UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
  Form
10-Q
 
 (Mark
One)
 
 x
              QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For
the quarterly period ended April 30, 2008
 
 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 oNo x
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes  ̈No  ̈
 
 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” “smaller reporting company” in Rule 12b-2 of
the Exchange Act. (Check one):
 
 Large
accelerated filer o                             Accelerated
filer o
 Non-accelerated
filer o                               Smaller
Reporting Companyx
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes oNo x
 
 Applicable
only to corporate issuers:
 
 As of May
20, 2008, there were 35,096,680 shares of common stock, par value $0.001, issued
and outstanding.
  
  Renhuang
Pharmaceuticals, Inc.
 
 TABLE OF
CONTENTS
  PART
      IITEM
      1
                          FINANCIAL
      STATEMENTS
                          4ITEM
      2
                          MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.
                          22ITEM
      3
                          QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                          29ITEM
      4
                          CONTROLS
      AND PROCEDURES
                          30PART
      IIITEM
      1
                          LEGAL
      PROCEEDINGS
                          32ITEM
      1A
                          RISK
      FACTORS
                          32ITEM
      2
                          UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
                          32ITEM
      3
                          DEFAULTS
      UPON SENIOR SECURITIES
                          32ITEM
      4
                          SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                          32ITEM
      5
                          OTHER
      INFORMATION
                          32ITEM
      6
                          EXHIBITS
                          33
  2
  PART
I - FINANCIAL INFORMATION
 
 This
Quarterly Report includes forward-looking statements within the meaning of the
Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based
on management’s beliefs and assumptions, and on information currently available
to management. Forward-looking statements include the information concerning
possible or assumed future results of operations of the Company set forth under
the heading “Management’s Discussion and Analysis of Financial Condition or Plan
of Operation.” Forward-looking statements also include statements in which words
such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,”
“consider” or similar expressions are used.
 
 Forward-looking
statements are not guarantees of future performance. They involve risks,
uncertainties and assumptions. The Company’s future results and shareholder
values may differ materially from those expressed in these forward-looking
statements. Readers are cautioned not to put undue reliance on any
forward-looking statements.
  3
  ITEM
1            Financial
Statements
 
 RENHUANG
PHARMACEUTICALS, INC. AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 
 ASSETS
 
 April 30,
                            2008
                          
                          
                          October31,
                            2007(a)(Unaudited)
                          
                          
                          (Audited)CURRENT
      ASSETSCash
      and cash equivalents
                          
                          $
                          13,401,359
                          
                          
                          $
                          10,153,603Accounts
      receivable, net
                          
                          
                          12,354,941
                          
                          
                          
                          8,889,411Inventories
                          
                          
                          1,903,858
                          
                          
                          
                          969,672Prepayments
      and other receivables, net
                          
                          
                          546,375
                          
                          
                          
                          196,997TOTAL
      CURRENT ASSETS
                          
                          
                          28,206,533
                          
                          
                          
                          20,209,683PROPERTY,
      PLANT AND EQUIPMENT, NET
                          
                          
                          2,698,697
                          
                          
                          
                          2,606,285TOTAL
      ASSETS
                          
                          $
                          30,905,230
                          
                          
                          $
                          22,815,968
 (a)
Reference is made to the audited financial statements of the Company filed with
the SEC on Form 10-K in May 2008.
 
 The
accompanying notes are in integral part of the consolidated financial
statements
  4
  RENHUANG
PHARMACEUTICALS, INC. AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
  LIABILITIES AND
STOCKHOLDERS' EQUITY
 
 April 30,
                                    2008
                                  
                                  
                                  October 31,
                                    2007(a)(Unaudited)
                                  
                                  
                                  (Audited)CURRENT
      LIABILITIESAccounts
      payable
                                  
                                  $
                                  282,826
                                  
                                  
                                  $
                                  155,600Due
      to related party
                                  
                                  
                                  156,509
                                  
                                  
                                  
                                  157,376Other
      payables
                                  
                                  
                                  1,048,685
                                  
                                  
                                  
                                  1,109,492TOTAL
      LIABILITIES
                                  
                                  
                                  1,488,020
                                  
                                  
                                  
                                  1,422,468STOCKHOLDERS’
      EQUITYPreferred
      Stock - Authorized preferred shares 1,000,000, issued and outstanding
      number of shares nil and at par value of nil
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Common
      Stock - Authorized common shares 100,000,000, issued and outstanding
      number of shares 35,096,680 at par value of $0.001
                                  
                                  
                                  35,097
                                  
                                  
                                  
                                  35,097Additional
      paid-in capital
                                  
                                  
                                  6,627,099
                                  
                                  
                                  
                                  6,627,099Reserves
                                  
                                  
                                  1,841,734
                                  
                                  
                                  
                                  1,841,734Retained
      earnings
                                  
                                  
                                  18,336,781
                                  
                                  
                                  
                                  11,980,112Accumulated
      other comprehensive income
                                  
                                  
                                  2,576,499
                                  
                                  
                                  
                                  909,458TOTAL
      STOCKHOLDERS’ EQUITY
                                  
                                  
                                  29,417,210
                                  
                                  
                                  
                                  21,393,500TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                                  
                                  $
                                  30,905,230
                                  
                                  
                                  $
                                  22,815,968
 . (a)
Reference is made to the audited financial statements of the Company filed with
the SEC on Form 10-K in May 2008.
 
 The
accompanying notes are in integral part of the consolidated financial
statements
  5
  RENHUANG
PHARMACEUTICALS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENT OF INCOME AND COMPREHENSIVE INCOME
 (Unaudited)
 
 Three
      Months
      Ended
                                          April
      30,
                                        
                                        
                                        Six Months
      Ended
      April 30,2008
                                        
                                        
                                        2007
                                        
                                        
                                        2008
                                        
                                        
                                        2007SALES
                                        
                                        $
                                        7,516,594
                                        
                                        
                                        $
                                        6,315,332
                                        
                                        
                                        $
                                        17,975,450
                                        
                                        
                                        $
                                        15,819,325COST
      OF SALES
                                        
                                        
                                        (3,423,785
                                        )
                                        
                                        
                                        (3,120,081
                                        )
                                        
                                        
                                        (8,221,517
                                        )
                                        
                                        
                                        (7,693,017
                                        )GROSS
      PROFIT
                                        
                                        
                                        4,092,809
                                        
                                        
                                        
                                        3,195,251
                                        
                                        
                                        
                                        9,753,933
                                        
                                        
                                        
                                        8,126,308SELLING
      AND DISTRIBUTION EXPENSES
                                        
                                        
                                        (42,087
                                        )
                                        
                                        
                                        (16,871
                                        )
                                        
                                        
                                        (111,431
                                        )
                                        
                                        
                                        (122,446
                                        )ADVERTISING
      EXPENSE
                                        
                                        
                                        (679,640
                                        )
                                        
                                        
                                        (163,532
                                        )
                                        
                                        
                                        (1,361,071
                                        )
                                        
                                        
                                        (172,681
                                        )GENERAL
      AND ADMINISTRATIVE EXPENSES
                                        
                                        
                                        (548,964
                                        )
                                        
                                        
                                        (369,728
                                        )
                                        
                                        
                                        (1,324,034
                                        )
                                        
                                        
                                        (636,504
                                        )RESEARCH
      AND DEVELOPMENT
                                        
                                        
                                        (329,121
                                        )
                                        
                                        
                                        —
                                        
                                        
                                        
                                        (671,015
                                        )
                                        
                                        
                                        —BAD
      DEBT RECOVERY/(EXPENSE)
                                        
                                        
                                        733
                                        
                                        
                                        
                                        (568,113
                                        )
                                        
                                        
                                        42,165
                                        
                                        
                                        
                                        (621,122
                                        )DEPRECIATION
                                        
                                        
                                        (3,405
                                        )
                                        
                                        
                                        (70,181
                                        )
                                        
                                        
                                        (6,531
                                        )
                                        
                                        
                                        (138,475
                                        )INCOME
      FROM OPERATIONS
                                        
                                        
                                        2,490,325
                                        
                                        
                                        
                                        2,006,826
                                        
                                        
                                        
                                        6,322,016
                                        
                                        
                                        
                                        6,435,080OTHER
      INCOME
                                        
                                        
                                        20,680
                                        
                                        
                                        
                                        6,732
                                        
                                        
                                        
                                        34,653
                                        
                                        
                                        
                                        10,066INCOME
      BEFORE INCOME TAXES
                                        
                                        
                                        2,511,005
                                        
                                        
                                        
                                        2,013,558
                                        
                                        
                                        
                                        6,356,669
                                        
                                        
                                        
                                        6,445,146INCOME
      TAXES
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —NET
      INCOME
                                        
                                        $
                                        2,511,005
                                        
                                        
                                        
                                        2,013,558
                                        
                                        
                                        $
                                        6,356,669
                                        
                                        
                                        
                                        6,445,146OTHER
      COMPREHENSIVE INCOMEFOREIGN
      CURRENCY TRANSLATION ADJUSTMENT
                                        
                                        
                                        699,649
                                        
                                        
                                        
                                        164,778
                                        
                                        
                                        
                                        1,667,041
                                        
                                        
                                        
                                        326,013COMPREHENSIVE
      INCOME
                                        
                                        $
                                        3,210,654
                                        
                                        
                                        $
                                        2,178,336
                                        
                                        
                                        $
                                        8,023,710
                                        
                                        
                                        $
                                        6,771,159BASIC
      EARNINGS PER SHARE
                                        
                                        $
                                        0.07
                                        
                                        
                                        $
                                        0.06
                                        
                                        
                                        $
                                        0.18
                                        
                                        
                                        $
                                        0.18DILUTED
      EARNING PER SHARE
                                        
                                        $
                                        0.07
                                        
                                        
                                        $
                                        0.06
                                        
                                        
                                        $
                                        0.18
                                        
                                        
                                        $
                                        0.18WEIGHTED
      AVERAGE NUMBER OF COMMON SHARES OUTSTANDING –BASIC
                                        
                                        
                                        35,096,680
                                        
                                        
                                        
                                        35,000,181
                                        
                                        
                                        
                                        35,096,680
                                        
                                        
                                        
                                        35,000,181WEIGHTED
      AVERAGE NUMBER OF COMMON SHARES OUTSTANDING –DILUTED
                                        
                                        
                                        35,096,680
                                        
                                        
                                        
                                        35,002,420
                                        
                                        
                                        
                                        35,096,680
                                        
                                        
                                        
                                        35,000,181
 
 The
accompanying notes are in integral part of the consolidated financial
statements
  6
  RENHUANG
PHARMACEUTICALS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENT OF CASH FLOWS
 (Unaudited)
 
 Six
      Months Ended April 302008
                            
                            
                            2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                            
                            $
                            6,356,669
                            
                            
                            $
                            6,445,146Adjustments
      to reconcile net income to net cash from operating activities
      :Depreciation
                            
                            
                            164,488
                            
                            
                            
                            138,475Adjustments
      to the provision for bad debts
                            
                            
                            (42,165
                            )
                            
                            
                            621,122Fair
      value of warrants issued for services
                            
                            
                            —
                            
                            
                            
                            22,442Changes
      in operating assets and liabilities:Accounts
      receivable
                            
                            
                            (2,769,896
                            )
                            
                            
                            (4,293,019
                            )Inventories
                            
                            
                            (841,971
                            )
                            
                            
                            (730,158
                            )Prepayment
      and other receivables, net
                            
                            
                            (283,792
                            )
                            
                            
                            469,130Deferred
      expenses
                            
                            
                            —
                            
                            
                            
                            (2,610
                            )Accounts
      payable and accruals
                            
                            
                            113,095
                            
                            
                            
                            (266,893
                            )Due
      to related party
                            
                            
                            (9151
                            )
                            
                            
                            -Other
      payables
                            
                            
                            (133,141
                            )
                            
                            
                            739,849NET
      CASH PROVIDED BY OPERATING ACTIVITIES
                            
                            
                            2,554,136
                            
                            
                            
                            3,143,484CASH
      FLOWS FROM INVESTING ACTIVITIES:Acquisition
      of property, plant and equipment
                            
                            
                            (80,073
                            )
                            
                            
                            (143,330
                            )Construction
      in progress
                            
                            —
                            
                            
                            
                            (560,965
                            )NET
      CASH USED IN INVESTING ACTIVITIES
                            
                            $
                            (80,073
                            )
                            
                            $
                            (704,295
                            )CASH
      FLOWS FROM FINANCING ACTIVITIES:
                            
                            
                            —
                            
                            
                            
                            —
 
 The
accompanying notes are in integral part of the consolidated financial
statements
  7
  RENHUANG
PHARMACEUTICALS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENT OF CASH FLOWS (CONTINUED)
 (Unaudited)
 
 Six
      Months Ended April 30,2008
                            
                            
                            2007NET
      CHANGE IN CASH AND CASH EQUIVALENTS
                            
                            $
                            2,474,063
                            
                            
                            
                            2,439,189EFFECT
      OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
                            
                            
                            773,693
                            
                            
                            
                            326,013Cash
      and cash equivalents, beginning of period
                            
                            
                            10,153,603
                            
                            
                            
                            1,021,267Cash
      and cash equivalents, end of period
                            
                            $
                            13,401,359
                            
                            
                            $
                            3,786,469SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONInterest
      paid
                            
                            
                            —
                            
                            
                            $
                            45,996Income
      taxes paid
                            
                            
                            —
                            
                            
                            
                            —
 
 The
accompanying notes are in integral part of the consolidated financial
statements
  8
  RENHUANG
PHARMACEUTICALS, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 1.
ORGANIZATION AND PRINCIPAL ACTIVITIES
 
 Renhuang
Pharmaceuticals, Inc., (“Renhuang”) or the (“Company”) was incorporated in the
State of Nevada on August 18, 1988 and shares of the Company's Common Stock are
traded over-the counter on the Pink Sheets under the symbol RHGP.  The
Company owns 100% of Harbin Renhuang Pharmaceutical Company Limited (the “BVI”),
a holding company.  Substantially all of the Company’s operations are
conducted through BVI’s wholly-owned subsidiary Harbin Renhuang Pharmaceuticals
Co., Ltd (“Renhuang China” or the “Subsidiary”) which was incorporated in Harbin
City in the People’s Republic of China (the “PRC” or “China”) in 1996. The
subsidiary is principally engaged in production and sales of nutraceutical and
bio-pharmaceutical products including tablets, drinks and health food; the
Subsidiary’s sales network covers various provinces, cities, and counties
throughout China.
  Unless
otherwise provided in this current report, all references in this current report
to “we”, “us”, “our company”, “our”, or the “Company” refers to Renhuang
Pharmaceuticals, Inc. on a consolidated basis, including Renhuang China and the
BVI.
 
 2. BASIS OF
PRESENTATION
 
 The
accompanying consolidated financial statements of the Company are stated in
United States dollars and have been prepared in accordance with generally
accepted accounting principles in the United States of America and include the
financial statements of the Company and its subsidiaries. All significant
intercompany transactions and balances are eliminated on
consolidation.
  The
accompanying unaudited consolidated financial statements as of April 30, 2008
and for the three and six months ended April 30, 2008 and 2007 have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Regulation S-X
applicable to smaller reporting companies. In the opinion of management, these
unaudited consolidated interim financial statements include all adjustments
considered necessary to make the financial statements not misleading. The
results of operations for the six months ended April 30, 2008 are not
necessarily indicative of the results for the full fiscal year ending October
31, 2008. The unaudited consolidated interim financial statements should be read
in conjunction with the Company’s audited consolidated financial statements
and notes thereto for the year ended October 31, 2007 as reported in Form
10-K.
  9
  The
presentation of certain prior period information has been modified to conform to
the current presentation.
 
 3. SUMMARY OF PRINCIPAL ACCOUNTING
POLICIES
 
 A. CASH AND CASH
EQUIVALENTS
 
 The
Company considers cash and cash equivalents to include cash on hand and demand
deposits with banks with an original maturity of three months or
less.
 
 B. ACCOUNTS RECEIVABLE,
NET
 
 Accounts
receivable is recognized and carried at the original invoice amount less
allowance for any uncollectible amounts. The Company issues invoice at the
month-end for the deliveries made during that monthly period. An account is
considered past due after 90 days from the invoice date as at April 30, 2008 and
October 31, 2007.. The Company recognizes an allowance for doubtful accounts to
ensure accounts receivable are not overstated due to uncollectibility and
established on a by-customers basis based upon a variety of factors which
include the length of time the receivables are past due, significant one-time
events and historical experience. If circumstances related to customers change,
estimates of the recoverability of receivables would be further adjusted. The
allowance on the doubtful accounts was $143,538 as at April 30, 2008 ($134,295
at October 31, 2007). The Company does not accept returns or offer any
post-sales marketing support to customers.
 
 C. INVENTORIES
 
 Inventories
are stated at the lower of cost or net realizable value. Production cost is
allocated at FIFO and overhead cost is calculated on the weighted average
basis.  The cost includes all costs to acquire, transport and process
inventories to their present location and condition. The Company evaluates the
net realizable value of its inventories regularly and records a provision for
loss, if necessary, to reduce inventories to their net realizable value. There were $62,549 and $58,521 of
inventory reserve provisions recorded at April 30, 2008 and October 31, 2007,
respectively.
 
 D. PROPERTY, PLANT AND
EQUIPMENT
 
 Property,
plant and equipment are carried at cost. The cost of repairs and maintenance is
expensed as incurred; major replacements and improvements are
capitalized.
  10
  
 When
assets are retired or disposed of, the cost and accumulated depreciation are
removed from the accounts, and any resulting gains or losses are included as
components of income at the time of disposition.
 
 The
Company records depreciation of its property, plant and equipment on a
straight-line basis over the estimated useful lives of the assets. The useful
lives for property, plant and equipment are estimated as follows:
 
 Machinery
      and equipment
                
                10
      yearsOffice
      equipment and furnishings
                
                5
      to 10 yearsMotor
      vehicles
                
                5
      to 10 years
 
 E.
FAIR VALUE OF FINANCIAL INSTRUMENTS
 
 The
carrying amounts of certain financial instruments, including cash, accounts
receivable, other receivables, accounts payable, and other payables approximate
their fair values as of April 30, 2008 because of the relative short-term
maturity of these instruments.
 
 3.
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
 
 F. INCOME TAXES
 The
Company accounts for income tax under the provisions of Statements of Financial
Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes,” which
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the consolidated
financial statements. Deferred income taxes are provided using the liability
method. Under the liability method, deferred income taxes are recognized for all
significant temporary differences between the tax and financial statement bases
of assets and liabilities. In addition, the Company is required to record all
deferred tax assets, including future tax benefits of capital losses carried
forward, and to record a “valuation allowance” for any deferred tax assets where
it is more likely than not that the asset will not be realized.
 
 In
accordance with the relevant income tax laws applicable to wholly foreign owned
enterprises operating in PRC, the profits of the Company are fully exempt from
income tax for two years (“tax holiday”), commencing from the first profit
making year of operations, followed by a 50% exemption for the immediate next
three years (“tax preferential period”), after which the profits of the Company
will be taxable at the full rate, currently 25% (See Note 12).
 
 G. RELATED PARTIES
 
 All
related party transactions are in the normal course of operations and are
measured at the exchange amount, which is the amount of consideration
established and agreed to by the related parties.  The aggregate of
balances due to and from related parties for all periods presented are
separately disclosed on the face of the balance sheet (See Note
15).
  11
  H. IMPAIRMENT OF LONG-TERM
ASSETS
 
 The Company assesses long-lived
assets for potential impairment based on a review of projected undiscounted cash
flows associated with these assets. Long-lived assets are subjected to
impairment evaluations when events and circumstances exist that indicate the
carrying amount of these assets may not be recoverable. This process is highly
subjective and changes in the estimates and assumptions, including the discount
rate and expected long-term growth rate, which drive the valuation techniques
employed to estimate the fair value of long-lived assets could change and,
therefore, impact the assessments of impairment in the future.  As of
April 30, 2008, management expects its long-lived assets to be fully
recoverable.
 
 I. FOREIGN CURRENCY
TRANSLATION
 
 The
Company maintains its books and accounting records in its functional currency,
the Renminbi, (which is the PRC's currency).
 
 In
translating the financial statements of the Company from its functional currency
into United States dollars (“USD”), its reporting currency, asset and liability
accounts are translated using the closing exchange rate in effect at the balance
sheet date, equity accounts are translated at historic rates and income and
expense accounts are translated using an average exchange rate prevailing during
the reporting period. Adjustments resulting from the translation, if any, are
included in accumulated other comprehensive income in stockholders’
equity.
 
 Foreign
currency transaction gains and losses, if any, are included in the determination
of net income for the period.
 
 The
Renminbi (“RMB”) is not freely convertible into foreign currency and all foreign
exchange transactions must take place through authorized institutions. No
representation is made that the RMB amounts could have been, or can be,
converted into United States dollars (“USD”) at the rates used in translation.
The exchange rate between the RMB and the USD on April 30, 2008 and the average
through October 31, 2007 to April 30, 2008 are:
 
 Exchange
      rate:
                      Apr.30,2008
                      Oct.31,2007Balance
      Sheets- Year end RMB:USD exchange rate
                      7.0002:1
                      7.4820:1Operating
      Statement: Period average  RMB:USD exchange rate
                      7.2120:1
                      7.6917:1
  12
  J. USE OF ESTIMATES
 
 The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenue and expenses
during the reporting period. Significant estimates primarily related to the
realizable value of accounts receivable, inventories, and the useful lives of
plant and equipment. Actual results when ultimately realized could differ from
those estimates.
 
 K. REVENUE
RECOGNITION
 The
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the sales price is fixed and determinable, and
collectability is reasonably assured; this policy is in accordance with the
provisions of Staff Accounting Bulletin No. 104.  Renhuang generally
recognizes product sales when the product is shipped.
  The
Company provides rebates to its sales agents (who act as wholesalers) as an
incentive plan. The rebate rate is set on a product-by-product basis. When
revenue is recognized, the rebate is accounted for as an offset to revenues in
accordance with EITF Issue No. 01-9, Accounting for Consideration Given by a
Vendor to a Customer (Including a Reseller of the Vendor’s Products). On
average, the rebate rate was 17% and 20% of gross revenue in the six months
ended April 2008 and 2007, respectively.
 
 L.
CERTAIN RISKS AND CONCENTRATIONS
  The
Company is subject to a significant concentration of credit risk with its trade
accounts receivable. The Company performs ongoing credit evaluations with
respect to the financial condition of its creditors, but does not require
collateral.  The Company records a provision for doubtful accounts to
cover probable credit losses. Management reviews and adjusts this allowance
periodically based on historical experience and its evaluation of the
collectability of outstanding accounts receivable.
 
 The
Company is subject to the risks inherent in operating within the
PRC  These include risks associated with the political and economic
environment, foreign currency exchange and the legal system in the
PRC.
 
 M.
RESEARCH AND DEVELOPMENT
 Research
and development (“R&D”) costs are expensed as incurred. Engineers and
technical staff are involved in the production of our products as well as
on-going research, with no segregation of the portion of their salaries relating
to research and development from the portion of their salaries relating to
production. The total salaries are included in cost of sales.  R&D
for the six months ended April 30, 2008 and 2007 are $671,015 and nil
respectively.
  13
  N.
ADVERTISING
 
 Advertising
costs consist primarily of promoting the Company and the Company’s products
through television and printed advertisements in trade publications. Advertising
costs are expensed as incurred. They are separately disclosed in the
consolidated statements of income and comprehensive income.
  O.
STOCK-BASED COMPENSATION
  The
Company measures and records the cost of employee services received in exchange
for stock-based compensation at the grant date fair value of the
award.  This method is in accordance with SFAS No. 123 (revised
2004), “Share-Based Payment”.  Total stock based compensation expense
for the six months ended April 30, 2008 and 2007 was nil.
 
 P. CLASSIFICATION OF OPERATING COSTS AND
EXPENSES
 
 The
Company records its operating costs and expenses using the following general
classifications:
  Cost of Goods
Sold
 Cost of
goods sold consists primarily of raw materials, direct labor and manufacturing
overhead. Manufacturing overhead includes an allocation of purchasing and
receiving costs, inspection fees, warehousing utilities, supplies, factory and
equipment repairs and maintenance, safety equipment and supplies, packing
materials, loading fees, and depreciation expense associated with machinery and
equipment.
  Selling
Expenses
 Selling
expenses consists primarily of travel and entertainment, maintenance, payroll
(including taxes and benefits) for sales staff, telephone, utilities, insurance,
sales commissions and export fees.
  General and Administrative
Expenses
 General
and administrative expenses consists primarily of general office expenses,
travel and entertainment, transportation, administrative payroll, payroll taxes
and benefits, maintenance, telephone, utilities, printing, professional fees,
continuing education, licenses and fees.
 
 Q. EARNINGS PER
SHARE
 
 The
Company reports earnings per share in accordance with SFAS No. 128, “Earnings
per Share.” Basic earnings per share is computed by dividing income available to
common shareholders by the weighted average number of common shares available.
Diluted earnings per share is computed using the treasury stock method whereby
the denominator is increased by the net dilution on the exercise of the warrants
and other common stock equivalents if those additional common shares were
dilutive.  There were 25,000 and 15,000 potentially dilutive
securities outstanding during the six months ended April 30, 2008 and 2007,
respectively. The 25,000 and 15,000 warrants were deemed to be anti-diluted as
the market price of the shares was lower than the exercise price at April 30,
2008 and 2007.
  14
  R.
COMPREHENSIVE INCOME
 
 The
Company has adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for the reporting
and display of comprehensive income, its components and accumulated balances in
a full set of general-purpose financial statements. SFAS No. 130 defines
comprehensive income to include all changes in equity except those resulting
from investments by owners and distributions to owners, including adjustments to
minimum pension liabilities, accumulated foreign currency translation, and
unrealized gains or losses on marketable securities. In the six months ended
April 30, 2008, the only component of other comprehensive income is foreign
translation gain of $1,667,041 ($326,013 in the six month ended April 30, 2007),
which has been recorded as the accumulative other comprehensive income in the
balance sheet.
 
 S. RECENT
PRONOUNCEMENTS
 
 The
Company adopted SFAS No. 157 effective January 1, 2008, except for the
nonfinancial assets and liabilities that are subject to a one-year deferral
allowed by FASB Staff Position (FSP) SFAS 157-2 (“ FSP SFAS 157-2”). FSP SFAS
157-2 delays the effective date of SFAS No. 157 until
fiscal years beginning after November 15, 2008 for nonfinancial assets and
liabilities that are not recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). The adoption of SFAS No. 157 did not
have a material effect on our financial statements. The Company does not expect
the adoption of SFAS No. 157 will have a
material effect on our financial statements beginning in year 2009 as it relates
to the items subject to the one-year deferral allowed by FSP SFAS
157-2.
 
 In
February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities
Including an Amendment of FASB Statement No. 115” (" SFAS 159"). SFAS No. 159
permits entities to choose to measure many financial instruments and certain
other items at fair values. SFAS No. 159 is effective for fiscal years after
November 15, 2007. The adoption of SFAS No. 159, effective January 1, 2008, did
not have a material impact on the Company’s financial statements.
  In
December 2007, the FASB issued Statement No. 141 (Revised 2007), “Business
Combinations” (“SFAS 141R”). SFAS 141R provides additional guidance on
improving the relevance, representational faithfulness, and comparability of the
financial information that a reporting entity provides in its financial reports
about a business combination and its effects. This Statement applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company believes there will be no material impact on
its financial statements upon adoption of this standard.
  In
December 2007, the FASB issued Statement No. 160, “Noncontrolling Interests
in Consolidated Financial Statements—an amendment of ARB No. 51”(“SFAS 160”). SFAS 160
amends ARB No. 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. This Statement is effective for fiscal years and interim
periods within those fiscal years, beginning on or after December 15, 2008.
The Company believes there will be no material impact on its financial
statements upon adoption of this standard.
  15
  In March
2008, the FASB issued SFAS 161, which requires enhanced disclosures on a
company’s use of derivative instruments, its applicable accounting policies
related to derivatives and the effect of those derivatives on a company’s
financial position, results of operations and cash flows. This statement is
effective for fiscal years and interim periods beginning after November 15,
2008, with early adoption encouraged. Adoption of SFAS 161 will have no
impact on GATX’s financial position, results of operations or cash
flows.
  4.
CASH AND CASH EQUIVALENTS
 
 Cash and
cash equivalents as of April 30, 2008 and October 31, 2007 consist of the
following:
  April 30,
                          2008
                        
                        
                        October 31,
                          2007Cash
      on hand
                        
                        $
                        29,633
                        
                        
                        $
                        28,657Cash
      in banks
                        
                        
                        13,371,726
                        
                        
                        
                        10,124,946$
                        13,401,359
                        
                        
                        $
                        10,153,603
  The
Company maintains a bank account in the PRC which is not protected by FDIC
insurance or other insurance. As of April 30, 2008, the Company had $13,371,726
in uninsured deposits with Chinese banks. Historically, the Company has not
experienced any losses in such accounts.
 
 5. ACCOUNTS RECEIVABLE,
NET
 The
Company's accounts receivable as of April 30, 2008 and October 31, 2007 are as
follows:
  April 30, 2008
                      
                      
                      October 31, 2007Accounts
      receivable
                      
                      $
                      12,498,479
                      
                      
                      $
                      9,023,706Less:
      Allowance for doubtful accounts
                      
                      
                      (143,538
                      )
                      
                      
                      (134,295
                      )Accounts
      receivable, net
                      
                      $
                      12,354,941
                      
                      
                      $
                      8,889,411
 
 At April
30, 2008, there are two major customers which accounted for $1,654,210 and
$1,589,068 of accounts receivable which are approximately 13% and 13% of the
total balance, respectively.
 
 These
same two major customers also have the sales which amount to over 10% of the
total sales for the six months ended April 30, 2008 and 2007 are as
follows:
  2008
                    
                    
                    2007Customer
      A:
                    
                    $
                    2,014,230
                    
                    
                    
                    11
                    %
                    
                    
                    1,799,788
                    
                    
                    
                    11
                    %Customer
      B:
                    
                    $
                    2,013,327
                    
                    
                    
                    11
                    %
                    
                    
                    1,613,417
                    
                    
                    
                    10
                    %
  16
  6.
PREPAYMENT AND OTHER RECEIVABLES, NET
 
 Prepayments
and other receivables as of April 30, 2008 and October 31, 2007 consist of the
following:
  April 30,
                          2008
                        
                        
                        October 31,
                          2007Prepayments
      and other receivables
                        
                        $
                        897,292
                        
                        
                        $
                        565,960Less:
      allowance for doubtful accounts
                        
                        
                        (350,917
                        )
                        
                        
                        (368,963
                        )$
                        546,375
                        
                        
                        $
                        196,997
 
 As of
April 30, 2008, the balance in prepayment and other receivables mainly includes
prepayment for advertising of approximately $330,000 and advances to employees
of approximately $ 173,000. As of October 31, 2007, the Company had advances to
employees of approximately $181,000.
 
 7. INVENTORIES
 
 The
Company's inventories as of April 30, 2008 and October 31, 2007 are as
follows:
  April 30, 2008
                        
                        
                        October 31, 2007Raw
      materials
                        
                        $
                        1,081,758
                        
                        
                        $
                        437,144Finished
      goods
                        
                        
                        170,356
                        
                        
                        
                        64,445Work-in-progress
                        
                        
                        714,293
                        
                        
                        
                        526,604Less:
      Valuation allowance
                        
                        
                        (62,549
                        )
                        
                        
                        (58,521
                        )$
                        1,903,858
                        
                        
                        $
                        969,672
 
 8.
PROPERTY, PLANT AND EQUIPMENT, NET
 
 April 30, 2008
                      
                      
                      October 31, 2007Cost:-Machinery
      and equipment
                      
                      $
                      3,256,863
                      
                      
                      $
                      2,959,892Office
      equipment and furnishings
                      
                      
                      46,819
                      
                      
                      
                      38,649Motor
      vehicles
                      
                      
                      35,428
                      
                      
                      
                      48,3643,339,110
                      
                      
                      
                      3,046,905Less:
      Accumulated depreciation:-
                      
                      
                      (640,413
                      )
                      
                      
                      (440,620
                      )Net
      book value
                      
                      $
                      2,698,697
                      
                      
                      $
                      2,606,285
  17


For the
six months ended April 30, 2008, depreciation expenses relating to property,
plant and equipment were $164,488 consisting of $157,957 recorded as cost of
sales and $6,531 in general and administrative expenses. As of April 30, 2007,
the Company had depreciation expenses of $138,475, recorded as general and
administrative expenses.
 
 On March
3, 2007, the Company entered into an agreement to purchase certain assets and/or
the rights to use those assets from ZhangFa ShiYe Qingyang (“QingYang”) for
approximately $467,000.  The Company paid a deposit of approximately
$302,000 to QingYang and agreed to assume a bank loan of approximately $165,000
to secure these assets.  The assumed loan amount is included in other
liabilities as of April 30, 2008 and October 31, 2007.  The assets
acquired, which are comprised of property, equipment and inventory (the
collateral), are pledged against the bank loan.  Although QingYang
transferred operational control of the collateral to the Company, the Company
was unable to obtain consent from the bank and local governmental authorities to
transfer legal title of the Collateral to Renhuang; as a result, the Collateral
is not recorded as an asset of Renhuang though the deposit was initially
recorded in the amount of $467,000.
 
 After
paying the deposit, the Company began negotiating with the bank and local
authorities to settle all outstanding issues and secure full ownership of the
assets.  The Company was unable to finalize those negotiations prior
to October 31, 2007 and management decided to record an impairment reserve
against the entire deposit amount at that date as the company did not have legal
title to the Collateral and was unable to determine when or if it would gain
title.  That $467,000 impairment was recorded as a component of
general and administrative expenses during the fiscal year ended October 31,
2007. Though the QingYang facilitiy (which constitutes the majority of the
collateral  has not operated subsequent to the agreement it remains
under the control of Renhuang. Management anticipates obtaining title to the
Collateral during 2009 upon the conclusion of negotiations with the bank and
local government authorities.
 
 9. ACCOUNTS PAYABLES
 Accounts
payables of $282,826 and $155,600 as of April 30, 2008 and October 31, 2007
consist of balances payable to supplies.
 
 The
suppliers from whom the purchased amount is over 10% of the total purchase for
the six months ended April 30, 2008 and 2007 are:
 
 2008
                  
                  
                  2007Supplier
      A:
                  
                  $
                  1,684,825
                  
                  
                  
                  24
                  %
                  
                  $
                  1,585,995
                  
                  
                  
                  23
                  %Supplier
      B:
                  
                  $
                  846,342
                  
                  
                  
                  12
                  %
                  
                  $
                  806,743
                  
                  
                  
                  12
                  %Supplier
      C:
                  
                  $
                  723,631
                  
                  
                  
                  10
                  %
 
 10. OTHER PAYABLES
 
 The
balance as of April 30, 2008, includes taxes payable of $335,445, and social
insurance payable of $466,124.
  18
 
 As of
October 31, 2007, the balance includes taxes payable of $590,022, and social
insurance payable of $302,562.
 
 11. RESERVES
 
 The
reserve funds as of April 30, 2008 and October 31, 2007 are comprised of
the following:
 April 30, 2008
                                          
                                          
                                          October 31,
                                            2007Statutory
      surplus reserve fund
                                          
                                          $
                                          1,559,357
                                          
                                          
                                          $
                                          1,559,357Public
      welfare fund
                                          
                                          
                                          282,377
                                          
                                          
                                          282,377$
                                          1,841,734
                                          
                                          
                                          $
                                          1,841,734
 
 Pursuant
to the relevant laws and regulations of the PRC, the Company is required to
annually transfer 10% of its after tax profit as reported on financial
statements prepared under the accounting principles of the PRC to a statutory
surplus reserve fund until the balance reaches 50% of the registered share
capital.  This reserve can be used to make up any losses incurred or
to increase share capital.  Except for reducing losses incurred, any
other application may not result in this reserve balance falling below 25% of
the registered capital.
 
 Prior to
January 1, 2007, the Company was required each year to transfer 5% of its after
tax profit as reported on financial statements prepared under the accounting
principles of the PRC to the public welfare funds.  This reserve was
restricted to capital expenditure for employees’ collective welfare facilities
that are owned by the Company.  The public welfare funds are not
available for distribution to the stockholders (except in
liquidation).  Once capital expenditures for staff welfare facilities
have been made, an equivalent amount must be transferred from the public welfare
funds to the discretionary common reserve funds.  Due to a change in
PRC law, appropriation of profit to the public welfare funds is no longer
required.
 
 The
Company reserves the statutory surplus at year ended. As of April 30, 2008, the
estimated statutory surplus for six months ended was approximately
$635,000.
 
 12.
INCOME TAXES
 
 The
Company is subject to state and local income taxes within the PRC at the
applicable tax rate as reported in their PRC statutory financial statements in
accordance with the relevant income tax laws.
 
 For the
year of 2007 and 2008, the Company was granted a tax holiday and is entitled to
full exemption from corporation income taxes through December 2008.
 
 Had the
company not been granted the tax holiday or been an eligible wholly foreign
owned company, the income tax provision at the general PRC income rate of 25%
starting from January 1, 2008 and 33% previously would have been
approximately $1.8 million and $2.1 million for the six months ended April
30, 2008 and 2007 respectively.
 
 19
  13.
COMMON STOCK
  During
the three and six months ended April 30, 2008, no common stock was
issued.
 
 14.
WARRANTS
 The Company entered into a
Director appointment agreement with Mr. Moliteus dated April 16, 2007, pursuant
to which the Company issued Mr. Moliteus 15,000 warrants, which expire on April
16, 2010, to purchase 15,000 shares of Renhuang’s common stock at $3.02 per
share. On July 31, 2007, warrants to purchase 10,000 additional shares were
issued to Mr. Moliteus with an exercise price of $2.50.
 
 Transactions
involving warrants are summarized as follows:
 
 Number of
                              Shares
                            
                            
                            Weighted
                              Average Price
                              Per ShareOutstanding
      at October 31, 2006
                            
                            
                            —
                            
                            
                            
                            —Granted—
      April 16, 2007
                            
                            
                            15,000
                            
                            
                            $
                            3.02—
      July 31, 2007
                            
                            
                            10,000
                            
                            
                            $
                            2.50Exercised
                            
                            
                            —
                            
                            
                            
                            —Cancelled
      or expired
                            
                            
                            —
                            
                            
                            
                            —Outstanding
      at October 31, 2007
                            
                            
                            25,000
                            
                            
                            $
                            2.81Granted
                            
                            
                            —
                            
                            
                            
                            —Exercised
                            
                            
                            —
                            
                            
                            
                            —Outstanding
      at April 30, 2008
                            
                            
                            25,000
                            
                            
                            
                            2.81
 
 15.
RELATED PARTY TRANSACTIONS
  The
Company rented property and plant from Harbin Renhuang Pharmaceutical Stock Co.
Ltd. (“Old Renhuang”), a Company owned by the Company’s major
shareholder.  The lease term is from May 1, 2007 to May 1, 2008, with
monthly rental payment of approximately $48,710. The Company has an amount due
from related party of approximately $243,000 including the construction fees
paid on behalf of Old Renhuang and receivable from sales. The Company also has
an amount due to a relate party of approximately $399,000 related to the
professional fee paid by Old Renhuang in 2007 for the reverse merger. The
Company offsets the due from and due to related party balances, therefore the
net balance was due to related party of approximately $156,000.
  20
 
 16. COMMITMENTS AND
CONTINGENCIES
 
 A. CAPITAL AND LEASE
COMMITMENTS
 
 The
Company entered into a lease for office space from May 1, 2007 to April 30,
2010, with average monthly rental payments $9,393. The Company also rented
factory from a related party (See Note 15) with monthly payment of
$48,710.
 
 The
minimum future payments for the rental leases as followings:
 
 April 30, 2008Office
                      
                      
                      Factory2009
                      
                      $
                      122,853
                      
                      
                      $
                      599,9832010
                      
                      
                      122,854
                      
                      
                      
                      —Thereafter
                      
                      
                      —
                      
                      
                      
                      —Total
                      
                      $
                      245,707
                      
                      
                      $
                      599,983
 
 B. LEGAL PROCEEDINGS
 
 The
Company is not currently involved in any litigation. There are no actions,
suits, proceedings, inquiries or investigations before or by any court, public
board, government agency, self-regulatory organization or body pending to the
knowledge of the executive officers of the Company.
 
 17. EMPLOYEE
WELFARE PLAN
  Regulations
in the PRC require the Company to contribute to a defined contribution
retirement plan for all permanent employees. Pursuant to regulations promulgated
by the local authority in the PRC, the retirement pension insurance,
unemployment insurance, health insurance, injury insurance and pregnancy
insurance are established for employees during the term of their employment. For
the three months ended April 30, 2008, the level of contribution to these funds
was set at 22% of the average employee salary determined by the Social Welfare
Bureau. The Company incurred the payable amount of $142,738 as of April 30, 2008
in other payables.
  18. VULNERABILITY DUE TO CERTAIN
CONCENTRATIONS
 
 The
Company faces a number of risks and challenges since its operations are in the
PRC. The Company's operations in the PRC are subject to special considerations
and significant risks not typically associated with companies in North America
and Western Europe. The Company's results may be adversely affected by changes
in the political and social conditions in the PRC, and by changes in
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods of
taxation, among other things.
 
 19.
SUBSEQUENT EVENT
 
 On May
15, 2009, there an agreement was reached between Renhuang and Allied Merit
International Investments, Inc. and Griffin Ventures Ltd. (the “Investors”). The
Investors agreed to pay Renhuang $1.5 million by July 31, 2009, in exchange for
an aggregate of 2,142,856 shares of the Company’s Common Stock and 1,071,428
Warrants with an exercise price of $0.875. The Company issued the 2,142,856
shares on May 20, 2009 and received the $1.5 million on August 7,
2009.
  21
 
 The
warrants issued to Mr. Moliteus were cancelled during fiscal 2008.
 
 On
January 22, 2009, the local government extended the tax holiday for the Company
to the end of 2009.
 
 The
Company extended the lease with Old Renhuang on May 1, 2008. No modification
made on the minimum payment table in Note 16 regarding the renewed
lease.
  ITEM 2
              Managements Discussion and
      Analysis of Financial Condition and Results of
      Operations.
 
 Overview
 
 The
following discussion of the financial condition and results of the operation of
Renhuang Pharmaceuticals, Inc. including the forward-looking statements
involving risk and uncertainties should be read in conjunction with the
financial statements and notes included in this Quarterly Report on Form
10-Q.  Actual results may differ from the forward-looking statements
due to a variety of factors.
  22
  Results
of operations
 
 Three
months ended April 30, 2008 as compared to three months ended April 30,
2007
 
 Revenues, Expenses and Net
Income
 
 2008
                          
                          
                          2007Revenue
                          
                          $
                          7,516,594
                          
                          
                          
                          6,315,332Cost
      of Sales
                          
                          
                          (3,423,785
                          )
                          
                          
                          (3,120,081
                          )Selling
      and Distribution Expenses
                          
                          
                          (42,087
                          )
                          
                          
                          (16,871
                          )Advertising
      Expenses
                          
                          
                          (679,640
                          )
                          
                          
                          (163,532
                          )General
      and Administrative Expenses
                          
                          
                          (548,964
                          )
                          
                          
                          (369,728
                          )Research
      and Development
                          
                          
                          (329,121
                          )
                          
                          
                          -Provision
      for Doubtful Account
                          
                          
                          733
                          
                          
                          
                          (568,113
                          )Depreciation
      and Amortization
                          
                          
                          (3,405
                          )
                          
                          
                          (70,181
                          )Other
      Income (expense)
                          
                          
                          20,680
                          
                          
                          
                          6,732Net
      Income
                          
                          $
                          2,511,005
                          
                          
                          
                          2,013,558
 
 Revenues
 
 For the
three months ended April 30, 2008, our revenues increased by $1,201,262 or 19%
as compared to $6,315,332 during the same period in 2007. During the three
months ended April 30, 2008, we increased production of our higher profit margin
products in line with our overall strategy and decreased production of our lower
profit margin products. Our revenues increase mainly due to the sales growth of
Acanthopanax (Siberian Ginseng) products, Shark Power Health Care products and
Tianma Headache Relief Pills.
 
 Cost
of Sales
 
 Our cost
of sales for the three months ended April 30, 2008 and 2007 were $3,423,785 and
$3,120,081 respectively, which were approximately 46% and 49% of revenue and
consisted primarily of raw material, labor and production costs. The improvement
of the percentage of cost to revenue is due to the production and sales growth
of the high margin products represented by Shark Power Health Care products and
the sales decline of the low margin products including our Siberian Ginseng
pill.
  23
 
 Selling
and Distribution Expenses
 
 Our
selling and distribution expenses were only $42,087 and $16,871 for the three
months ended April 30, 2008 and 2007, respectively. The sales rebates of
$1,850,181 and $1,687,293 for the three months ended April 30, 2008 and 2007
were recorded as reductions of revenue.  The increase of selling and
distribution expenses is mainly due to the sales growth and business
expansions.
  Advertising
Expenses
 
 For the
three months ended April 30, 2008 and 2007 our advertising expenses were
$679,640 and $163,532 respectively. These advertising expenses were primarily
related to the advertising of our Siberian Ginseng products. A significant
portion of the increase was due to our more aggressive advertising strategy
during this period to increase brand recognition in Southern China.
 
 General
and Administrative Expenses
 
 Our
general and administrative expenses were $548,964 and $369,728 for the three
months ended April 30, 2008, and 2007, respectively.  Our general
and administrative expenses consist mainly of payroll, leases, professional
fees, entertainment, and travel expenses. The increase is mainly due to the
growth of the payroll, travel and entertainment expenses. The increase is mainly
attributed to increased payroll due to additional personnel and salary increases
in this period.
 
 Research
and Development
 For the
three months ended April 30, 2008 and 2007, we spent $329,121 and $0, on
research and development, respectively. R&D has been expensed when
incurred.  The
increase is mainly due to new significant R&D projects during the current
period including Siberian Ginseng GAP base and projects on improving the process
of producing Siberian Ginseng extracts.
 
 Depreciation
 
 We had
depreciation expenses of $3,405 and $70,181 for the three months ended April 30,
2008 and 2007, respectively (See Note 8).  The decrease is mainly due
to allocation of depreciation expense related to production in cost of sales,
but none in prior period of 2007.
  24
  Six
months ended April 30, 2008 as compared to six months ended April 30,
2007
 
 Revenues, Expenses and Net
Income
 
 2008
                        
                        
                        2007Revenue
                        
                        $
                        17,975,450
                        
                        
                        
                        15,819,325Cost
      of Sales
                        
                        
                        (8,221,517
                        )
                        
                        
                        (7,693,017
                        )Selling
      and Distribution Expenses
                        
                        
                        (111,431
                        )
                        
                        
                        (122,446
                        )Advertising
      Expenses
                        
                        
                        (1,361,071
                        )
                        
                        
                        (172,681
                        )General
      and Administrative Expenses
                        
                        
                        (1,324,034
                        )
                        
                        
                        (636,504
                        )Research
      and Development
                        
                        
                        (671,015
                        )
                        
                        
                        -Provision
      for Doubtful Account
                        
                        
                        42,165
                        
                        
                        
                        (621,122
                        )Depreciation
      and Amortization
                        
                        
                        (6,531
                        )
                        
                        
                        (138,475
                        )Other
      Income (expense)
                        
                        
                        34,653
                        
                        
                        
                        10,066Net
      Income
                        
                        $
                        6,356,669
                        
                        
                        
                        6,445,146
 
 Revenues
 
 For the
six months ended April 30, 2008, our revenues increased by $2,156,125 or 14% as
compared to $15,819,325 during the same period in 2007. Our revenues increase
was attributable to the success of our marketing expansion, leading to
significantly higher expenses for advertising and marketing. During the six
months ended April 30, 2008, we increased production of our higher profit margin
products in line with our overall strategy and decreased production of our lower
profit margin products. Our revenues for the six months ended April 30, 2008
consisted primarily of sales of the following products: Acanthopanax products,
Shark Power Health Care products, and other Chinese traditional medical
products.
 
 Cost
of Sales
 Our cost
of sales for the six months ended April 30, 2008 and 2007 were $8,221,517 and
$7,693,017 respectively, which were approximately 46% and 49% of revenue and
consisted primarily of raw material, labor and production costs. The decline of
the percentage of cost to revenue is due to the production and sales
acceleration of the high margin products represented by Acanthopanax Ointment
and Shark Power Health Care products products.
 
 Selling
and Distribution Expenses
 
 Our
selling and distribution expenses were only $111,431 and $122,446 for the six
months ended April 30, 2008 and 2007, respectively. The sales rebates of
$4,427,019 and $4,067,871 for the six  months ended April 30, 2008 and
2007 were recorded as reductions of revenue.. The increase of the selling and
distribution expenses is mainly due to the sales growth and business
expansions.
  25
  Advertising
Expenses
 
 For the
six months ended April 30, 2008 and 2007 our advertising expenses were
$1,361,071 and $172,681 respectively. These advertising expenses were primarily
related to the advertising of Acanthopanax. These significant increases were due
to our more aggressive advertising strategy during this period to increase name
recognition in Southern China. The company dedicates to build up a leading
‘Renhuang brand’ associated with Acanthopanax products through consistent ads
input in the coming years.
 
 General
and Administrative Expenses
 
 Our
general and administrative expenses were $1,324,034 and $636,504 for the six
months ended April 30, 2008, and 2007, respectively. Our general and
administrative expenses mainly included payroll, leasing expenses, professional
fee, entertainment, and travelling expenses. The increase is mainly due to the
growth of payroll and traveling expenses. The increase is mainly attributed to
increased payroll due to additional personnel and salary increases in this
period
 
 Research
and Development
 
 For the
six months ended April 30, 2008 and 2007, we spent $671,015 and nil, on research
and development, respectively. R&D have been expensed when incurred for
accounting purposes.  The increase is mainly due to investments in
Acanthopanax GAP base and research work on Acanthopanax products.
 
 Depreciation
 
 Our
depreciation expenses were $6,531 and $138,375 for the six months ended April
30, 2008 and 2007, respectively (see Note 8).  The decrease is mainly
due to allocation of depreciation expense related to production in cost of
sales, but none in prior period of 2007.
  26
 
 Liquidity
and Capital Resources
 
 Our cash,
current assets, total assets, current liabilities, and total liabilities as of
April 30, 2008 is as follows:
 
 April 30, 2008Cash
      and Cash Equivalents
                    
                    $
                    13,401,359Total
      Current Assets
                    
                    
                    28,206,533Total
      Assets
                    
                    
                    30,905,230Total
      Current Liabilities
                    
                    
                    1,488,020Total
      Liabilities
                    
                    
                    1,488,020Working
      capital
                    
                    $
                    26,718,513
 
 Sources and Uses of
Cash
 
 Operations
 Net cash generated from operating
activities was $2,554,136 for the six months ended April 30, 2008. Our net cash
used in operating activities for the current six month period was primarily
$2,769,89  in net account receivables, $ 841,971 in inventories, $283,792
from reduction of prepayment and other net
receivables,  $113,095 in total accounts payable and accruals,
and  $ 133,141 in other payables.Cash generated from operating
activities declined as we extended credit terms to certain key customers in
order to gain market share.
 
 Investments
 Net cash
used in investing activities was $80,073 for the six months ended April 30,
2008. For the six months ended April 30, 2008,  our cash used in investing
activities was related to the acquisition of property, plant and
equipment.
  27
 
 Financing
 
 There
were no financing activities during the six months ended April 30, 2008 and
2007.
 
 Debt Instruments,
Guarantees, and Related Covenants
 
 The
Company does not have any long term debt or short term debt, and has not entered
into any guarantee arrangements or other related covenants.
 
 Critical
Accounting Policies
 
 The
preparation of our financial statements in conformity with accounting principles
generally accepted in the United States of America requires our management to
make certain estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. As such, in accordance with the use of
accounting principles generally accepted in the United States of America, our
actual realized results may differ from management’s initial estimates as
reported. Our critical accounting policies include:
 
 Property,
plant and equipments are carried at cost. The cost of repairs and maintenance is
expensed as incurred; major replacements and improvements are capitalized. When
assets are retired or disposed of, the cost and accumulated depreciation are
removed from the accounts, and any resulting gains or losses are included as
components of income in the year of disposition. The Company records
depreciation of its property, plant and equipment on a straight-line basis over
the estimated useful lives of the assets based on their costs.
 
 The
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the sales price is fixed and determinable, and
collectability is reasonably assured; this policy is in accordance with the
provisions of Staff Accounting Bulletin No. 104.  Renhuang generally
recognizes products sales when the product is shipped.
  The
Company provides rebates to its sales agents (which act as wholesalers) as an
incentive plan. The rebate rate is set on a product-by-product basis. When
revenue is recognized, the rebate is accounted for as an offset to revenues in
accordance with EITF Issue No. 01-9, Accounting for Consideration Given by a
Vendor to a Customer (Including a Reseller of the Vendor’s
Products).
 
 Research
and development (“R&D”) costs are expensed as incurred. Engineers and
technical staff are involved in the production of our products as well as
on-going research, with no segregation of the portion of their salaries relating
to research and development from the portion of their salaries relating to
production. The total salaries are included in cost of sales.
  28
 
 Off-balance
Sheet Arrangements
 
 We do not
have any off-balance sheet arrangements.
 
 Contractual
Obligations
  Payments due by periodObligations
                  Total
                  
                  1 Year
                  
                  1-2 Years
                  
                  2-3
                    Years
                  
                  3-5
                    YearsOperating
      Lease Obligations - Total
                  
                  $
                  845,690
                  
                  
                  $
                  722,836
                  
                  
                  $
                  122,854
                  
                  
                  $
                  -0-
                  
                  
                  
                  -0-Operating
      Lease Obligations - Related Party
                  
                  
                  599,983
                  
                  
                  
                  599,983
                  
                  
                  
                  -0-
                  
                  
                  
                  -0-
                  
                  
                  
                  -0-Operating
      Lease Obligations - Third Party
                  
                  
                  245,707
                  
                  
                  
                  122,853
                  
                  
                  
                  122,854
                  
                  
                  
                  -0-
                  
                  
                  
                  -0-
 
 As noted
above, we lease office space from Old Renhuang  pursuant to a year to
year lease.
 
 ITEM 3
              Quantitative and Qualitative
      Disclosures About Market
Risk
 
 Not
required.
  29
  ITEM 4
              Controls and
      Procedures
 
 Evaluation
of Disclosure Controls and Procedures
 
 We
conducted an evaluation, with the participation of our Chief Executive Officer
and Principal Accounting Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended,
or the Exchange Act, as of April 30, 2008, to ensure that information required
to be disclosed by us in the reports filed or submitted by us under the Exchange
Act is recorded, processed, summarized and reported, within the time periods
specified in the Securities Exchange Commission’s rules and forms, including to
ensure that information required to be disclosed by us in the reports filed or
submitted by us under the Exchange Act is accumulated and communicated to our
management, including our Chief Executive Officer and Principal Accounting
Officer, or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure. Based on that evaluation, our Chief
Executive Officer and Principal Accounting Officer have concluded that as of
April 30, 2008, our disclosure controls and procedures were not effective at the
reasonable assurance level due to the weaknesses described below.
 
 Evaluation
of Internal Control over Financial Reporting
 
 As required by Exchange Act Rules
13a-15(f) and 15d-15(f), our management has carried out an evaluation, under the
supervision of our Chief Executive Officer and Principal Accounting Officer, of
the effectiveness of the design and operation of our internal control over
financial reporting as of April 30, 2008.
 
 Management is responsible for
establishing and maintaining adequate internal control over financial reporting.
The Company's internal control over financial reporting is a process that is
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles, and includes those
policies and procedures that:
 
 ·
              Pertain to the maintenance of
      records that, in reasonable detail, accurately and fairly reflect the
      transactions and dispositions of assets of the
    Company,
  ·
              Provide reasonable assurance that
      transactions are recorded as necessary to permit preparation of financial
      statements in accordance with generally accepted accounting principles,
      and that receipts and expenditures are being made only in accordance with
      authorization of management and the board of directors of the Company,
      and
  ·
              Provide reasonable assurance
      regarding prevention (or timely detection) of unauthorized acquisition,
      use, or disposition of the Company's assets, which could have a material
      effect on Company consolidated financial
  statements.
  Because of certain inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements.
 
 A
material weakness is a control deficiency (within the meaning of the Public
Company Accounting Oversight Board (PCAOB) Auditing Standard No. 5), such that a
misstatement of the annual or interim financial statements may not be prevented
or detected. Management has identified the following material weakness that has
caused management to conclude that, as of April 30, 2008, our internal control
over financial reporting was not effective:
  30
  ·
              We
      were unable to meet our requirements to timely file our Annual Report on
      Form 10-K for the year ended October 31, 2008. Management evaluated the
      impact of our inability to timely file periodic reports with the
      Securities and Exchange Commission on our assessment of our disclosure
      controls and procedures and has concluded that the control deficiency that
      resulted in the inability to timely make these filings represented an
      internal control weakness.
  ·
              We
      were unable to properly review the U.S. GAAP adjustment procedures,
      disclosure reporting processes, and consolidated financial statements
      preparation processes.
  ·
              We
      were unable to effectively provide oversight of internal control over
      financial reporting because there was a lack of a proper reporting channel
      between the internal audit function and an audit
  committee.
 
 Remediation
of Weaknesses
 
 Management
recognizes the importance of this weakness and is committed to remediation and
will institute a comprehensive remediation plan.  The plan will
include, but not be limited to, hiring finance management resources and
personnel with knowledge and experience in U.S. GAAP, and where necessary, the
plan will utilize the services of external consulting professionals in the area
of accounting advisory services.  Furthermore, the plan will
re-organize the internal audit function and establish communication channels
between the internal audit function and an audit committee.
 
 Management
intends to allocate resources to insure that reports are filed on a timely basis
in the future.
 
 Changes
in Internal Control over Financial Reporting
 
 There
were no changes in our internal control over financial reporting, as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently
completed fiscal quarter that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
  31
  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
 
 Not
required for smaller reporting company.
 
 ITEM 2
              Unregistered Sales of Equity
      Securities and Use of
Proceeds
 
 None.
 
 ITEM
      3
              Defaults
      Upon Senior Securities
 
 There
have been no events that are required to be reported under this
Item.
 
 ITEM 4
              Submission of Matters to a Vote
      of Security Holders
 
 There
have been no events that are required to be reported under this
Item.
 
 ITEM 5
              Other
      Information
 
 None.
  32
 
 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.,Ltd
  33
  10.7
      (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.
  34
  (5)
                Incorporated
      by reference from our First Amended Transition Report on Form 10-K/A filed
      with the Commission on February 22, 2007.(6)
                Incorporated
      by reference from our Quarterly Report on Form 10-Q for the period ended
      January 31, 2007, filed with the Commission on March 19,
    2007.
  35
  SIGNATURES
 
 In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
 
 Renhuang
      Pharmaceuticals, Inc.Dated:
      January 12, 2010
                                
                                /s/ Li ShaomingBy:
                                Li
      ShaomingPresident
      andChief
      Executive OfficerDated:
      January 12, 2010
                                
                                /s/ Zuoliang WangBy:
                                Zuoliang
      WangInterim
      Chief Financial
Officer
  36