**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**Form
        10-Q/A**


**(Amendment
        No. 1)**





(Mark
      One)





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





**For
      the quarterly period ended January 31, 2007**





o
            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 x    No
o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):





Large
      accelerated filer o  Accelerated
      filer o Non-accelerated
      filer x





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 issuers involved in bankruptcy proceedings during the preceding five
      years:**





Indicate
      by check mark whether the registrant has filed all documents and reports
      required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange
      Act
      of 1934 subsequent to the distribution of securities under a plan confirmed
      by a
      court. Yes o No o











**Applicable
      only to corporate issuers:**





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date. As of March 12, 2007, there were
      35,000,181 shares of common stock, par value $0.001, issued and
      outstanding .


2


**Renhuang
      Pharmaceuticals, Inc.**





**TABLE
      OF CONTENTS**




**PART
                I**ITEM
                1
            FINANCIAL
                STATEMENTS
            4ITEM
                2
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS
            32ITEM
                3
            QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            36ITEM
                4
            CONTROLS
                AND PROCEDURES
            37**PART
                II**ITEM
                1
            LEGAL
                PROCEEDINGS
            39ITEM
                1A
            RISK
                FACTORS
            39ITEM
                2
            UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
            39ITEM
                3
            DEFAULTS
                UPON SENIOR SECURITIES
            39ITEM
                4
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            39ITEM
                5
            OTHER
                INFORMATION
            39ITEM
                6
            EXHIBITS
            41




3




**Explanatory
        Note**





This
        Quarterly Report on Form 10-Q/A (Amendment No. 1) discloses and discusses
        the
        impact and effect of a restatement of our previously filed unaudited
        consolidated financial statements contained in our originally-filed Quarterly
        Report on Form 10-Q for the period ended January 31, 2007; and amends Items
        1
        and 2 of Part I of our Quarterly Report on Form 10-Q previously filed with
        the
        Securities and Exchange Commission on March 19, 2007.  This restatement is
        necessary due to the fact that during the review for the quarter ended July
        31,
        2007, we concluded that our previously reported unaudited consolidated balance
        sheet as of January 31, 2007, the unaudited consolidated statement of income
        for
        the three months ended January 31, 2007, and the unaudited consolidated
        statements of cash flows for the three months ended January 31, 2007 filed
        with
        our originally-filed Quarterly Report on Form 10-Q for the period ended January
        31, 2007, did not accrue certain sales rebate payables from sales. As a result,
        we are filing this amended Quarterly Report on Form 10-Q/A for January 31,
        2007,
        to make the necessary corrections to account for the sales rebates we owed
        third
        parties during this period, which contains an explanation in Note 18 to the
        financial statements. The revisions will result in the correction of certain
        amounts categorized as accounts payable and accruals to third parties, total
        current liabilities, and total liabilities, in our unaudited consolidated
        financial statements for above-mentioned periods.





This
        First Amended Quarterly Report on Form 10-Q/A for the quarter ended January
        31,
        2007 amends and restates only those items of the previously filed Quarterly
        Report on Form 10-Q which have been affected by the restatement.  In order
        to preserve the nature and character of the disclosures set forth in such
        items
        as originally filed, no attempt has been made in this amendment (i) to modify
        or
        update such disclosures except as required to reflect the effects of the
        restatement or (ii) to make revisions to the Notes to the unaudited consolidated
        financial statements except for those which are required by or result from
        the
        effects of the restatement.  For additional information regarding the
        restatement of our unaudited consolidated financial statements, see Note
        18 to
        our unaudited consolidated financial statements included in Part I - Item
        I.  Except for the corrections stated herein, no other information
        contained in our previously filed Form 10-Q for the quarter ended January
        31,
        2007 has been updated or amended.





**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.





**ITEM
      1**  **Financial
      Statements**




4




**RENHUANG
      PHARMACEUTICALS, INC. AND SUBSIDIARIES**




**CONSOLIDATED
      BALANCE SHEET**


**AS
      OF JANUARY 31, 2007**




**(Amounts
      in United States Dollars)**




**ASSETS**





**January**
                **31,**
                **2007**
              
              **October
                  31,**
                **2006**(Unaudited)
              
              (Audited)(Restated)**CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              $
              2,786,802
              
              $
              1,021,267Accounts
                  receivable, net (NOTE 5)
              
              
              10,614,644
              
              
              7,566,096Inventories
                  (NOTE 6)
              
              
              1,629,150
              
              
              622,144Prepayments
              
              
              434,812
              
              
              102,473Other
                  receivables, net
              
              
              1,513
              
              
              1,143,834Deferred
                  expenses (NOTE 9)
              
              
              117,336
              
              
              115,823**TOTAL
                  CURRENT ASSETS**
              
              
              15,584,257
              
              
              10,571,637**PROPERTY,
                  PLANT AND EQUIPMENT, NET**(NOTE
                  7)
              
              
              2,639,300
              
              
              2,610,285**CONSTRUCTION
                  IN PROGRESS**(NOTE
                  8)
              
              
              151,718
              
              
              106,610**TOTAL
                  ASSETS**
              
              $
              18,375,275
              
              $
              13,288,532





The
      accompanying notes are an integral part of the financial
      statements


5


**RENHUANG
      PHARMACEUTICALS, INC. AND SUBSIDIARIES**




**CONSOLIDATED
      BALANCE SHEETS**


**AS
      OF JANUARY 31, 2007**




**(Amounts
      in United States Dollars)**




**LIABILITIES
      AND STOCKHOLDERS' EQUITY**




**January
                  31,**
                **2007**
              
              **October
                  31,**
                **2006****(Unaudited)**
              
              **(Audited)****(Restated)****CURRENT
                  LIABILITIES**Accounts
                  payables and accruals (NOTE 10)-
                  due to related parties
              
              $
              —
              
              $
              419,910-
                  due to third parties
              
              
              619,917
              
              
              366,805Other
                  payables (NOTE 11)-
                  due to related parties
              
              
              135,003
              
              
              —-
                  due to third parties
              
              
              2,402,757
              
              
              1,877,042**TOTAL
                  current LIABILITIES**
              
              
              3,157,677
              
              
              2,663,757**TOTAL
                  LIABILITIES**
              
              
              3,157,677
              
              
              2,663,757**COMMITMENTS
                  AND CONTINGENCIES**(NOTE
                  15)**STOCKHOLDERS'
                  EQUITY**Common
                  Stock - Authorized common shares 100,000,000, outstanding number
                  of shares
                  35,000,181 at par value of 0.001; authorized preferred shares
                  1,000,000
              
              
              35,000
              
              
              35,000Additional
                  Paid-in capital
              
              
              6,310,822
              
              
              6,310,822Reserves
                  (NOTE 13)
              
              
              1,610,192
              
              
              847,133Retained
                  earnings
              
              
              7,046,610
              
              
              3,378,081Accumulated
                  other comprehensive income
              
              
              214,974
              
              
              53,739**TOTAL
                  STOCKHOLDERS' EQUITY**
              
              
              15,217,598
              
              
              10,624,775**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              
              $
              18,375,275
              
              $
              13,288,532





The
      accompanying notes are an integral part of the financial statements


6


**RENHUANG
      PHARMACEUTICALS, INC. AND SUBSIDIARIES**





**CONSOLIDATED
      STATEMENT OF INCOME**


**FOR
      THE THREE MONTHS ENDED JANUARY 31, 2007**


**(Amounts
      in United States Dollars, Except for Number of Common
      Shares)**





**(Unaudited)****(Restated)**SALES
              
              $
              9,503,993COST
                  OF SALES
              
              
              (4,572,936
              )GROSS
                  PROFIT
              
              
              4,931,057SELLING
                  AND DISTRIBUTION EXPENSES
              
              
              (105,575
              )ADVERTISING
              
              
              (9,149
              )GENERAL
                  AND ADMINISTRATIVE EXPENSES
              
              
              (319,785
              )DEPRECIATION
                  AND AMORTIZATION
              
              
              (68,294
              )INCOME
                  FROM OPERATIONS
              
              
              4,428,254OTHER
                  INCOME
              
              
              3,347OTHER
                  EXPENSES
              
              
              (13
              )INCOME
                  BEFORE INCOME TAXES
              
              
              4,431,588INCOME
                  TAXES
              
              
              —NET
                  INCOME
              
              
              4,431,588NET
                  INCOME PER COMMON SHARE BASIC AND FULLY DILUTED
              
              
              0.127AVERAGE
                  NUMBER OF COMMON SHARES OUTSTANDING
              
              
              35,000,181




The
      accompanying notes are an integral part of the financial statements


7





**RENHUANG
      PHARMACEUTICALS, INC. AND SUBSIDIARIES**




**CONSOLIDATED
      STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY**


**FOR
      THE THREE MONTHS ENDED JANUARY 31, 2007**


**(Amounts
      in United States Dollars)**




AccumulatedAdditional
              
              
              
              
              
              OtherCommon
              
              Paid-in
              
              
              
              Retained
              
              comprehensive
              
              TotalStock
              
              capital
              
              Reserves
              
              Earnings
              
              income
              
              EquityBalance
                  at October 31, 2006 (Audited)
              
              $
              35,000
              
              $
              6,310,822
              
              $
              847,133
              
              $
              3,378,081
              
              $
              53,739
              
              $
              10,624,775Net
                  income for the period
              
              
              —
              
              
              —
              
              
              —
              
              
              4,431,588
              
              
              —
              
              
              4,431,588Transfer
                  to reserves
              
              
              —
              
              
              —
              
              
              763,059
              
              
              (763,059
              )
              
              —
              
              
              —Other
                  comprehensive income-
                  foreign currency translation
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              161,235
              
              
              161,235Balance
                  at January 31, 2007 (Unaudited)
              
              $
              35,000
              
              $
              6,310,822
              
              $
              1,610,192
              
              $
              7,046,610
              
              $
              214,974
              
              $
              15,217,598




The
      accompanying notes are an integral part of the financial statements


8


**RENHUANG
      PHARMACEUTICALS, INC. AND SUBSIDIARIES**





**CONSOLIDATED
      STATEMENT OF CASH FLOWS**


**FOR
      THE THREE MONTHS ENDED JANUARY 31, 2007**


**(Amounts
      in United States Dollars)**





**(Unaudited)****(Restated)****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  income
              
              $
              4,431,588Adjustments
                  to reconcile net income to net cash fromoperating
                  activities :Depreciation
                  and amortization
              
              
              68,294Changes
                  in operating assets and liabilities:Accounts
                  receivable, net
              
              
              (3,048,548
              )Inventories
              
              
              (1,007,006
              )Prepayments
              
              
              (332,339
              )Other
                  receivables, net
              
              
              1,142,321Deferred
                  expenses
              
              
              (1,513
              )Accounts
                  payable and accruals
              
              
              (166,798
              )Other
                  payables-
                  due to third parties
              
              
              1,206,465-
                  due to related parties
              
              
              (545,746
              )**NET
                  CASH FROM OPERATING ACTIVITIES**
              
              
              1,746,718**CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Acquisition
                  of property, plant and equipment
              
              
              (97,309
              )Construction
                  in Progress
              
              
              (45,108
              )**NET
                  CASH USED IN INVESTING ACTIVITIES**
              
              $
              (142,417
              )





The
      accompanying notes are an integral part of the financial statements


9


**RENHUANG
      PHARMACEUTICALS, INC. AND SUBSIDIARIES**




**CONSOLIDATED
      STATEMENT OF CASH FLOWS (CONTINUED)**


**FOR
      THE THREE MONTHS ENDED JANUARY 31, 2007**


**(Amounts
      in United States Dollars)**





**(Unaudited)****(Restated)****NET
                  CHANGE IN CASH AND CASH EQUIVALENTS**
              
              
              1,604,501EFFECT
                  OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
              
              
              161,234Cash
                  and cash equivalents, beginning of period
              
              
              1,021,267Cash
                  and cash equivalents, end of period
              
              $
              2,786,802**SUPPLEMENTARY
                  CASH FLOW DISCLOSURES**Interest
                  paid
              
              
              —Income
                  taxes paid
              
              
              —





The
      accompanying notes are an integral part of the financial statements




10


**RENHUANG
      PHARMACEUTICALS, INC. AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JANUARY
      31, 2007**




**1.**  **REORGANIZATION
      TRANSACTIONS**





On
      August
      11, 2006, the Company performed a one for thirty reverse stock split, rounded
      up
      to the nearest whole share.





On
      September 7, 2006, the Company acquired Harbin Renhuang Pharmaceutical Company
      Limited, a Corporation incorporated under the laws of the British Virgin Island
      on January 18, 2006, (the “BVI”) including its 100% owned and only subsidiary,
      Harbin Renhuang Pharmaceutical Co. Ltd., incorporated under the laws of the
      People’s Republic of China on February 15, 2006 (“Renhuang China”) in
      exchange for issuing 29,750,000 shares of the Company's common stock, par value
      $0.001 per share (the “Common Stock”) to the BVI's stockholders, representing
      85% of the Company's capital stock on a fully diluted basis after taking into
      account the contemplated transaction. This transaction is referred to throughout
      this report as the “Merger”.





The
      Merger agreement was filed as Exhibit 10.1 to the Company's Current Report
      on
      Form 8-K filed with the Securities and Exchange Commission on August 29, 2006.
      The foregoing description of the Merger and the transactions contemplated
      thereby do not purport to be complete and are qualified in their entireties
      to
      the Merger agreement.





On
      August
      31, 2006, the Company's Board of Directors approved the Merger.




Upon
      closing of the Merger, BVI became a wholly owned subsidiary of the Company.




After
      giving effect to the Merger and the rounding up of shares after reverse stock
      split on August 11, 2006, the Company had 35,000,181 common shares issued and
      outstanding and the former stockholders of BVI own approximately 85% of the
      issued and outstanding Common Stock of the Company. Accordingly, the Merger
      represented a change in control of the Company.





On
      May 1,
      2006, principal revenue producing activities in Harbin Renhuang Pharmaceuticals
      Stock Co., Ltd, the predecessor company, have been transferred to Renhuang
      China
      at the carrying amounts of the transferor.





On
      December 5, 2006, the Company’s Board of Directors approved a change in the
      Company’s fiscal year end from April 30 to October 31, effective with the
      Company’s Transitional Report on Form 10-K for the period ended October 31,
      2006.





For
      accounting purposes, the Merger has been accounted for as a recapitalization
      with the Company as the accounting acquiree and the BVI as the accounting
      acquirer. Upon effectiveness of the Merger, Renhuang China's business plan
      became the business plan of the Company.




11




**2.**  **ORGANIZATION
      AND PRINCIPAL ACTIVITIES**





Renhuang
      Pharmaceuticals, Inc., (“Renhuang”) or the (“Company”) was incorporated in the
      State of Nevada on August 18, 1988 as Solutions, Incorporated. Since that time,
      the Company has undergone a series of name changes as follows: Suarro
      Communications, Inc., e-Net Corporation, e-Net Financial Corp., e-Net.Com
      Corporation, e-Net Financial.Com Corporation, Anza Capital, Inc. and finally
      on
      July 28, 2006, the Company changed its name to Renhuang Pharmaceuticals,
      Inc.





On
      March
      3, 2006 the Company discontinued its operations and became a “shell”
company. As described above, on September 7, 2006, the Company closed the
      Merger transaction and became a company principally engaged in production and
      sales of nutraceutical and bio-pharmaceutical products.





Shares
      of
      the Company's Common Stock are trading on the NASD-Over the Counter (OTC)
      Bulletin Board Market under the symbol RHGP.





Unless
      otherwise provided in this current report, all references in this current report
      to “we”, “us”, “our company”, “our”, or the “Company” refer to the combined
      Renhuang Pharmaceuticals, Inc. entity.





The
      subsidiary company Harbin Renhuang Pharmaceuticals Co., Ltd (“the Subsidiary”)
      was incorporated at 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 extensive sales network covers various provinces,
      cities, and counties throughout China.





The
      products are made in the two plant facilities located at Harbin City with
      specialized machinery under stringent cleanliness and hygienic
      processes.





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.





The
      economy of PRC differs significantly from the economies of the “western”
industrialized nations in such respects as structure, level of development,
      gross national product, growth rate, capital reinvestment, resource allocation,
      self-sufficiency, rate of inflation and balance of payments position, among
      others. Only recently has the PRC government encouraged substantial private
      economic activities. The Chinese economy has experienced significant growth
      in
      the past several years, but such growth has been uneven among various sectors
      of
      the economy and geographic regions. Actions by the PRC government to control
      inflation have significantly restrained economic expansion in the recent past.
      Similar actions by the PRC government in the future could have a significant
      adverse effect on economic conditions in PRC.





Many
      laws
      and regulations dealing with economic matters in general and foreign investment
      in particular have been enacted in the PRC. However, the PRC still does not
      have
      a comprehensive system of laws, and enforcement of existing laws may be
      uncertain and sporadic.




12




The
      Company’s operating assets and primary sources of income and cash flows are of
      interests in the PRC. The PRC economy has, for many years, been a
      centrally-planned economy, operating on the basis of annual, five-year and
      ten-year state plans adopted by central PRC governmental authorities, which
      set
      out national production and development targets. The PRC government has been
      pursuing economic reforms since it first adopted its “open-door” policy in 1978.
      There is no assurance that the PRC government will continue to pursue economic
      reforms or that there will not be any significant change in its economic or
      other policies, particularly in the event of any change in the political
      leadership of, or the political, economic or social conditions in, the PRC.
      There is no assurance that the Company will not be adversely affected by any
      such change in governmental policies or any unfavorable change in the political
      economic or social conditions, the laws or regulations, or the rate or method
      of
      taxation in the PRC.





As
      many
      of the economic reforms which have been or are being implemented by the PRC
      government are unprecedented or experimental, they may be subject to adjustment
      or refinement, which may have adverse effects on the Company. Further, through
      state plans and other economic and fiscal measures, it remains possible for
      the
      PRC government to exert significant influence on the PRC economy.





The
      Company’s financial instruments that are exposed to concentration of credit risk
      consist primarily of cash and cash equivalents, accounts receivable from
      customers and other receivables. Cash and cash equivalents are maintained with
      major banks in the PRC. The company and other public business activity is
      primarily with customers in the PRC.





Any
      devaluation of the Renminbi (RMB) against the United States dollar would
      consequently have adverse effects on the Company’s financial performance and
      asset values when measured in terms of the United States dollar. Should the
      RMB
      significantly devalue against the United States dollar, such devaluation could
      have a material adverse effect on the Company’s earnings and the foreign
      currency equivalent of such earnings. The Company does not hedge its RMB -
      United States dollar exchange rate exposure.





**3.**  **BASIS
      OF PRESENTATION**





The
      consolidated financial statements are prepared in accordance with generally
      accepted accounting principles of the United States of America and include
      the
      financial statements of the Company and its wholly-owned subsidiary, Harbin
      Renhuang Pharmaceutical Company Limited and Harbin Renhuang Pharmaceutical
      Co.
      Ltd.




These
      consolidated financial statements should be read in conjunction with annual
      audited financial statements and the notes thereto included in the Company’s
      annual report on Form 10-KSB, and other reports filed with the SEC.





The
      accompanying unaudited interim financial statements reflect all adjustments
      of a
      normal and recurring nature which are, in the opinion of management, necessary
      to present fairly the financial position, results of operations and cash flows
      of the Company for the interim periods presented. The results of operations
      for
      these periods are not necessarily comparable to, or indicative of, results
      of
      any other interim period or for the fiscal year taken as a whole.




**4.**  **SUMMARY
      OF PRINCIPAL ACCOUNTING POLICIES**





**A.**  **CASH
      AND CASH EQUIVALENTS**





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





**B.**  **ACCOUNTS
      RECEIVABLE**





Trade
      receivables are recognized and carried at the original invoice amount less
      allowance for any uncollectible amounts. An estimate for doubtful accounts
      is
      made when collection of the full amount is no longer probable. Bad debts are
      written off as incurred. An account is considered past due after ninety
      (90) days from the invoice date. The allowance on the doubtful accounts was
      $53,340 as at January 31, 2007.




13




**C.**  **INVENTORIES**





Inventories
      are stated at the lower of cost and net realizable value. Cost is calculated
      on
      the weighted average basis and includes all costs to acquire and other costs
      incurred in bringing the inventories to their present location and condition.
      The Company evaluates the net realizable value of its inventories on a regular
      basis and records a provision for loss, if material, to reduce the computed
      weighted average cost if it exceeds the net realizable value.





**D.**  **PROPERTY,
      PLANT AND EQUIPMENT**





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





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





The
      Company recognizes depreciation of its property, plant and equipment on a
      straight-line basis over the estimated useful lives of the assets based on
      their
      costs less 5% residual value. The useful lives for property, plant and equipment
      are estimated as follows:





Plant
                and machinery
            10
                yearsOffice
                equipment and furnishings
            5
                to10 yearsMotor
                vehicles
            5
                to10 years





**E.** **FAIR
      VALUE OF FINANCIAL INSTRUMENTS**





The
      carrying value of financial instruments including cash, accounts receivables,
      other receivables, accounts payable, other payables and accrued expenses and
      debts, approximates their fair value at January 31, 2007 due to the relatively
      short-term nature of these instruments.





**F.** **CONSTRUCTION
      IN PROGRESS**





Construction
      in progress represents direct costs of construction or acquisition and design
      fees incurred. Capitalization of these costs ceases and the construction in
      progress is transferred to plant and equipment when substantially all the
      activities necessary to prepare the assets for their intended use are completed.
      No depreciation is provided until it is completed and ready for intended
      use.




14




**G.**  **INCOME
      TAXES**





The
      Company accounts for income tax under the provisions of Statements of Financial
      Accounting Standards No. 109, 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 (WFOE) 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 33%.





Had
        this
        tax holiday not been available, income tax expense would have increased by
        approximately US$1,462,424 for the quarter ended January 31,
        2007.





**H.**  **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.





**I.**  **IMPAIRMENT
      OF LONG-TERM ASSETS**





In
      accordance with the provisions of SFAS No. 144, “Accounting for the Impairment
      or Disposal of Long-Lived Assets”, the Company’s policy is to record an
      impairment loss against the balance of a long-lived asset in the period when
      it
      is determined that the carrying amount of the asset may not be recoverable.
      The
      determination is based on an evaluation of such factors as the occurrence of
      a
      significant event, a significant change in the environment in which the business
      assets operate or if the expected future non-discounted cash flows of the
      business was determined to be less than the carrying value of the assets. If
      impairment is deemed to exist, the assets will be written down to fair value.
      Management also evaluates events and circumstances to determine whether revised
      estimates of useful lives are warranted. As of January 31, 2007, management
      expects its long-lived assets to be fully recoverable.




15




**J.**  **FOREIGN
      CURRENCY TRANSLATION**





Harbin
      Renhuang Pharmaceuticals Co., Ltd. maintains its books and accounting records
      in
      Renminbi (“RMB”), the PRC's currency, being the functional currency.





Foreign
      currency transactions in RMB are reflected using the temporal method. Under
      this
      method, all monetary items are translated into the functional currency at the
      rate of exchange prevailing at the balance sheet date. Non-monetary items are
      translated at historical rates. Income and expenses are translated at the rate
      in effect on the transaction dates. Transaction gains and losses if any, are
      included in the determination of net income (loss) for the period.





In
      translating the financial statements of the Company from its functional currency
      into its reporting currency in United States dollars, 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
      (loss) in stockholders’ equity.





The
      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 could be, converted into US$
      at
      the rates used in translation. The Foreign exchange rate between the RMB and
      the
      United States dollar on January 31, 2007 and the average through October 31,
      2006 to January 31, 2007 are:





Balance
                Sheet- Year end RMB : US$ exchange rate
            
            
            7.7776:1Operating
                Statement: Average quarterly RMB : US$ exchange rate
            
            
            7.8262:1





**K.**  **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.





**L.**  **REVENUE
      RECOGNITION**





The
      Company recognizes revenue when the significant risks and rewards of ownership
      have transferred pursuant to PRC law, including factors such as when persuasive
      evidence of an arrangement exists, delivery has occurred, the sales price is
      fixed and determinable, and collectibility is reasonably assured. Renhuang
      generally recognizes products sales when the product is shipped. In the current
      period, no returns of any significance have occurred.




16




The
      Company provides a rebate to the sales agents as an incentive plan. The rebate
      rate is setup for each product. When revenue is recognized, the revenue is
      reduced by the amount of rebate. On average, the rebate rate is 20% of gross
      revenue.





In
      accordance with the provisions of Staff Accounting Bulletin No. 104, revenue
      is
      recognized when merchandise is shipped, title passes to the customer and
      collectibility is reasonably assured.





**M.**  **CONCENTRATION
      OF CREDIT RISK**





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 collectibility of outstanding accounts receivable





**N.**  **RESEARCH
      AND DEVELOPMENT**





Research
      and development 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. No research and development costs were
      incurred during this period.




**O.**  **ADVERTISING**





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





**P.**  **CLASSIFICATION
      OF OPERATING COSTS AND EXPENSES**





The
      Company records its operating costs and expenses generally with the following
      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, and loading fees.




17




Selling
      Expenses


Selling
      expenses includes primarily of transportation and freight charges of delivering
      to customers, travel and entertainment, maintenance, payroll for sales staff,
      payroll taxes and benefits, advertising and promotion, telephone and utilities,
      insurance, sales commissions and exports fees.





General
      and Administrative Expenses


General
      and administrative expenses includes 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.**  **SEGMENTS**





No
      business segment analysis is provided for the quarter ended January 31, 2007,
      as
      no revenue and no income from operations is attributable to the segment other
      than sales of pharmaceutical products.





Further,
      no geographical segment analysis is provided for the quarter ended January
      31,
      2007, as no revenue and no income from operations is attributable to the segment
      other than the Mainland China.





**R.**  **EARNINGS
      PER SHARE**





Basic
      and
      diluted earnings per share is computed by dividing net income available to
      common shareholders by the weighted average number of common shares outstanding
      for the period since the Company does not have any stock options, warrants
      or
      other dilutive instruments. The weighted average outstanding common shares
      reflect the effects of the share exchange transaction and reverse stock split
      as
      described in Note 1.





**S.**  **COMPREHENSIVE
      INCOME**





The
        Company has adopted the provisions of Statement of Financial Accounting
        Standards 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 current period, the only component of other
        comprehensive income is foreign translation gain of $161,235, which has been
        recorded as the accumulative other comprehensive income in the balance sheet.
        Consequently, the comprehensive income for the quarter ended January 31,
        2007
        was $4,592,823.




18




**T.**  **RECENT
      PRONOUNCEMENTS**





In
      November 2005, the FASB issued Staff Position (“FSP”) FAS115-1/124-1, The
      Meaning of Other-Than-Temporary Impairment and Its Application to Certain
      Investments, which addresses the determination as to when an investment is
      considered impaired, whether that impairment is other than temporary, and the
      measurement of an impairment loss. This FSP also includes accounting
      considerations subsequent to the recognition of an other-than-temporary
      impairment and requires certain disclosures about unrealized losses that have
      not been recognized as other-than-temporary impairments. The guidance in this
      FSP amends FASB Statements No. 115, Accounting for Certain Investments in Debt
      and Equity Securities, and No. 124, Accounting for Certain Investments Held
      by
      Not-for-Profit Organizations, and APB Opinion No. 18, The Equity Method of
      Accounting for Investments in Common Stock. This FSP is effective for reporting
      periods beginning after March 15, 2005. We do not believe the adoption of this
      FSP will have a material impact on our financial statements.





In
      November 2005, the FASB issued FSP FAS123(R)-3, Transition Election to
      Accounting for the Tax Effects of Share-Based Payment Awards. This FSP requires
      an entity to follow either the transition guidance for the
      additional-paid-in-capital pool as prescribed in SFAS No. 123(R), Share-Based
      Payment, or the alternative transition method as described in the FSP. An entity
      that adopts SFAS No. 123(R) using the modified prospective application may
      make
      a one-time election to adopt the transition method described in this FSP. An
      entity may take up to one year from the later of its initial adoption of SFAS
      No. 123(R) or the effective date of this FSP to evaluate its available
      transition alternatives and make its one-time election. This FSP became
      effective in November 2005. We do not believe that the adoption of this FSP
      will
      have a material impact on our financial statements.





In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections -
      a replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS 154”). SFAS
      154 changes the requirements for the accounting for and reporting of a change
      in
      accounting principle. These requirements apply to all voluntary changes and
      changes required by an accounting pronouncement in the unusual instance that
      the
      pronouncement does not include specific transition provisions. SFAS 154 is
      effective for fiscal years beginning after December 15, 2005. As such, the
      Company is required to adopt these provisions at the beginning of the fiscal
      year ended October 31, 2007. The Company is currently evaluating the impact
      of
      SFAS 154 on its consolidated financial statements.





In
      February 2006, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standard (“SFAS”) No. 155, “Accounting for
      Certain Hybrid Financial Instruments - an amendment of FASB Statement No. 133
      and 140” (“SFAS 155”). SFAS 155 resolves issues addressed in Statement 133
      Implementation Issue No. D1, “Application of Statement 133 to Beneficial
      Interests in Securitized Financial Assets.” SFAS 155 is effective for all
      financial instruments acquired or issued after the beginning of the first fiscal
      year that begins after September 15, 2006. As such, the Company is required
      to
      adopt these provisions at the beginning of the fiscal year ended October 31,
      2007. The Company is currently evaluating the impact of SFAS 155 on its
      consolidated financial statements.




19




In
      March
      2006, the Financial Accounting Standards Board (“FASB”) issued Statement of
      Financial Accounting Standard (“SFAS”) No. 156, “Accounting for Servicing of
      Financial Assets - an amendment of FASB Statement No. 140” (“SFAS 156”). SFAS
      156 amends FASB Statement No. 140 with respect to the accounting for separately
      recognized servicing assets and servicing liabilities. SFAS 156 requires all
      separately recognized servicing assets and servicing liabilities to be initially
      measured at fair value, if practical. SFAS 156 is effective as of the beginning
      of the first fiscal year that begins after September 15, 2006. As such, the
      Company is required to adopt these provisions at the beginning of the fiscal
      year ended October 31, 2007. The Company is currently evaluating the impact
      of
      SFAS 156 on its consolidated financial statements.





In
      September 2006, the Financial Accounting Standards Board (FASB) issued SFAS
      157,
“Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework
      for measuring fair value under generally accepted accounting principles, and
      expands disclosures about fair value measurements. SFAS 157 is effective for
      financial statements issued for fiscal years beginning after November 15, 2007,
      and interim periods within those fiscal years. Renhuang is currently evaluating
      the impact the adoption of this statement could have on is financial condition,
      results of operations or cash flows.





**5.**  **ACCOUNTS
      RECEIVABLE**





The
      Company's accounts receivable as at January 31, 2007 are summarized as follows:





January 31,2007
            
            October 31,2006Accounts
                receivable
            
            $
            10,667,984
            
            $
            7,566,096Less:
                Allowance for doubtful accounts
            
            
            53,340
            
            
            —Accounts
                receivable, net
            
            $
            10,614,644
            
            $
            7,566,096





**6.**  **INVENTORIES**





The
      Company's inventories as at January 31, 2007 are summarized as follows:





January 31,2007
            
            October 31,2006Raw
                materials
            
            $
            1,513,067
            
            $
            569,349Finished
                goods
            
            
            116,083
            
            
            52,795$
            1,629,150
            
            $
            622,144





Raw
      material is mainly comprised of Chinese herbs, herbal related ingredients and
      packing materials, and they were for manufacturing the products such as tablets
      and drinks.





The
      Company does not have obsolete inventories as of January 31, 2007 and October
      31, 2006.




20


**7.** **PROPERTY,
      PLANT AND EQUIPMENT**





January 31,
              2007
            
            October 31,
              2006**Cost:-**Plant
                and machinery
            
            $
            2,812,072
            
            $
            2,718,407Office
                equipment and furnishings
            
            
            9,508
            
            
            3,966Motor
                vehicles
            
            
            19,929
            
            
            19,6722,841,509
            
            
            2,742,045**Less:
                Accumulated depreciation:-**Plant
                and machinery
            
            
            201,204
            
            
            131,405Office
                equipment and furnishings
            
            
            216
            
            
            44Motor
                vehicles
            
            
            789
            
            
            311202,209
            
            
            131,760**Net
                book value**
            
            $
            2,639,300
            
            $
            2,610,285





Depreciation
      expenses relating to property, plant and equipment were $68,294 for the quarter
      ended January 31, 2007.





**8.**  **CONSTRUCTION
      IN PROGRESS**





The
      balance of construction in progress of a warehouse is $151,718 and $106,610
      as
      at January 31, 2007 and October 31, 2006 respectively. Pursuant to the contract,
      the project was supposed to be complete by October, 2006, however, due to severe
      weather conditions, the completion date of the above project has been delayed.





**9.**  **DEFERRED
      EXPENSES**




The
      deferred expenses are related to the cost of fund raising, which is disclosed
      in
      Note 17 subsequent event.





**10.**  **ACCOUNTS
      PAYABLES AND ACCRUALS**




The
      balances over 10% of the total balance as at January 31, 2007 are made up of
      $128,574, $102,411 and $77,081, which are accounted for 21%, 16% and 12% of
      the
      total balance respectively.





The
      balances as at October 31, 2006 includes $419,910 payable to a related party
      on
      the purchase of plant raw materials, which accounted for 66% of the total
      payable balance. Another account payable balance over 10% is $93,664, or 15%
      of
      the total payable balance.





The
      suppliers from whom the purchased amount is over 10% of the total purchase
      for
      the three months ended January 31, 2007 are listed as:





Supplier
                A:
            
            $
            1,089,783
            
            
            29
            %Supplier
                B:
            
            $
            574,114
            
            
            15
            %Supplier
                C:
            
            $
            467,629
            
            
            12
            %Supplier
                D:
            
            $
            379,789
            
            
            10
            %




21




**11.**  **OTHER
      PAYABLES**





As
        at
        January 31, 2007, payable to related parties includes the rental payable
        of
        $135,003. Payable to third parties includes sales rebate payable of $1,709,215,
        VAT payable of $202,189, professional fee payable $307,500, and payroll payable
        $183,852 as of January 31, 2007.





The
      balance as at October 31, 2006 includes sales, rebate payable of $1,031,101,
      VAT
      payable of $419,121, professional fee payable of $302,500 and payroll payable
      of
      $124,320.





**12.**  **INCOME
      TAXES**





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





For
      the
      year of 2006 and 2007, the Company was granted tax holiday and concession and
      is
      entitled to full exemption from corporation income taxes up to December 2007.
      From 2008 onwards, the Company also receives a special income tax rate of 15%
      as
      it is wholly foreign owned company where there is tax exemption for certain
      enterprises.





**13.**  **RESERVES**





The
      reserve funds at January 31, 2007 are comprised of the following:





January 31,
              2007
            
            October 31,
              2006Statutory
                surplus reserve fund
            
            $
            1,073,461
            
            $
            564,756Public
                welfare fund
            
            
            536,731
            
            
            282,377$
            1,610,192
            
            $
            847,133





Pursuant
      to the relevant laws and regulations of the PRC, the profits of the Company,
      which are based on their PRC statutory financial statements, are available
      for
      distribution in the form of cash dividends after they have satisfied all the
      PRC
      tax liabilities, provided for losses of previous years, and made appropriations
      to reserve funds, as determined by the Board of Directors in accordance with
      the
      PRC accounting standards and regulations.





As
      stipulated by the relevant laws and regulations for enterprises operating in
      the
      PRC, companies are required to make annual appropriations to two reserve funds,
      consisting of the statutory surplus and public welfare funds. In accordance
      with
      the relevant PRC regulations and the articles of association of the respective
      companies, the companies are required to allocate a percentage of their profits
      after taxation, as determined in accordance with the PRC accounting standards
      applicable to the companies, to the statutory surplus reserve until such reserve
      reaches 50% of the registered capital of the companies.





Net
      income as reported in the US GAAP financial statements differs from that as
      reported in the PRC statutory financial statements. In accordance with the
      relevant laws and regulations in the PRC, the profits available for distribution
      are based on the statutory financial statements. If the Company has foreign
      currency available after meeting its operational needs, it may make its profit
      distributions in foreign currency to the extent foreign currency is available.
      Otherwise, it is necessary to obtain approval and convert such distributions
      at
      an authorized bank.




22




**14.**  **RELATED
      PARTY TRANSACTIONS**





The
      Company had the following significant related party transactions during the
      period:





n
            Machinery
                and equipment of $2,700,062 was transferred from Harbin Renhuang
                Pharmaceutical Stock Co. Ltd., with which the Company is under the
                common
                control, as part of the paid - in capital of the Company. The machinery
                and equipment were transferred at the carrying amounts of the transferor.





n
            The
                Company rented property and plant from its Predecessor Harbin Renhuang
                Pharmaceutical Stock Co. Ltd. The lease term is from May 1, 2006
                to April
                30, 2007, with monthly rental payment of $44,722. The rental is fair
                value
                as appraised by a third party property company.





**15.**  **COMMITMENTS
      AND CONTINGENCIES**





**A.**  **CAPITAL
      AND LEASE COMMITMENTS**





As
      of
      January 31, 2007, the Company has the following significant capital and lease
      commitments outstanding: **





The
      Company rented property and plant from Harbin Renhuang Pharmaceutical Stock
      Co.
      Ltd. The lease term is from May 1, 2006 to April 30, 2007, with monthly rental
      payment $44,722. The rental is fair value as appraised by a third party property
      company.





**B.**  **LEGAL
      PROCEEDINGS**





The
      Company is not currently involved in any litigation. There is no action, suit,
      proceeding, inquiry or investigation before or by any court, public board,
      government agency, self-regulatory organization or body pending or, to the
      knowledge of the executive officers of the Company.





**16.**  **CURRENT
      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.




23


**17.**  **SUBSEQUENT
      EVENT**





On
      March
      3, 2007, the Company acquired all the assets and assumed a bank loan with
      accrued interest of Qingyang Extracting Factory, from Zhongfa Industrial Group
      Yerui Pharmaceutical Co., Ltd. for a total amount of RMB 3.7 million or
      approximately USD $480,000. The assets acquired included inventories, customer
      purchase orders, accounts receivables, corporate name, patents, trademarks,
      equipment, customer lists and records and other assets that are used or held
      for
      use in connection with Business of Qingyang Extracting Factory. The Company
      paid
      USD $310,000 in cash and assumed a bank loan with China Agriculture Bank in
      the
      principal amount of USD $140,000 and accrued interest of USD $30,000
      collateralized by the acquired assets. The transaction closed on March 3, 2007,
      and the Company has paid for the cash portion of the consideration USD $310,000
      (RMB 2,415,000).




**18.** **RESTATEMENT**





The
        Company has restated its previously issued consolidated financial statements
        for
        the quarter ended January 31, 2007 and for the quarter ended April 30, 2007.
        During the review for the quarter ended July 31, 2007, the Company discovered
        an
        accounting error occurring in the filed financial statements for the quarter
        ended January 31, 2007 and for the quarter ended April 30, 2007. Certain
        amounts
        of sales rebate payable were not accrued from sales.





The
        following table summarizes the impact of the restatement adjustments on the
        consolidated balance sheet as of January 31, 2007:





**As of January 31, 2007****As Previously**
                **Reported**
              
              **Total**
                **Adjustments**
              
              **As Restated****CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              $
              2,786,802
              
              
              
              
              $
              2,786,802Accounts
                  receivable, net
              
              
              10,614,644
              
              
              
              
              
              10,614,644Inventories
              
              
              1,629,150
              
              
              
              
              
              1,629,150Prepayments
              
              
              434,812
              
              
              
              
              
              434,812Other
                  receivables, net
              
              
              1,513
              
              
              
              
              
              1,513Deferred
                  expenses
              
              
              117,336
              
              
              
              
              
              117,336**TOTAL
                  CURRENT ASSETS**
              
              
              15,584,257
              
              
              
              
              
              15,584,257**PROPERTY,
                  PLANT AND EQUIPMENT, NET**
              
              
              2,639,300
              
              
              
              
              
              2,639,300**CONSTRUCTION
                  IN PROGRESS**
              
              
              151,718
              
              
              
              
              
              151,718**TOTAL
                  ASSETS**
              
              $
              18,375,275
              
              
              
              
              $
              18,375,275**CURRENT
                  LIABILITIES**Accounts
                  payables and accruals-
                  due to related parties
              
              $
              —
              
              
              
              
              $
              —-
                  due to third parties
              
              
              619,917
              
              
              
              
              
              619,917Other
                  payables-
                  due to related parties
              
              
              135,003
              
              
              
              
              
              135,003-
                  due to third parties
              
              
              1,331,295
              
              
              1,071,462
              
              
              2,402,757**TOTAL
                  current LIABILITIES**
              
              
              2,086,215
              
              
              1,071,462
              
              
              3,157,677**TOTAL
                  LIABILITIES**
              
              
              2,086,215
              
              
              1,071,462
              
              
              3,157,677**COMMITMENTS
                  AND CONTINGENCIES****STOCKHOLDERS'
                  EQUITY**Common
                  Stock - Authorized common shares 100,000,000, outstanding number
                  of shares
                  35,000,181 at par value of 0.001; authorized preferred shares
                  1,000,000
              
              
              35,000
              
              
              
              
              
              35,000Additional
                  Paid-in capital
              
              
              6,310,822
              
              
              
              
              
              6,310,822Reserves
              
              
              1,610,192
              
              
              
              
              
              1,610,192Retained
                  earnings
              
              
              8,110,203
              
              
              (1,063,593
              )
              
              7,046,610Accumulated
                  other comprehensive income
              
              
              222,843
              
              
              (7,869
              )
              
              214,974**TOTAL
                  STOCKHOLDERS' EQUITY**
              
              
              16,289,060
              
              
              (1,071,462
              )
              
              15,217,598**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              
              $
              18,375,275
              
              
              
              
              $
              18,375,275




24




The
        following table summarizes the impact of the restatement adjustments on the
        consolidated statement of operations for the three months ended January 31,
        2007:





**Three Months Ended January 31, 2007****As**
                **Previously**
                **Reported**
              
              **Total**
                **Adjustments**
              
              **As Restated**SALES
              
              $
              10,567,586
              
              $
              (1,063,593
              )
              $
              9,503,993COST
                  OF SALES
              
              
              (4,572,936
              )
              
              
              
              
              (4,572,936
              )GROSS
                  PROFIT
              
              
              5,994,650
              
              
              (1,063,593
              )
              
              4,931,057SELLING
                  AND DISTRIBUTION EXPENSES
              
              
              (105,575
              )
              
              
              
              
              (105,575
              )ADVERTISING
              
              
              (9,149
              )
              
              
              
              
              (9,149
              )GENERAL
                  AND ADMINISTRATIVE EXPENSES
              
              
              (319,785
              )
              
              
              
              
              (319,785
              )DEPRECIATION
                  AND AMORTIZATION
              
              
              (68,294
              )
              
              
              
              
              (68,294
              )INCOME
                  FROM OPERATIONS
              
              
              5,491,847
              
              
              (1,063,593
              )
              
              4,428,254OTHER
                  INCOME
              
              
              3,347
              
              
              
              
              
              3,347OTHER
                  EXPENSES
              
              
              (13
              )
              
              
              
              
              (13
              )INCOME
                  BEFORE INCOME TAXES
              
              
              5,495,181
              
              
              (1,063,593
              )
              
              4,431,588INCOME
                  TAXES
              
              
              —
              
              
              
              
              
              —NET
                  INCOME
              
              
              5,495,181
              
              
              (1,063,593
              )
              
              4,431,588NET
                  INCOME PER COMMON SHARE BASIC AND FULLY DILUTED
              
              
              0.157
              
              
              (0.030
              )
              
              0.127




25




The
        following table summarizes the impact of the restatement adjustments on the
        consolidated statement of cash flows for the three months ended January 31,
        2007:





**Three Months Ended January 31, 2007****As Previously**
                **Reported**
              
              **Total**
                **Adjustments**
              
              **As
                  Restated****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  income
              
              $
              5,495,181
              
              $
              (1,063,593
              )
              $
              4,431,588Adjustments
                  to reconcile net income to net cash fromoperating
                  activities :Depreciation
                  and amortization
              
              
              68,294
              
              
              
              
              
              68,294Changes
                  in operating assets and liabilities:Accounts
                  receivable, net
              
              
              (3,048,548
              )
              
              
              
              
              (3,048,548
              )Inventories
              
              
              (1,007,006
              )
              
              
              
              
              (1,007,006
              )Prepayments
              
              
              (332,339
              )
              
              
              
              
              (332,339
              )Other
                  receivables, net
              
              
              1,142,321
              
              
              
              
              
              1,142,321Deferred
                  expenses
              
              
              (1,513
              )
              
              
              
              
              (1,513
              )Accounts
                  payable and accruals
              
              
              (166,798
              )
              
              
              
              
              (166,798
              )Other
                  payables
              
              
              
              
              
              
              
              
              0-
                  due to third parties
              
              
              135,003
              
              
              1,071,462
              
              
              1,206,465-
                  due to related parties
              
              
              (545,746
              )
              
              0
              
              
              (545,746
              )**NET
                  CASH FROM OPERATING ACTIVITIES**
              
              
              1,738,849
              
              
              7,869
              
              
              1,746,718**CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Acquisition
                  of property, plant and equipment
              
              
              (97,309
              )
              
              
              
              
              (97,309
              )Construction
                  in Progress
              
              
              (45,108
              )
              
              
              
              
              (45,108
              )**NET
                  CASH USED IN INVESTING ACTIVITIES**
              
              $
              (142,417
              )
              
              
              
              $
              (142,417
              )**NET
                  CHANGE IN CASH AND CASH EQUIVALENTS**
              
              
              1,596,432
              
              
              7,869
              
              
              1,604,501EFFECT
                  OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
              
              
              169,103
              
              
              (7,869
              )
              
              161,234Cash
                  and cash equivalents, beginning of period
              
              
              1,021,267
              
              
              
              
              
              1,021,267Cash
                  and cash equivalents, end of period
              
              $
              2,786,802
              
              
              
              
              $
              2,786,802





**19.**  **COMPARATIVE
        FINANCIAL INFORMATION**





As
      discussed in Note 1- reorganization transactions, the Company acquired Harbin
      Renhuang Pharmaceutical Company Limited and its wholly owned subsidiary, Harbin
      Renhuang Pharmaceutical Co., Ltd.





The
      comparative numbers are results of operations of Harbin Renhuang Pharmaceutical
      Stock Co. Ltd. from November 1, 2005 to January 31, 2006.




26


**HARBIN
      RENHUANG PHARMACEUTICALS, INC.**




**BALANCE
      SHEET**


**AS
      OF JANUARY 31, 2006**




**(Amounts
      in United States Dollars)**




**ASSETS**





**January 31,**
              **2006****(Unaudited)****CURRENT
                ASSETS**Cash
                and cash equivalents
            
            $
            1,386,447Trade
                receivables, net
            
            
            6,267,018Inventories
            
            
            2,956,977**TOTAL
                CURRENT ASSETS**
            
            
            10,610,442**PROPERTY,
                PLANT AND EQUIPMENT, NET**
            
            
            12,143,464**TOTAL
                ASSETS**
            
            $
            22,753,906




27





**RENHUANG
      PHARMACEUTICALS, INC.**




**BALANCE
      SHEET**


**AS
      OF JANUARY 31, 2006**




**(Amounts
      in United States Dollars)**




**LIABILITIES
      AND STOCKHOLDERS' EQUITY**




**January 31,**
              **2006****(Unaudited)****CURRENT
                LIABILITIES**Accounts
                payables and accruals
            
            $
            1,817,653Bank
                loans
            
            
            3,089,023Other
                payables
            
            
            2,496,891**TOTAL CURRENT
                LIABILITIES**
            
            
            7,403,567**NON-CURRENT
                LIABILITIES**Long-term
                bank loan
            
            
            3,721,715**TOTAL
                LIABILITIES**
            
            
            11,125,282**STOCKHOLDERS'
                EQUITY**Register
                capital
            
            
            9,665,922Reserves
            
            
            1,249,367Retained
                earnings
            
            
            470,847Accumulated
                other comprehensive income
            
            
            242,488**TOTAL
                STOCKHOLDERS' EQUITY**
            
            
            11,628,624**TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY**
            
            $
            22,753,906




28




**RENHUANG
      PHARMACEUTICALS, INC.**





**STATEMENT
      OF INCOME**


**FOR
      THE THREE MONTHS ENDED JANUARY 31, 2006**





**(Unaudited)**SALES
            
            $
            9,401,684COST
                OF SALES
            
            
            (4,942,186
            )GROSS
                PROFIT
            
            
            4,459,498SELLING
                AND DISTRIBUTION EXPENSES
            
            
            (108,078
            )ADVERTISING
            
            
            (1,954,509
            )GENERAL
                AND ADMINISTRATIVE EXPENSES
            
            
            (574,729
            )RESEARCH
                AND DEVELOPMENT
            
            
            (713,621
            )AMORTIZATION
                AND DEPRECIATION
            
            
            (144,901
            )INCOME/(LOSS)
                FROM OPERATIONS
            
            
            963,660FINANCE
                COST
            
            
            (56,366
            )OTHER
                INCOME
            
            
            4,767GOVERNMENT
                GRANT
            
            
            154,294INCOME
                BEFORE INCOME TAXES
            
            
            1,066,355INCOME
                TAXES
            
            
            —NET
                INCOME
            
            $
            1,066,355




29




**RENHUANG
      PHARMACEUTICALS, INC.**





**STATEMENT
      OF CASH FLOWS**


**FOR
      THE THREE MONTHS ENDED JANUARY 31, 2006**


**(Amounts
      in United States Dollars)**





**(Unaudited)****CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                income
            
            $
            1,066,355Adjustments
                to reconcile net income to net cash used inoperating
                activities :Depreciation
                and amortization
            
            
            144,901Changes
                in operating assets and liabilities:Trade
                receivables, net
            
            
            (2,211,371
            )Inventories
            
            
            556,346Prepayments
            
            
            442,826Other
                receivables, net
            
            
            377,206Accounts
                payable and accruals
            
            
            720,734Other
                payables
            
            
            (1,178,570
            )**NET
                CASH USED IN OPERATING ACTIVITIES**
            
            
            (81,573
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES:**Acquisition
                of property, plant and equipment
            
            
            (494,127
            )**NET
                CASH USED IN INVESTING ACTIVITIES**
            
            $
            (494,127
            )




30




**RENHUANG
      PHARMACEUTICALS, INC.**




**STATEMENT
      OF CASH FLOWS (CONTINUED)**


**FOR
      THE THREE MONTHS ENDED JANUARY 31, 2006**


**(Amounts
      in United States Dollars)**





**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Inception
                of bank loans, net
            
            
            613,415Due
                to a director
            
            
            (756,350
            )Due
                to related parties
            
            
            (1,363,411
            )**NET
                CASH USED IN FINANCING ACTIVITIES**
            
            
            (1,506,346
            )**NET
                CHANGE IN CASH AND CASH EQUIVALENTS**
            
            
            (2,082,046
            )EFFECT
                OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
            
            
            29,091Cash
                and cash equivalents, beginning of period
            
            
            3,439,402Cash
                and cash equivalents, end of period
            
            $
            1,386,447**SUPPLEMENTARY
                CASH FLOW DISCLOSURES**Interest
                paid
            
            $
            59,958Income
                taxes paid
            
            $
            —




31




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





**Overview**





The
      following discussion of the financial condition and results of operation of
      Renhuang Pharmaceuticals, Inc. should be read in conjunction with the financial
      statements and the notes to those statements included in this Quarterly Report
      on Form 10-Q. This discussion includes forward-looking statements that involve
      risk and uncertainties. As a result of many factors, actual results may
      differ materially from those anticipated in the forward-looking
      statements.




As
      of
      March 3, 2006 we discontinued our previous operations as a company specializing
      in the providing of home financing through the brokerage of residential home
      loans. On September 7, 2006, we acquired 100% of the issued and outstanding
      shares of Harbin Renhuang Pharmaceutical Company Limited, a corporation
      incorporated under the laws of the British Virgin Islands, (‘‘BVI’’), whose only
      assets are 100% of Harbin Renhuang Pharmaceutical Co. Ltd., incorporated under
      the laws of the People’s Republic of China (“Renhuang China”) mainly focused on
      the research, production and sales of traditional Chinese and Western medical
      and bio-pharmaceutical products in China.





On
      May 1,
      2006, Harbin Renhuang Pharmaceutical Stock Co. Ltd., (“Old Renhuang”)
      transferred the majority of its operating assets to Renhuang China, with the
      exception of the buildings Old Renhuang owns (including where we rent our office
      space and production facilities), and Old Renhuang’s account receivables,
      inventories and other assets with zero or insignificant value. The principal
      business activities of Renhuang remained unchanged. On March 3, 2006, Renhuang
      Medicine for Animals Co. Ltd. a company controlled by our President and Chief
      Executive Officer, Mr. Li Shaoming, invested 25 million RMB (about US $3.3
      million) in cash in Renhuang China.





Our
      pharmaceutical products are distributed through more than 60 sales offices
      with
      more than 2,000 commission-based sales people. Upon the effectiveness of the
      Merger, we adopted the business of Renhuang China, which we have continued
      as
      our sole line of business.





Upon
      closing of the Merger, BVI and its subsidiary Renhuang China
      became our wholly owned subsidiaries. The Former stockholders of BVI own
      approximately 85% of our issued and outstanding common stock.





Since
      we
      will operate Renhuang China as our sole line of business,
      the analysis of the pro forma financial statements for the three
      months ended on January 31, 2006 is the operation of Harbin Renhuang
      Pharmaceutical Co, Ltd. (Renhuang China).





**Reverse
      Merger**





Our
      acquisition of the BVI company and its subsidiary Renhuang China was
      accounted for as a reverse merger, because, after giving effect to the
      share exchanges, the former stockholders of BVI hold a majority of our
      outstanding common stock on a voting and fully diluted basis. As a result of
      the
      share exchanges, Renhuang was deemed to be the acquirer for accounting purposes.
      Accordingly, the financial statements presented are those of Renhuang China
      for
      all periods prior to our acquisition of the BVI company on September 7, 2006,
      and the financial statements of the consolidated companies from the acquisition
      date forward.




32


**Change
      in Fiscal Year**





On
      December 5, 2006, our Board of Directors approved the change of our fiscal
      year end from April 30 to October 31. As a result we filed a Transitional
      Report for the six months ended October 31, 2006 on Form 10-K. For Old
      Renhuang’s three month comparative numbers for the same period in 2006, see Note
      18 to the financial statements filed attached hereto. For our numbers from
      the
      same period one year ago (when we were Anza Capital, Inc.) please see our
      Quarterly Report on Form 10-Q for the three months ended January 31, 2006.





Since
      the
      change in our fiscal year occurred in conjunction with our shift from a shell
      company to a company specializing in the research, production and sales of
      traditional Chinese and Western medical and bio-pharmaceutical products in
      China
      our previous operations are not relevant to our current operations and our
      previous operations are covered in our previous Quarterly Reports on Form 10-Q,
      therefore, this discussion focuses on the three month period from November
      1,
      2006 to January 31, 2007 and a comparison the Old Renhuang’s financial
      statements for the same period in 2006 (see Note 18 to the attached financial
      statements for Old Renhuang’s unaudited financial statements for the three
      months ended January 31, 2006).





**Three
      Months Ended January 31, 2007 Compared to Three Months Ended January 31,
      2006**





**Introduction**





For
        the
        three months ended January 31, 2007, we generated $9,503,993 in revenues
        on cost
        of sales of $4,572,936. With these revenues and cost of sales for the three
        months ended January 31, 2007, we had a net income from operations and a
        net
        income attributable to shareholders of $4,428,254. As noted above, we acquired
        the majority of our current operations from Old Renhuang. For the three months
        ended January 31, 2006, Old Renhuang had revenues of $9,401,684, on cost
        of
        sales of $4,942,186. With these revenues and costs of sales Old Renhuang
        had a
        net income from operations and a net income attributable to shareholders
        of
        $1,066,355.





**Revenues,
      Expenses and Profit from Operations**





Three
                Months
                Ended
                January 31,
                2007
              
              Three
                Months
                Ended
                January 31,
                2006
                (Old
                Renhuang)Revenue
              
              $
              9,503,993
              
              $
              9,401,684Cost
                  of Sales
              
              
              (4,572,936
              )
              
              (4,942,186
              )Selling
                  and Distribution Expenses
              
              
              (105,575
              )
              
              (108,078
              )Advertising
                  Expenses
              
              
              (9,149
              )
              
              (1,954,509
              )General
                  and Administrative Expenses
              
              
              (319,785
              )
              
              (574,729
              )Research
                  and Development
              
              
              —
              
              
              (713,621
              )Depreciation
                  and Amortization
              
              
              (68,294
              )
              
              (144,901
              )Other
                  Income/(Expenses)
              
              
              3,334
              
              
              102,695Net
                  Income
              
              $
              4,428,254
              
              $
              1,066,355




33




*Revenues*





Our
        revenues of $9,503,993 increased by over 1.1% when compared to Old Renhuang’s
        revenues from the same period one year ago of $9,401,684. Our revenues for
        the
        three months ended January 31, 2007 consisted primarily of sales of the
        following products: Acanthopanax products, Shark Power Health Care products,
        and
        other Chinese traditional medical products. The value percentage on the sales
        of
        those products are 51%, 18% and 31%, respectively.




*Cost
      of Sales*





Our
        cost
        of sales for the three months ended January 31, 2007, were $4,572,936,
        representing 48.1% of revenue and consisted primarily of raw material, labor
        and
        production costs, compared to Old Renhuang’s cost of sales for the same period
        one year ago of $4,942,186, representing approximately 52.6% of sales in
        that
        period. The improvement of the percentage of cost to revenue is due to the
        economy of scales resulted from the growth of the production and sales. Costs
        allocated to the aforementioned products, Acanthopanax products, Shark Power
        Health Care products, and other Chinese traditional medical products, are
        48%,
        7% and 45%, respectively.





*Selling
      and Distribution Expenses*





Our
      selling and distribution expenses are those expenses we have related to the
      actual sales of our products and the costs we incur in distributing those
      products. For the three-month period ended January 31, 2007, our selling and
      distribution expenses were $105,575, compared to Old Renhuang’s selling and
      distribution expenses of $108,078, for the same period one year ago.





*Advertising
      Expenses*





For
      the
      three months ended January 31, 2007, we had advertising expenses of $9,149.
      These advertising expenses were primarily related to the advertising of
      Acanthopanax. Old Renhuang’s advertising expenses were $1,954,509 for the same
      period one year ago. This significant decrease was due to the fact Old Renhuang
      had a more aggressive advertising strategy a year ago in order to increase
      name
      recognition in the South of China.





*General
      and Administrative Expenses*





Our
      general and administrative expenses were $319,785 for the three-month period
      ended January 31, 2007, compared to $574,729 during the same period one
      year ago for Old Renhuang. Of our current $319,785 general and administrative
      expenses, the primary expenses were as follows: $34,680 for traveling expenses,
      $134,093 for payroll, and $51,568 for office expenses. While for the same period
      one year ago, the expense include: $83,875 for traveling expenses, $90,482
      for payroll and $137,956 for office expenses, and inventory obsolescence of
      $167,941.





*Research
      and Development*





For
      the
      three months ended January 31, 2007, we spent $0 on research and development
      compared to $713,621 for Old Renhuang during the same period one year ago.
      Our
      research and development expenses were significantly less when compared to
      Old
      Renhuang during the same period one year ago because the majority of the costs
      related to R&D activities are upfront one time payments paid to universities
      and research institutions, and thus, R&D expenses were incurred and recorded
      by Old Renhuang. For the current period the Company does not have new
      significant R&D projects.




34




*Depreciation
      and Amortization*





We
      had
      depreciation and amortization expenses of $68,294 for the three months from
      November 1, 2006 to January 31, 2007, which related to property, plant and
      equipment. This is compared to $144,901 for Old Renhuang for the same period
      one
      year ago, which included depreciation on buildings that were not transferred
      to
      the Company.





*Net
      Income (Loss) from Operations*





Our
        net
        income for the three months ended January 31, 2007, was $4,428,254, which
        increased by over 315% when compared to $1,066,355 for Old Renhuang for the
        same
        period one year ago. This increase in net income compared to Old Renhuang
        for
        the same period one year ago is primarily due to a 1.1% increase in sales
        and a
        decrease in our costs and expenses for the three months ended January 31,
        2007,
        primarily a significant decrease in advertising costs, as discussed
        above.





*Liquidity
      and Capital Resources*





**Introduction**





Our
      cash,
      current assets, total assets, current liabilities, and total liabilities as
      of
      January 31, 2007 and 2006 (Old Renhuang), respectively, are as
      follows:





January 31,
                2007
              
              January 31,
                2006
                (Old
                Renhuang)Cash
                  and Cash Equivalents
              
              $
              2,786,802
              
              $
              1,386,447Total
                  Current Assets
              
              
              15,584,257
              
              
              10,610,442Total
                  Assets
              
              
              18,375,275
              
              
              22,753,906Total
                  Current Liabilities
              
              
              3,157,677
              
              
              7,403,567Total
                  Liabilities
              
              $
              3,157,677
              
              $
              11,125,282





Sources
      and Uses of Cash





*Operations*





Net
        cash
        from operating activities was $1,746,718 for the three months ended January
        31,
        2007, compared to net cash used in operating activities of $81,573 for Old
        Renhuang for the three months ended January 31, 2006. Our net cash used in
        operating activities for the current three month period was primarily
        ($3,048,548) in net accounts receivables, ($1,007,006) in inventories,
        $1,142,321 in other net receivables, ($166,798) in total accounts payable
        and
        accruals, and $660,719 from other payables.





*Investments*





Net
      cash
      used in investing activities was ($142,417) for the three months ended January
      31, 2007, compared to ($497,127) for Old Renhuang for the same period one year
      ago. For the three months ended January 31, 2007, our cash used in
      investing activities related to the acquisition of property, plant and equipment
      in the amount of ($97,309) and construction in progress in the amount of
      ($45,108).




35


*Financing*





Net
      cash
      from financing activities was $0 for the three months ended January 31, 2007,
      compared to net cash used in financing activities in the amount of $1,506,346
      for Old Renhuang for the three months ended January 31, 2006. The contributors
      to the cash used in financing activities during three months ended January
      31,
      2006 included inception of bank loans for $613,415, payable to related parties
      of ($1,363,411), and payable to a director of ($756,350).





Debt
      Instruments, Guarantees, and Related Covenants





The
      Company does not have any long term debt and no significant short term debt,
      and
      has not entered into any guarantee arrangements or other related covenants.





**Critical
      Accounting Policies**





The
      preparation of our financial statements in conformity with accounting principles
      generally accepted in the United States of America requires our management
      to
      make certain estimates and assumptions that affect the reported amounts of
      assets and liabilities and disclosure of contingent assets and liabilities
      at
      the date of the financial statements and the reported amounts of revenues and
      expenses during the reporting period. As such, in accordance with the use of
      accounting principles generally accepted in the United States of America, our
      actual realized results may differ from management’s initial estimates as
      reported. A summary of our significant accounting policies are located in the
      notes to the financial statements which are an integral component of this
      filing.





**Off-balance
      Sheet Arrangements**





We
      do not
      have any off-balance sheet arrangements.





**Contractual
      Obligations**





Payments due by periodObligations
            
            Total
            
            1 Year
            
            1-3 Years
            
            3-5 Years
            
            5 YearsLong-Term
                Debt Obligations
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-Capital
                Lease Obligations
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-Operating
                Lease Obligations
            
            $
            134,165
            
            $
            134,165
            
            
            -0-
            
            
            -0-
            
            
            -0-Purchase
                Obligations
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-Other
                Long-Term Liabilities
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-Total
                Contractual Obligations
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-





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





**ITEM
      3**  **Quantitative
      and Qualitative Disclosures About Market Risk**





Our
      primary operations are located in China. As a result we are exposed to gains
      and
      losses resulting from fluctuations in foreign currency exchange rates relating
      to certain sales and product purchases. We are also exposed to foreign currency
      gains and losses resulting from domestic transactions that are not denominated
      in U.S. dollars, and to fluctuations in interest rates related to our variable
      rate debt. Furthermore, we are exposed to gains and losses resulting from the
      effect that fluctuations in foreign currency exchange rates have on the reported
      results in our consolidated financial statements due to the translation of
      the
      operating results and financial position.




36




Our
      primary financial instruments are cash in banks and money market instruments.
      We
      do not believe that these instruments are subject to material potential
      near-term losses in future earnings from reasonably possible near-term changes
      in market rates or prices. We do not have derivative financial instruments
      for
      speculative or trading purposes. We are not currently exposed to any material
      currency exchange risk.





**ITEM
      4**  **Controls
      and Procedures**





**Evaluation
      of disclosure controls and procedures**





*Evaluation
      of Disclosure Controls and Procedures*





We
          conducted an evaluation, with the participation of our Chief Executive
          Officer
          of the effectiveness of the design and operation of our disclosure controls
          and
          procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
          Exchange Act of 1934, as amended, or the Exchange Act, as of January 31,
          2007,
          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 principal
          executive and principal financial officers, or persons performing similar
          functions, as appropriate to allow timely decisions regarding required
          disclosure. Based on that evaluation, our Chief Executive Officer have
          concluded
          that as of January 31, 2007, our disclosure controls and procedures were
          not
          effective at the reasonable assurance level due to the material weaknesses
          described below.





In
      light
      of the material weaknesses described below, we performed additional analysis
      and
      other post-closing procedures to ensure our consolidated financial statements
      were prepared in accordance with generally accepted accounting principles.
      Accordingly, we believe that the consolidated financial statements included
      in
      this report fairly present, in all material respects, our financial condition,
      results of operations and cash flows for the periods presented.





A
        material weakness is a control deficiency (within the meaning of the Public
        Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or
        combination of control deficiencies, that results in more than a remote
        likelihood that a material misstatement of the annual or interim financial
        statements will not be prevented or detected. Management has identified the
        following three material weaknesses which have caused management to conclude
        that, as of January 31, 2007, our disclosure controls and procedures were
        not
        effective at the reasonable assurance level:





We
      were
      unable to meet our requirements to timely file our Transitional Report on Form
      10-K for the six months ended October 31, 2006. 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
      did
      not maintain a sufficient complement of finance and accounting personnel with
      adequate depth and skill in the application of generally accepted accounting
      principles. In addition, we did not maintain a sufficient complement of finance
      and accounting personnel to handle the matters necessary to timely file our
      Transitional Report Form 10-K for the six months ended October 31, 2006.
      Management evaluated the impact of our lack of sufficient finance and accounting
      personnel on our assessment of our disclosure controls and procedures and has
      concluded that the control deficiency that resulted in our lack of sufficient
      personnel represented a material weakness.




During
          management’s review of our financial statements for the period ended July 31,
          2007, our
          management became aware that our previously reported unaudited consolidated financial statements filed
          with our originally-filed Quarterly Report on Form 10-Q for the period
          ended
          January 31, 2007, did not properly accrue certain sales rebate payables.
          The
          consolidated financial statements properly recorded revenues from its sales,
          but
          did not properly account for certain rebates some of its customers were
          entitled
          to receive after the sales. As
          a
          result, we have filed this amended filing to restate our consolidated financial
          statements for this period. The restated consolidated financial statements
          show
          an increase in our current liabilities and a decrease in our sales and
          net
          income. Based on management’s review of this error, management concluded this
          error was caused by our failure to maintain a sufficient complement of
          finance
          and accounting personnel with adequate depth and skill in the application
          of
          generally accepted accounting principles. Management evaluated the impact
          of our
          failure to properly detect this error on our assessment of our disclosure
          controls and procedures and has concluded that the control deficiency that
          resulted in our failure to detect this error in the review of our quarterly
          financial statements represented a material weakness.


37




To
      address these material weaknesses, management performed additional analyses
      and
      other procedures to ensure that the financial statements included herein fairly
      present, in all material respects, our financial position, results of operations
      and cash flows for the periods presented.





*Remediation
      of Material Weaknesses*





To
      remediate the material weaknesses in our disclosure controls and procedures
      identified above, subsequent to October 31, 2006, in addition to working with
      our independent auditors, we accepted the resignation of our Chief Financial
      Officer on January 25, 2007, appointed an interim Chief Financial Officer that
      is familiar with our operations and generally accepted accounting principals,
      and we are conducting a search for new permanent Chief Financial Officer. In
      conjunction with the hiring of a new Chief Financial Officer we will reassess
      our internal control structure and procedures for financial reporting to ensure
      they are sufficient.





*Changes
      in Internal Control over Financial Reporting*





Except
      as
      noted above, 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 six months that have materially
      affected, or are reasonably likely to materially affect, our internal control
      over financial reporting.




38


**PART
      II - OTHER INFORMATION**





**ITEM
      1**  **Legal
      Proceedings**





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





**ITEM
      1A**  **Risk
      Factors**





There
      are
      no material changes to the risk factors in our most recent Transitional Report
      on Form 10-K/A for the fiscal year ended October 31, 2006.





**ITEM
      2**  **Unregistered
      Sales of Equity Securities and Use of Proceeds**





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





**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**





*Departure
      of Directors or Principal Officers; Election of Directors; Appointment of
      Principal Officers*





On
      September 16, 2006, we entered into an oral agreement with Ms. Edith Kong under
      which she was hired to be our interim Chief Financial Officer and appointed
      to
      the Board of Directors. On January 25, 2007, Ms. Kong resigned from her
      positions as interim Chief Financial Officer and a Director. At the time of
      her
      resignation we agreed to pay Ms. Kong $32,000 in cash for her services. This
      is
      the only compensation we agreed to pay Ms. Kong for her services.





Effective
        on January 25, 2007, our Board of Directors hired Mr. Wang Zuoliang as our
        interim Chief Financial Officer to replace Ms. Kong. Mr. Wang has served
        as
        Chief Accounting Officer of Harbin Renhuang Pharmaceutical Co. Ltd., our
        wholly-owned subsidiary, since 2005. Mr. Wang has more than 10 years experience
        in accounting and is familiar with our financial condition and the internal
        preparation of our financial statements. From 2004 to 2005, Mr. Wang served
        as
        the Chief Financial Officer of Harbin Huijiabei Food Co. Ltd. From 2001 to
        2004,
        Mr. Wang served as the manager of the accounting department of China Resource
        Breweries Limited, Harbin Office. Mr. Wang Zuoliang graduated from Qiqihaer
        Mechanic Institute in 1994 with a bachelor degree in engineering
        management.





We
        are in
        the process of interviewing candidates for a permanent Chief Financial Officer
        and hope to have a new permanent Chief Financial Officer hired in the near
        future. Once a new Chief Financial Officer is hired we will file a Form 8-K
        with
        information regarding the Chief Financial Officer, as
        required.





Effective
        on January 25, 2007, Mr. Pi Dianjun resigned from his position as a
        Director.




39




Effective
      on January 25, 2007, our Board of Directors appointed Mr. Andy Wu to the Board
      of Directors as an independent Director and as Chairman of our Audit Committee.
      Mr. Wu is currently a Tax Manager at PWC Beijing responsible for the
      overall operations of the Dalian office, including IIT filing, tax health check,
      assistance on setting up new enterprise/RO, assistance in tax audit defense,
      tax
      due diligence, tax review for IPO projects, assistance in negotiation for deemed
      profit rates, and general tax and business consulting. Mr. Wu has held this
      position since January, 2006. During 2005, Mr. Wu was an Assistant Tax Manager
      at KPMG Shanghai, with his main responsibilities involving general tax and
      business consulting and due diligence work. From August 2004 to March 2005,
      Mr.
      Wu was a Senior Tax Consultant with Deloitte’s Suzhou Office, primarily
      responsible for tax review, Due Diligence, IIT compliance, and general tax
      advisory projects. From March 1998 to August 2001, Mr. Wu was the Chief Officer
      of the Collections Division for the Nangang Branch of Harbin State Tax Bureau,
      where he was responsible for managing the operations of the Collections
      Division. Mr. Wu received a Doctorate Finance and Taxation from Xiamen
      University in June 2004, a Master in Finance and Taxation from Dongbei
      University of Finance in January 2001, and his Bachelor in Taxation from Xiamen
      University in July 1992.





*Correction
      of Audit Fees in Annual Report on Form 10-K/A*





Our
          Annual Report on Form 10-K/A for the fiscal year ended October 31, 2006
          filed
          with the Securities and Exchange Commission on February 22, 2007 reported
          the
          $125,000 in fees Schwartz Levitsky Feldman LLP billed us for the audit
          of our
          financial statements under “Audit-Related Fees.” These fees should have been
          listed under “Audit Fees” and not under “Audit-Related
          Fees.”


*Acquisition
      of Extracting Factory*





On
      March
      3, 2007, we acquired all the assets and assumed a bank loan with accrued
      interest of Qingyang Extracting Factory, from Zhongfa Industrial Group Yerui
      Pharmaceutical Co., Ltd. for a total amount of RMB 3.7 million or approximately
      USD $480,000. The assets acquired included inventories, customer purchase
      orders, accounts receivables, corporate name, patents, trademarks, equipment,
      customer lists and records and other assets that are used or held for use in
      connection with Business of Qingyang Extracting Factory. We paid USD $310,000
      in
      cash and assumed a bank loan with China Agriculture Bank in the principal amount
      of USD $140,000 and accrued interest of USD $30,000 collateralized by the
      acquired assets. The transaction closed on March 3, 2007, and we have paid
      the
      cash portion of the consideration USD $310,000 (RMB 2,415,000). The Qingyang
      Extracting Factor, located in Yanshou Township Harbin, China, is a manufacturing
      facility that processes raw herbal plants into extracts, which is the
      intermediate material for Chinese herbal medicine finished products. The factory
      is capable of processing approximately 18,000 tons of herbal raw materials
      into
      extract, doubling our current herbal extracting capacity.




40




**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, 2005.10.2
                  (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
                  2002.32.2
              
              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.




41




**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:
                  August 11, 2008
              
              /s/
                  Li ShaomingBy:
              Li
                  ShaomingPresident
                  andChief
                  Executive OfficerDated:
                  August 11, 2008
              
              /s/
                  Zuoliang WangBy:
              Zuoliang
                  WangInterim
                  Chief Financial Officer




42