U.S.
Securities and Exchange Commission
 Washington,
D.C. 20549
  
 FORM
10-KSB
 
 
 x
    ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
      for the period ended December 31, 2004
 
 o
    TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
      for the transition period from _______ to
_______
 
 COMMISSION
FILE NUMBER: 333-52472
 
 PINGCHUAN
PHARMACEUTICAL, INC.
 **(Exact
name of small business issuer as specified in its charter)**
  **North
      Carolina**
      **(State or other jurisdiction of**
      **incorporation or
      organization)**
    **36-4344865**
      **(IRS Employer identification
      No.)******
    ********
      **32
      Ganshui Rd., Harbin, Heilongjiang, P.R.China**
      **(Address
      of principal executive offices)**
    **(86451)
      8271-3712**
      **(Issuer's
      telephone number, including area code)****Securities registered pursuant to
      Section 12(b) of the Exchange Act:******
    ******None******
    ******Securities
      registered pursuant to Section 12(g) of the Exchange
      Act:******
    ******$0.001
      Par Value Common Voting Stock**
      **(Title
      of Class)**
   
 
  Check
whether the issuer (1) filed all reports required to be filed by Section13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
 Yes x No o
 
 Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or an
amendment to this Form 10-KSB. x
 
 State
issuer's net revenues for its most recent fiscal year: $38,882.
 
 As of
March 31, 2005, there were 71,681,407 common shares outstanding and the
aggregate market value of the common shares (based upon the close price of $.20
reported by brokers) held by non-affiliates was approximately
$6,999,641.
 
 Transitional
Small Business Disclosure Format (check one): Yes o No x
 
 Number of
shares of common stock outstanding as of March 31, 2005: 71,681,407
 
 Number of
shares of preferred stock outstanding as of March 31, 2005: -0-
 
 
 
 CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING INFORMATION
 
 The
discussion contained in this 10-KSB under the Securities Exchange Act of 1934,
as amended, (the "Exchange Act") contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ significantly
from those discussed herein. These include statements about our expectations,
beliefs, intentions or strategies for the future, which we indicate by words or
phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe,"
"the Company believes," "management believes" and similar language, including
those set forth in the discussion under "Description of Business," including the
"Risk Factors" described in that section, and "Management's Discussion and
Analysis or Plan of Operation" as well as those discussed elsewhere in this Form
10-KSB. We base our forward-looking statements on information currently
available to us, and we assume no obligation to update them. Statements
contained in this Form 10-KSB that are not historical facts are forward-looking
statements that are subject to the "safe harbor" created by the Private
Securities Litigation Reform Act of 1995.
 
  2





PART
I





Item 1.
Business





**GENERAL
DESCRIPTION OF BUSINESS**





Xenicent,
Inc. was incorporated under the laws of the State of North Carolina. We engaged
in the business of real estate consulting as well as purchasing and reselling
vacant tracts of land, primarily in the North Carolina area.





On July
28, 2004, we changed our name to Pingchuan Pharmaceutical, Inc. (“PGCN”)
pursuant to the plan of exchange with Heilongjiang Pingchuan Yi Liao Qi Xie You
Xian Gong Si (“Pingchuan Yi Liao”), a corporation organized and validly existing
under the laws of the People’s Republic of China since its formation on December
7, 2001. The plan of exchange was signed on June 22, 2004 and consummated on
August 11, 2004. The shareholders of Pingchuan Yi Liao (the “Pingchuan
Shareholders”) exchanged all of their registered capital in Pingchuan Yi Liao
for 70,000,000 shares of PGCN common stock, equating to 98% of our then
outstanding common stock. Upon completion of the share exchange, Pingchuan Yi
Liao became our wholly-owned subsidiary. We filed
a report on Form 8-K with the Securities and Exchange Commission on June 22,
2004 reporting the Acquisition.





Before
the Acquisition, Pingchuan Yi Liao’s operations focused on sales of medical
equipment, such as infusion apparatus and respirator equipment. Substantially
all of Pingchuan Yi Liao’s revenues in 2003 derived from medical equipment
sales.





In 2004,
our medical equipment sales diminished, and we began to focus on deriving
revenue from the medical industry by providing integrated operational management
services for a related medical company, Harbin Pingchuan Yao Ye Gu Fen You Xian
Gong Si, a corporation validly organized and existing under the laws of the
People’s Republic of China (“Gu Fen”). Pingchuan Yi Liao’s major shareholder,
Mr. Hu Zhanwu, also owns more than 50% of the common stock of Gu Fen.





In
October 2004, we entered into a letter of intent with Gu Fen, pursuant to which
Gu Fen agreed to retain our integrated operational management services and pay
us a professional service fee of US$48,000 per year, plus 15% of their sales
revenue as a commission.





Gu Fen is
an integrated pharmaceutical company whose main products are antibiotics,
chemical medicine capsules, traditional Chinese medicines, medical instruments,
health care food, and other related products.





Based on
our agreement and relationship with Gu Fen, we provide Gu Fen with various
value-added services, such as formula control, supplier selection, quality
assurance, package design services, cost analysis, product packaging and
tracking, just-in-time and point-of-use delivery, billing services and
post-sales support. We primarily focus on improving their sales growth. Through
our management and related services, we are also helping Gu Fen to develop a
nation-wide sales network for most of their products. We are seeking
opportunities to build strategic partnerships with national chain drugstores so
that Gu Fen can distribute their products via an improved national sales
network. We believe our services distinguish us from traditional pharmaceutical
manufacturers in China, who lack a developed sales network. We also believe our
status as a reporting public entity could give us a competitive advantage over
privately held entities having a similar business objective in seeking strategic
partnerships. Our ability to raise capital in the public market is our strength
in negotiating with potential strategic partners. Our developed, customized
information systems provide Gu Fen with efficiency and flexibility through our
operational management services. This enables Gu Fen to: (1) significantly
reduce the direct and indirect costs of production by outsourcing internal
purchasing, quality assurance and inventory fulfillment responsibilities;
(2) reduce the amount of working capital invested in inventory and floor
space; (3) reduce production costs through purchasing efficiencies; and
(4) receive expertise in production and package design and marketing. Our
strategy to expand sales networks through strategic partnerships with national
chain drugstores is designed to enable Gu Fen to grow their sales rapidly in the
future; as a result, we will improve our position as a leader in the
distribution of pharmaceuticals in China.





3


****


**COMPETITION**





We expect
to encounter intense competition from other entities having a business objective
similar to ours. Many of these entities are well-established and have extensive
experience in the pharmaceutical and medical industries. Many of these
competitors possess greater financial, marketing, technical, personnel and other
resources than us, and there can be no assurances that we will have the ability
to compete successfully. Our financial resources will be extremely limited in
comparison to those of many of our competitors. Management believes, however,
that our status as a reporting public entity could give us a competitive
advantage over privately held entities having a similar business objective in
forming strategic partnerships with Chinese companies having significant growth
potential.





**EMPLOYEES**





We
currently employ 26 staff members. All employees are located in North China.
Most of them are highly educated, including senior engineers, pharmacists, and
specialists with bachelor or master degrees.





**REGULATION**





As a
pharmaceutical company with its main business in China, we are subject to
extensive regulations by the Chinese government, primarily by the State Food and
Drug Administration (the "SFDA"), the Pharmaceutical Administrative Law, and
other related statutes and regulations. These regulations govern or influence
the testing, manufacture, safety, labeling, storage, record keeping, approval,
pricing, advertising and promotion of Gu Fen’s drug products. Failure to comply
with the Pharmaceutical Administrative Law and other governmental requirements
can result in a variety of adverse regulatory actions, including but not limited
to the seizure of company products, demand for a product recall, total or
partial suspension of production, refusal by the SFDA to approve new products
and withdrawal of existing product approvals. In addition, the SFDA set up a
classification administrative system in 1999 for prescription and
over-the-counter drugs. Since then, the SFDA has issued a series of guidelines
for interpretation of the new classification system for labeling, usage
instructions and packaging of over-the-counter products. The SFDA currently
requires that pharmaceutical manufacturers clearly label drugs for
over-the-counter sales and distinguish them from those to be sold in
hospitals.





4








The SFDA
recently implemented new guidelines for licensing of pharmaceutical products,
pursuant to which all existing manufacturers with licenses, which are currently
valid subject to the previous guidelines, were required to apply for Good
Manufacturing Practices Certification by June 30, 2004, and to receive approval
by December 31, 2004. As a result, we submitted our application to the SFDA
within the required time period. We believe that we will pass the certification
process and that our current licenses will be renewed pursuant to the new
guidelines.





We have
instituted such policies as required by the SFDA. To date, we have never
experienced any problems with compliance with the regulations of the SFDA. We
have never been investigated for noncompliance by this agency nor to the best of
our knowledge have we violated any regulations of the SFDA.


****


**ADDITIONAL
FINANCINGS**




We may need
to raise additional funds to meet operating requirements in the future. If we
raise additional funds through issuance of equity related or debt securities,
such securities may have rights to obtain our common stock, such as warrants or
options. Shareholders may experience additional dilution from exercise of these
financial instruments. We cannot be certain that additional financing will be
available when required or at all.





Item 2.
Properties





We currently
own no real property or facilities. We have an arrangement with our related
company, Harbin Pingchuan Yao Ye Gu Fen You Xian Gong Si (“Gu Fen”), a company
also controlled by current management, whereby we receive a free sublease for
approximately 400 square meters of office space on the third floor of an office
building in the city of Harbin. Gu Fen has a lease on this property from
February 1, 2004 through January 31 st , 2007,
and our arrangement is for the same period of time. Our full address is: 32
Ganshui Road, Harbin, Heilongjiang, P.R. China.





Item 3.
Legal Proceedings





We are not
aware of any pending or threatened legal proceedings, in which we are involved.
In addition, we are not aware of any pending or threatened legal proceedings in
which entities affiliated with our officers, directors or beneficial owners are
involved.





Item 4.
Submission of Matters to a Vote of Security Holders





No matter
was submitted to a vote during the fourth quarter.





5





PART
II





Item 5.
Market for the Registrant’s Common Stock and Related Security Holder
Matters





(a)
    The
      principal market in which the common stock is traded is the
      Over-the-Counter Bulletin Board. The table below presents the high and low
      bid price for our common stock each quarter in 2003 and 2004 and reflects
      inter-dealer prices, without retail markup, markdown, or commission, and
      may not represent actual transactions. We obtained the following
      information from brokers who make a market in our securities.




BidQuarter
      Ended
    Low
    High03/31/03
    .11
    .1106/30/03
    .67
    .7309/30/03
    .33
    .5112/31/03
    .25
    .3603/31/04
    .23
    .2306/30/04
    .18
    .1809/30/04
    .25
    .2512/31/04
    .20
    .20


(b)
    Holders.
      The approximate number of holders of record of our Common Stock as of
      March 31, 2005 was 1,969.





(c)
    We
      have not paid dividends from inception to date and do not currently intend
      to do so.







Penny
Stock Characterization





Our Shares
are "penny stocks" within the definition of that term as contained in the
Securities Exchange Act of 1934, which are generally equity securities with a
price of less than $5.00. Our shares will then be subject to rules that impose
sales practice and disclosure requirements on certain broker-dealers who engage
in certain transactions involving a penny stock. These will impose restrictions
on the marketability of the common stock.





6








Under the
penny stock regulations, a broker-dealer selling penny stock to anyone other
than an established customer or "accredited investor" must make a special
suitability determination for the purchaser and must receive the purchaser's
written consent to the transaction prior to the sale, unless the broker-dealer
is otherwise exempt. Generally, an individual with a net worth in excess of
$1,000,000 or annual income exceeding $200,000 individually or $300,000 together
with his or her spouse is considered an accredited investor. In addition, unless
the broker-dealer or the transaction is otherwise exempt, the penny stock
regulations require the broker-dealer to deliver, prior to any transaction
involving a penny stock, a disclosure schedule prepared by the Securities and
Exchange Commission relating to the penny stock market. A broker-dealer is also
required to disclose commissions payable to the broker-dealer and the Registered
Representative and current bid and offer quotations for the securities. In
addition a broker-dealer is required to send monthly statements disclosing
recent price information with respect to the penny stock held in a customer's
account, the account’s value and information regarding the limited market in
penny stocks. As a result of these regulations, the ability of broker-dealers to
sell our stock may affect the ability of selling security holders or other
holders to sell their shares in the secondary market. In addition, the penny
stock rules generally require that prior to a transaction in a penny stock, the
broker-dealer make a special written determination that the penny stock is a
suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction.





These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. These additional sales practice and disclosure requirements could
impede the sale of our securities, if our securities become publicly traded. In
addition, the liquidity for our securities may be adversely affected, with
concomitant adverse affects on the price of our securities. Our shares may
someday be subject to such penny stock rules and our shareholders will, in all
likelihood, find it difficult to sell their securities.





We have no
outstanding options and no outstanding warrants.





Item 6.
Management’s Discussion and Analysis





The
discussion contained in this prospectus contains “forward-looking statements”
that involve risk and uncertainties. These statements may be identified by the
use of terminology such as “believes”, “expects”, “may”, or “should”, or
“anticipates”, or expressing this terminology negatively or similar expressions
or by discussions of strategy. The cautionary statements made in this prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this prospectus. Our actual results could differ
materially from those discussed in this prospectus. Important factors that could
cause or contribute to such differences include those discussed under the
caption entitled “risk factors,” as well as those discussed elsewhere in this
prospectus.





7




INTRODUCTION




Xenicent,
Inc. was incorporated under the laws of the State of North Carolina. We engaged
in the business of real estate consulting as well as purchasing and reselling
vacant tracts of land, primarily in the North Carolina area. Currently, our
revenue streams come from Pingchuan Yi Liao, our wholly-owned subsidiary which
was acquired on August 11, 2004.





Before
the Acquisition, Pingchuan Yi Liao’s operations focused on sales of medical
equipment, such as infusion apparatus and respirator equipment. Substantially
all of Pingchuan Yi Liao’s revenues in 2003 derived from medical equipment
sales.





In 2004,
our medical equipment sales diminished, and we began to focus on deriving
revenue from the medical industry by providing integrated operational management
services for a related medical company, Pingchuan Yao Ye Gu Fen You Xian Gong
Si, a corporation validly organized and existing under the laws of the People’s
Republic of China (“Gu Fen”). Pingchuan Yi Liao’s major shareholder, Mr. Hu
Zhanwu, also owns more than 50% of the common stock of the Gu Fen company.





In
October 2004, we entered into a letter of intent with the Gu Fen Company,
pursuant to which the Gu Fen company agreed to retain our integrated operational
management services and pay us a professional service fee of US$48,000 per year,
plus 15% of their sales revenue as a commission.




Selected
      financial dataYear
      Ended December 312004
    2004Net
      Sales
    $38,882
    $118,007Net
      (Loss) / Income
    (193,158)
    899Net
      Loss per Common Share
    **
    **Weighted
      AverageCommon
      Shares Outstanding
    70,370,890
    70,000,000As
      of December 31,
    As of December 31,2004
    2003Total
      Assets
    $40,313
    $214,430Working
      Capital
    (71,920)
      121,238Shareholders’
      Equity (Deficit)
    (71,920)
    121,238**
      Less than $.01


No
dividends have been declared or paid for any of the periods
presented.




8


**


*Results
of Operations*





For the
years ended December 31, 2004 and 2003.





*Sales* *.*








There was
sales revenue of $38,882 for the year ended December 31, 2004, versus sales
revenue of $118,007 for the same period ended in 2003. The difference is
attributable to the fact that in 2203, substantially all of our revenue derived
from sales of medical equipment. The sales in 2004 are primarily attributable to
the receipt of professional service fees in connection with our integrated
management consulting services to a related company (Gu Fen) based on a
negotiated contract basis.





*Cost
of Sales* *.*





Costs for
sales differed significantly between fiscal year 2003 and 2004 due to the
different revenue streams. In 2003, substantially all of our revenue derived
from sales of medical equipment, while in 2004 substantially all of our revenue
derived from management consulting services.





There was
cost of sales of $2,158 for the year ended December 31, 2004, versus cost of
sales of $115,569 for the same period ended in 2003. Cost of sales as a
percentage of sales was 6% for 2004 and was
98% in 2003. The significant decrease in cost of sales as a percentage of sales
was due to the cost of sales in 2004 primarily related to our professional
service which had limited cost, versus the cost of sales in 2003 consisting of
purchase price for our medical equipment plus other direct costs associated with
making the products available for resale.





*Expenses.*




Operating
expenses for the year ended December 31, 2004 increased
to $218,723 from $1,096 in the
same period in 2003. An increase of $217,627 in general and administrative
expense s in 2004
was due primarily to the increases in professional fees and employees' payroll,
as 2004 began the first full year of our operations under our integrated
management service agreement.





*Income
/ Losses.*




We had a net
loss o f
$193,158, o r less
than $.01 per common share, for year ended December 31, 2004, versus net income
o f
$899 , or less than
$.01 per
common share, fo r the
same period ended in 2003. The increase in net loss for 2004 from the prior year
was primarily due to an increase in operating expenses over an increase in gross
profit, plus the effects of income taxes.





*Impact
of Inflation.*





We believe
that inflation has had a negative impact on our results of operations since
inception. Until we are able to significantly sell products and generate revenue
we will be unable to pass on inflationary increases in our expenses through
increases in revenue.





9


**


*Liquidity
and Capital Resources.*




On December
31, 2004, we had cash of $1,431 and working capital deficit of $71,920. The
working capital deficit was due primarily to the accounts payable and accrued
liabilities of $21,991, the notes payable of $70,000 and the income tax payable
of $18,732, partially offset by the accounts receivable of $38,882.





On December
31, 2003, we had cash of $1,133 and working capital deficit of $11,629. The
working capital deficit was due primarily to the lack of assets compared to
liabilities at December 31, 2003 for accounts payable, accrued expenses, amounts
due to a related party, amounts due to a director and stockholder and taxes
payable.





Net cash
flows used in
o perating
activities were $197,236
f or the
year ended December 31, 2004 as compared with net cash flows provided by
operating activities of
$128,092 for the
same period in 2003. The decrease in cash provided by operations was primarily
attributable to the decrease in accounts receivable and inventories for the 2004
period.





There were no
cash flows from investing activities in both twelve month periods ended December
31, 2004 and 2003.





Net cash
flows provided
by financing activities were $197,534
f or the
year ended December 31, 2004 as compared with net cash flows used in financing
activities of
$127,104 for the
same period in 2003. The increase in cash provided by financing activities was
primarily attributable to due from stockholders of $132,867, proceeds from notes
payable of $80,000, partially offset by the repayment of notes payable of
$10,000 for the 2004 period.





Overall, we
have funded our cash needs from inception through December 31, 2004 with a
series of debt transactions. If we are unable to receive additional cash from
our majority stockholder, we may need to rely on financing from outside sources
through debt or equity transactions. Failure to obtain such financing could have
a material adverse effect on operations and financial condition.





*Going
Concern Opinion.*





As discussed
in this report, we had an accumulated deficit of $192,708 at December 31, 2004
that included a net loss of $193,158 for the year ended December 31, 2004. Our
working capital deficit was $71,920 and our cash flows used in operations was
$197,236. Our independent auditors have expressed doubt as to our ability to
continue as a going concern. Our continued existence is dependent upon our
ability to resolve our business and liquidity problems, principally through
raising additional capital and increasing our sales. Our plans with regard to
this matter are to seek additional capital for operations through either debt or
equity and enact a business combination. The merger with Pingchuan Yi Liao is
also intended to address this situation.





10





Item 7.
Financial Statements




**Jimmy
      C.H. Cheung & Co**
      *Certified
      Public Accountants*
      *(A
      member of Kreston International)*
  **REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM** ****
 
 To the
Board of Directors of:
 Pingchuan
Pharmaceutical, Inc. (Previously Xenicent, Inc.) and Subsidiary
 
 
 
 We have
audited the accompanying consolidated balance sheet of Pingchuan Pharmaceutical,
Inc. (Previously Xenicent, Inc.) and subsidiary as of December 31, 2004 and the
related statements of operations, changes in stockholders’ equity (deficiency)
and cash flows for the years
ended December 31, 2004 (consolidated) and 2003 . These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits of the financial
statements provide a reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Pingchuan Pharmaceutical, Inc.
(Previously Xenicent, Inc.) and subsidiary, as of December 31, 2004
(consolidated), and the results of its operations and its cash flows for the
years ended December 31, 2004 (consolidated) and 2003, in conformity with
accounting principles generally accepted in the United States of America.
 
 The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 7 to the
consolidated financial statements, the Company had a net loss of $193,158, an
accumulated deficit of $192,708 and a working capital of $71,920 and used cash
in operations of $197,236. These factors raise substantial doubt about its
ability to continue as a going concern. Management’s plans concerning this
matter are also described in Note 7. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
  **JIMMY
      C.H. CHEUNG & CO**
      Certified
      Public AccountantsDate: April 12,
2005
    By:JIMMY
      C.H. CHEUNGHong
Kong
 
 
   
  304
      Dominion Centre, 43 Queen’s Road East, Wanchai, Hong Kong
      Tel:
      (852) 25295500 Fax: (852) 28651067 Email:
      jchc@krestoninternational.com.hk
      Website:
      http://www.jimmycheungco.com
 
 11
  PINGCHUAN
PHARMACEUTICAL, INC.
 (PREVIOUSLY
XENICENT, INC.)
 AND
SUBSIDIARY
 CONSOLIDATED
BALANCE SHEET
 AS OF
DECEMBER 31, 2004
 
  
  The
accompanying notes are an integral part of these financial
statements
  12
  PINGCHUAN
PHARMACEUTICAL, INC.
 (PREVIOUSLY
XENICENT, INC.)
 AND
SUBSIDIARY
 STATEMENTS
OF OPERATIONS
 FOR THE
YEARS ENDED DECEMBER 31, 2004 (CONSOLIDATED) AND 2003
 
  
 The
accompanying notes are an integral part of these financial
statement
   13
  PINGCHUAN
PHARMACEUTICAL, INC.
 (PREVIOUSLY
XENICENT, INC.)
 AND
SUBSIDIARY
 STATEMENTS
OF STOCKHOLDERS’ EQUITY (DEFICIENCY)
 FOR THE
YEARS ENDED DECEMBER 31, 2004 (CONSOLIDATED) AND 2003
 
 
 
 
  The
accompanying notes are an integral part of these financial
statements
   14
 `
 PINGCHUAN
PHARMACEUTICAL, INC.
 (PREVIOUSLY
XENICENT, INC.)
 AND
SUBSIDIARY
 STATEMENTS
OF CASH FLOWS
 FOR THE
YEARS ENDED DECEMBER 31, 2004 (CONSOLIDATED) AND 2003
 
  
  The
accompanying notes are an integral part of these financial
statements
  15
 
 PINGCHUAN
PHARMACEUTICAL, INC.
 (PREVIOUSLY
XENICENT, INC.)
 AND
SUBSIDIARY
 NOTES TO
THE FINANCIAL STATEMENTS
 AS OF
DECEMBER 31, 2004 (CONSOLIDATED) AND 2003
 
  **1.**
    **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES AND
    ORGANIZATION**
 
 (A)
Organization
  Xenicent,
Inc. (“Xenicent”) was organized under the laws of the State of North Carolina on
July 20, 1996. Xenicent is authorized to issue 50,000,000 shares of common stock
of $0.001 par value and 50,000,000 shares of preferred stock of $0.001 par
value. Xenicent is a non-operative holding company of Heilongjiang Pingchuan Yi
Liao Qi Xie You Xian Gong Si ("Heilongjiang Pingchuan"), a corporation organized
and existed under the laws of the Peoples' Republic of China (“PRC”) and is
primarily engaged in the sale of medical equipment and the providing of
consultation services in the pharmaceutical business.
 
 On June
22, 2004, Xenicent executed a Plan of Exchange (“the Agreement") with all the
shareholders of Heilongjiang Pingchuan  to
exchange 70,000,000 shares of common stock of the Company for 100% of the
registered capital of Heilongjiang Pingchuan. On July 28, 2004, Xenicent changed
its name to Pingchuan Pharmaceutical, Inc. (“Pingchuan Pharmaceutical “) and
increased its authorized shares of common stock from 50,000,000 to 150,000,000
by filing Articles of Amendment with the Secretary of State in the State of
North Carolina.
 
 The
Agreement was consummated on August 11, 2004. As a result of the Agreement, the
transaction was treated for accounting purposes as a capital transaction and
recapitalization by the accounting acquirer (Heilongjiang Pingchuan) and as a
reorganization of the accounting acquiree (Pingchuan Pharmaceutical).
Accordingly, the financial statements include the following:
 
 (1)
    The
      balance sheet consists of the net assets of the acquirer at historical
      cost and the net assets of the acquiree at historical cost;
      and
 
 (2)
    The
      statements of operations include the operations of the acquirer for the
      years presented and the operations of the acquiree from the date of the
      merger.
 
 Pingchuan
Pharmaceutical and Heilongjiang
Pingchuan Yi Liao Qi Xie You Xian Gong Si are hereafter referred to as the
Company.
 
 (B)
    Principles
      of consolidation
 
 The
accompanying consolidated financial statements for 2004 include the accounts of
the Company and its wholly owned subsidiary, Heilongjiang Pingchuan. The
financial statements for 2003 include the accounts of Heilongjiang Pingchuan.
All significant inter-company accounts and transactions have been eliminated on
consolidation.
 
 (C)
    Use
      of estimates
 
 The
preparation of the financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount 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.
Actual results could differ from those estimates.
 
 (D)
    Cash
      and cash equivalents
 
 For
purpose of the statements of cash flows, cash and cash equivalents include cash
on hand and demand deposits with a bank with a maturity of three months or
less.
  10
 16
  PINGCHUAN
PHARMACEUTICAL, INC.
 (PREVIOUSLY
XENICENT, INC.)
 AND
SUBSIDIARY
 NOTES TO
THE FINANCIAL STATEMENTS
 AS OF
DECEMBER 31, 2004 (CONSOLIDATED) AND 2003
 
  1. **SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION (CONTINUED)**
 
 (E)
    Accounts
      receivable
 
 The
Company extends unsecured credit to its customers in the ordinary course of
business but mitigates the associated risks by performing credit checks and
actively pursuing past due accounts. An allowance for doubtful accounts is
established and recorded based on managements’ assessment of the credit history
with the customer and current relationships with them. As of December 31, 2004
and 2003, the Company considers all its accounts receivable to be collectable
and no provision for doubtful accounts has been made in the financial
statements.
 
 (F)
    Fair
      value of financial instruments
 
 Statement
of Financial Accounting Standards No. 107, "Disclosure About Fair Value of
Financial Instruments," requires certain disclosures regarding the fair value of
financial instruments. Trade accounts receivable, accounts payable, and accrued
liabilities are reflected in the financial statements at fair value because of
the short-term maturity of the instruments.
 
 (G)
    Revenue
      recognition
 
 The
Company recognizes revenue from the sale of medical equipment at the time of
delivery, when title to the products transfer and the customer bears the risk of
loss, net of estimated provisions for returns, rebates and sales
allowances.
 
 The
Company also provides consultation services to a related company based on a
negotiated contract basis. The Company recognizes services-based revenue from it
contracts when the service has been performed, the customer has approved the
completion of services and collectibility is reasonably assured.
 
 (H)
    Income
      taxes
 
 The
Company accounts for income taxes under the Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes” (“Statement 109”). Under
Statement 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
 
 PRC
income tax is computed according to the relevant laws and regulations in the
PRC. The Company’s applicable tax rate has been 33%. The income tax expenses for
2004 and 2003 were $11,160 and $443 respectively.
 
 (I)
    Fair
      value of financial instruments
 
 The
respective carrying value of certain on-balance sheet financial instruments
approximates their fair values. These financial instruments include cash,
accounts payable and accrued liabilities, indebtedness to related parties and
notes payable. Fair values were assumed to approximate cost or carrying values
as most of the debt was incurred recently and the assets were acquired within
one year. Management is of the opinion that the Company is not exposed to
significant interest, credit or currency risks arising from these financial
instruments.
  17
  PINGCHUAN
PHARMACEUTICAL, INC.
 (PREVIOUSLY
XENICENT, INC.)
 AND
SUBSIDIARY
 NOTES TO
THE FINANCIAL STATEMENTS
 AS OF
DECEMBER 31, 2004 (CONSOLIDATED) AND 2003
 
  1. **SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(CONTINUED)**
 
 (J)
    Foreign
      currency translation
 
 The
functional currency of the Company is the Chinese Renminbi (“RMB”). Transactions
denominated in currencies other than RMB are translated into United States
dollars using year end exchange rates as to assets and liabilities and average
exchange rates as to revenues and expenses. Capital accounts are translated at
their historical exchange rates when the capital transaction occurred. Net gains
and losses resulting from foreign exchange translations are included in the
statements of operations and stockholder’s equity as other comprehensive income
(loss). Cumulative translation adjustment amounts were insignificant at and for
the years ended December 31, 2004 and 2003.
 
 (K)
    Comprehensive
      income (loss)
 
 The
foreign currency translation gain or loss resulting from translation of the
financial statements expressed in RMB to United States Dollar is reported as
other comprehensive income (loss) in the statements of operations and
stockholders’ equity. Cumulative translation adjustment amounts were
insignificant at and for the years ended December 31, 2004 and
2003.
 
 (L)
    Earnings
      per share
 
  Basic
earnings per share are computed by dividing income available to common
stockholders by the weighted average number of common stocks outstanding during
the year. Diluted income per share is computed similar to basic income per share
except that the denominator is increased to include the number of additional
common stocks that would have been outstanding if the potential common stocks
had been issued and if the additional common stocks were dilutive. There are no
potentially dilutive securities for 2004 and 2003.
  (M)
    Segments
 
 The
Company operates in only one segment Thereafter segment disclosure is not
presented.
 
 (N)
    Recent
      Accounting Pronouncements
 
 Statement
of Financial Accounting Standards (“SFAS”) No. 151, “Inventory Costs - an
amendment of ARB No. 43, Chapter 4”” SFAS No. 152, “Accounting for Real Estate
Time-Sharing Transactions - an amendment of FASB Statements No. 66 and 67,” SFAS
No. 153, “Exchanges of Non-monetary Assets - an amendment of APB Opinion No.
29,” and SFAS No. 123 (revised 2004), “Share-Based Payment,” were recently
issued. SFAS No. 151, 152, 153 and 123 (revised 2004) have no current
applicability to the Company and have no effect on the financial
statements.
  2. **NOTES PAYABLE**
 
 Notes
payable consisted of two notes of $40,000 each issued to a third party, is
unsecured and bears interest at a rate of approximately 9% per annum. The
Company scheduled monthly payments, each in the amount of $1,000 starting on
July 25, 2004 and ending on June 25, 2005, with the balance of $28,000 due and
payable on June 25, 2005, at the option of the Company, in cash or in an
equivalent amount of free trading common stock of the Company. As of December
31, 2004, the notes had an outstanding balance of $70,000.
  18
 
 PINGCHUAN
PHARMACEUTICAL, INC.
 (PREVIOUSLY
XENICENT, INC.)
 AND
SUBSIDIARY
 NOTES TO
THE FINANCIAL STATEMENTS
 AS OF
DECEMBER 31, 2004 (CONSOLIDATED) AND 2003
 
  3. **COMMITMENTS AND CONTINGENCIES**
 
 Employee
benefits
 
 The full
time employees of the Company are entitled to employee benefits including
medical care, welfare subsidies, unemployment insurance and pension benefits
through a Chinese government mandated multi-employer defined contribution plan.
The Company is required to accrue for those benefits based on certain
percentages of the employees’ salaries and make contributions to the plans out
of the amounts accrued for medical and pension benefits. The total provision and
contributions made for such employee benefits was $282 and $120 for 31, 2004 and
2003, respectively. The Chinese government is responsible for the medical
benefits and the pension liability to be paid to these employees.
 
 
 4. **SHAREHOLDERS’ EQUITY-Stock issuances**
 
 On June
22, 2004, the Company executed a Plan of Exchange pursuant to which the Company
agreed to issue 70,000,000 new shares of common stock to the shareholders of Heilongjiang
Pingchuan in
exchange for 100% of registered capital of Heilongjiang Pingchuan. The Plan of
Exchange was consummated on August 11, 2004.
 
 During
2004, the Company issued 791,407 shares of common stock upon completion of the
reverse merger to the existing stockholders of Xenicent, Inc.
 
 
 5. **RELATED PARTY TRANSACTIONS**
 
 During
2004, the Company earned management fee of $38,882 from a related company. This
amount was outstanding as of December 31, 2004.
 
 In 2004,
the Company owed a director $1,510 for short-term advances.
 
 The
Company occupies certain office spaces rented by a related company at no charge
to the Company.
 
 
 6. **CONCENTRATIONS AND RISKS**
 
 During
2004 and 2003, 100% of the Company’s assets were located in China.
 
 The
Company relied on one customer for 100% of its revenue in 2004 and 2003.
 
 The
Company relied on one supplier for its purchases in 2003. As of December 31,
2003, accounts payable to this supplier amounted to $5,763.
  10
 19
  
 PINGCHUAN
PHARMACEUTICAL, INC.
 (PREVIOUSLY
XENICENT, INC.)
 AND
SUBSIDIARY
 NOTES TO
THE FINANCIAL STATEMENTS
 AS OF
DECEMBER 31, 2004 (CONSOLIDATED) AND 2003
 
  7. **GOING
CONCERN**
 
 As
reflected in the accompanying consolidated financial statements, the Company has
an accumulated deficit of $192,708 at December 31, 2004 that includes a net loss
of $193,158 for the year ended December 31, 2004. The Company’s total current
liabilities exceed its total current assets by $71,920 and the Company used cash
in operations of $197,236. These factors raise substantial doubt about its
ability to continue as a going concern. In view of the matters described above,
recoverability of a major portion of the recorded asset amounts shown in the
accompanying consolidated balance sheet is dependent upon continued operations
of the company, which in turn is dependent upon the Company’s ability to raise
additional capital, obtain financing and succeed in its future operations. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
 
 Management
has taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with the
ability to continue as a going concern. The Company is actively pursuing
additional funding and potential merger or acquisition candidates and strategic
partners, which would enhance stockholders’ investment. Management believes that
the above actions will allow the Company to continue operations through the next
fiscal year.
 
 20


Item 8.
Changes with and Disagreements With Accountants on Accounting and
Financial Disclosure








On or about
December 10, 2004, Perrella & Associates, P.A., our independent auditor,
resigned.





Perrella
& Associates, P.A.'s reports on our financial statements for the years ended
December 31, 2003 and 2002, contained no adverse opinion or disclaimer of
opinion nor were they qualified or modified as to the uncertainty, audit scope
or accounting principles, except that their audit report for the year ended
December 31, 2003 contained a going concern qualification because of Perrella
& Associates doubt about the ability of us to continue as a going concern.
In connection with the prior audits for the fiscal years ended December 31, 2003
and 2002, and the review for the interim period up to and including December 10,
2004, there have been no disagreements with Perrella & Associates, P.A. on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure, which if not resolved to the satisfaction of
Perrella & Associates, P.A. would have caused it to make reference to the
subject matter of the disagreement in connection with its report on these
financial statements for those periods.





Our Board of
Directors has made the decision to engage another auditor. We do not have an
audit committee. On or about January 17, 2005, we engaged Jimmy C.H. Cheung
& Co., CPA's as our independent auditors.





Prior to
making the decision to retain Jimmy C.H. Cheung & Co., CPA, we have had no
prior relationship with Jimmy C.H. Cheung & Co., CPA's or any of its
members.





Item 8A.
Controls and Procedures





**Quarterly
Evaluation of Controls**





As of the end
of the period covered by this annual report on Form 10-KSB, we evaluated the
effectiveness of the design and operation of (i) our disclosure controls and
procedures (“Disclosure Controls”), and (ii) our internal control over financial
reporting (“Internal Controls”). This evaluation (“Evaluation”) was performed by
our Chief Executive Officer, Yao, Qitai (“CEO”) and by Zhang, Chunman, our Chief
Financial Officer (“CFO”). In this section, we present the conclusions of our
CEO and CFO based on and as of the date of the Evaluation (i) with respect to
the effectiveness of our Disclosure Controls and (ii) with respect to any change
in our Internal Controls that occurred during the most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect our
Internal Controls.





**CEO
and CFO Certifications**





Attached to
this annual report, as Exhibits 31.1 and 31.2, are certain certifications of the
CEO and CFO, which are required in accordance with the Exchange Act and the
Commission’s rules implementing such section (the “Rule 13a-14(a)/15d-14(a)
Certifications”). This section of the annual report contains the information
concerning the Evaluation referred to in the Rule 13a-14(a)/15d-14(a)
Certifications. This information should be read in conjunction with the Rule
13a-14(a)/15d-14(a) Certifications for a more complete understanding of the
topic presented.





21


****


**Disclosure
Controls** **and Internal Controls**





Disclosure
Controls are procedures designed with the objective of ensuring that information
required to be disclosed in our reports filed with the Securities and Exchange
Commission under the Securities Exchange Act, such as this annual report, is
recorded, processed, summarized and reported within the time period specified in
the Commission’s rules and forms. Disclosure Controls are also designed with the
objective of ensuring that material information relating to us is made known to
the CEO and the CFO by others, particularly during the period in which the
applicable report is being prepared. Internal Controls, on the other hand, are
procedures which are designed with the objective of providing reasonable
assurance that (i) our transactions are properly authorized, (ii) our assets are
safeguarded against unauthorized or improper use, and (iii) our transactions are
properly recorded and reported, all to permit the preparation of complete and
accurate financial statements in conformity with accounting principals generally
accepted in the United States.





**Limitations
on the Effectiveness of Controls**





Our
management does not expect that our Disclosure Controls or our Internal Controls
will prevent all error and all fraud. A control system, no matter how well
developed and operated, can provide only reasonable, but not absolute assurance
that the objectives of the control system are met. Further, the design of the
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances so of fraud, if
any, within us have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the control. The design of a system of
controls also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated objectives under all potential future conditions. Over
time, control may become inadequate because of changes in conditions, or because
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.





**Scope
of the Evaluation**





The CEO and
CFO’s evaluation of our Disclosure Controls and Internal Controls included a
review of the controls’ (i) objectives, (ii) design, (iii) implementation, and
(iv) the effect of the controls on the information generated for use in this
annual report. In the course of the Evaluation, the CEO and CFO sought to
identify data errors, control problems, acts of fraud, and they sought to
confirm that appropriate corrective action, including process improvements, was
being undertaken. This type of evaluation is done on a quarterly basis so that
the conclusions concerning the effectiveness of our controls can be reported in
our quarterly reports on Form 10-QSB and annual reports on Form 10-KSB. The
overall goals of these various evaluation activities are to monitor our
Disclosure Controls and our Internal Controls, and to make modifications if and
as necessary. Our external auditors also review Internal Controls in connection
with their audit and review activities. Our intent in this regard is that the
Disclosure Controls and the Internal Controls will be maintained as dynamic
systems that change (including improvements and corrections) as conditions
warrant.





22





Among other
matters, we sought in our Evaluation to determine whether there were any
significant deficiencies or material weaknesses in our Internal Controls, which
are reasonably likely to adversely affect our ability to record, process,
summarize and report financial information, or whether we had identified any
acts of fraud, whether or not material, involving management or other employees
who have a significant role in our Internal Controls. This information was
important for both the Evaluation, generally, and because the Rule
13a-14(a)/15d-14(a) Certifications, Item 5, require that the CEO and CFO
disclose that information to our Board (audit committee), and to our independent
auditors, and to report on related matters in this section of the annual report.
In the professional auditing literature, “significant deficiencies” are referred
to as “reportable conditions”. These are control issues that could have
significant adverse affect on the ability to record, process, summarize and
report financial data in the financial statements. A “material weakness” is
defined in the auditing literature as a particularly serious reportable
condition where the internal control does not reduce, to a relatively low level,
the risk that misstatement cause by error or fraud may occur in amounts that
would be material in relation to the financial statements and not be detected
within a timely period by employee in the normal course of performing their
assigned functions. We also sought to deal with other controls matters in the
Evaluation, and in each case, if a problem was identified, we considered what
revisions, improvements and/or corrections to make in accordance with our
ongoing procedures.





**Conclusions**





Based upon
the Evaluation, our CEO and CFO have concluded that, subject to the limitations
noted above, our Disclosure Controls are effective to ensure that material
information relating to us is made known to management, including the CEO and
CFO, particularly during the period when our periodic reports are being
prepared, and that our Internal Controls are effective to provide reasonable
assurance that our financial statements are fairly presented inconformity with
accounting principals generally accepted in the United States. Additionally,
there has been no change in our Internal Controls that occurred during our most
recent fiscal quarter that has materially affected, or is reasonably likely to
affect, our Internal Controls.





23





Item 9.
Directors and Executive Officers of the Registrant





Directors
and Executive Officers.





Our Bylaws
provide that we must have at least 1 director. Each director will serve until
our next annual shareholder meeting, to be held sixty days after the close of
the fiscal year, or until a successor is elected who accepts the position.
Directors are elected for one-year terms. Our officers may be elected by our
Board of Directors at any regular or special meeting of the Board of
Directors.





On August 11,
2004, Duane Bennett, the former President, filled five vacancies on the Board of
Directors with designees of Pingchuan Yi Liao and then he resigned. The names
and positions of these individuals are as follows:





Name
    Age
    PositionHu,
      Zhanwu
    50
    Chairman
      of the Board of Directors,
      President,
      and DirectorYao,
      Qitai
    46
    Chief
      Executive Officer and DirectorXiao,
      Yi
    65
    Vice
      President and DirectorGao,
      Xichen
    38
    Vice
      President and DirectorLi,
      Chunli
    
    Vice
      President and Director





The following
is a summary of the business experience and other biographical information with
respect to each of the Company’s officers and directors listed in the
above-referenced table.





Mr. Hu,
Zhanwu - Chairman of the Board and President. Mr. Hu is the founder of
Pingchuan, enjoying a successful career in the pharmaceutical industy in Harbin,
Peoples' Republic of China. He has extensive experience in managing, running and
developing an integrated pharmaceutical company. He has a degree in Literature
from Harbin Pedagogic College. He is the owner of 35,700,000 shares of the
Registrant, representing 51% of the outstanding shares of common
stock.





Mr. Yao,
Qitai - Director and CEO. Mr. Yao has held positions at Pingchuan in product
manufacturing, sales management and marketing, and strategic planning. He has a
bachelor degree in finance from the Harbin Technology University. He is the
owner of 160,000 shares of the Registrant, representing 0.22% of the outstanding
shares of common stock.





Mr. Xiao,
Yi - Director, Vice President and Vice General Manager. Mr. Xiao was one of the
founders of Pingchuan. He has experience in all aspects of the organization, as
well as foreign trading. He is fluent in Russian and has experience in matter of
diplomacy. After graduating from Harbin Education University, he worked as the
dean in Harbin Institute of Physical Education and as a General Manager in the
Moscow Branch of the Hongkong Chengyue Company.





Mr. Gao,
Xichen - Director, Vice President and Vice General Manager. Mr. Gao graduated
from Heilongjiang University with the degree of Assistant Engineer. Initially,
he was responsible for administration at SongHuaJiang Transportation Bureau,
Medicine Management office under the Harbin Economy and Trading Committee. He
has developed skills in all aspects of the organization, including the
coordination, analyst and management areas, and also possesses comprehensive
knowledge in the medical industry. From April, 2004, Mr. Gao has been the Vice
General Manager of Pingchuan and plays an important role in developing the
Company's high-tech projects. He is the owner of 80,000 shares of the
Registrant, representing 0.11% of the outstanding shares of common
stock.





Ms. Li,
Chunli - Director, Vice President and Vice General Manager. Ms. Li is the
Manager of Quality Control at Pingchuan. She received a bachelor degree from
Jilin University and first worked at Harbin Hospital and Harbin LingFeng
Medicine Company Ltd. as a chemist and manager of Quality Control.





24





Legal
Proceedings.





No officer,
director, or persons nominated for such positions and no promoter or significant
employee of our Company has been involved in legal proceedings that would be
material to an evaluation of our management.





There are no
arrangements or understandings pursuant to which any were elected as officers.





Audit
Committee Financial Expert





We do not
have a separately designated standing audit committee. Pursuant to Section
3(a)(58)(B) of the Exchange Act, the entire Board of Directors acts as an audit
committee for the purpose of overseeing the accounting and financial reporting
processes, and audits of the financial statements of us. The Commission recently
adopted new regulations relating to audit committee composition and functions,
including disclosure requirements relating to the presence of an "audit
committee financial expert" serving on its audit committee. In connection with
these new requirements, Our Board of Directors examined the Commission's
definition of "audit committee financial expert" and concluded that we do not
currently have a person that qualifies as such an expert. We have had minimal
operations for the past two (2) years. Presently, there are only two (2)
directors serving on our Board, and we are not in a position at this time to
attract, retain and compensate additional directors in order to acquire a
director who qualifies as an "audit committee financial expert", but we intend
to retain an additional director who will qualify as such an expert, as soon as
reasonably practicable. While neither of our current directors meets the
qualifications of an "audit committee financial expert", each of our directors,
by virtue of his past employment experience, has considerable knowledge of
financial statements, finance, and accounting, and has significant employment
experience involving financial oversight responsibilities. Accordingly, we
believe that its current directors capably fulfill the duties and
responsibilities of an audit committee in the absence of such an
expert.





Code of
Ethics





We are
presently working with its legal counsel to prepare and adopt a code of ethics
that applies to our principal chief executive officer, principal financial
officer, principal accounting officer or controller, or persons performing
similar functions (the "Code of Ethics"). A draft of the Code of Ethics is
attached hereto as Exhibit
14.1 . The
Code of Ethics is being designed with the intent to deter wrongdoing, and to
promote the following:





25




·
    Honest
      and ethical conduct, including the ethical handling of actual or apparent
      conflicts of interest between personal and professional
      relationships




·
    Full,
      fair, accurate, timely and understandable disclosure in reports and
      documents that a small business issuer files with, or submits to, the
      Commission and in other public communications made by the small business
      issuer




·
    Compliance
      with applicable governmental laws, rules and
regulations




·
    The
      prompt internal reporting of violations of the code to an appropriate
      person or persons identified in the code




·
    Accountability
      for adherence to the code





Section
16(a) Beneficial Ownership Reporting Compliance





Under Section
16(a) of the Exchange Act, all executive officers, directors, and each person
who is the beneficial owner of more than 10% of the common stock of a company
that files reports pursuant to Section 12 of the Exchange Act, are required to
report the ownership of such common stock, options, and stock appreciation
rights (other than certain cash-only rights) and any changes in that ownership
with the Commission. Specific due dates for these reports have been established,
and we are required to report, in this Form 10-KSB, any failure to comply
therewith during the fiscal year ended December 2004. We believe that all of
these filing requirements were satisfied by our executive officers, directors
and by the beneficial owners of more than 10% of our common stock. In making
this statement, we have relied solely on copies of any reporting forms received
by it, and upon any written representations received from reporting persons that
no Form 5 (Annual Statement of Changes in Beneficial Ownership) was required to
be filed under applicable rules of the Commission.





Item 10.
Executive Compensation





Summary
      Compensation TableAnnual
      Compensation
    Long
      Term CompensationName
      and Principal Position
    Year
    Salary
      ($)
    Bonus
      ($)
    Other
      Annual Compensation ($)
    Restricted
      Stock
      Award(s)
      ($)
    Securities
      Underlying
      Options
      (#)
    LTIP
      Payouts ($)
    Other
      ($)Hu,
      Zhanwu
      President
    2004
    0
    0
    0
    0
    0
    0
    02003
    0
    0
    0
    0
    0
    0
    02002
    0
    0
    0
    0
    0
    0
    0





We have
not entered into any other employment agreements with our employees, Officers or
Directors. We have no standard arrangements under which we will compensate our
directors for their services provided to us.





26





Item 11.
Security Ownership of Certain Beneficial Owners and Management





The following
tables set forth the ownership, as of March 31, 2005, of our common stock (a) by
each person known by us to be the beneficial owner of more than 5% of our
outstanding common stock, and (b) by each of our directors, by all executive
officers and our directors as a group. To the best of our knowledge, all persons
named have sole voting and investment power with respect to such shares, except
as otherwise noted.







Security
Ownership of Certain Beneficial Owners (  1)(  2) .





Title
      of Class
    Name
      and Address
    #
      of Shares
    Current
      % OwnedCommon
    Hu,
      Zhanwu
      32
      Ganshui Rd., Harbin, Heilongjiang, P.R.China
    35,700,000
    49.8%






Security
Ownership of Officers and Directors (2) .





Title
      of Class
    Name
      and Address
    #
      of Shares
    Current
      % OwnedCommon
    Hu,
      Zhanwu
      32
      Ganshui Rd., Harbin, Heilongjiang, P.R.China
    35,700,000
    49.8%Common
    Xiao,
      Yi
      32
      Ganshui Rd., Harbin, Heilongjiang, P.R.China
    743,200
    1%Common
    Yao,
      Qitai
      32
      Ganshui Rd., Harbin, Heilongjiang, P.R.China
    160,000
    **Common
    Gao,
      Xichen
      32
      Ganshui Rd., Harbin, Heilongjiang, P.R.China
    80,000
    **Common
    All
      Officers and Directors as a Group (2)
    36,683,200
    50.8%





**Less
than 1%


(1)  Pursuant
to Rule 13-d-3 under the Securities Exchange Act of 1934, as amended, beneficial
ownership of a security consists of sole or shared voting power (including the
power to vote or direct the voting) and/or sole or shared investment power
(including the power to dispose or direct the disposition) with respect to a
security whether through a contract, arrangement, understanding, relationship or
otherwise. Unless otherwise indicated, each person indicated above has sole
power to vote, or dispose or direct the disposition of all shares beneficially
owned. We are unaware of any shareholders whose voting rights would be affected
by community property laws.
 (2)  This
table is based upon information obtained from our stock records. Unless
otherwise indicated in the footnotes to the above tables and subject to
community property laws where applicable, we believe that each shareholder named
in the above table has sole or shared voting and investment power with respect
to the shares indicated as beneficially owned.
  27





Changes
in Control.





Pursuant to
and at the closing of the Plan of Exchange, dated June 22, 2004, which occurred
on August 11, 2004, the shareholders of Pingchuan Yi Liao (the "Pingchuan
Shareholders") exchanged all of their registered capital of Pingchuan for
70,000,000 shares of our common stock, or 98% of our then outstanding common
stock. Upon completion of the exchange, Pingchuan Yi Liao became our
wholly-owned subsidiary.


Therefore, we
have undergone a change in the majority of our directors and, as a result, we
have undergone a change of control of the Registrant within the meaning of the
Securities Exchange Act of 1934, as amended (the "Securities Exchange Act").
However, since we are not registered under the Securities Exchange Act, there is
no obligation for us to prepare and file with the Commission and mail to
shareholders an Information Statement on Schedule 14F-1 with respect to such
change of control.





Item 12.
Certain Relationships and Related Transactions





During
2004, we earned a management fee of $38,882 from a related company. This amount
was outstanding as of December 31, 2004.





In 2004,
we owed a director $1,510 for short-term advances.





In
addition, we occupy certain office spaces rented by a related company at no
charge to us.





Item 13.
Exhibits and Reports on Form 8-K





(a)
Financial Statements


1. The
following financial statements of Pingchuan Pharmaceutical are included in Part
II, Item 7:


Reports
of Independent Registered Public Accounting
Firm F-1


Consolidated
Balance Sheet - December 31,
2004 F-2


Consolidated
Statements of Operations - Years Ended


December
31, 2004 and
2003 F-3


Consolidated
Statements of Stockholders’ Equity - Years Ended


December
31, 2004 and
2003 F-4


Consolidated
Statements of Cash Flows - Years Ended


December
31, 2004 and
2003 F-5


Notes to
Consolidated Financial
Statements F-6-10





2.
Exhibits


3.
Articles of Incorporation as amended and bylaws are incorporated by reference to
Exhibit No. 1 of Form SB-2 as amended filed December 2000.


14.1. Code of Ethics


31.1. Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive
Officer


31.2. Rule 13a-14(a)/15d-14(a) Certifications of Chief Financial
Officer


32.1. Section 1350 Certifications of Chief Executive
Officer


32.2. Section 1350 Certifications of Chief Financial
Officer





(b)
Reports on Form 8-K





(1)
    On
      October 25, 2004, we filed an amendment of current report on Form 8-K/A in
      order to publish our audited financial statements and unaudited pro forma
      financial statements reflecting a transaction closing on August 11,
      2004.





(2)
    We
      filed a current report on Form 8-K, dated January 21, 2005, and two
      amendments of current report on Form 8-K/A, dated January 25, 2005 and
      February 10, 2005, respectively, in order to report the changes in our
      certifying accountant.





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Item 14.
Principle Accounting Fees





**Fees
Billed For Audit and Non-Audit Services**





The following
table represents the aggregate fees billed for professional audit services
rendered to Jimmy C.H. Cheung & Co., CPA, our current independent auditor,
for the audit of our annual financial statements for the years ended December
31, 2004 and 2003.




Year
      Ended December 31
    2004$21,200
    (2)Audit-Related
      Fees(3)
    -Tax
      Fees(4)
    -All
      Other Fees(5)
    -Total
      Accounting Fees and Services
    $21,200






(1)
    *Audit
      Fees*.
      These are fees for professional services for the audit of the Company's
      annual financial statements, and for the review of the financial
      statements included in the Company's filings on Form 10-QSB, and for
      services that are normally provided in connection with statutory and
      regulatory filings or engagements.




(2)
    The
      amounts shown for Jimmy C.H. Cheung & Co., CPA in 2004 relate to the
      audit of our annual financial statements for the fiscal years ended
      December 31, 2004 and 2003.




(3)
    *Audit-Related
      Fees*.
      These are fees for the assurance and related services reasonably related
      to the performance of the audit or the review of our financial
      statements.




(4)
    *Tax
      Fees*.
      These are fees for professional services with respect to tax compliance,
      tax advice, and tax planning.




(5)
    *All
      Other Fees*.
      These are fees for permissible work that does not fall within any of the
      other fee categories, i.e., Audit Fees, Audit-Related Fees, or Tax
      Fees.





**Pre-Approval
Policy For Audit and Non-Audit Services**





We do not
have a standing audit committee, and the full Board performs all functions of an
audit committee, including the pre-approval of all audit and non-audit services
before we engage an accountant. All of the services rendered to us by Jimmy C.H.
Cheung & Co., CPA after December 2004 were pre-approved by our Board of
Directors.





We are
presently working with our legal counsel to establish formal pre-approval
policies and procedures for future engagements of our accountants. The new
policies and procedures will be detailed as to the particular service, will
require that the Board or an audit committee thereof be informed of each
service, and will prohibit the delegation of pre-approval responsibilities to
management. It is currently anticipated that our new policy will provide (i) for
an annual pre-approval, by the Board or audit committee, of all audit,
audit-related and non-audit services proposed to be rendered by the independent
auditor for the fiscal year, as specifically described in the auditor's
engagement letter, and (ii) that additional engagements of the auditor, which
were not approved in the annual pre-approval process, and engagements that are
anticipated to exceed previously approved thresholds, will be presented on a
case-by-case basis, by the President or Controller, for pre-approval by the
Board or audit committee, before management engages the auditors for any such
purposes. The new policy and procedures may authorize the Board or audit
committee to delegate, to one or more of its members, the authority to
pre-approve certain permitted services, *provided
that* the
estimated fee for any such service does not exceed a specified dollar amount (to
be determined). All pre-approvals shall be contingent on a finding, by the
Board, audit committee, or delegate, as the case may be, that the provision of
the proposed services is compatible with the maintenance of the auditor's
independence in the conduct of its auditing functions. In no event shall any
non-audit related service be approved that would result in the independent
auditor no longer being considered independent under the applicable rules and
regulations of the Securities and Exchange Commission.





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SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
caused this report to be signed on its behalf by the undersigned, hereunto duly
authorized.




**Pingchuan
      Pharmaceutical, Inc.**Date: April 15,
2005
    By:
    /s/ Hu, ZhanwuHu, ZhanwuPresident






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