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 April 30, 2009





 ̈
            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
                (State
      or other jurisdiction of
                incorporation
      or organization)
              88-1273503
                (I.R.S.
      Employer
                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 o    
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 o    
No 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 oNon-accelerated
      filer   o
                
                Smaller
      Reporting Companyx





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





Applicable
only to corporate issuers:





As of May
20, 2009, 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
                          3ITEM
      2
                          MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIALCONDITION
      AND RESULTS OF OPERATIONS.
                          22ITEM
      3
                          QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUTMARKET
      RISK
                          30ITEM
      4
                          CONTROLS
      AND PROCEDURES
                          30PART
      IIITEM
      1
                          LEGAL
      PROCEEDINGS
                          32ITEM
      1A
                          RISK
      FACTORS
                          32ITEM
      2
                          UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OFPROCEEDS
                          33ITEM
      3
                          DEFAULTS
      UPON SENIOR SECURITIES
                          33ITEM
      4
                          SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                          33ITEM
      5
                          OTHER
      INFORMATION
                          33ITEM
      6
                          EXHIBITS
                          33




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 1
            Financial
      Statements




RENHUANG
PHARMACEUTICALS, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS





ASSETS





April 30,
                            2009
                          
                          
                          October 31,
                            2008(Unaudited)CURRENT
      ASSETSCash
      and cash equivalents
                          
                          $
                          13,925,270
                          
                          
                          $
                          9,747,693Accounts
      receivable, net
                          
                          
                          25,311,108
                          
                          
                          
                          20,844,478Inventories
                          
                          
                          2,055,769
                          
                          
                          
                          2,625,385Prepayment
      and other receivables, net
                          
                          
                          52,756
                          
                          
                          
                          167,338Due
      from related parties
                          
                          
                          288,984TOTAL
      CURRENT ASSETS
                          
                          
                          41,633,887
                          
                          
                          
                          33,384,894PROPERTY,
      PLANT AND EQUIPMENT, NET
                          
                          
                          2,460,049
                          
                          
                          
                          2,620,949TOTAL
      ASSETS
                          
                          $
                          44,093,936
                          
                          
                          $
                          36,005,843





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


4





RENHUANG
PHARMACEUTICALS, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS




LIABILITIES AND
STOCKHOLDERS' EQUITY





April 30,
                              2009
                            
                            
                            October 31,
                              2008(Unaudited)CURRENT
      LIABILITIESAccounts
      payable
                            
                            $
                            116,531
                            
                            
                            $
                            193,934Due
      to related party
                            
                            
                            —
                            
                            
                            
                            159,664Other
      payables
                            
                            
                            1,553,197
                            
                            
                            
                            1,607,489TOTAL
      LIABILITIES
                            
                            
                            1,669,728
                            
                            
                            
                            1,961,087COMMITMENTSSTOCKHOLDERS’
      EQUITYPreferred
      stock – Authorized preferred shares 1,000,000, issued and outstanding
      number of shares: nil and at par value of nilCommon
      Stock - Authorized common shares 100,000,000, issued and outstanding
      number of shares 35,096,680 (35,096,680 in 2008 at par value of
      0.001
                            
                            
                            35,097
                            
                            
                            
                            35,097Additional
      paid-in capital
                            
                            
                            6,595,400
                            
                            
                            
                            6,595,400Reserves
                            
                            
                            2,867,674
                            
                            
                            
                            2,867,674Retained
      earnings
                            
                            
                            29,610,552
                            
                            
                            
                            21,245,271Accumulated
      other comprehensive income
                            
                            
                            3,315,485
                            
                            
                            
                            3,301,314TOTAL
      STOCKHOLDERS’ EQUITY
                            
                            
                            42,424,208
                            
                            
                            
                            34,044,756TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                            
                            $
                            44,093,936
                            
                            
                            $
                            36,005,843





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


5





RENHUANG
PHARMACEUTICALS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENT OF INCOME AND COMPREHENSIVE INCOME


(Unaudited)





Three Months Ended April30,
                                    
                                    
                                    Six Months Ended April 30,2009
                                    
                                    
                                    2008
                                    
                                    
                                    2009
                                    
                                    
                                    2008SALES
                                    
                                    $
                                    8,702,878
                                    
                                    
                                    $
                                    7,516,594
                                    
                                    
                                    $
                                    22,472,875
                                    
                                    
                                    $
                                    17,975,450COST
      OF SALES
                                    
                                    
                                    (4,402,550
                                    )
                                    
                                    
                                    (3,423,785
                                    )
                                    
                                    
                                    (10,883,043
                                    )
                                    
                                    
                                    (8,221,517
                                    )GROSS
      PROFIT
                                    
                                    
                                    4,300,328
                                    
                                    
                                    
                                    4,092,809
                                    
                                    
                                    
                                    11,589,832
                                    
                                    
                                    
                                    9,753,933SELLING
      AND DISTRIBUTION EXPENSES
                                    
                                    
                                    (22,288
                                    )
                                    
                                    
                                    (42,087
                                    )
                                    
                                    
                                    (27,694
                                    )
                                    
                                    
                                    (111,431
                                    )ADVERTISING
      EXPENSE
                                    
                                    
                                    (1,097,567
                                    )
                                    
                                    
                                    (679,640
                                    )
                                    
                                    
                                    (1,390,251
                                    )
                                    
                                    
                                    (1,361,071
                                    )GENERAL
      AND ADMINISTRATIVE EXPENSES
                                    
                                    
                                    (594,019
                                    )
                                    
                                    
                                    (548,964
                                    )
                                    
                                    
                                    (1,212,393
                                    )
                                    
                                    
                                    (1,324,034
                                    )RESEARCH
      AND DEVELOPMENT
                                    
                                    
                                    (494,202
                                    )
                                    
                                    
                                    (329,121
                                    )
                                    
                                    
                                    (605,980
                                    )
                                    
                                    
                                    (671,015
                                    )PROVISION
      FOR DOUBTFUL ACCOUNTS
                                    
                                    
                                    —
                                    
                                    
                                    
                                    733
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    (42,165
                                    )DEPRECIATION
                                    
                                    
                                    (3,721
                                    )
                                    
                                    
                                    (3,405
                                    )
                                    
                                    
                                    (7,380
                                    )
                                    
                                    
                                    (6,531
                                    )INCOME
      FROM OPERATIONS
                                    
                                    
                                    2,088,531
                                    
                                    
                                    
                                    2,490,325
                                    
                                    
                                    
                                    8,346,134
                                    
                                    
                                    
                                    6,322,016OTHER
      INCOME
                                    
                                    
                                    10,022
                                    
                                    
                                    
                                    20,680
                                    
                                    
                                    
                                    19,150
                                    
                                    
                                    
                                    34,653INCOME
      BEFORE INCOME TAXES
                                    
                                    
                                    2,098,553
                                    
                                    
                                    
                                    2,511,005
                                    
                                    
                                    
                                    8,365,284
                                    
                                    
                                    
                                    6,356,669INCOME
      TAXES
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —NET
      INCOME
                                    
                                    $
                                    2,098,553
                                    
                                    
                                    $
                                    2,511,005
                                    
                                    
                                    $
                                    8,365,284
                                    
                                    
                                    $
                                    6,356,669COMPREHENSIVE
      INCOMEFOREIGN
      CURRENCY TRANSLATION ADJUSTMENT
                                    
                                    
                                    79,271
                                    
                                    
                                    
                                    699,649
                                    
                                    
                                    
                                    14,168
                                    
                                    
                                    
                                    1,667,041TOTAL
      COMPREHENSIVE INCOME
                                    
                                    $
                                    2,177,824
                                    
                                    
                                    
                                    3,210,654
                                    
                                    
                                    $
                                    8,379,452
                                    
                                    
                                    
                                    8,023,710BASIC
      AND DILUTED EARNINGS PER SHARE
                                    
                                    $
                                    0.06
                                    
                                    
                                    $
                                    0.07
                                    
                                    
                                    $
                                    0.24
                                    
                                    
                                    $
                                    0.18BASIC
      AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES
      OUTSTANDING
                                    
                                    
                                    35,096,680
                                    
                                    
                                    
                                    35,096,680
                                    
                                    
                                    
                                    35,096,680
                                    
                                    
                                    
                                    35,096,680





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


6


RENHUANG
PHARMACEUTICALS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENT OF CASH FLOWS


(Unaudited)





Six Months Ended April 302009
                                                  
                                                  
                                                  2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                                                  
                                                  $
                                                  8,365,284
                                                  
                                                  
                                                  $
                                                  6,356,669Adjustments
      to reconcile net income to net cash from operating activities
      :Depreciation
                                                  
                                                  
                                                  177,224
                                                  
                                                  
                                                  
                                                  164,488Provision
      for bad debts/(recovery)
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  (42,165
                                                  )Changes
      in operating assets and liabilities:Accounts
      receivable
                                                  
                                                  
                                                  (4,458,764
                                                  )
                                                  
                                                  
                                                  (2,769,896
                                                  )Inventories
                                                  
                                                  
                                                  569,231
                                                  
                                                  
                                                  
                                                  (841,971
                                                  )Due
      from related parties
                                                  
                                                  
                                                  (448,118
                                                  )
                                                  
                                                  
                                                  —Prepayment
      and other receivables, net
                                                  
                                                  
                                                  114,462
                                                  
                                                  
                                                  
                                                  (283,792
                                                  )Accounts
      payable and accruals
                                                  
                                                  
                                                  (77,331
                                                  )
                                                  
                                                  
                                                  113,095Due
      to related party
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  (9,151
                                                  )Other
      Payables
                                                  
                                                  
                                                  (54,414
                                                  )
                                                  
                                                  
                                                  (133,141
                                                  )NET
      CASH PROVIDED BY OPERATING ACTIVITIES
                                                  
                                                  
                                                  4,187,574
                                                  
                                                  
                                                  
                                                  2,554,136CASH
      FLOWS FROM INVESTING ACTIVITIES:Acquisition
      of property, plant and equipment
                                                  
                                                  
                                                  (16,212
                                                  )
                                                  
                                                  
                                                  (80,073
                                                  )NET
      CASH USED IN INVESTING ACTIVITIES
                                                  
                                                  
                                                  (16,212
                                                  )
                                                  
                                                  $
                                                  (80,073
                                                  )CASH
      FLOWS FROM FINANCING ACTIVITIES:
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  —





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


7





RENHUANG
PHARMACEUTICALS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENT OF CASH FLOWS (CONTINUED)


(Unaudited)





Six Months Ended April 30,2009
                                    
                                    2008NET
      CHANGE IN CASH AND CASH EQUIVALENTS
                                    
                                    $
                                    4,171,362
                                    
                                    
                                    $
                                    2,474,063EFFECT
      OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
                                    
                                    
                                    6,215
                                    
                                    
                                    
                                    773,693Cash
      and cash equivalents, beginning of period
                                    
                                    
                                    9,747,693
                                    
                                    
                                    
                                    10,153,603Cash
      and cash equivalents, end of period
                                    
                                    $
                                    13,925,270
                                    
                                    
                                    $
                                    13,401,359SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONInterest
      paid
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    —Income
      taxes paid
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    —





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


8





RENHUANG
PHARMACEUTICALS, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





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
trading on the pink sheet 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
subsidiaries.


9





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 generally
accepted accounting principles 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 April 30, 2009
and for the three and six months ended April 30, 2009 and 2008 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 and six months ended April 30, 2009 are not
necessarily indicative of the results for the full fiscal year ending October
31, 2009. 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, 2008 as reported in Form
10-K





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.


10





B. ACCOUNTS RECEIVABLE,
NET





Accounts
receivable is recognized and carried at the original invoice amount less
allowance for any uncollectible amounts. The Company issues invoices at
month-end for the deliveries made during that monthly period. An account is
considered past due after 180 days from the invoice date. The Company extended
its standard credit terms to 180 days during 2008 in order to increase its
market share. The Company recognizes an allowance for doubtful accounts to
ensure accounts receivable are not overstated due to uncollectibility and are
maintained for all customers based on a variety of factors, including the length
of time the receivables are past due, significant one-time events and historical
experience. If circumstances related to customers change, estimates of the
recoverability of receivables would be further adjusted. The allowance on the
doubtful accounts was $442,964 as of April 30, 2009 ($442,912 on October 31,
2008). The Company does not accept returns or offer any post-sales marketing
supporting 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 on a periodic basis and records a
provision for loss, if necessary, to reduce inventories to their net realizable
value. There were $64,155 and $64,147 of inventory reserve provisions recorded
as of April 30, 2009 and October 31, 2008, respectively.





D. PROPERTY, PLANT AND
EQUIPMENT





Property,
plant and equipments 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 useful lives for property, plant and equipment are estimated as
follows:





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





E.
FAIR VALUE OF FINANCIAL INSTRUMENTS





The
carrying amounts of certain financial instruments, including cash and cash
equivalents, accounts receivable, other receivables, accounts payable, and other
payables approximate their fair values as of April 30, 2009 because of the
relative short-term maturity of these instruments.


11


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





G. RELATED PARTIES





Parties
are considered to be related if one party has the ability, directly or
indirectly, to control the other party or exercise significant influence over
the other party in making financial and operational decisions. Parties are also
considered to be related if they are subject to common control or common
significant influence. Related parties may be individuals or corporate entities
(See Note 14).





H. IMPAIRMENT OF LONG-TERM
ASSETS





The
Company reviews long-lived assets for potential impairment based on a review of
projected undiscounted cash flows associated with these assets. Long-lived
assets are included in impairment evaluations when events and circumstances
exist that indicate the carrying amount of these assets may not be recoverable.
Measurement of impairment losses for long-lived assets that the Company expects
to hold and use is based on the estimated fair value of the assets. Therefore,
future changes in the Company’s strategy and other changes in its operations
could impact the projected future operating results that are inherent in
estimates of fair value, resulting in impairments in the future. Additionally,
other 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 April 30, 2009,
management expects its long-lived assets to be fully recoverable.





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 balance sheet
accounts are translated using the closing exchange rate in effect at the balance
sheet date and income and expense accounts are translated using an average
exchange rate prevailing during the reporting period. Adjustments resulting from
the transaction, 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
Renmimbi (“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 USD at the rates used in translation. The exchange rate between
the RMB and the USD on April 30, 2009 and the average rate from October 31, 2008
to April 30, 2009 were:





Exchange rate
                          
                          Oct 31,2008
                          
                          Apr 30, 2009Balance
      Sheets- period end RMB : USD exchange rate
                          
                          6.8258:1
                          
                          6.8250:1Operating
      Statement: Period average RMB : USD exchange rate
                          
                          7.0467:1
                          
                          6.8333:1




12





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.




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 rate was 16% and 17% of gross revenue for the six months
ended April 2009 and 2008, respectively.





L.
CERTAIN RISKS AND CONCENTRATIONS




Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist primarily of trade accounts receivable. The Company
performs ongoing credit evaluations with respect to the financial condition of
its creditors, but does not require collateral. In order to determine the value
of the Company's accounts receivable, 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 consideration and risks of operating in 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
costs for the six months ended April 30, 2009 and 2008 were $605,980 and
$671,015, respectively.


13





N.
ADVERTISING





Advertising
costs consist primarily of promoting the Company and the Company’s products
through television and print 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”.





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 and amortization.




Selling
Expenses


Selling
expenses consist 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 consist 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 is 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 the additional common shares are
dilutive.  There were nil and 25,000 potentially dilutive securities
outstanding during the six months ended April 30, 2009 and 2008,
respectively.


14





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 six months ended April 30, 2009, the
only component of other comprehensive income is foreign translation gain of
$14,168 ($1,667,041 in the six months ended April 30, 2008), which has been
recorded as a component of 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
No.157-2
delays the effective date of SFAS 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.





In
February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
159, The Fair Value Option for Financial Assets
and Financial Liabilities Including an Amendment of FASB Statement No.
115 (" SFAS No.159"). SFAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair values. SFAS No. 159 is
effective for fiscal years after November 15, 2007. The Company is currently
evaluating the impact of adopting SFAS No. 159 on our financial
statements.




In
December 2007, the Financial Accounting Standards Board issued FASB 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.


15





In
December 2007, the Financial Accounting Standards Board issued FASB Statement
No. 160, Noncontrolling
Interests in Consolidated Financial Statements—an amendment of ARB No. 51(“SFAS 160”). SFAS 160 amends ARB No. 51 to establish accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. This Statement is effective for fiscal
years and interim periods within those fiscal years, 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 March
2008, the FASB issued SFAS 161, which requires enhanced disclosures on a
company’s use of derivative instruments, its applicable accounting policies
related to derivatives and the effect of those derivatives on a company’s
financial position, results of operations and cash flows. This statement is
effective for fiscal years and interim periods beginning after November 15,
2008, with early adoption encouraged. Adoption of SFAS 161 will have no
impact on the Company’s financial position, results of operations or cash
flows.


4.
CASH AND CASH EQUIVALENTS





Cash and
cash equivalents as of April 30, 2009 and October 31, 2008 consisted of the
following:





April 30,
                                        2009
                                      
                                      October 31,
                                        2008Cash
      on hand
                                      
                                      $
                                      21,679
                                      
                                      $
                                      
                                      20,880Cash
      in banks
                                      
                                      
                                      13,903,591
                                      
                                      
                                      
                                      9,726,813$
                                      13,925,270
                                      
                                      $
                                      
                                      9,747,693





The
Company maintains a bank account in the PRC which is not protected by FDIC
insurance or other insurance. As of April 30, 2009, the Company had $13,903,591
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 April 30, 2009 and October 31, 2008 were
summarized as follows:




April 30, 2009
                      
                      
                      October 31, 2008Accounts
      receivable
                      
                      $
                      25,754,072
                      
                      
                      $
                      21,287,390Less:
      Allowance for doubtful accounts
                      
                      
                      (442,964
                      )
                      
                      
                      (442,912
                      )Accounts
      receivable, net
                      
                      $
                      25,311,108
                      
                      
                      $
                      20,844,478





As at
April 30, 2009, there were three major customers who accounted for $2,839,433,
$2,815,249 and $2,525,808 of accounts receivable, which were approximately 11%,
11% and 10% of the total balance, respectively.


16


These
same three major customers also have the sales which amount to over 10% of the
total sales for the six months ended April 30, 2009 and 2008 were listed as
follows:





2009
                          
                          
                          2008Customer
      A:
                          
                          $
                          2,317,803
                          
                          
                          
                          10
                          %
                          
                          $
                          2,013,327
                          
                          
                          
                          11
                          %Customer
      B:
                          
                          $
                          2,348,082
                          
                          
                          
                          10
                          %
                          
                          $
                          2,014,230
                          
                          
                          
                          11
                          %Customer
      C:
                          
                          $
                          2,243,611
                          
                          
                          
                          10
                          %
                          
                          $
                          —
                          
                          
                          
                          —





6.
PREPAYMENT AND OTHER RECEIVABLES, NET





Prepayment
and other receivables as of April 30, 2009 and October 31, 2008 consisted of the
following:





April 30,
                          2009
                        
                        October 31,
                          2008Prepayment
      and other receivables
                        
                        $
                        412,681
                        
                        
                        $
                        527,220Less:
      allowance for doubtful accounts
                        
                        
                        (359,925
                        )
                        
                        
                        (359,882
                        )$
                        52,756
                        
                        
                        $
                        167,338


As of
April 30, 2009, the balance in prepayments and other receivables mainly includes
advances to employees of approximately $ 41,400. As of October 31, 2008, the
Company had advances to employees of approximately $114,000.





7. INVENTORIES





The
Company's inventories as of April 30, 2009 and October 31, 2008 were summarized
as follows:





April 30, 2009
                        
                        
                        October 31, 2008Raw
      materials
                        
                        $
                        827,933
                        
                        
                        $
                        1,533,472Finished
      goods
                        
                        
                        344,415
                        
                        
                        
                        249,103Work-in-Progress
                        
                        
                        947,576
                        
                        
                        
                        906,957Less:
      Valuation allowance
                        
                        
                        (64,155
                        )
                        
                        
                        (64,147
                        )$
                        2,055,769
                        
                        
                        $
                        2,625,385





8.
PROPERTY, PLANT AND EQUIPMENT, NET





April 30, 2009
                          
                          
                          October 31, 2008Cost:-Machinery
      and equipment
                          
                          $
                          3,364,118
                          
                          
                          $
                          3,350,762Office
      equipment and furnishings
                          
                          
                          53,663
                          
                          
                          
                          53,015Motor
      vehicles
                          
                          
                          53,021
                          
                          
                          
                          50,3883,470,802
                          
                          
                          
                          3,454,165Less:
      Accumulated depreciation:-
                          
                          
                          (1,010,753
                          )
                          
                          
                          (833,216
                          )Net
      book value
                          
                          $
                          2,460,049
                          
                          
                          $
                          2,620,949




17


For the
six months ended April 30, 2009, depreciation expense relating to property,
plant and equipment was $177,224 consisting of $169,844 recorded as cost of
sales and $7,380 in general and administrative expenses. These expenses
were $164,488 for the six months ended April 30, 2008, consisting of
$157,957 recorded as cost of sales and $6,531 in general and administrative
expense.





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 April 30, 2009 and October 31, 2008.  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, hence the deposit was
initially recorded in the amount of $467,000.





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
payables were $116,531 and $193,934 as of April 30, 2009 and October 31, 2008,
respectively, and consisted of balances payable to suppliers.




The
suppliers from whom the purchased amount is over 10% of the total purchase for
the six months ended April 30, 2009 and 2008 were as follows:


18





2009
                                        
                                        
                                        2008Supplier
      A:
                                        
                                        $
                                        1,957,210
                                        
                                        
                                        
                                        25
                                        %
                                        
                                        $
                                        1,684,825
                                        
                                        
                                        
                                        24
                                        %Supplier
      B:
                                        
                                        $
                                        943,471
                                        
                                        
                                        
                                        12
                                        %
                                        
                                        $
                                        846,342
                                        
                                        
                                        
                                        12
                                        %Supplier
      C:
                                        
                                        $
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        $
                                        723,631
                                        
                                        
                                        
                                        10
                                        %





10. OTHER PAYABLES





The
balance as of April 30, 2009, mainly includes VAT and other taxes payable of
$422,380, and social insurance payable of $841,112.





As of
October 31, 2008, the balance includes VAT and other taxes payable of $693,607
and social insurance payable of $643,576.





11. RESERVES





The
reserve funds as of April 30, 2009 and October 31, 2008 were comprised of
the following:


April 30, 2009
                                
                                
                                October 31,
                                  2008Statutory
      surplus reserve fund
                                
                                $
                                2,585,297
                                
                                
                                $
                                2,585,297Public
      welfare fund
                                
                                282,377
                                
                                
                                282,377$
                                2,867,674
                                
                                
                                $
                                2,867,674





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 the 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 April 30, 2009, the
estimated statutory surplus for the six months then ended was approximately
$836,000.





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.




19


For the
year of 2008 and 2009, the Company was granted a tax holiday and is entitled to
full exemption from corporation income taxes through December 2009.





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 would have been approximately $2.1 million and
$1.8 millionfor the six months ended April 30, 2009 and 2008,
respectively.





13.
COMMON STOCK




During
the three and six months ended April 30, 2009, no common stock was
issued.





14.
RELATED PARTY TRANSACTIONS




The
Company rents property and plant from Harbin Renhuang Pharmaceutical Stock Co.
Limited (“Old Renhuang”), a Company owned by the Company’s major
shareholder.  The lease term is from May 1, 2008 to May 1, 2009, with
a monthly rental payment of approximately $51,200.The Company has due from
related party of approximately $697,000 including the construction fees paid on
behalf of Old Renhuang of approximately $248,000 and trade receivable of
approximately $449,000. As of April 30, 2009, the Company also has due to relate
party of approximately $408,000, which was  the professional fee paid
by Old Renhuang in 2007 for the reverse merger. The Company offsets the due from
and due to related party, therefore, the net balance was due from related party
of approximately $289,000 at April 30, 2009.
  As of
April 30, 2009, the net sales to Heilongjiang Renhuang Pharmaceutical Limited,
an Old Renhuang owned subsidiary, was approximately $375,000.





The
Company renews the lease with Old Renhuang annually; therefore, the Company
subsequently renewed the lease on May 1, 2009 (See Note 18).





15. 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 payment $10,488. The Company also rents
factory space from a related party (See Note 14) with a monthly payment of
approximately $51,200.





The
minimum future payments for the rental leases as follows





April 30, 2009Office space
                          
                          
                          Factory2010
                          
                          $
                          126,007
                          
                          
                          $
                          615,385Thereafter
                          
                          $
                          -
                          
                          
                          $
                          -Total
                          
                          $
                          126,007
                          
                          
                          $
                          615,385




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.





16. 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 April 30, 2009, the level of contribution to these funds
was set at 22% of the average employee salary determined by the Social Welfare
Bureau. The Company included the payable amount of $195,688 as of April 30, 2009
in other payables.




17. 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.





18.
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 $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.





The
Company extended the lease with Old Renhuang on May 1, 2009. No modification was
made on the minimum payment table in Note 15 regarding the renewed
lease.


21





ITEM
      2
            Managements
      Discussion and Analysis of Financial Condition and Results of
      Operations.





Overview





The
following discussion of the financial condition and results of operations of
Renhuang Pharmaceuticals, Inc. includes the forward-looking statements involving
risk and uncertainties and 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





Three
months ended April 30, 2009 as compared to Three months ended April 30,
2008





Revenues, Expenses and Net
Income





2009
                                  
                                  
                                  2008Revenue
                                  
                                  $
                                  8,702,878
                                  
                                  
                                  
                                  7,516,594Cost
      of Sales
                                  
                                  
                                  (4,402,550
                                  )
                                  
                                  
                                  (3,423,785
                                  )Selling
      and Distribution Expenses
                                  
                                  
                                  (22,288
                                  )
                                  
                                  
                                  (42,087
                                  )Advertising
      Expenses
                                  
                                  
                                  (1,097,567
                                  )
                                  
                                  
                                  (679,640
                                  )General
      and Administrative Expenses
                                  
                                  
                                  (594,019
                                  )
                                  
                                  
                                  (548,964
                                  )Research
      and Development
                                  
                                  
                                  (494,202
                                  )
                                  
                                  
                                  (329,121
                                  )Provision
      for Doubtful Account
                                  
                                  
                                  —
                                  
                                  
                                  
                                  733Depreciation
      and Amortization
                                  
                                  
                                  (3,721
                                  )
                                  
                                  
                                  (3,405
                                  )Other
      Income
                                  
                                  
                                  10,022
                                  
                                  
                                  
                                  20,680Net
      Income
                                  
                                  $
                                  2,098,553
                                  
                                  
                                  
                                  2,511,005




22





Revenues





For the
three months ended April 30, 2009, our revenue was $8,702,878 and increased by
$1,186,284 or 16% as compared to $7,516,594 during the same period in 2008. Our
revenue increase was primarily attributable to the increase in advertising in
promoting the Acanthopnanax (Siberian Ginseng) products.





Cost
of Sales





Our cost
of sales for the three months ended April 30, 2009 and 2008 were $4,402,550 and
$3,423,785, respectively, which were approximately 51% and 46% of revenue and
consisted primarily of raw material, labor and production costs. The increase in
the percentage of cost to revenue was due to the increase in the price of raw
material and labor costs.





Selling
and Distribution Expenses





Our
selling and distribution expenses were only $22,288 and $42,087 for the three
months ended April 30, 2009 and 2008, respectively. The sales rebates of
$2,024,221 and $1,850,181 for the three months ended were directly deducted from
revenue. To control cost, we selectively participated in several influential
nationwide sales conferences in this period and had won positive marketing
effects and results. Therefore, the sales increased but selling and distribution
expenses decreased.




Advertising
Expenses





For the
three months ended April 30, 2009 and 2008, we had advertising expenses of
$1,097,567 and $679,640, respectively. These advertising expenses were primarily
related to the advertising of Siberian Ginseng products. These significant
increases were due to our more aggressive advertising strategy during this
period to increase name recognition in South China. The Company is dedicated to
build a leading ‘Renhuang brand’ associated with Siberian Ginseng
products.


23





General
and Administrative Expenses





Our
general and administrative expenses were $594,019 and $548,964 for the three
months ended April 30, 2009 and 2008, respectively .Our general and
administrative expenses mainly included payroll, leasing expenses, professional
fee, entertainment, and traveling expenses. There was no significant change
between two corresponding periods.





Research
and Development





For the
three months ended April 30, 2009 and 2008, we spent $494,202 and $329,121, on
research and development, respectively. R&D have been expensed when
incurred. The increase is mainly due to  increase of capital
expenditure on the winter proofing project for Siberian Ginseng
products.





Depreciation





Our
depreciation expenses were  $3,721 and $3,405 for the three months
ended April 30, 2009 and 2008, respectively.


24




Six
months ended April 30, 2009 as compared to Six months ended April 30,
2008





Revenues, Expenses and Net
Income





2009
                                      
                                      
                                      2008Revenue
                                      
                                      $
                                      22,472,875
                                      
                                      
                                      
                                      17,975,450Cost
      of Sales
                                      
                                      
                                      (10,883,043
                                      )
                                      
                                      
                                      (8,221,517
                                      )Selling
      and Distribution Expenses
                                      
                                      
                                      (27,694
                                      )
                                      
                                      
                                      (111,431
                                      )Advertising
      Expenses
                                      
                                      
                                      (1,390,251
                                      )
                                      
                                      
                                      (1,361,071
                                      )General
      and Administrative Expenses
                                      
                                      
                                      (1,212,393
                                      )
                                      
                                      
                                      (1,324,034
                                      )Research
      and Development
                                      
                                      
                                      (605,980
                                      )
                                      
                                      
                                      (671,015
                                      )Provision
      for Doubtful Account
                                      
                                      
                                      —
                                      
                                      
                                      
                                      42,165Depreciation
                                      
                                      
                                      (7,380
                                      )
                                      
                                      
                                      (6,531
                                      )Other
      Income (expense)
                                      
                                      
                                      19,150
                                      
                                      
                                      
                                      34,653Net
      Income
                                      
                                      $
                                      8,365,284
                                      
                                      
                                      
                                      6,356,669





Revenues





For the
six months ended April 30, 2009, our revenues were $22,472,875 and increased by
$4,497,425 or 25% as compared to $17,975,450 during the same period in 2008. Our
revenues increase is primarily attributable to the increase in advertising
activities in promoting the Siberian Ginseng products.





Cost
of Sales





Our cost
of sales for the six months ended April 30, 2009 and 2008 were $10,883,043 and
$8,221,517, respectively, which were approximately 48% and 46% of revenue and
consisted primarily of raw material, labor and production costs. The increase in
the percentage of cost to revenue was due to the increase in the price of raw
material and labor costs.





Selling
and Distribution Expenses





Our
selling and distribution expenses were only $27,694 and $111,431 for the six
months ended April 30, 2009 and 2008, respectively. The sales rebates of
$5,190,049 and $4,427,019 for the six months ended April 30, 2009 and 2008 were
directly deducted from revenue (See Note 3). The expenses decrease is mainly
attributable to the decline of the travel expenses and entertainment expenses.
To control cost, we selectively participated in several influential nationwide
sales conferences in this period and had won positive marketing effects and
results. Therefore, sales increased but selling and distribution expenses
decreased.




Advertising
Expenses





For the
six months ended April 30, 2009 and 2008, we had advertising expenses of
$1,390,251 and $1,361,071, respectively. These advertising expenses were
primarily related to the advertising of Siberian Ginseng products as the Company
aims to become the market leader in terms of Siberian Ginseng products in terms
of output and sales.  The expenses were comparable to both
periods.


25





General
and Administrative Expenses





Our
general and administrative expenses were $1,212,393 and $1,324,034 for the six
months ended April 30, 2009 and 2008, respectively. Our general and
administrative expenses mainly included payroll, leasing expenses, professional
fee, entertainment, and traveling expenses. The decrease is mainly due to the
decline of payroll and travel expenses in the period as we launched cost savings
plan to respond to the spreading financial crisis.





Research
and Development





For the
six months ended April 30, 2009 and 2008, our research and development expenses
were $605,980 and $671,015, respectively. The slight decrease is normal, and we
are going to make consistent investments on the Siberian Ginseng GAP base and
research work on Siberian Ginseng products.





Depreciation





We had
depreciation expenses of $7,380 and $6,531 for the six months ended April 30,
2009 and 2008, respectively.





Liquidity
and Capital Resources





Our cash,
current assets, total assets, current liabilities, and total liabilities as of
April 30, 2009 were as follows:





April 30, 2009Cash
      and Cash Equivalents
                          
                          $
                          13,925,270Total
      Current Assets
                          
                          $
                          41,633,887Total
      Assets
                          
                          $
                          44,093,936Total
      Current Liabilities
                          
                          $
                          1,669,728Total
      Liabilities
                          
                          $
                          1,669,728Working
      capital
                          
                          $
                          39,964,159




26





Sources and Uses of
Cash





Operations





Net cash
generated from operating activities was $4,187,574 for the six months ended
April 30, 2009. Our net cash used in operating activities for the current six
month period was primarily $4,458,764 in net accounts receivable, $569,231
in inventories, $114,462 from reduction of prepayment and other net receivables,
$77,331 in total accounts payable and accruals, and $54,414 in other
payables. Cash generated from operating activities increased compared to the
same period in 2008 as we extended the credit terms for several of our key
accounts in order to obtain larger market share.





Investments





Net cash
used in investing activities was $16,212 for the six months ended April 30,
2009. For the six months ended April 30, 2009, our cash used in investing
activities was related to the acquisition of property, plant and
equipment.





Financing





There
were no financing activities during the six months ended April 30, 2009. The
company intends to raise capital through private offerings in the next twelve
months.





Debt Instruments,
Guarantees, and Related Covenants





The
Company does not have any long term debt or 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 significant accounting
policies include:


27





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 (which 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.





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
No.157-2
delays the effective date of SFAS 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.




In
February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
159, The Fair Value Option for Financial Assets and Financial Liabilities
Including an Amendment of FASB Statement No. 115 (" SFAS No.159"). SFAS 159
permits entities to choose to measure many financial instruments and certain
other items at fair values. SFAS No. 159 is effective for fiscal years after
November 15, 2007. The Company is currently evaluating the impact of adopting
SFAS No. 159 on our financial statements.




28




In
December 2007, the Financial Accounting Standards Board issued FASB 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 Financial Accounting Standards Board issued FASB Statement
No. 160, Noncontrolling
Interests in Consolidated Financial Statements—an amendment of ARB No. 51(“SFAS 160”). SFAS 160 amends ARB No. 51 to establish accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. This Statement is effective for fiscal
years and interim periods within those fiscal years, 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 March
2008, the FASB issued SFAS 161, which requires enhanced disclosures on a
company’s use of derivative instruments, its applicable accounting policies
related to derivatives and the effect of those derivatives on a company’s
financial position, results of operations and cash flows. This statement is
effective for fiscal years and interim periods beginning after November 15,
2008, with early adoption encouraged. Adoption of SFAS 161 will have no
impact on the Company’s financial position, results of operations or cash
flows.





Off-balance
Sheet Arrangements





We do not
have any off-balance sheet arrangements.





Contractual
Obligations




Payments
      due by periodObligations
                            
                            Total
                            
                            
                            1 Year
                            
                            
                            1-2
                              Years
                            
                            
                            2-3
                              Years
                            
                            
                            3-5
                              YearsOperating
      Lease Obligations - Total
                            
                            $
                            741,392
                            
                            
                            $
                            741,392
                            
                            
                            $
                            -0-
                            
                            
                            $
                            -0-
                            
                            
                            
                            -0-Operating
      Lease Obligations - Related Party
                            
                            
                            615,385
                            
                            
                            
                            615,385
                            
                            
                            
                            -0-
                            
                            
                            
                            -0-
                            
                            
                            
                            -0-Operating
      Lease Obligations - Third Party
                            
                            $
                            126,007
                            
                            
                            $
                            126,007
                            
                            
                            
                            -0-
                            
                            
                            
                            -0-
                            
                            
                            
                            -0-




29





As noted
above, we lease office space from Old Renhuang  pursuant to a lease
renewable annually.





ITEM 3
                Quantitative and Qualitative
      Disclosures About Market
Risk





Not
required.





ITEM 4
                Controls
      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 April 30, 2009, 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
have concluded that as of April 30, 2009, our disclosure controls and procedures
were not effective at the reasonable assurance level due to the material
weaknesses described below.





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 April 30,
2009.


30




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), such that a
misstatement of the annual or interim financial statements may not be prevented
or detected. Management has identified the following
material  weakness that has caused management to conclude that, as of
April 30, 2008, our internal control over financial reporting was not
effective:






·
            We
      were unable to meet our requirements to timely file our Annual Report on
      Form 10-K for the year ended October 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.






·
            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.




31





Remediation
of Weaknesses




Management
recognizes the importance of these material weaknesses and is committed to
remediation and will 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 1
                Legal
      Proceedings





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





ITEM 1A
                Risk
      Factors





Not
required for smaller reporting company.


32





ITEM 2
                Unregistered
      Sales of Equity Securities and Use of
Proceeds





None.





ITEM 3
                Defaults
      Upon Senior Securities





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





ITEM 4
                Submission
      of Matters to a Vote of Security
Holders





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





ITEM 5
                Other
      Information





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





ITEM 6
                Exhibits




(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.




33





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
    Officer31.2
              
              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.




34





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.




35





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 7, 2010
                
                /s/
      Li ShaomingBy:
                Li
      ShaomingPresident
      andChief
      Executive OfficerDated:
      January 7, 2010
                
                /s/
      Zuoliang WangBy:
                Zuoliang
      WangInterim
      Chief Financial
Officer


36