has been made in
      introducing laws and regulations dealing with economic matters such as foreign
      investment, corporate organization and governance, commerce, taxation and trade.
      However, because these laws and regulations are relatively new, and because
      of
      the limited volume of published cases and judicial interpretation and their
      lack
      of force as precedents, interpretation and enforcement of these laws and
      regulations involve significant uncertainties. New laws and regulations that
      affect existing and proposed future businesses may also be applied
      retroactively. We
      are considered a foreign persons or foreign funded enterprises under PRC laws,
      and
      as a result, w e
      are required
      to comply with PRC laws and regulations. We cannot
      predict what effect the interpretation of existing or new PRC laws or
      regulations may have on our businesses. If the relevant authorities find that
      we
      are in
      violation of PRC laws or regulations, they would have broad discretion in
      dealing with such a violation, including, without limitation:





·
            levying
                fines;




·
            revoking
                our business and other licenses;




·
            requiring
                that we restructure our ownership or operations;
                and




·
            requiring
                that we discontinue any portion or all of our
                business.




**The
      Foreign Currency Exchange Rate Between U.S. Dollars And Renminbi Could Adversely
      Affect Our Financial Condition.**





To
      the
      extent that we need to
      convert dollars into Renminbi for our operational needs, our financial position and the price of our common stock may be adversely affected
      should the Renminbi appreciate against the U.S. dollar at that time. Conversely,
      if we decide
      to convert our Renminbi into dollars for the operational needs or paying
      dividends on our common stock, the dollar equivalent of our earnings from our
      subsidiary in China would be reduced should the dollar appreciate against the
      Renminbi.




23





Until
      1994, the Renminbi experienced a gradual but significant devaluation against
      most major currencies, including dollars, and there was a significant
      devaluation of the Renminbi on January 1, 1994 in connection with the
      replacement of the dual exchange rate system with a unified managed floating
      rate foreign exchange system. Since 1994, the value of the Renminbi relative
      to
      the U.S. Dollar has remained stable and has appreciated slightly against the
      U.S. dollar. Countries, including the United States, have argued that the
      Renminbi is artificially undervalued due to China’s current monetary policies
      and have pressured China to allow the Renminbi to float freely in world markets.
      In July 2005, the PRC government changed its policy of pegging the value of
      the
      Renminbi to the dollar. Under the new policy the Renminbi is permitted to
      fluctuate within a narrow and managed band against a basket of designated
      foreign currencies. While the international reaction to the Renminbi revaluation
      has generally been positive, there remains significant international pressure
      on
      the PRC government to adopt an even more flexible currency policy, which could
      result in further and more significant appreciation of the Renminbi against
      the
      dollar.





**Inflation
      In The PRC Could Negatively Affect Our Profitability And
      Growth.**





While
      the
      PRC economy has experienced rapid growth, such growth has been uneven among
      various sectors of the economy and in different geographical areas of the
      country. Rapid economic growth can lead to growth in the money supply and rising
      inflation. During the past decade, the rate of inflation in China has been
      as
      high as approximately 20% and China has experienced deflation as low as
      approximately minus 2%. If prices for our products
      rise at a rate that is insufficient to compensate for the rise in the costs
      of
      supplies such as raw materials, it may have an adverse effect on our profitability. In order to control inflation in the past, the PRC government
      has
      imposed controls on bank credits, limits on loans for fixed assets and
      restrictions on state bank lending. The implementation of such policies may
      impede economic growth. In October 2004, the People’s Bank of China, the PRC’s
      central bank, raised interest rates for the first time in nearly a decade and
      indicated in a statement that the measure was prompted by inflationary concerns
      in the Chinese economy. In April 2006, the People’s Bank of China raised the
      interest rate again. Repeated rises in interest rates by the central bank would
      likely slow economic activity in China which could, in turn, materially increase
      o ur costs
      and also reduce demand for our products.





**Recent
      PRC Regulations Relating To Acquisitions Of PRC Companies By Foreign Entities
      May Create Regulatory Uncertainties That Could Restrict Or Limit Our Ability
      To
      Operate, Including Our Ability To Pay Dividends.**





The
      PRC
      State Administration of Foreign Exchange, or SAFE, issued a public notice in
      January 2005 concerning foreign exchange regulations on mergers and acquisitions
      in China. The public notice states that if an offshore company controlled by
      PRC
      residents intends to acquire a PRC company, such acquisition will be subject
      to
      strict examination by the relevant foreign exchange authorities. The public
      notice also states that the approval of the relevant foreign exchange
      authorities is required for any sale or transfer by the PRC residents of a
      PRC
      company’s assets or equity interests to foreign entities for equity interests or
      assets of the foreign entities.





In
      April
      2005, SAFE issued another public notice further explaining the January notice.
      In accordance with the April notice, if an acquisition of a PRC company by
      an
      offshore company controlled by PRC residents has been confirmed by a Foreign
      Investment Enterprise Certificate prior to the promulgation of the January
      notice, the PRC residents must each submit a registration form to the local
      SAFE
      branch with respect to their respective ownership interests in the offshore
      company, and must also file an amendment to such registration if the offshore
      company experiences material events, such as changes in the share capital,
      share
      transfer, mergers and acquisitions, spin-off transaction or use of assets in
      China to guarantee offshore obligations. The April notice also provides that
      failure to comply with the registration procedures set forth therein may result
      in restrictions on our PRC
      resident shareholders and our subsidiaries. Pending the promulgation of detailed
      implementation rules, the relevant government authorities are reluctant to
      commence processing any registration or application for approval required under
      the SAFE notices.





Our business
      operations or future strategy could be adversely affected by the interpretations
      and implementation of the SAFE notices. For example, we may be
      subject to more stringent review and approval process with respect to our
      foreign exchange activities.





**Failure
      To Comply With The United States Foreign Corrupt Practices Act Could Subject
      Us
      To Penalties And Other Adverse Consequences.**





Upon
      completion of the Share Exchange, we became subject to the United States Foreign
      Corrupt Practices Act, which generally prohibits United States companies from
      engaging in bribery or other prohibited payments to foreign officials for the
      purpose of obtaining or retaining business. Foreign companies, including some
      that may compete with us, are not subject to these prohibitions. Corruption,
      extortion, bribery, pay-offs, theft and other fraudulent practices occur from
      time-to-time in the PRC. We can make no assurance, however, that our employees
      or other agents will not engage in such conduct for which we might be held
      responsible. If our employees or other agents are found to have engaged in
      such
      practices, we could suffer severe penalties and other consequences that may
      have
      a material adverse effect on our business, financial condition and results
      of
      operations.




24





**Any
      Recurrence Of Severe Acute Respiratory Syndrome, Avian Flu, Or Another
      Widespread Public Health Problem, In The PRC Could Adversely Affect Our
      Operations.**





A
      renewed
      outbreak of Severe Acute Respiratory Syndrome, Avian Flu or another
      widespread public health problem in China, where all of our manufacturing facilities are located and where all of our sales occur, could
      have a negative effect on our operations. Such an outbreak could have an impact
      on our operations as a result of:





·
            quarantines
                or closures of some ofourmanufacturing facilities, which would severely disrupt our
                operations,




·
            the
                sickness or death ofourkey officers and employees, and




·
            a
                general slowdown in the Chinese
                economy.




Any
      of
      the foregoing events or other unforeseen consequences of public health problems
      could adversely affect our operations.





**A
      Downturn In The Economy Of The PRC May Slow Our Growth And
      Profitability.**





The
      growth of the Chinese economy has been uneven across geographic regions and
      economic sectors. There can be no assurance that growth of the Chinese economy
      will be steady or that any downturn will not have a negative effect on our
      business, especially if it results in either a decreased use of our products
      or
      in pressure on us to lower our prices.





**We
      May Have Difficulty Establishing Adequate Management, Legal And Financial
      Controls In The PRC.**





PRC
      companies have historically not adopted a Western style of management and
      financial reporting concepts and practices, which includes strong corporate
      governance, internal controls and, computer, financial and other control
      systems. In addition, we may have
      difficulty in hiring and retaining a sufficient number of qualified employees
      to
      work in the PRC. As a result of these factors, we may
      experience difficulty in establishing management, legal and financial controls,
      collecting financial data and preparing financial statements, books of account
      and corporate records and instituting business practices that meet Western
      standards. Therefore, we may, in
      turn, experience difficulties in implementing and maintaining adequate internal
      controls as required under Section 404 of the Sarbanes-Oxley Act of 2002. This
      may result in significant deficiencies or material weaknesses in our internal
      controls which could impact the reliability of our financial statements and prevent it from complying with SEC rules and
      regulations and the requirements of the Sarbanes-Oxley Act of 2002. Any such
      deficiencies, weaknesses or lack of compliance could have a materially adverse
      effect on our business.





**You
      May Experience Difficulties In Effecting Service Of Legal Process, Enforcing
      Foreign Judgments Or Bringing Original Actions In China Based Upon U.S. laws,
      Including The Federal Securities Laws Or Other Foreign Laws Against Us Or Our
      Management.**





All
      of our current
      operations are conducted in China. Moreover, all of our directors and officers are nationals and residents of China. All or
      substantially all of the assets of these persons are located outside the United
      States and in the PRC. As a result, it may not be possible to effect service
      of
      process within the United States or elsewhere outside China upon these persons.
      In addition, uncertainty exists as to whether the courts of China would
      recognize or enforce judgments of U.S. courts obtained against us or such
      officers and/or directors predicated upon the civil liability provisions of
      the
      securities law of the United States or any state thereof, or be competent to
      hear original actions brought in China against us or such
      persons predicated upon the securities laws of the United States or any state
      thereof.




25





**RISKS
      RELATED TO OUR CAPITAL STRUCTURE**





**There
      Is No Current Trading Market For** **Our** **Common Stock, And There Is No Assurance Of An Established Public Trading Market,
      Which Would Adversely Affect The Ability Of** **Our** **Investors To Sell Their Securities In The Public Market.**




Our
      common stock is not currently listed or quoted for trading on any national
      securities exchange or national quotation system. We intend to apply for the
      listing of our common stock on the American Stock Exchange. We
      are in
      the process of preparing the application documents. There
      is
      no guarantee that the American Stock Exchange, or any other exchange or
      quotation system, will permit our share to be listed and traded. If we fail to
      obtain a listing on the American Stock Exchange, we may seek quotation on the
      OTC Bulletin Board. The NASD has enacted changes that limit quotations on the
      OTC Bulletin Board to securities of issuers that are current in their reports
      filed with the Securities and Exchange Commission. The effect on the OTC
      Bulletin Board of these rule changes and other proposed changes cannot be
      determined at this time. The OTC Bulletin Board is an inter-dealer,
      over-the-counter market that provides significantly less liquidity than the
      NASDAQ Global Market (the “NASDAQ Global Market”). Quotes for stocks included on
      the OTC Bulletin Board are not listed in the financial sections of newspapers
      as
      are those for the NASDAQ Stock Market. Therefore, prices for securities traded
      solely on the OTC Bulletin Board may be difficult to obtain and holders of
      common stock may be unable to resell their securities at or near their original
      offering price or at any price.





**Shares
      Eligible For Future Sale May Adversely Affect The Market Price Of** **Our** **Common Stock, As The Future Sale Of A Substantial Amount Of Outstanding Stock
      In
      The Public Marketplace Could Reduce The Price Of Our Common
      Stock.** **




Pursuant
      to the terms of the Share Exchange, we agreed
      to file a registration statement with the Securities and Exchange Commission
      to
      register a total of 2,000,000 shares
      of common stock issued in an equity financing that was conducted in connection
      with the Share Exchange in August 2006. The registration statement must be
      filed
      within 30 days of the closing of the Share Exchange. The
      investors in the Private Placement also entered into a lock up agreement
      pursuant to which they agreed not to sell their shares until our common stock
      begins to be traded on either the New York Stock Exchange, American Stock
      Exchange, NASDAQ Global Market, NASDAQ Capital Market or the OTC Bulletin Board,
      after which their shares will automatically be released from the lock up on
      a
      monthly basis. We also agreed to register the IR Securities in the registration
      statement filed in connection with the Private Placement. In addition, we agreed
      to register all of the 664,000 shares of common stock held by our shareholders
      immediately prior to the Share Exchange. Of these 664,000 shares, 348,600 shares
      would be covered by the registration statement filed in connection with the
      Private Placement and 315,400 shares, which are held by affiliates of Westpark
      Capital, Inc., would be included in a subsequent registration statement filed
      by
      us within ten days after the end of the six month period that immediately
      follows the date on which we file the registration statement to register the
      shares issued in the Private Placement. We also agreed to register 1,042,400
      shares of common stock that were issued to FirstAlliance Financial Group, Inc.
      and Marvel International Limited as designees of the former shareholder of
      Shenghuo China upon the closing of the Share Exchange in the subsequent
      registration statement that we will file to register the shares held by the
      affiliates of Westpark Capital, Inc. All of the shares included in an effective
      registration statement as described above may be freely sold and transferred
      except if subject to a lock up agreement.





Additionally,
      following the Share Exchange, the former stockholder of Shenghuo China may
      be
      eligible to sell all or some of our shares of common stock by means of ordinary
      brokerage transactions in the open market pursuant to Rule 144, promulgated
      under the Securities Act (“Rule 144”), subject to certain limitations. In
      general, pursuant to Rule 144, a stockholder (or stockholders whose shares
      are
      aggregated) who has satisfied a one-year holding period may, under certain
      circumstances, sell within any three-month period a number of securities which
      does not exceed the greater of 1% of the then outstanding shares of common
      stock
      or the average weekly trading volume of the class during the four calendar
      weeks
      prior to such sale. As of the closing of the Share Exchange, 1% of our issued
      and outstanding shares of common stock was approximately 191,194 shares. Rule
      144 also permits, under certain circumstances, the sale of securities, without
      any limitations, by a non-affiliate that has satisfied a two-year holding
      period. Any substantial sale of common stock pursuant to any resale prospectus
      or Rule 144 may have an adverse effect on the market price of our common
      stock by creating an excessive supply.




**Following
      The Share Exchange, The Former Principal Stockholder Of Shenghuo China Has
      Significant Influence Over** **Us** .




Our largest
      shareholder, Lan’s Int’l Medicine Investment Co., Limited, or LIMI, beneficially
      owns or controls approximately 80% of our outstanding shares as of the close
      of
      the Share Exchange. Gui Hua Lan, our Chief Executive Officer, Feng Lan, our
      President, and Zheng Yi Wang, our Executive Director of Exports, are directors
      and have voting and investment control over the shares owned by LIMI. In
      addition, Gui Hua Lan, Feng Lan and Zheng Yi Wang owns 62.2%, 5.0% and 1.3%,
      respectively, of LIMI’s issued and outstanding shares. Other of our officers and
      directors hold equity interests in LIMI. LIMI has controlling influence in
      determining the outcome of any corporate transaction or other matters submitted
      to our shareholders for approval, including mergers, consolidations and the
      sale
      of all or substantially all of our assets, election of directors, and other
      significant corporate actions. LIMI also has the power to prevent or cause
      a
      change in control. In addition, without the consent of LIMI, we could be
      prevented from entering into transactions that could be beneficial to it. The
      interests of LIMI may differ from the interests of our other
      shareholders.




26





**The
      Interests Of The Existing Minority Shareholder In Shenghuo China May Diverge
      From Our Own Interests And This May Adversely Affect Our Ability To Manage
      Shenghuo China.**





Shenghuo
      China, our principal operating subsidiary, is an equity joint venture in which
      we directly own a 93.75% interest and SDIC Venture Capital Investment, Co.,
      Ltd., or SDIC, a state-owned investment company, owns the remaining 6.25%
      interest. SDIC’s interest may not be aligned with our interest at all times. If
      our interests diverge, SDIC may exercise our right under PRC laws to protect
      its
      own interest, which may be adverse to us and our investors. For example, under
      China’s joint venture regulations, unanimous approval of members of a joint
      venture’s (such as Shenghuo China) board of directors who are present at a board
      meeting is required for any amendment to the joint venture’s articles of
      association, the termination or dissolution of the joint venture company, an
      increase or decrease in the registered capital of the joint venture company
      or a
      merger or de-merger of the joint venture. Accordingly, SDIC has the ability
      to
      block any action that requires unanimous board approval. Further, should we
      wish
      to transfer our equity interest in Shenghuo China, in whole or in part, to
      a
      third-party, SDIC has a right of first refusal under China’s joint venture
      regulations.





In
      addition to our statutory rights as a minority shareholder, SDIC has additional
      rights under the joint venture contract and under the articles of association
      of
      Shenghuo China. The joint venture contract and articles of association require
      the consent of each of Shenghuo China’s shareholders and/or unanimous board
      approval on matters such as a major change in the business line of the company
      and expansion or amendment of the business scope of the company.





SDIC
      has
      thus far been cooperative with us in handling matters with respect to the
      business of Shenghuo China. There is no assurance, however, that SDIC will
      continue to act in a cooperative manner in the future.





**The
      Ability Of Our Chinese Operating Subsidiaries To Pay Dividends May Be Restricted
      Due To Our Corporate Structure.**





Substantially
      all of our operations are conducted in China and substantially all of our
      revenues are generated in China. As an equity joint venture, Shenghuo China
      is
      required to establish reserve funds and staff and workers’ bonus and welfare
      funds, each of which is appropriated from net profit after taxation but before
      dividend distributions in accordance with Chinese law. Shenghuo China is
      required to allocate at least 10% of our net profits to the reserve fund until
      the balance of this fund has reached 50% of Shenghuo China’s registered
      capital.





In
      addition, the profit available for distribution from our Chinese subsidiaries
      is
      determined in accordance with generally accepted accounting principles in China.
      This calculation may differ from the one performed under generally accepted
      accounting principles in the United States, or GAAP. As a result, we may not
      receive sufficient distributions from our Chinese subsidiaries to enable us
      to
      make dividend distributions to our stockholders in the future and limitations
      on
      distributions of the profits of Shenghuo China could negatively affect our
      financial condition and assets, even if our GAAP financial statements indicate
      that our operations have been profitable.





**We** **May Not Be Able To Achieve The Benefits We Expected To Result From The Share
      Exchange.**




On
      June
      30, 2006, we entered
      into the Exchange Agreement, as amended on August 11 and 28, 2006, with the
      93.75% shareholder of Shenghuo China pursuant to which we agreed
      to acquire 93.75% of the equity
      interest of
      Shenghuo China in exchange for shares of our common stock. On August 31, 2006,
      the Share Exchange closed, Shenghuo China became our 93.75%-owned subsidiary and our sole
      business operations became that of Shenghuo China. Also, the management and
      directors of Shenghuo China became the management and directors of us and we changed
      our corporate name to China
      Shenghuo Pharmaceutical Holdings, Inc.





The
      Share
      Exchange was effected for various reasons, including:





·
            access
                to the capital markets of the United
                States;




·
            the
                increased market liquidity expected to result from exchanging stock
                in a
                private company for securities of a public company that may eventually
                be
                traded;




·
            the
                ability to use registered securities to make acquisition of assets
                or
                businesses;




27




·
            increased
                visibility in the financial
                community;




·
            enhanced
                access to the capital markets;




·
            improved
                transparency of operations; and




·
            perceived
                credibility and enhanced corporate image of being a publicly traded
                company.




There
      can be no assurance that any of the anticipated benefits of the Share Exchange
      will be realized in respect to our new
      business operations. In addition, the attention and effort devoted to achieving
      the benefits of the Share Exchange and attending to the obligations of being
      a
      public company, such as reporting requirements and securities regulations,
      could
      significantly divert management’s attention from other important issues, which
      could materially and adversely affect our operating results or stock price in the future.





**If** **We** **Fail To Maintain Effective Internal Controls Over Financial Reporting, The
      Price
      Of** **Our** **Common Stock May Be Adversely Affected.**





Our internal
      control over financial reporting may have weaknesses and conditions that need
      to
      be addressed, the disclosure of which may have an adverse impact on the price
      of
      our common stock. We
      are required
      to establish and maintain appropriate internal controls over financial
      reporting. Failure to establish those controls, or any failure of those controls
      once established, could adversely impact our public disclosures regarding our
      business, financial condition or results of operations. In addition,
      management’s assessment of internal controls over financial reporting may
      identify weaknesses and conditions that need to be addressed in our internal
      controls over financial reporting or other matters that may raise concerns
      for
      investors. Any actual or perceived weaknesses and conditions that need to be
      addressed in our internal
      control over financial reporting, disclosure of management’s assessment of our
      internal controls over financial reporting or disclosure of our public
      accounting firm’s attestation to or report on management’s assessment of our
      internal controls over financial reporting may have an adverse impact on the
      price of our common stock.





**Compliance
      With Changing Regulation Of Corporate Governance And Public Disclosure Will
      Result In Additional Expenses.**




Changing
      laws, regulations and standards relating to corporate governance and public
      disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC
      regulations, have created uncertainty for public companies and significantly
      increased the costs and risks associated with accessing the public markets
      and
      public reporting. Our management team will need to invest significant management time and financial
      resources to comply with both existing and evolving standards for public
      companies, which will lead to increased general and administrative expenses
      and
      a diversion of management time and attention from revenue generating activities
      to compliance activities.





**Standards
      For Compliance With Section 404 Of The Sarbanes-Oxley Act Of 2002 Are Uncertain,
      And If** **We** **Fail To Comply In A Timely Manner, Our Business Could Be Harmed And Our Stock
      Price Could Decline.**




Rules
      adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
      require annual assessment of our internal
      control over financial reporting, and attestation of this assessment by our
      company’s independent registered public accountants. The SEC extended the
      compliance dates for non-accelerated filers, as defined by the SEC. Accordingly, we believe
      that the annual assessment of our internal controls requirement will first
      apply
      to our annual report for the 2007 fiscal year and the attestation
      requirement of management’s assessment by our company’s independent registered
      public accountants will first apply to our annual report for the 2008 fiscal
      year. The standards that must be met for management to assess the internal
      control over financial reporting as effective are new and complex, and require
      significant documentation, testing and possible remediation to meet the detailed
      standards. We may
      encounter problems or delays in completing activities necessary to make an
      assessment of our internal control over financial reporting. In addition, the
      attestation process by our independent registered public accountants is new
      and
      it may encounter problems or delays in completing the implementation of any
      requested improvements and receiving an attestation of our assessment by our independent registered public accountants. If we cannot
      assess our internal
      control over financial reporting as effective, or our independent registered
      public accountants are unable to provide an unqualified attestation report
      on
      such assessment, investor confidence and share value may be negatively impacted.




28




**Our** **Common Stock May Be Considered A “Penny Stock,” And Thereby Be Subject To
      Additional Sale And Trading Regulations That May Make It More Difficult To
      Sell.**




Our common
      stock, which is not currently listed or quoted for trading, may be considered
      to
      be a “penny stock” if it does not qualify for one of the exemptions from the
      definition of “penny stock” under Section 3a51-1 of the Securities Exchange Act
      for 1934, as amended (the “Exchange Act”) once, and if, it starts trading. Our common
      stock may be a “penny stock” if it meets one or more of the following conditions
      (i) the stock trades at a price less than $5.00 per share; (ii) it is NOT traded
      on a “recognized” national exchange; (iii) it is NOT quoted on the Nasdaq
      Capital Market, or even if so, has a price less than $5.00 per share; or (iv)
      is
      issued by a company that has been in business less than three years with net
      tangible assets less than $5 million.




The
      principal result or effect of being designated a “penny stock” is that
      securities broker-dealers participating in sales of our common
      stock will be subject to the “penny stock” regulations set forth in Rules 15-2
      through 15g-9 promulgated under the Exchange Act. For example, Rule 15g-2
      requires broker-dealers dealing in penny stocks to provide potential investors
      with a document disclosing the risks of penny stocks and to obtain a manually
      signed and dated written receipt of the document at least two business days
      before effecting any transaction in a penny stock for the investor’s account.
      Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the
      account of any investor for transactions in such stocks before selling any
      penny
      stock to that investor. This procedure requires the broker-dealer to (i) obtain
      from the investor information concerning his or her financial situation,
      investment experience and investment objectives; (ii) reasonably determine,
      based on that information, that transactions in penny stocks are suitable for
      the investor and that the investor has sufficient knowledge and experience
      as to
      be reasonably capable of evaluating the risks of penny stock transactions;
      (iii)
      provide the investor with a written statement setting forth the basis on which
      the broker-dealer made the determination in (ii) above; and (iv) receive a
      signed and dated copy of such statement from the investor, confirming that
      it
      accurately reflects the investor’s financial situation, investment experience
      and investment objectives. Compliance with these requirements may make it more
      difficult and time consuming for holders of our common stock to resell their
      shares to third parties or to otherwise dispose of them in the market or
      otherwise.





**We
      do** **Not Foresee Paying Cash Dividends In The Foreseeable
      Future.**




We
      currently intend
      to retain any future earnings for funding growth. We
      do not
      anticipate paying any dividends in the foreseeable future. As a result, you
      should not rely on an investment in our securities if you require dividend income. Capital appreciation, if any, of our shares
      may be your sole source of gain for the foreseeable future. Moreover, you may
      not be able to resell your shares in our
      company at or
      above the price you paid for them.





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




*(a)
      Evaluation of disclosure controls and procedures*




As
      of
      September 30, 2006, our management, with the participation of our Chief
      Executive Officer, or “CEO,” and Chief Financial Officer, or “CFO,” performed an
      evaluation of the effectiveness and the operation of our disclosure controls
      and
      procedures as defined in Rules 13a-15(e) or 15d-15(e) under the Securities
      Exchange Act of 1934, as amended, or the “Exchange Act.” Based on that
      evaluation, the CEO and CFO concluded that our disclosure controls and
      procedures were effective as of September 30, 2006.




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




On
      June
      30, 2006, we entered into a share exchange agreement (the “Exchange Agreement”)
      with Kunming Shenghuo Pharmaceutical (Group) Co., Ltd. (“Shenghuo China”) and
      Lan’s Int’l Medicine Investment Co., Limited, a Hong Kong corporation and
      shareholder holding 93.75% of the equity interest of Shenghuo China (“LIMI”). On
      August 11 and 28, 2006, the parties entered into Amendment No. 1 and 2 to the
      Exchange Agreement, respectively. Pursuant to the Exchange Agreement, as
      amended, we agreed to issue an aggregate of 16,255,400 shares of our common
      stock to LIMI and its designees in exchange for 93.75% of the equity interest
      of
      Shenghuo China (the “Share Exchange”). On August 31, 2006, the Share Exchange
      closed. Following the Share Exchange the sole business conducted by our company
      is the business conducted by Shenghuo China prior to the Share Exchange, and
      all
      of the officers and directors of Shenghuo China became the officers and
      directors of our company. Also, as a result of the Share Exchange, the internal
      control over financial reporting utilized by Shenghuo China prior to the Share
      Exchange became the internal control over financial reporting of our company.





Based
      on
      the evaluation of our management as required by paragraph (d) of Rule 13a-15
      or
      15d-15 of the Exchange Act, we believe that, other then the changes described
      above, there were no changes in our internal control over financial reporting
      that occurred during our last fiscal quarter that have materially affected,
      or
      are reasonably likely to materially affect, our internal control over financial
      reporting.




29


**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 force us to pay a penalty in the
      amount of $100,000 for not paying the judgment in a timely manner. The court,
      which is the process of reviewing the request for the penalty, has frozen a
      bank
      account of ours that holds $105,284. No amount has been recorded on our books
      in
      connection with the claim for the penalty as the outcome is not
      certain.





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





On
      August
      31, 2006, pursuant to the terms of the Exchange Agreement entered into by and
      between the Company, Kunming Shenghuo Pharmaceutical (Group) Co., Ltd.
      (“Shenghuo China”) and Lan’s Int’l Medicine Investment Co., Limited, a Hong Kong
      corporation and shareholder holding 93.75% of the equity interest of Shenghuo
      China (“LIMI”), the Company issued 16,255,400 shares of common stock to the
      shareholder and its designees in exchange for 93.75% of the equity interest
      of
      Shenghuo China. Pursuant to the Exchange Agreement, as amended, we issued
      15,213,000 shares of common stock to LIMI and 567,600 and 474,800 shares of
      common stock to Marvel International Limited and FirstAlliance Financial Group,
      Inc., respectively, as designees of the shareholder. The securities were offered
      and sold to investors in reliance upon exemptions from registration pursuant
      to
      Section 4(2) under the Securities Act of 1933, as amended, and Rule 506
      promulgated thereunder. Each of the LIMI, Marvel International Limited and
      FirstAlliance Financial Group, Inc. qualified as an accredited investor (as
      defined by Rule 501 under the Securities Act of 1933, as amended).





On
      August
      31, 2006, immediately following the closing of the Share Exchange, the Company
      received gross proceeds of $1,800,000 in a private placement transaction (the
      “Private Placement”). Pursuant to subscription agreements entered into with the
      investors, the Company sold an aggregate of 2,000,000 shares of its common
      stock
      at a price of $0.90 per share. The Company agreed to file a registration
      statement covering the common stock sold in the private placement within 30
      days
      of the closing of the Share Exchange pursuant to the subscription agreement
      with
      each investor. The securities were offered and sold to investors in reliance
      upon exemptions from registration pursuant to Section 4(2) under the Securities
      Act of 1933, as amended, and Rule 506 promulgated thereunder. Each of the
      persons and/or entities receiving the Company’s securities qualified as an
      accredited investor (as defined by Rule 501 under the Securities Act of 1933,
      as
      amended).





On
      August
      31, 2006, at the closing of the Share Exchange, the Company issued to an
      investment firm 200,000 shares of its common stock and five year warrants to
      purchase 100,000 shares of our common stock at a per share exercise price of
      $2.50 for investor relations services (the “IR Securities”). The
      securities were offered and sold to investment firm in reliance upon exemptions
      from registration pursuant to Section 4(2) under the Securities Act of 1933,
      as
      amended, and Rule 506 promulgated thereunder. The investment firm qualified
      as
      an accredited investor (as defined by Rule 501 under the Securities Act of
      1933,
      as amended).





In
      addition, our shareholders, on August 31, 2006, canceled an aggregate of
      2,036,000 shares of common stock in connection with the Share Exchange such
      that
      there were 664,000 shares outstanding immediately prior to the Share Exchange.
      The share cancellation was a condition to the closing of the Share Exchange
      and
      the shareholders did not receive any cash consideration for the cancellation.





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





None.





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





None.





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





None.




30




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





(a)
      Exhibits





2.1
            
            Share
                Exchange Agreement, dated as of June 30, 2006, by and among the
                Registrant, Kunming Shenghuo Pharmaceutical (Group) Co., Ltd., and
                Lan’s
                Int’l Medicine Investment Co., Limited (incorporated by referenced from
                Exhibit 2.1 to the Quarterly Report on Form 10-QSB filed with the
                Securities and Exchange Commission on July 28, 2006).2.1(a)
            
            Amendment
                No. 1 to the Share Exchange Agreement, dated as of August 11, 2006,
                by and
                among the Registrant, Kunming Shenghuo Pharmaceutical (Group) Co.,
                Ltd.,
                and Lan’s Int’l Medicine Investment Co., Limited (incorporated by
                referenced from Exhibit 2.1(a) to the Current Report on Form 8-K
                filed
                with the Securities and Exchange Commission on August 18,
                2006).2.1(b)
            
            Amendment
                No. 2 to the Share Exchange Agreement, dated as of August 28, 2006,
                by and
                among the Registrant, Kunming Shenghuo Pharmaceutical (Group) Co.,
                Ltd.,
                and Lan’s Int’l Medicine Investment Co., Limited (incorporated by
                reference from Exhibit 2.1(b) to Current Report on Form 8-K filed
                with the
                Securities and Exchange Commission on September 1,
                2006).3.3
            
            Articles
                of Merger Effecting Name Change (incorporated by reference from Exhibit
                3.3 to Current Report on Form 8-K filed with the Securities and Exchange
                Commission on September 1, 2006).10.1
            
            Form
                of Subscription Agreement dated August 31, 2006 (incorporated by
                reference
                from Exhibit 10.1 to Current Report on Form 8-K filed with the Securities
                and Exchange Commission on September 1, 2006).10.2
            
            Employment
                Agreement dated December 3, 2004 by and between Gui Hua Lan and the
                Registrant (translated to English) (incorporated by reference from
                Exhibit
                10.2 to Current Report on Form 8-K filed with the Securities and
                Exchange
                Commission on September 1, 2006).10.3
            
            Employment
                Agreement dated December 3, 2004 by and betweenFeng
                Lanand the Registrant (translated to English) (incorporated by reference
                from
                Exhibit 10.3 to Current Report on Form 8-K filed with the Securities
                and
                Exchange Commission on September 1, 2006).10.4
            
            Employment
                Agreement dated December 3, 2004 by and between Lei Lan and the Registrant
                (translated to English) (incorporated by reference from Exhibit 10.4
                to
                Current Report on Form 8-K filed with the Securities and Exchange
                Commission on September 1, 2006).10.5
            
            Employment
                Agreement dated December 3, 2004 by and between Qiong Hua Gao and
                the
                Registrant (translated to English) (incorporated by reference from
                Exhibit
                10.5 to Current Report on Form 8-K filed with the Securities and
                Exchange
                Commission on September 1, 2006).10.6
            
            Employment
                Agreement dated December 3, 2004 by and betweenPeng
                Chenand the Registrant (translated to English) (incorporated by reference
                from
                Exhibit 10.6 to Current Report on Form 8-K filed with the Securities
                and
                Exchange Commission on September 1, 2006).10.7
            
            Employment
                Agreement dated December 3, 2004 by and betweenZheng
                Yi Wangand the Registrant (translated to English) (incorporated by reference
                from
                Exhibit 10.7 to Current Report on Form 8-K filed with the Securities
                and
                Exchange Commission on September 1, 2006).31.1
            
            Certification
                of Chief Executive Officer Pursuant to Section 302(a) of the
                Sarbanes-Oxley Act of 200231.2
            
            Certification
                of Chief Financial Officer pursuant to Section 302(a) of the
                Sarbanes-Oxley Act of 2002.32.1
            
            Certification
                of Chief Executive Officer 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.




31





**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)November
                20, 2006
            By:
            /s/ Gui
                Hua LanGui
                Hua LanChief
                Executive Officer and Chairman of the
                Board




32