UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




Form
10-Q





(Mark
One)





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





For
the quarterly period ended January 31, 2008





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





For the
transition period from _______________ to _______________.





Commission
file number: O-24512




RENHUANG
PHARMACEUTICALS, INC.


(Exact
name of registrant as specified in its charter)





Nevada
            88-1273503(State
      or other jurisdiction of
            (I.R.S.
      Employerincorporation
      or organization)
            Identification
      No.)





No.
281, Taiping Road, Taiping District,


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


(Address
of principal executive offices)




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





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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes oNo o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.




Large
      accelerated filer o
            Accelerated
      filer o
            Non-accelerated
      filer o
              (Do
      not check if a smaller
              reporting
      company)
            Smaller
      reporting
              company
      x





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





Applicable
only to corporate issuers:





As of
March 10, 2008, there were 35,096,680 shares of common stock, par value $0.001,
issued and outstanding.





Renhuang
Pharmaceuticals, Inc.





TABLE OF
CONTENTS





PART
      IITEM
      1
                    FINANCIAL
      STATEMENTS
                    4ITEM
      2
                    MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
                    22ITEM
      3
                    QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                    26ITEM
      4
                    CONTROLS
      AND PROCEDURES
                    26PART
      IIITEM
      1
                    LEGAL
      PROCEEDINGS
                    28ITEM
      1A
                    RISK
      FACTORS
                    29ITEM
      2
                    UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
                    29ITEM
      3
                    DEFAULTS
      UPON SENIOR SECURITIES
                    29ITEM
      4
                    SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                    29ITEM
      5
                    OTHER
      INFORMATION
                    29ITEM
      6
                    EXHIBITS
                    30


2





PART
I - FINANCIAL INFORMATION





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





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


3


ITEM 1Financial
Statements





RENHUANG
PHARMACEUTICALS, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS





ASSETS





January31,
                        2008
                      
                      
                      October 31,
                        2007 (a)(Unaudited)
                      
                      
                      (Audited)CURRENT
      ASSETSCash
      and cash equivalents
                      
                      $
                      9,019,302
                      
                      
                      $
                      10,153,603Accounts
      receivable, net
                      
                      
                      13,786,744
                      
                      
                      
                      8,889,411Inventories
                      
                      
                      1,941,150
                      
                      
                      
                      969,672Prepayments
      and other receivables, net
                      
                      
                      455,770
                      
                      
                      
                      196,997TOTAL
      CURRENT ASSETS
                      
                      
                      25,202,966
                      
                      
                      
                      20,209,683PROPERTY,
      PLANT AND EQUIPMENT, NET
                      
                      
                      2,704,991
                      
                      
                      
                      2,606,285TOTAL
      ASSETS
                      
                      $
                      27,907,957
                      
                      
                      $
                      22,815,968


(a)
Reference is made to the audited financial statements of the Company filed with
the SEC on Form 10-K in May 2008.





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


4


RENHUANG
PHARMACEUTICALS, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS




LIABILITIES AND
STOCKHOLDERS' EQUITY




January 31,
                                              2008
                                            
                                            
                                            October 31,
                                              2007(a)(Unaudited)
                                            
                                            
                                            (Audited)CURRENT
      LIABILITIESAccounts
      payable
                                            
                                            $
                                            339,250
                                            
                                            
                                            $
                                            155,600Due
      to related party
                                            
                                            
                                            153,327
                                            
                                            
                                            
                                            157,376Other
      payables
                                            
                                            
                                            1,208,824
                                            
                                            
                                            
                                            1,109,492TOTAL
      LIABILITIES
                                            
                                            
                                            1,701,401
                                            
                                            
                                            
                                            1,422,468STOCKHOLDERS'
      EQUITYPreferred
      Stock -
      Authorized preferred shares 1,000,000, issued and outstanding number of
      shares nil and at par value of nil
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Common
      Stock - Authorized common shares 100,000,000, issued and outstanding
      number of shares 35,096,680 at par value of $0.001
                                            
                                            
                                            35,097
                                            
                                            
                                            
                                            35,097Additional
      paid-in capital
                                            
                                            
                                            6,627,099
                                            
                                            
                                            
                                            6,627,099Reserves
                                            
                                            
                                            1,841,734
                                            
                                            
                                            
                                            1,841,734Retained
      earnings
                                            
                                            
                                            15,825,776
                                            
                                            
                                            
                                            11,980,112Accumulated
      other comprehensive income
                                            
                                            
                                            1,876,850
                                            
                                            
                                            
                                            909,458TOTAL
      STOCKHOLDERS' EQUITY
                                            
                                            
                                            26,206,556
                                            
                                            
                                            
                                            21,393,500TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                            
                                            $
                                            27,907,957
                                            
                                            
                                            $
                                            22,815,968


(a)
Reference is made to the audited financial statements of the Company filed with
the SEC on Form 10-K in May 2008.





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


5


RENHUANG
PHARMACEUTICALS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


(Unaudited)





Three Months Ended January 31,2008
                          
                          
                          2007SALES
                          
                          $
                          10,458,856
                          
                          
                          $
                          9,503,993COST
      OF SALES
                          
                          
                          (4,797,732
                          )
                          
                          
                          (4,572,936
                          )GROSS
      PROFIT
                          
                          
                          5,661,124
                          
                          
                          
                          4,931,057SELLING
      AND DISTRIBUTION EXPENSES
                          
                          
                          (69,344
                          )
                          
                          
                          (105,575
                          )ADVERTISING
      EXPENSE
                          
                          
                          (681,431
                          )
                          
                          
                          (9,149
                          )GENERAL
      AND ADMINISTRATIVE EXPENSES
                          
                          
                          (775,070
                          )
                          
                          
                          (266,789
                          )RESEARCH
      AND DEVELOPMENT
                          
                          
                          (341,894
                          )
                          
                          
                          -BAD
      DEBT RECOVERY/(EXPENSE)
                          
                          
                          41,432
                          
                          
                          
                          (
      53,009
                          )DEPRECIATION
                          
                          
                          (3,126
                          )
                          
                          
                          (68,294
                          )INCOME
      FROM OPERATIONS
                          
                          
                          3,831,691
                          
                          
                          
                          4,428,241OTHER
      INCOME
                          
                          
                          13,973
                          
                          
                          
                          3,347INCOME
      BEFORE INCOME TAXES
                          
                          
                          3,845,664
                          
                          
                          
                          4,431,588INCOME
      TAXES
                          
                          
                          —
                          
                          
                          
                          —NET
      INCOME
                          
                          $
                          3,845,664
                          
                          
                          $
                          4,431,588OTHER
      COMPREHENSIVE INCOMEFOREIGN
      CURRENCY TRANSLATION ADJUSTMENT
                          
                          
                          967,392
                          
                          
                          
                          161,235COMPREHENSIVE
      INCOME
                          
                          $
                          4,813,056
                          
                          
                          $
                          4,592,823BASIC
      AND DILUTED EARNINGS PER SHARE
                          
                          $
                          0.11
                          
                          
                          $
                          0.13BASIC
      AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES
      OUTSTANDING
                          
                          
                          35,096,680
                          
                          
                          
                          35,000,181





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


6


RENHUANG
PHARMACEUTICALS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(UNAUDITED)





Three Months Ended January 31,2008
                
                
                2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                3,845,664
                
                
                $
                4,431,588Adjustments
      to reconcile net income to net cash from operating activities
      :Depreciation
                
                
                80,240
                
                
                
                68,294Adjustments
      to the provision for bad debts
                
                
                (41,432
                )
                
                
                53,009Changes
      in operating assets and liabilities:Accounts
      receivable
                
                
                (4,434,966
                )
                
                
                (3,048,548
                )Inventories
                
                
                (911,844
                )
                
                
                (1,060,015
                )Prepayments
      and other receivables
                
                
                (203,934
                )
                
                
                809,982Deferred
      expenses
                
                
                —
                
                
                
                (1,513
                )Accounts
      payable
                
                
                173,496
                
                
                
                (166,798
                )Due
      to related party
                
                
                (8,992
                )
                
                
                (545,746
                )Other
      payables
                
                
                52,393
                
                
                
                1,206,465NET
      CASH (USED) PROVIDED BY OPERATING ACTIVITIES
                
                
                (1,449,375
                )
                
                
                1,746,718CASH
      FLOWS FROM INVESTING ACTIVITIES:Acquisition
      of property, plant and equipment
                
                
                (71,514
                )
                
                
                (97,309
                )Construction
      in progress
                
                
                —
                
                
                
                (45,108
                )NET
      CASH USED IN INVESTING ACTIVITIES
                
                $
                (71,514
                )
                
                $
                (142,417
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:
                
                
                —
                
                
                
                —





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


7


RENHUANG
PHARMACEUTICALS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENT OF CASH FLOWS (CONTINUED)





Three Months Ended January 31,2008
                
                
                2007NET
      CHANGE IN CASH AND CASH EQUIVALENTS
                
                
                (1,520,889
                )
                
                
                1,604,301EFFECT
      OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
                
                
                386,588
                
                
                
                161,234Cash
      and cash equivalents, beginning of period
                
                
                10,153,603
                
                
                
                1,021,267Cash
      and cash equivalents, end of period
                
                $
                9,019,302
                
                
                $
                2,786,802SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONInterest
      paid
                
                
                —
                
                
                
                —Income
      taxes paid
                
                
                —
                
                
                
                —





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


8


RENHUANG
PHARMACEUTICALS, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS




1. REORGANIZATION
TRANSACTIONS





1.
ORGANIZATION AND PRINCIPAL ACTIVITIES


Renhuang
Pharmaceuticals, Inc., (“Renhuang”) or the (“Company”) was incorporated in the
State of Nevada on August 18, 1988 and shares of the Company's Common Stock are
traded over-the counter on the Pink Sheets under the symbol RHGP.  The
Company owns 100% of Harbin Renhuang Pharmaceutical Company Limited (the “BVI”),
a holding company.  Substantially all of the Company’s operations are
conducted through BVI’s wholly-owned subsidiary Harbin Renhuang Pharmaceuticals
Co., Ltd (“Renhuang China” or the “Subsidiary”) which was incorporated in Harbin
City in the People’s Republic of China (the “PRC” or “China”) in 1996. The
subsidiary is principally engaged in production and sales of nutraceutical and
bio-pharmaceutical products including tablets, drinks and health food; the
Subsidiary’s sales network covers various provinces, cities, and counties
throughout China.




Unless
otherwise provided in this current report, all references in this current report
to “we”, “us”, “our company”, “our”, or the “Company” refers to Renhuang
Pharmaceuticals, Inc. on a consolidated basis, including Renhuang China and the
BVI.





2. BASIS OF
PRESENTATION


The
accompanying consolidated financial statements of the Company are stated in
United States dollars and have been prepared in accordance with accounting
principles generally accepted in the United States of America and include the
financial statements of the Company and its subsidiaries. All significant
intercompany transactions and balances are eliminated on
consolidation.




The
accompanying unaudited consolidated financial statements as of January, 2008 and
for the three months ended January 31, 2008 and 2007 have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Regulation S-X applicable
to smaller reporting companies. In the opinion of management, these unaudited
consolidated interim financial statements include all adjustments considered
necessary to make the financial statements not misleading. The results of
operations for the three months ended January 31, 2008 are not necessarily
indicative of the results for the full fiscal year ending October 31, 2008. The
unaudited consolidated interim financial statements should be read in
conjunction with the Company’s audited consolidated financial statements and
notes thereto for the year ended October 31, 2007 as reported in Form
10-K.




The
presentation of certain prior period information has been modified to conform
tothe current presentation.


9


3. SUMMARY OF PRINCIPAL ACCOUNTING
POLICIES





A. CASH AND CASH
EQUIVALENTS





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





B. ACCOUNTS RECEIVABLE,
NET





Accounts
receivable is recognized and carried at the original invoice amount less
allowance for any uncollectible amounts. The Company issues invoice at month-end
for the deliveries made during that month. An account is considered past due
after 90 days from the invoice date. The Company recognizes an allowance for
doubtful accounts to ensure accounts receivable are not overstated due to
uncollectibility and are established on a by-customers basis based upon a
variety of factors which include: the length of time the receivables are past
due, significant one-time events and historical experience. If circumstances
related to a customer changes, estimates of the recoverability of receivables
would be further adjusted. The allowance for doubtful accounts was $139,841 at
January 31, 2008 ($134,295 at October 31, 2007). The Company does not accept
returns or offer any post-sales marketing support to customers.





C. INVENTORIES





Inventories
are stated at the lower of cost or net realizable value. Production cost is
allocated at FIFO and overhead cost is calculated on the weighted average
basis.  The cost includes all costs to acquire, transport and process
inventories to their present location and condition. The Company evaluates the
net realizable value of its inventories regularly and records a provision for
loss, if necessary, to reduce inventories to their net realizable value. There
were $60,938 and $58,521 inventory reserve provisions recorded at January 31,
2008 and October 31, 2007, respectively.





D. PROPERTY, PLANT AND
EQUIPMENT





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





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





The
Company records depreciation of its property, plant and equipment on a
straight-line basis over the estimated useful lives of the assets. The useful
lives for property, plant and equipment are estimated as follows:





Machinery
      and equipment
                  10
      yearsOffice
      equipment and furnishings
                  5
      to 10 yearsMotor
      vehicles
                  5
      to 10 years


E.
FAIR VALUE OF FINANCIAL INSTRUMENTS




The
carrying amounts of certain financial instruments, including cash, accounts
receivable, other receivables, accounts payable, and other payables approximate
their fair values as of January 31, 2008 because of the relative short-term
maturity of these instruments.


10




3.
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)





F. INCOME TAXES





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





In
accordance with the relevant income tax laws applicable to wholly foreign owned
enterprises operating in PRC, the profits of the Company are fully exempt from
income tax for two years (“tax holiday”), commencing from the first profit
making year of operations, followed by a 50% exemption for the immediate next
three years (“tax preferential period”), after which the profits of the Company
will be taxable at the full rate, currently 25% (See Note 12).





G. RELATED PARTIES





All
related party transactions are in the normal course of operations and are
measured at the exchange amount, which is the amount of consideration
established and agreed to by the related parties.  The aggregate of
balances due to and from related parties for all periods presented are
separately disclosed on the face of the balance sheet (See Note
15).





H. IMPAIRMENT OF LONG-TERM
ASSETS





The
Company assesses long-lived assets for potential impairment based on a review of
projected undiscounted cash flows associated with these assets. Long-lived
assets are subjected to impairment evaluations when events and circumstances
exist that indicate the carrying amount of these assets may not be recoverable.
This process is highly subjective and changes in the estimates and assumptions,
including the discount rate and expected long-term growth rate, which drive the
valuation techniques employed to estimate the fair value of long-lived assets
could change and, therefore, impact the assessments of impairment in the
future.  As of January 31, 2008, management expects its long-lived
assets to be fully recoverable.


11


I. FOREIGN CURRENCY
TRANSLATION





The
Company maintains its books and accounting records in its functional currency,
the Renminbi, (which is the PRC's currency).





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





Foreign
currency transaction gains and losses, if any, are included in the determination
of net income for the period.





The
Renminbi (“RMB”) is not freely convertible into foreign currency and all foreign
exchange transactions must take place through authorized institutions. No
representation is made that the RMB amounts could have been, or can be,
converted into United States dollars (“USD”) at the rates used in translation.
The exchange rate between the RMB and the USD on January 31, 2008 and the
average rate from October 31, 2007 to January 31, 2008 are:


`


Exchange
      rate:
                    Jan.31,
      2008
                    Oct.31,
      2007Balance
      Sheets - Year end RMB:USD exchange rate
                    7.1853:1
                    7.4820:1Operating
      Statement: Period average RMB:USD exchange rate
                    7.3397:1
                    7.6917:1





J. USE OF ESTIMATES





The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenue and expenses
during the reporting period. Significant estimates primarily related to the
realizable value of accounts receivable, inventories, and the useful lives of
plant and equipment. Actual results when ultimately realized could differ from
those estimates.





K. REVENUE
RECOGNITION





The
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the sales price is fixed and determinable, and
collectability is reasonably assured; this policy is in accordance with the
provisions of Staff Accounting Bulletin No. 104.  Renhuang generally
recognizes product sales when the product is shipped.


12




The
Company provides rebates to its sales agents (who act as wholesalers) as an
incentive plan. The rebate rate is set on a product-by-product basis. When
revenue is recognized, the rebate is accounted for as an offset to revenues in
accordance with EITF Issue No. 01-9, “Accounting for Consideration Given by a
Vendor to a Customer (Including a Reseller of the Vendor’s Products)”. On
average, the rebate rates were 17% (based on gross revenue including VAT) and
20% (based on gross revenue net of VAT) of gross revenue for the three months
ended January 31, 2008 and 2007, respectively.




L.
CERTAIN RISKS AND CONCENTRATIONS




The
Company is subject to a significant concentration of credit risk with its trade
accounts receivable. The Company performs ongoing credit evaluations with
respect to the financial condition of its creditors, but does not require
collateral. The Company records a provision for doubtful accounts to cover
probable credit losses. Management reviews and adjusts this allowance
periodically based on historical experience and its evaluation of the
collectability of outstanding accounts receivable.





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





M.
RESEARCH AND DEVELOPMENT




Research
and development (“R&D”) costs are expensed as incurred. Engineers and
technical staff are involved in the production of our products as well as
on-going research, with no segregation of the portion of their salaries relating
to research and development from the portion of their salaries relating to
production. The total salaries are included in cost of sales.  R&D
for the three months ended January 31, 2008 and 2007 are $341,894 and nil,
respectively.




N.
ADVERTISING




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




O.
STOCK-BASED COMPENSATION




The
Company measures and records the cost of employee services received in exchange
for stock-based compensation at the grant date fair value of the
award.  This method is in accordance with SFAS No. 123 (revised
2004), “Share-Based Payment”.  Total stock based compensation expense
for the three months ended January 31, 2008 and 2007 was nil.




P. CLASSIFICATION OF OPERATING COSTS AND
EXPENSES




The
Company records its operating costs and expenses using the following general
classifications:




Cost of Goods
Sold


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


13


Selling
Expenses


Selling
expenses consists primarily of travel and entertainment, maintenance, payroll
(including taxes and benefits) for sales staff, telephone, utilities, insurance,
sales commissions and export fees.




General and Administrative
Expenses


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





Q. EARNINGS PER
SHARE





The
Company reports earnings per share in accordance with SFAS No. 128, “Earnings
per Share.” Basic earnings per share are computed by dividing income available
to common shareholders by the weighted average number of common shares
available. Diluted earnings per share is computed using the treasury stock
method whereby the denominator is increased by the net dilution on the exercise
of the warrants and other common stock equivalents if those additional common
shares were dilutive.  There were 25,000 and nil potentially dilutive
securities outstanding during the three month periods ended January 31, 2008 and
2007, respectively. The 25,000 warrants were deemed to be anti-diluted due as
the market price of the shares was lower than the exercise price as of January
31, 2008.





R. COMPREHENSIVE
INCOME





The
Company has adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for the reporting
and display of comprehensive income, its components and accumulated balances in
a full set of general-purpose financial statements. SFAS No. 130 defines
comprehensive income to include all changes in equity except those resulting
from investments by owners and distributions to owners, including adjustments to
minimum pension liabilities, accumulated foreign currency translation, and
unrealized gains or losses on marketable securities. In the three months ended
January 31, 2008, the only component of other comprehensive income is foreign
translation gain of $967,392 ($161,235 in the three
months ended January 31, 2007), which is included within the accumulated other
comprehensive income in the balance sheet.





S. RECENT
PRONOUNCEMENTS





The
Company adopted SFAS No. 157 effective January 1, 2008, except for the
nonfinancial assets and liabilities that are subject to a one-year deferral
allowed by FASB Staff Position (FSP) SFAS 157-2 (“ FSP SFAS 157-2”). FSP SFAS
157-2 delays the effective date of SFAS No. 157 until fiscal years beginning
after November 15, 2008 for nonfinancial assets and liabilities that are not
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). The adoption of SFAS No. 157 did not have a material
effect on our financial statements. The Company does not expect the adoption of
SFAS No. 157 will have a material effect on our financial statements beginning
in year 2009 as it relates to the items subject to the one-year deferral allowed
by FSP SFAS 157-2.


14


In
February 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement No. 159 “The Fair Value Option for Financial Assets and Financial
Liabilities” (“SFAS No. 159”). This statement permits companies to choose to
measure many financial assets and liabilities at fair value. Unrealized gains
and losses on items for which the fair value option has been elected are
reported in earnings. SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007. The adoption of SFAS No. 159, effective January 1, 2008, did
not have a material impact on the Company’s financial statements.





In
December 2007, the FASB issued Statement No. 141 (Revised 2007), “Business
Combinations” (“SFAS 141R”). SFAS 141R provides additional guidance on
improving the relevance, representational faithfulness, and comparability of the
financial information that a reporting entity provides in its financial reports
about a business combination and its effects. This Statement applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company believes there will be no material impact on
its financial statements upon adoption of this standard.


In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
in Consolidated Financial Statements — an amendment of ARB No. 51”(“SFAS 160”).
SFAS 160 requires entities to report noncontrolling (minority) interests of
consolidated subsidiaries as a component of shareholders’ equity on the balance
sheet; include all earnings of a consolidated subsidiary in consolidated results
of operations; and treat all transactions between an entity and the
noncontrolling interest as equity transactions between the parties.
SFAS 160 is effective for the Company’s fiscal year beginning
January 1, 2009, and adoption is prospective only; however, the
presentation and disclosure requirements must be applied retrospectively. The
Company does not consolidate any partially owned subsidiaries and therefore does
not expect the application of this standard to have a material impact on its
consolidated financial position, cash flows or results of
operations.


In March 2008, the FASB
issued Statement No. 161, Disclosures about Derivative Instruments and Hedging
Activitiesan
amendment of SFAS 133 ("SFAS 161"). This Statement will require enhanced
disclosures about derivative instruments and hedging activities to enable
investors to better understand their effects on an entity's financial position,
financial performance and cash flows. It is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008,
with early application encouraged. The Company does not expect the adoption of
SFAS 161 to have a material impact on its financial position, results of
operations or cash flows.


15


4.
CASH AND CASH EQUIVALENTS





Cash and
cash equivalents as of January 31, 2008 and October 31, 2007 consist of the
following:





January 31,
                                        2008
                                      
                                      
                                      October 31,
                                        2007Cash
      on hand
                                      
                                      $
                                      14,904
                                      
                                      
                                      $
                                      28,657Cash
      in banks
                                      
                                      
                                      9,004,398
                                      
                                      
                                      
                                      10,124,946$
                                      9,019,302
                                      
                                      
                                      $
                                      10,153,603





The
Company maintains a bank account in the PRC which is not protected by FDIC
insurance or other insurance. As of January 31, 2008, the Company had $9,004,398
in uninsured deposits with Chinese banks. Historically, the Company has not
experienced any losses in such accounts.





5. ACCOUNTS RECEIVABLE,
NET





The
Company's accounts receivable as of January 31, 2008 and October 31, 2007 are as
follows:


January 31, 2008
                    
                    
                    October 31, 2007Accounts
      receivable
                    
                    $
                    13,926,585
                    
                    
                    $
                    9,023,706Less:
      Allowance for doubtful accounts
                    
                    
                    (139,841
                    )
                    
                    
                    (134,295
                    )Accounts
      receivable, net
                    
                    $
                    13,786,744
                    
                    
                    $
                    8,889,411





As of
January 31, 2008, there are three major customers who accounted for $1,895,504,
$1,845,920 and $1,338,265 of accounts receivable which are approximately 14%,
13% and 10% of the total balance, respectively.





These
same two major customers also have the sales which amount to over 10% of the
total sales for the three months ended January 31, 2008 and 2007 are as
follows:





2008
                          
                          
                          2007Customer
      A:
                          
                          $
                          1,220,295
                          
                          12
                          %
                          
                          $
                          1,095,683
                          
                          12
                          %Customer
      B:
                          
                          $
                          1,208,519
                          
                          12
                          %
                          
                          $
                          970,830
                          
                          10
                          %





6.
PREPAYMENTS AND OTHER RECEIVABLES, NET





Prepayments
and other receivables as of January 31, 2008 and October 31, 2007 consist of the
following:





January 31,
                                      2008
                                    
                                    
                                    October 31,
                                      2007Prepayments
      and other receivables
                                    
                                    $
                                    797,647
                                    
                                    
                                    $
                                    565,960Less:
      allowance for doubtful accounts
                                    
                                    
                                    (341,877
                                    )
                                    
                                    
                                    (368,963
                                    )$
                                    455,770
                                    
                                    
                                    $
                                    196,997




16




As of
January 31, 2008, the balance in prepayments and other receivables mainly
includes prepayment for advertising of approximately $290,000 and advances to
employees of approximately $135,000. As of October 31, 2007, the Company had
advances to employees of approximately of.$181,000.





7. INVENTORIES





The
Company's inventories as of January 31, 2008 and October 31, 2007 are as
follows:


January 31,
      2008
                        
                        
                        October 31,
      2007Raw
      materials
                        
                        $
                        1,552,156
                        
                        
                        $
                        437,144Finished
      goods
                        
                        
                        69,830
                        
                        
                        
                        64,445Work-in-progress
                        
                        
                        380,102
                        
                        
                        
                        526,604Less:
      Valuation allowance
                        
                        
                        (60,938
                        )
                        
                        
                        (58,521
                        )$
                        1,941,150
                        
                        
                        $
                        969,672





8.
PROPERTY, PLANT AND EQUIPMENT, NET


January 31,2008
                            
                            
                            October 31,2007Cost:-Machinery
      and equipment
                            
                            $
                            3,149,796
                            
                            
                            $
                            2,959,892Office
      equipment and furnishings
                            
                            
                            45,613
                            
                            
                            
                            38,649Motor
      vehicles
                            
                            
                            50,362
                            
                            
                            
                            48,3643,245,771
                            
                            
                            
                            3,046,905Less:
      Accumulated depreciation
                            
                            
                            (540,780
                            )
                            
                            
                            (440,620
                            )Net
      book value
                            
                            $
                            2,704,991
                            
                            
                            $
                            2,606,285





For the
three months ended January 31, 2008, depreciation expenses relating to property,
plant and equipment were $80,240, consisting of $77,114 recorded as cost of
sales and $3,126 in general and administrative expenses. As of January 31, 2007,
the Company had depreciation expenses of $68,294 which was recorded as a
component of general and administrative expenses.





On March
3, 2007, the Company entered into an agreement to purchase certain assets and
/or the rights to use those assets from ZhangFa ShiYe Qingyang (“QingYang”) for
approximately $467,000.  The Company paid a deposit of approximately
$302,000 to QingYang and agreed to assume a bank loan of approximately $165,000
to secure these assets.  The assumed loan amount is included in other
liabilities as of January 31, 2008 and October 31, 2007.  The assets
acquired, which are comprised of property, equipment and inventory (the
“Collateral”), are pledged against the bank loan.   Although
QingYang transferred operational control of the Collateral to the Company, the
Company was unable to obtain consent from the bank and local governmental
authorities to transfer legal title of the Collateral to Renhuang; as a result,
the Collateral is not recorded as an asset of Renhuang though the deposit was
initially recorded in the amount of $467,000.





17




After
paying the deposit, the Company began negotiating with the bank and local
authorities to settle all outstanding issues and secure full ownership of the
assets.  The Company was unable to finalize those negotiations prior
to October 31, 2007 and Management decided to record an impairment reserve
against the entire deposit amount at that date as the Company did not have legal
title to the Collateral and was unable to determine when or if it would gain
title.  That $467,000 impairment was recorded as a component of
general and administrative expenses during the fiscal year ended October 31,
2007.   Though the QingYang facility (which constitutes the
majority of the Collateral) has not operated subsequent to the agreement, it
remains under the control of Renhuang.  Management anticipates
obtaining title to the Collateral during 2009 upon the conclusion of
negotiations with the bank and local government authorities.





9. ACCOUNTS PAYABLES





Accounts
payable of $339,250 and $155,600 as of April 30, 2008 and October 31, 2007
consist of balances payable to supplies.





The
suppliers from whom the purchased amount is over 10% of total purchases for the
three months ended January 31, 2008 and 2007 are:





2008
                                
                                
                                2007Supplier
      A:
                                
                                $
                                1,082,404
                                
                                
                                
                                22
                                %
                                
                                $
                                1,089,783
                                
                                
                                
                                29
                                %Supplier
      B:
                                
                                $
                                543,633
                                
                                
                                
                                11
                                %
                                
                                $
                                589,304
                                
                                
                                
                                15
                                %





10. OTHER PAYABLES





The
balance as of January 31, 2008, includes taxes payable of $591,270 and social
insurance payable of $383,783.





As of
October 31, 2007, the balance includes taxes payable of $590,022 and social
insurance payable of $302,562.


18





11. RESERVES





The
reserve funds as of January 31, 2008 and October 31, 2007 are comprised of the
following:





January 31,
                        2008
                      
                      
                      October 31,
                        2007Statutory
      surplus reserve fund
                      
                      $
                      1,559,357
                      
                      
                      $
                      1,559,357Public
      welfare fund
                      
                      
                      282,377
                      
                      
                      
                      282,377$
                      1,841,734
                      
                      
                      $
                      1,841,734





Pursuant
to the relevant laws and regulations of the PRC, the Company is required to
annually transfer 10% of its after tax profit as reported on financial
statements prepared under the accounting principles of the PRC to a statutory
surplus reserve fund until the balance reaches 50% of the registered share
capital.  This reserve can be used to make up any losses incurred or
to increase share capital.  Except for reducing losses incurred, any
other application may not result in this reserve balance falling below 25% of
the registered capital.





Prior to
January 1, 2007, the Company was required each year to transfer 5% of its after
tax profit as reported on financial statements prepared under the accounting
principles of the PRC to the public welfare funds.  This reserve was
restricted to capital expenditure for employees’ collective welfare facilities
that are owned by the Company.  The public welfare funds are not
available for distribution to the stockholders (except in
liquidation).  Once capital expenditures for staff welfare facilities
have been made, an equivalent amount must be transferred from the public welfare
funds to the discretionary common reserve funds.  Due to a change in
PRC law, appropriation of profit to the public welfare funds is no longer
required.





The
Company reserves the statutory surplus at year ended. As of January 31, 2008,
the estimated statutory surplus for three months ended was approximately
$385,000.





12.
INCOME TAXES





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





For the
year of 2007 and 2008, the Company was granted a tax holiday and is entitled to
full exemption from corporation income taxes through December 2008.





Had the company not been granted the
tax holiday or been an eligible wholly foreign owned company, the income tax
provision at the general PRC income rate of 25% starting from January 1, 2008
and 33% previously would have beenapproximately $ 1.2 million
and $1.5 million forthe three months ended January 31,
2008 and 2007respectively.




13.
COMMON STOCK




During
the three months ended January 31, 2008, no common stock was
issued.


19





14.
WARRANTS




The Company entered into a
Director appointment agreement with Mr. Moliteus dated April 16, 2007, pursuant
to which the Company issued Mr. Moliteus 15,000 warrants, which expire on April
16, 2010, to purchase 15,000 shares of Renhuang’s common stock at $3.02 per
share. On July 31, 2007, warrants to purchase 10,000 additional shares were
issued to Mr. Moliteus with an exercise price of $2.50.





Transactions
involving warrants are summarized as follows:





Number of
                    Shares
                  
                  Weighted
                    Average Price
                    Per ShareOutstanding
      at October 31, 2006
                  
                  —
                  
                  
                  —Granted—
      April 16, 2007
                  
                  15,000
                  
                  $
                  3.02—
      July 31, 2007
                  
                  10,000
                  
                  $
                  2.50Exercised
                  
                  —
                  
                  
                  —Cancelled
      or expired
                  
                  —
                  
                  
                  —Outstanding
      at October 31, 2007
                  
                  25,000
                  
                  $
                  2.81Granted
                  
                  —
                  
                  
                  —Exercised
                  
                  —
                  
                  
                  —Outstanding
      at January 31, 2008
                  
                  25,000
                  
                  
                  2.81





15.
RELATED PARTY TRANSACTIONS




The
Company rented property from Harbin Renhuang Pharmaceutical Stock Co. Ltd. (“Old
Renhuang”), a Company owned by the Company’s major shareholder.  The
lease term is from May 1, 2007 to May 1, 2008, with monthly rental payment of
approximately $48,710. The Company has an amount due from a related party of
approximately $236,000 regarding the construction fees paid on behalf of Old
Renhuang and balances due to relate party of approximately $389,000 related to
professional fees paid by Old Renhuang in 2007 for the reverse merger. The
Company offsets the due from and due to related party balances, therefore the
net balance was due to related party of approximately $153,000.





16. COMMITMENTS AND
CONTINGENCIES





A. CAPITAL AND LEASE
COMMITMENTS





The
Company entered into a lease for office space from May 1, 2007 to April 30,
2010, with average monthly rental payments of $9,575. The Company also rented
factory from a related party (See Note 15) with monthly payment of
$48,710.




The
minimum future payments for the rental leases as followings:





Office
      space
                      
                      
                      Factory2009
                      
                      $
                      117,949
                      
                      
                      $
                      146,1322010
                      
                      
                      119,689
                      
                      
                      
                      —2011
                      
                      
                      29,922
                      
                      
                      
                      —Thereafter
                      
                      
                      —
                      
                      
                      
                      —Total
                      
                      $
                      267,560
                      
                      
                      $
                      146,132


20





B. LEGAL PROCEEDINGS





The
Company is not currently involved in any litigation. There are no actions,
suits, proceedings, inquiries or investigations before or by any court, public
board, government agency, self-regulatory organization or body pending to the
knowledge of the executive officers of the Company.





17.
EMPLOYEE WELFARE PLAN




Regulations
in the PRC require the Company to contribute to a defined contribution
retirement plan for all permanent employees. Pursuant to regulations promulgated
by the local authority in the PRC, the retirement pension insurance,
unemployment insurance, health insurance, injury insurance and pregnancy
insurance are established for employees during the term of their employment. For
the three months ended January 31, 2008, the level of contribution to these
funds was set at 22% of the average employee salary determined by the Social
Welfare Bureau. The Company incurred the payable amount of $67,282 as of January
31, 2008 in other payables.




18. VULNERABILITY DUE TO CERTAIN
CONCENTRATIONS





The
Company faces a number of risks and challenges since its operations are in the
PRC. The Company's operations in the PRC are subject to special considerations
and significant risks not typically associated with companies in North America
and Western Europe. The Company's results may be adversely affected by changes
in the political and social conditions in the PRC, and by changes in
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods of
taxation, among other things.





19.
SUBSEQUENT EVENT





On May
15, 2009, an agreement was reached between Renhuang and Allied Merit
International Investments, Inc. and Griffin Ventures Ltd. (the “Investors”). The
Investors agreed to pay Renhuang with $1.5 million by July 31, 2009, in exchange
for an aggregate of 2,142,856 shares of the Company’s Common Stock and 1,071,428
Warrants with an exercise price of $0.875. The Company issued the 2,142,856
shares on May 20, 2009 and received the $1.5 million on August 7,
2009.





The
warrants issued to Mr. Moliteus were cancelled during fiscal 2008.





On
January 22, 2009, the local government extended the tax holiday for the Company
to the end of 2009.





The
Company extended the lease with Old Renhuang on May 1, 2009.  No
modification made on the minimum payment table in Note 16 regarding the renewed
lease.


21





ITEM 2Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.





Overview





The
following discussion of the financial condition and results of the operation of
Renhuang Pharmaceuticals, Inc. including the forward-looking statements
involving risk and uncertainties  should be read in conjunction with
the financial statements and notes included in this Quarterly Report on Form
10-Q.  Actual results may differ from the forward-looking statements
due to a variety of factors.





Results
of operations





For
the three months ended January 31, 2008 as compared to January 31,
2007





Revenues, Expenses and Net
Income




2008
                    
                    
                    2007Revenue
                    
                    $
                    10,458,856
                    
                    
                    $
                    9,503,993Cost
      of Sales
                    
                    
                    (4,797,732
                    )
                    
                    
                    (4,572,936
                    )Selling
      and Distribution Expenses
                    
                    
                    (69,344
                    )
                    
                    
                    (105,575
                    )Advertising
      Expenses
                    
                    
                    (681,431
                    )
                    
                    
                    (9,149
                    )General
      and Administrative Expenses
                    
                    
                    (775,070
                    )
                    
                    
                    (266,789
                    )Research
      and Development
                    
                    
                    (341,894
                    )
                    
                    
                    —Provision
      for Doubtful Account
                    
                    
                    41,432
                    
                    
                    
                    (53,009
                    )Depreciation
      and Amortization
                    
                    
                    (3,126
                    )
                    
                    
                    (68,294
                    )Other
      Income (expense)
                    
                    
                    13,973
                    
                    
                    
                    3,347Net
      Income
                    
                    $
                    3,845,664
                    
                    
                    $
                    4,431,588





Revenues


Our
revenues for the three months ended January 31, 2008 were $10,458,856, which was
$954,863 or 10% higher than $9,503,993 for the three months ended January 31,
2007, because of the success of our marketing expansion. During the three months
ended January 31, 2008, we increased production of our higher profit margin
products in line with our overall strategy and decreased production of our lower
profit margin products. Our revenues for the three months ended January 31, 2008
consisted primarily sales of Acanthopanax (Siberian Ginseng) products, Shark
Power Health Care products, and other Chinese traditional medical
products.


22





Cost
of Sales


Our cost
of sales for the three months ended January 31, 2008, were 4,797,732, which was
approximately the same as  our cost of sales for the quarter ended
January 31, 2007 of $4,572,936. The costs for the three months ended January 31,
2008  were consisted primarily of raw material, labor and production
costs.





Selling
and Distribution Expenses





Our
selling and distribution expenses are those expenses related to the sales of our
products and the costs in distributing those products. For the three months
ended January 31, 2008, the expenses were $ 36,231 or 34% lower than $105,575
for the same period in 2007, due to the reduction of office expenses and
travelling expenses for approximately $30,000 with more efficient cost
management. The sales rebates of $2,576,838 and $2,380,578 for the three months
ended January, 31, 2008 and 2007 were recorded as reductions of
revenue.





Advertising
Expenses


For the three months ended January 31,
2008, we had advertising expenses of $681,431. These advertising expenses were
primarily related to the advertising of Siberian Ginseng products. The
advertising expenses were $9,149 for the same period in 2007. The
significant  increase was mainly because we started a more aggressive
advertising campaign from the beginning of 2008 in order to increase our brand
recognition in Southern China.





General
and Administrative Expenses


Our
general and administrative expenses were $775,070 and $266,789 for the three
months ended January 31, 2008, and 2007, respectively. Our general and
administrative expenses included payroll, leasing expenses, professional fees,
entertainment, and travel expenses. The increase is mainly attributed to
increased payroll due to additional personnel and salary increases in this
period.





Research
and Development


For the
three months ended January 31, 2008, we spent $341,894 on research and
development as compared to nil for the same period in 2007.  In the
prior period in 2007, we did not engage in any R&D activities and we have
engaged in significant new R&D projects during the current period including
investments in Acanthopanax GAP base and projects on improving the process of
producing Siberian Ginseng extracts.





Depreciation


Our
depreciation expenses were  $3,126 and $68,294 for the three months
ended January 31, 2008 and 2007, respectively, which were related to property,
plant and equipment.  The decrease is mainly due to allocation of
depreciation expenses related to production in cost of sales, but none in prior
period of 2007.


23





Liquidity
and Capital Resources





Our cash,
current assets, total assets, current liabilities, and total liabilities as of
January 31, 2008 were as follows:





January 31, 2008Cash
      and Cash Equivalents
                      
                      $
                      9,019,302Total
      Current Assets
                      
                      
                      25,202,966Total
      Assets
                      
                      
                      27,907,957Total
      Current Liabilities
                      
                      
                      1,701,401Total
      Liabilities
                      
                      
                      1,701,401Working
      Capital
                      
                      $
                      23,501,565





Sources and Uses of
Cash





Operations


Net cash
used for operating activities was $1,449,375 for the three months ended January
31, 2008. Our net cash used in operating activities for the current quarter was
primarily $4,434,966 in net accounts receivable, $911,844 in inventories,
$203,934 in net prepayments and other receivables, $173,496 in total accounts
payable and accruals, and $52,393 in other payables.





Investments


Net cash used in investing activities
was $71,514 for the three months ended January 31, 2008. For the three months
ended January 31, 2008, our cash used in investing activities is related to
the acquisition of property, plant and equipment.


24





Financing


There
were no financing activities during the quarters ended January 31,
2008.





Debt Instruments,
Guarantees, and Related Covenants





The
Company does not have any long term debt or significant short term debt, and has
not entered into any guarantee arrangements or other related
covenants.





Critical
Accounting Policies





The
preparation of our financial statements in conformity with accounting principles
generally accepted in the United States of America requires our management to
make certain estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. As such, in accordance with the use of
accounting principles generally accepted in the United States of America, our
actual realized results may differ from management’s initial estimates as
reported. Our critical accounting policies include:





Property,
plant and equipment are carried at cost. The cost of repairs and maintenance is
expensed as incurred; major replacements and improvements are capitalized. When
assets are retired or disposed of, the cost and accumulated depreciation are
removed from the accounts, and any resulting gains or losses are included as
components of income in the year of disposition. The Company records
depreciation of its property, plant and equipment on a straight-line basis over
the estimated useful lives of the assets based on their costs.





The
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the sales price is fixed and determinable, and
collectability is reasonably assured; this policy is in accordance with the
provisions of Staff Accounting Bulletin No. 104.  Renhuang generally
recognizes products sales when the product is shipped.




The
Company provides rebates to its sales agents (who act as wholesalers) as an
incentive plan. The rebate rate is set on a product-by-product basis. When
revenue is recognized, the rebate is accounted for as an offset to revenues in
accordance with EITF Issue No. 01-9, “Accounting for Consideration Given by a
Vendor to a Customer (Including a Reseller of the Vendor’s
Products)”.





Research
and development (“R&D”) costs are expensed as incurred. Engineers and
technical staff are involved in the production of our products as well as
on-going research, with no segregation of the portion of their salaries relating
to research and development from the portion of their salaries relating to
production. The total salaries are included in cost of sales.


25





Off-balance
Sheet Arrangements





We do not
have any off-balance sheet arrangements.





Contractual
Obligations





Payments due by periodObligations
                  
                  Total
                  
                  1 Year
                  
                  2 Years
                  
                  3Years
                  
                  4YearsOperating
      Lease Obligations – Total
                  
                  
                  413,692
                  
                  264,081
                  
                  
                  119,689
                  
                  29,922
                  
                  
                  -0-Operating
      Lease Obligations - Related Party
                  
                  
                  146,132
                  
                  146,132
                  
                  
                  -0-
                  
                  -0-
                  
                  
                  -0-Operating
      Lease Obligations - Third Party
                  
                  
                  267,560
                  
                  117,949
                  
                  
                  119,689
                  
                  29,922
                  
                  
                  -0-





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





ITEM 3Quantitative and
Qualitative Disclosures About Market Risk





Not
required.




ITEM
4Controls and
Procedures





Evaluation
of Disclosure Controls and Procedures





We
conducted an evaluation, with the participation of our Chief Executive Officer
and Principal Accounting Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended,
or the Exchange Act, as of January 31, 2008, to ensure that information
required to be disclosed by us in the reports filed or submitted by us under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities Exchange Commission’s rules and forms,
including to ensure that information required to be disclosed by us in the
reports filed or submitted by us under the Exchange Act is accumulated and
communicated to our management, including our Chief Executive Officer and
Principal Accounting Officer, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure. Based on
that evaluation, our Chief Executive Officer and Principal Accounting Officer
had concluded that as of January 31, 2008, our disclosure controls and
procedures were not effective at the reasonable assurance level due to the
material weaknesses described below.


26





Evaluation
of Internal Control over Financial Reporting





As required by Exchange Act Rules
13a-15(f) and 15d-15(f), our management has carried out an evaluation, under the
supervision of our Chief Executive Officer and Principal Accounting Officer, of
the effectiveness of the design and operation of our internal control over
financial reporting as of January 31, 2008.





Management is responsible for
establishing and maintaining adequate internal control over financial reporting.
The Company's internal control over financial reporting is a process that is
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles, and includes those
policies and procedures that:





·
            Pertain to the maintenance of
      records that, in reasonable detail, accurately and fairly reflect the
      transactions and dispositions of assets of the
    Company,




·
            Provide reasonable assurance that
      transactions are recorded as necessary to permit preparation of financial
      statements in accordance with generally accepted accounting principles,
      and that receipts and expenditures are being made only in accordance with
      authorization of management and the board of directors of the Company,
      and




·
            Provide reasonable assurance
      regarding prevention (or timely detection) of unauthorized acquisition,
      use, or disposition of the Company's assets, which could have a material
      effect on Company consolidated financial
  statements.




Because of certain inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements.





A
material weakness is a control deficiency (within the meaning of the Public
Company Accounting Oversight Board (PCAOB) Auditing Standard No. 5) or
combination of control deficiencies, such that there is a reasonable possibility
that a material misstatement of the annual or interim financial statements will
not be prevented or detected. Management has identified the following material
weakness that has caused management to conclude that, as of January 31,
2008, our internal control over financial reporting was not
effective:




·
            We
      were unable to meet our requirements to timely file our Quarterly Report
      on Form 10-Q for the three months ended January 31, 2008. Management
      evaluated the impact of our inability to timely file periodic reports with
      the Securities and Exchange Commission on our assessment of our disclosure
      controls and procedures and has concluded that the control deficiency that
      resulted in the inability to timely make these filings represented a
      material weakness.


27




·
            We
      were unable to properly review the U.S. GAAP adjustment procedures,
      disclosure reporting processes, and consolidated financial statements
      preparation processes.




·
            We
      were unable to effectively provide oversight of internal control over
      financial reporting because there was a lack of a proper reporting channel
      between the internal audit function and an audit
  committee.





Remediation
of Material Weaknesses





Management
recognizes the importance of this material weakness and is committed to
remediation and may institute a comprehensive remediation plan.  The
plan will include but not be limited to hiring finance management, resources and
personnel with knowledge and experience in U.S. GAAP, and where necessary, the
plan will utilize the services of external consulting professionals in the area
of accounting advisory services.  Furthermore, the plan will
re-organize the internal audit function and establish communication channels
between the internal audit function and an audit committee.





Management
intends to allocate resources to insure that reports are filed on a timely basis
in the future.





Changes
in Internal Control over Financial Reporting





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





PART
II - OTHER INFORMATION





ITEM 1Legal
Proceedings





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


28





ITEM 1ARisk
Factors





Not
required for smaller reporting company.





ITEM 2Unregistered Sales
of Equity Securities and Use of Proceeds





None.




ITEM
3Defaults Upon Senior
Securities





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





ITEM 4Submission of
Matters to a Vote of Security Holders





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





ITEM 5Other
Information





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


29





ITEM 6Exhibits





(a)Exhibits





3.1
      (1)
                  
                  Restated
      Articles of Incorporation, as filed with the Nevada Secretary of State on
      April 21, 2003.3.2
      (5)
                  
                  Amendment
      to Articles of Incorporation, as filed with the Nevada Secretary of State
      on July 28, 2006.3.3
      (1)
                  
                  Second
      Restated Bylaws10.1
      (2)
                  
                  Common
      Stock Purchase Agreement dated September 19, 2005.10.2
      (2)
                  
                  Securities
      Purchase Agreement dated September 16, 2005.10.3
      (3)
                  
                  Reorganization,
      Stock and Asset Purchase Agreement dated September 30,
    2005.10.4
      (3)
                  
                  Stock
      Purchase Agreement dated September 30, 2005.10.5
      (4)
                  
                  Securities
      Purchase Agreement dated September 16, 2005.10.6
      (5)
                  
                  Loan
      Agreement with Heilongjiang Yuejintiande Building and Installation Project
      Co.,Ltd10.7
      (6)
                  
                  Acquisition
      Agreement between Harbin Renhuang Pharmaceutical Co., Ltd. and Zhongfa
      Industrial Group Yerui Pharmaceutical Co., Ltd., dated February 28,
      200721.1
      (5)
                  
                  Subsidiaries
      of the Registrant31.1
                  
                  Rule
      13a-14(a)/15d-14(a) Certification of Chief Executive
    Officer




30




31.2
                
                Rule
      13a-14(a)/15d-14(a) Certification of Chief Financial
    Officer32.1
                
                Chief
      Executive Officer Certification Pursuant to 18 USC, Section 1350, as
      Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2
                
                Chief
      Financial Officer Certification Pursuant to 18 USC, Section 1350, as
      Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.


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


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





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


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





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





(6)
            Incorporated by reference from
      our Quarterly Report on Form 10-Q for the period ended January 31, 2007,
      filed with the Commission on March 19,
  2007.


31




SIGNATURES





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





Renhuang
      Pharmaceuticals, Inc.Dated:
      January 12, 2010
                                    
                                    /s/ Li ShaomingBy:
                                    Li
      ShaomingPresident
      andChief
      Executive OfficerDated:
      January 12, 2010
                                    
                                    /s/
      Zuoliang WangBy:
                                    Zuoliang
      WangInterim
      Chief Financial
Officer


32