UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   Form 10-KSB
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(Mark one)

[X]  Annual Report Under Section 13 or 15(d) of The  Securities  Exchange Act of
1934 for the fiscal year ended December 31, 2006

[ ]  Transition Report Under Section 13 or 15(d) of The Securities  Exchange Act
     of 1934

     For the transition period from ______________ to _____________

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                        Commission file number: 000-29523

                           China Pharma Holdings, Inc.
--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)



               Delaware                                        73-1564807
----------------------------------------             ---------------------------
     (State or Other Jurisdiction                     (I.R.S. Employer I.D. No.)
    incorporation or organization)


       2nd  Floor, No. 17, Jinpan Road,                      570216
        Haikou, Hainan Province, China
------------------------------------------------     ---------------------------
   (Address of principal executive offices)                 (Zip Code)


       Issuer's telephone number                     0086-898-66811730 (China)
                                                     ---------------------------


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<PAGE>






       Securities registered under Section 12(b) of the Exchange Act: None

          Securities registered under Section 12(g) ofthe Exchange Act:

                         Common stock, $0.001 par value
       -------------------------------------------------------------------

     Check whether the issuer has (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period the Company was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes X No

     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  Company's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X ].

     The  issuer's  revenue  for the fiscal  year ended  December  31,  2006 was
$21,843,262.

     11,950,553 shares held by non-affiliates had an aggregate market value of $
21,391,489.87 as of March 26, 2007, Shares of common stock held by any executive
officer or  director of the issuer and any person who  beneficially  owns 10% or
more of the  outstanding  common stock have been excluded from this  computation
because  such  persons may be deemed to be  affiliates.  This  determination  of
affiliate status is not a conclusive determination for other purpose.

     As of March 26, 2007,  there were 37,228,938  shares of Common Stock issued
and outstanding.

                       DOCUMENT INCORPORATED BY REFERENCE

EXHIBITS incorporates by reference certain information which has been filed with
the Securities and Exchange Commission.

Transitional Small Business Disclosure Format: Yes No X




                                       2
<PAGE>




                           China Pharma Holdings, Inc.
                                Table of Contents

                                                                     Page Number
                                                                     -----------
Part I

Item 1 Description of Business                                                 4
Item 2 Description of Property                                                35
Item 3 Legal Proceedings                                                      35
Item 4 Submission of Matters to a Vote of Security Holders                    36

Part II

Item 5 Market for Company's Common Stock and Related Stockholders Matters     36
Item 6 Management's Discussion and Analysis or Plan of Operation              37
Item 7 Financial Statements                                                   51
Item 8 Changes in and Disagreements with Accountants on Accounting and
       Financial Disclosures                                                  51
Item 8A Controls and Procedures                                               51

Part III

Item 9 Directors,  Executive Officers, Promoters and Control Persons;
       Compliance with Section 16(a) of the Exchange Act                      51
Item 10 Executive Compensation                                                54
Item 11 Security  Ownership  of Certain  Beneficial  Owners and
        Management and Related Stockholder Matters                            56
Item 12 Certain Relationships and Related Transactions                        56
Item 13 Exhibits                                                              57
Item 14 Principal Accountant Fees and Services Signatures                     58

FINANCIAL STATEMENTS                                                         F-1

EXHIBITS





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<PAGE>



                                     PART I

Certain statements in this Form 10-KSB constitute "forward-looking  statements."
These forward-looking statements involve known and unknown risks, uncertainties,
and other factors that may cause our actual results, performance or achievements
to be materially different from any future results,  performance or achievements
expressed  or implied by the  forward-looking  statements.  The  forward-looking
statements  in this Form  10-KSB are  identified  by words  such as  "believes",
"anticipates",  "expects", "intends", "may", "will", "estimate",  "continue" and
other similar expressions regarding our intent, belief and current expectations.
However, these words are not the exclusive means of identifying such statements.
In addition,  any statements  that refer to  expectations,  projections or other
characterizations  of future events or circumstances  and statements made in the
future  tense  are  forward-looking   statements.   Actual  results  may  differ
materially from those projected in the forward-looking statements as a result of
various  factors,  many of  which  are  beyond  our  control.  We  undertake  no
obligation   to  publicly   release  the  results  of  any  revisions  to  these
forward-looking  statements that may be made to reflect events or  circumstances
occurring  subsequent to the filing of this Form 10-KSB with the  Securities and
Exchange  Commission.  Readers are urged to  carefully  review and  consider the
various  disclosures  made by us in this Form 10-KSB,  including those set forth
under "Risk Factors".

Item 1 - Description of Business

Overview

China Pharma Holdings, Inc. (formerly,  TS Electronics,  Inc. and prior thereto,
Softstone,  Inc.)  was  incorporated  on  January  28,  1999,  pursuant  to  the
provisions of the General  Corporation Act of the State of Delaware.  On May 31,
1999, we merged with Soft Stone Building Products, Inc., an Oklahoma corporation
that  was  a  predecessor  to  our  Company's  business.  Our  initial  business
operations were conducted at 620 Dallas Drive,  Denton TX, 76205. On February 1,
2000, we moved our offices and facilities to Ardmore, OK. In June 2002, we moved
our office facilities to Pottsboro,  TX. On August 13, 2003, we changed our name
to TS  Electronics,  Inc.  On March  15,  2006,  we  changed  our  name  from TS
Electronics, Inc. to China Pharma Holdings, Inc.

Our focus initially was solely on realizing the commercial benefits of a process
developed and patented by our first president,  Frederick  Parker.  This process
converted waste tires into useful products.  We were not successful in promoting
this business, wrote off all assets associated with the business and shifted our
attention  to  the  commercial   possibilities   of  a  then,  newly  discovered
devulcanization  process to which we acquired a 5.5 year  exclusive  license for
the Western Hemisphere.  In addition,  we entered into the business of importing



                                       4
<PAGE>

hard-to-find  and specialty  crumb rubber.  We were also not successful in these
endeavors and have abandoned all efforts regarding these pursuits.

Effective  August 11, 2004, the Company entered into a Stock Exchange  Agreement
with Hou Xiao,  the sole  stockholder  of China ESCO  Holdings  Limited  ("China
ESCO"), a company  organized in the Hong Kong Special  Administration  Region in
the  People's  Republic  of China (the  "PRC") and its  wholly  owned  operating
subsidiary,   AsiaNet  PE  Systems  Limited.  China  ESCO  was  engaged  in  the
development and  manufacturing of electrical  energy saving systems and products
in the PRC.

The  consummation of the transaction  with China ESCO was subject to a number of
conditions,  including  receipt by us of financial  statements  of China ESCO as
required  under  applicable  regulations,  and  satisfaction  of all  applicable
regulatory  requirements.  In  January  2005,  we  declared  China ESCO to be in
material breach of the agreement and rescinded the agreement.

Effective  February 8, 2005,  we  executed a Letter of Intent with Osage  Energy
Company,  LLC ("Osage")  whereby Osage would acquire 90% of the equity interests
of the Company.  This  transaction  was never  consummated  by the parties.  The
Company had no operations or significant  assets from the quarter ended December
31, 2004 until May 2005.

On May  11,  2005,  we  sold to  Halter  Financial  Group,  Inc.,  in a  private
placement,  1,875,045  shares of common stock at a purchase  price of $0.1066641
per share,  pursuant to the terms of a Stock  Purchase  Agreement (the "Purchase
Agreement"). The private placement was exempt from the registration requirements
of the Securities Act, in reliance upon Section 4(2) thereunder.  As a result of
the purchase,  Halter Financial Group, Inc. became our controlling  stockholder,
owning approximately 75% of our issued and outstanding shares of common stock.

Immediately  subsequent to, and as a result of, the closing of the  transactions
contemplated by the Purchase Agreement, Gene F. Boyd, Keith P. Boyd, Fredrick W.
Parker and Leo G. Templer resigned as officers and directors, as applicable,  of
the  Company.  Timothy P. Halter was  concurrently  appointed as a member of the
Board of Directors,  and Mr. Halter was elected as President,  Chief  Accounting
Officer and Secretary of the Company.

On October  19,  2005 we  entered  into a  Securities  Exchange  Agreement  (the
"Exchange  Agreement")  with Onny Investment  Limited,  a British Virgin Islands
company, and its original  stockholders pursuant to which we acquired all of the
issued and  outstanding  shares of Onny from said  stockholders  in exchange for
27,499,940  shares  of our  common  stock.  Upon  the  closing  of the  exchange
transaction  (the  "Exchange   Transaction"),   Onny  became  the  wholly  owned



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<PAGE>

subsidiary of our Company.  The Exchange  Agreement also provides that, upon the
effectiveness  of an amendment to the Company's  Certificate of Incorporation to
increase its  authorized  capital  stock,  the Company  shall issue to Heung Mei
Tsui,  the principal  stockholder  of Onny, an  additional  4,723,056  shares of
common stock (the "Post Closing  Shares") to which she would otherwise have been
entitled if the Company  had enough  authorized  shares as of the closing of the
Exchange Transaction.

Immediately prior to the closing of the Exchange  Transaction,  Onny completed a
private placement (the "Onny Offering") of its convertible preferred stock to 46
accredited  investors.  The Onny Offering  raised gross  proceeds of $5,000,000.
Additionally, immediately prior to the Exchange Transaction, participants in the
Onny Offering exchanged their preferred shares for an aggregate of 10,000 shares
of Onny's common stock.  Participants in the Onny Offering then  participated in
the Exchange  Transaction  by exchanging  such 10,000 shares of common stock for
6,944,619 shares of our common stock.

On March 15, 2006,  the Company  amended its  Certificate  of  Incorporation  to
increase its authorized  capital stock from 30,000,000 to 60,000,000  shares and
filed the  Information  Statement in accordance  with Section 14 of the Exchange
Act.  On May 16,  2006,  the  Company  issued  to Heung  Mei Tsui an  additional
4,723,056 shares of common stock as provided in the Exchange Agreement. Upon the
issuance  of the Post  Closing  Shares,  Ms.  Tsui  holds  25,278,385  shares or
approximately 72.8% of the issued and outstanding common stock of the Company.

On July 24, 2006,  Zhilin Li,  Heung Mei Tsui and the Company  entered into that
certain Stock Transfer  Agreement,  as amended on November 24, 2006, pursuant to
which Heung Mei Tsui transferred  10,000,000  shares of her personal holdings of
the Company's common stock to Zhilin Li in exchange for a sublicense to a patent
held by a third  party,  which is licensed to Ms. Li.  After the  aforementioned
stock transfer, Ms. Tsui holds 15,278,385 shares or 44% of the total outstanding
shares of our common stock. Ms. Li holds 10,000,000 shares or 28.8% of the total
outstanding shares of our common stock.

On February 1, 2007,  we completed an offering  pursuant to a  Subscription  and
Registration  Rights  Agreement   ("Agreement")  with  17  accredited  investors
("Investors") in connection with a private  placement of 2,505,882 shares of the
Company's common stock at $1.7 per share (the "Private Placement").  Pursuant to
the Agreement,  the Investors also received  three-year  warrants to purchase an
aggregate  of  1,252,941  shares of  Company's  common stock at $2.38 per share.
Pursuant to the  transaction  on February 1, 2007, we received the  subscription
proceeds in the  aggregate  amount of  $4,259,899.90.  The net  proceeds,  after
deduction of related expenses, amounted to $3,814,642.34.


                                       6
<PAGE>



Onny

Onny Investment  Limited ("Onny") was incorporated on January 12, 2005 under the
laws  of the  British  Virgin  Islands.  At the  time of  incorporation,  Onny's
authorized capital was $50,000 and there were 50,000 shares of one class and one
series of capital stock, $1.00 par value, issued and outstanding. Heung Mei Tsui
was, at the time of incorporation, the sole stockholder and director of Onny. On
July 6, 2005, Onny adopted a sole stockholder's resolution and a sole director's
resolution that resolved to change Onny's authorized  capital to $50,000 divided
into  4,000,000  ordinary  shares of capital  stock,  $0.01 par  value,  and 100
preferred  shares of capital  stock,  $100 par value.  On August 18, 2005,  Onny
increased  its  authorized  capital to $5,000,000  divided into 40,000  ordinary
shares of capital stock, $100.00 par value, and 10,000 preferred shares, $100.00
par value. As of the date of this Form 10-KSB,  there are 39,700 ordinary shares
issued  and  outstanding,  all of which are held by the  Company.  No  preferred
shares of Onny are currently issued and outstanding.

On May 25,  2005,  Onny  acquired  all the equity  interests  in Hainan  Helpson
Medicine  and  Bio-Technology  Co.  Ltd.  in  exchange  for  the  assumption  of
obligations  to make cash  payments to the Helpson  shareholders  in the form of
common stock dividends from Helpson of $4,154,041,  the assumption of $4,646,409
of other liabilities and the issuance of non-interest  bearing  promissory notes
totaling  $3,413,265  payable  three  months  after  Helpson  obtains a business
license in the PRC as a wholly  foreign owned  entity.  Effective as of June 21,
2005, Onny became the sole  stockholder of Helpson,  and Helpson became a wholly
foreign-owned enterprise as defined by PRC law.

On October 19, 2005,  Onny completed the Onny  Offering.  Under the terms of the
Onny Offering, Heung Mei Tsui agreed to escrow 6,944,611 shares of the Company's
common stock that she received as a result of the  Exchange  Transaction.  These
shares  represent  20% of the  Company's  issued and  outstanding  common  stock
immediately  following the closing of the Exchange  Transaction  (the "Make Good
Shares"),  so  that in the  event  that  actual  net  income  set  forth  in the
consolidated  financial  statements  of the  Company  for the fiscal year ending
December  31,  2006  ("NI")  does not  reflect $8  million  of net  income  (the
"Guaranteed NI"), the Make Good Shares can be distributed on a pro rata basis to
the participants of the Onny Offering in accordance with the following formula:

        Make Good Shares = ((Guaranteed NI - NI) / $8m) X Make Good Pool

If required,  the Make Good Shares will be delivered to participants in the Onny
Offering  within  ten (10)  business  days of the date the audit  report for the
period is filed with the SEC.

Additionally,  in  connection  with the Onny  Offering,  Heung Mei Tsui escrowed
277,785  shares of the  Company's  common stock that she received as a result of



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<PAGE>

the Exchange  Transaction,  which shares  represent 0.8% of the Company's issued
and outstanding  common stock immediately  following the closing of the Exchange
Transaction  (the "HFG Make Good  Pool"),  so that in the event the Company does
not achieve the  Guaranteed  NI, the HFG Make Good Shares will be distributed to
HFG  International,  Limited,  an affiliate of Halter Financial Group,  Inc., in
accordance with the following formula:

    HFG Make Good Shares = ((Guaranteed NI - NI) / $8m) X HFG Make Good Pool

If required, the HFG Make Good Shares will be delivered within ten (10) business
days of the date the audit report for the period is filed with the SEC.

Helpson

Hainan  Helpson  Medicine  and   Bio-Technology   Co.  Ltd.   ("Helpson")  is  a
foreign-invested  enterprise  established  in Haikou,  Hainan  Province,  PRC on
February 25, 1993. Initially, its name was Hainan Fulin Biomedical Co., Ltd. and
it changed to "Helpson" in 1999.  The company was  originally  an "equity  joint
venture" as defined by China's  laws on foreign  invested  enterprises.  The two
joint  venturers  were  Haikou   Biomedical   Engineering  Co.,  Ltd.   ("Haikou
Biomedical"),  a  PRC  company,  and  Hong  Kong  Fudao  Development  Co.,  Ltd.
("Fudao"),  a Hong Kong company.  Haikou Biomedical invested RMB 2,100,000 for a
70% share of Helpson, and Fudao invested $150,000 for a 30% share of Helpson.

On June 16, 2001, Fudao entered into an Equity Interest Transfer  Agreement with
Hainan Kaidi  Science and  Technology  Co.,  Ltd., a PRC company  ("Kaidi").  In
accordance with the Equity Interest Transfer Agreement, Fudao transferred all of
its 30%  capital  contribution  in  Helpson  to  Kaidi in  consideration  of RMB
2,780,000.  As a result of the transfer,  Haikou Biomedical  continued to hold a
70%  equity  interest  in  Helpson,  while  Kaidi had a 30% equity  interest  in
Helpson.  Therefore,  Helpson  became  a PRC  domestic  company,  rather  than a
foreign-invested company.

Effective  on December  26, 2003,  Helpson  issued new capital  stock to Chengdu
Huineng  Biomedical Co., Ltd.  ("Chengdu Bio") and Chongqing  Chemical  Medicine
Holding Group ("Chongqing Chemical").  Chengdu Bio contributed RMB 3,000,000 for
a 10.71%  equity  interest  in  Helpson  and an  additional  RMB  3,000,000  for
Helpson's  capital common reserve fund, and Chongqing  Chemical  contributed RMB
5,000,000  for a  17.86%  equity  interest  in  Helpson  and an  additional  RMB
5,000,000  for Helpson's  capital  common  reserve  fund.  After the issuance of
shares,  Helpson  had four  equity  holders:  Haikou  Biomedical,  a 50%  equity
interest;  Kaidi,  a  21.43%  interest;  Chengdu  Bio,  a 10.71%  interest;  and
Chongqing Chemical, a 17.86% interest.



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<PAGE>


On March 8, 2005,  Chongqing  Chemical entered into an equity interest  transfer
agreement  with  Haikou  Biomedical  to transfer  all of its equity  interest in
Helpson to Haikou  Biomedical.  Upon completion of the transfer,  there remained
only three equity  holders of Helpson:  Haikou  Biomedical,  which held a 67.86%
equity interest;  Kaidi,  which held a 21.43% equity interest,  and Chengdu Bio,
which held a 10.71% equity interest.

As set forth above, on May 25, 2005,  Haikou  Biomedical,  Kaidi and Chengdu Bio
entered into an equity  interest  transfer  agreement  with Onny to transfer all
their equity  interests in Helpson to Onny.  Effective as of June 21, 2005, Onny
became  the  sole   stockholder   of  Helpson,   and  Helpson  became  a  wholly
foreign-owned enterprise as defined by PRC law.

Upon the closing of the Exchange  Transaction  on October 19, 2005,  we acquired
all of the issued and  outstanding  shares of Onny in  exchange  for  27,499,940
shares of our common stock and became Onny's sole  stockholder.  As a result, as
of October 19, 2005, Helpson became our wholly owned subsidiary.

As of July 4, 2006, Helpson increased its registered capital from RMB 28,000,000
to RMB 60,000,000 and changed its registered address from Unit 8, D Area, Office
Hall, Haikou Bonded Zone, Haikou, Hainan Province, China to C09-2, Haikou Bonded
Zone, Haikou, Hainan Province, PRC.

Since  its  establishment,  Helpson  has  positioned  itself  in  the  research,
development,   manufacturing,  and  sales  of  a  series  of  bio-pharmaceutical
products.   Helpson's   products   focus   primarily  on  genetic   engineering,
bioengineering and peptidergic medicine, as well as chemical medicinal products.


Principal Products and Services
-------------------------------

Helpson's  primary  business  is  the  manufacturing,  marketing  and  sales  of
pharmaceuticals.  Helpson  manufactures  and  markets  products  in three  major
categories:  cardiovascular  and  cerebrovascular  medicine,  raw  materials for
surface wound, and anti-infection medicine.

At  present,  Helpson  is  manufacturing  a total of 17 drugs,  among  which the
following four kinds of medicines have received new drug certifications:

*    Buflomedil   Hydrocholoride   tablets,    Buflomedil   Hydrocholoride   for
     injections,  Buflomedil Hydrocholoride injections, Buflomedil frozen powder
     aricula and raw  materials:  Buflomedil  Hydrochloride:  Used in peripheral
     blood vessel  disease,  intermission  walk lamely  Renaud  syndrome,  blood
     vessel convulsion, etc., vascular dementia



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<PAGE>


*    Naprooxen  Sodium  and  Pseudophedrine   Hydrochloride   Sustained  Release
     Tablets:  anti-flu  medicine  in the  market  mixed  with  pseudoephederine
     hydrochloride  with a non-drowsy formula and a runny nose suppressant which
     temporarily relieves cold, sinus and flu symptoms.

*    Roxithramycin  dispersible  tablets:  Pharyngitis and tonsillitis caused by
     the  suppurative  chain  coccus,  nasal  sinusitis,   otitis  media,  acute
     bronchitis,  chronic  bronchitis due to the acute sensitive  funguses break
     out,  pneumonia  mycoplasma  or  pneumonia  due to  the  original  body  of
     pneumonia  chlamyiae;  Urethritis  that the  original  body of chlamyiae of
     trachoma causes and palace neck  inflammation;  bacterial  infection of the
     soft tissue of skin.

*    Cefaclor  dispersible  tablets:  Used in otitis  media,  when the airway is
     infected, the urethra is infected, or skin and skin tissue are infected.

In addition to the above new medicines,  Helpson is manufacturing  the following
medicines:

*    Gastrodin  Injection:  Used  in  neurasthenia,  neurasthenia  syndrome  and
     traumatic syndrome of the brain; Vertigo; Neuralgia; Headache; etc.

*    Hepatocyte  Growth-promoting Factor for Injection: Used to assist and treat
     various  heavy-duty  virus hepatitis  (acute,  subnormal  temperature,  and
     chronic serious disease in the early or middle stage of hepatitis)

*    Propylgallate  for Injection:  Used for  preventing  and treating  cerebral
     thrombosis,  coronary heart disease,  and complication  after the surgery -
     thrombus deep phlebitis, etc.

*    Ozagrel Sodium for Injection:  Used to treat acute cerebral  infarction and
     kinesipathy accompanied by cerebral infarction.

*    Alginic Sodium Diester Injection:  Used in ischemic heart,  cerebrovascular
     diseases   (cerebral   thrombosis,   cerebral   embolism,   coronary  heart
     disease,etc.) and high lipoprotein blood disease

*    Granisetron  Hydrochloride  Injection:  Post-Operative Nausea and Vomiting,
     Prevention of Cancer Chemotherapy-Induced  Nausea and Vomiting,  Prevention
     of Post-Operative Nausea and Vomiting

*    Cerebroprotein  Hydroloysate Injection:  For the improvement of the symptom
     of  sequela  of  craniocerebral  traumatism  and  cerebrovascular  diseases
     accompanied by memory decline and attention deficit disorder.

*    Cefaclor  dispersible  tablets:  Used in otitis  media,  when the airway is
     infected, the urethra is infected, or skin and skin tissue are infected.



                                       10
<PAGE>


*    Clarthromycin Granules and Clarthromycin Capsules: Suitable for nasopharynx
     that is infected by one carat of mould plain  sensitive  mushrooms,  airway
     infection, soft skin tissue infection, otitis media acuta, primary atypical
     pneumonia, urethritis and cervicitis caused by chlamydia trachomatis,. Used
     in legion  fungus  infections  or is jointly  used in the  treatment of the
     bacillus of  mycobacterium  avium was infected,  spiral shell's bacillus of
     pylorus infected with other medicines.

*    Chuanxinlian Tablets: Clears away heat and detoxifies, is antibacterial and
     diminishes  inflammation.   Used  in  upper  airway  infection,   bacillary
     dysentery.

*    Thymopolypetides Injection: Use for treating various primary or secondary T
     cell  defective  disease,  immune system  diseases,  assists and treats the
     diseases and tumors of various cells with low immunological function.

*    Cefalexin  Capsules:  Suitable for acute  tonsillitis  due to the sensitive
     funguses, airway infection,  urine infections, or infections of the angina,
     otitis media,  nasal sinusitis,  bronchitis,  pneumonia,  etc. and when the
     skin soft tissue is infected

*    Haizhu Oral Liquid:  Chinese  traditional  medicine  used in  supplementary
     treatment of high lipoprotein blood disease.

In addition,  Helpson's products include a Recombinant Human Ciliary Neuotrophic
Factor,  which is used as a raw material for  cosmetics  and has the function of
wound repairing,  including  damages caused by ultraviolet ray, acne,  analeptic
organized by the skin, or citric acid.

There are 20 drugs  undergoing  research and  development  including Hugan Keli,
Troxerutin  and  Cerebroprotein  Hydrolysate  for  Injection,Yimaikang  Capsule,
Bumetnide for Injection, Tiopronin, Omeprazole for Injection, Ceftriaxone Sodium
and Tazobactam Sodium,  Donepezil  Dispersible  Tablets,  Mycophenolate  Mofetil
Granules,  Cattle  Encephalon  Glycoside and Ignotin,  ClindamycinPhosphate  for
Injection,  Thymopetidum for Injection,  Compand  Diclofenac  Sodium  Injection,
ShengQing  Pian,  rhCNTF,  Pioglitazone  HCL + metformin HCL,  ACTOplus,  Xinlin
Tablets, Xinlin Oral Solution, rhaFGF and Cefprozil Tablets.

Due to the  nature  of the  biotechnology  and  pharmaceutical  industries,  the
Company  continually  strives  to change  its  product  portfolio  to respond to
changes in market demand.  Helpson traditionally focused on R&D and marketing of
cardiovascular  and  cerebrovascular  medicine  medicines.   Recently,   Helpson
launched PuSenOK, an anti-flu medicine in the market mixed with pseudoephederine
hydrochloride  that  has a  non-drowsy  formula  and a runny  nose  suppressant.
Helpson's  PuSenOK  has  passed  clinical  experiments  and  entered  the  trial
production stage, and has been awarded the new medicine certificate.

Helpson also plans to expand its  biotechnology  product series.  Based upon the
foundation  established  by Helpson's  Neurotrophicpeptide,  Helpson will launch



                                       11
<PAGE>

several additional biological medicines, including brain peptide injections, and
injected Hepatocyte Growth-promoting Factors.

Helpson adjusts the delivery system and marketing for each of its products based
on the product's target patient group. Maintaining a variety of delivery systems
(e.g. tablet,  injection,  powder,  etc.) targeted for different groups enhances
Helpson's  competitive  position  in the  market.  Helpson's  present  types  of
delivery include covered tablet, capsule, troche, oral fluid, injection,  frozen
powder, acicula, and germ-free powder acicula.

Principal Markets
-----------------

The principal markets of Helpson lie within China. China has the world's largest
population of nearly 1.3 billion people.  The  pharmaceutical  industry accounts
for        approximately        3%       of       China's       annual       GDP
(Source:http://www.chinability.com/2004%20economic%20performance.htm).  In 2004,
PRC's  pharmaceutical  industry  realized  sales  of  RMB347.6  billion  ($44.56
billion) and net profits of RMB30.64 billion ($3.93 billion);  a 17.44% increase
in realized  sales and 11.74%  increase in net profits  from the  previous  year
(Source:http://www.chinapharm.com.cn). According to a Chinese government report,
China's  pharmaceutical  sales  in 2005 are  expected  to be  approximately  RMB
376.6billion   ($  48.28   billion),   growing  17%  from  the   previous   year
(Source:http://www.biotech.org.cn/news/news/show.php ?id=21470). It is estimated
that China's  pharmaceutical  industry will  maintain at least a 12%-15%  growth
rate     through     the     year     2010      (Source:      http://www.511511.
com/A1/200501/A100000391720050104093750375.shtml).

The predicted  growth is based upon the relaxation of trade  barriers  following
China's accession to the World Trade  Organization,advances  in China's economy,
and China's large, aging population.

Detailed Market Sectors
-----------------------

Reepitheliazation/Wound  rehabilitation medications:  These products belong to a
new and advanced  classification of drugs used to speed the  rehabilitation of a
wide variety of wounds ranging from lacerations and burns to injuries  sustained
during  childbirth  and  surgery.   Cardiovascular  &  Cerebrovascular   Disease
medications:  Cardiovascular & cerebrovascular diseases have become increasingly
common and have a serious  impact on people's  health.  The SFDA  estimated  the
market share in 2003 of these two  medicines in the PRC to be 14.36% of the $5.1
billion          (RMB42.2           billion)          market.           (Source:
http://www.specc.com.cn/hydt/ShowHydt.aspx?id=121 )



                                       12
<PAGE>


Over-the-Counter Cold & Flu medicines: In 2003, the OTC medicine market capacity
in    the     PRC     was     approximately     US$3.6     billion,     (Source:
http://www.cnm21.com/xinwen2/ 041028_007.htm) with cold & flu medicines having a
market                 of                 RMB2.5billion                 (Source:
http://www.fx120.net/ypsj/ypsc/scfx/200406101631184449.htm  ). The sales of such
medicines make up 8.3% of total Over-the-Counter medicine retail sales.

Anti-infection  medicines: In the past few years,  Anti-bacterial medicines have
become the best  selling  drugs within the PRC while also  maintaining  a growth
rate of 20%. In 2001,  the sales reached  roughly  RMB30 billion  (approximately
$3.85   billion);   in  2003,   the  sales   reached  more  than  RMB40  billion
(approximately  $5.13  billion),  achieving a 30% market  share.  (Source:  SFDA
Prospectus of Zhejiang Jingxin Pharmaceutical Co., Ltd.).

Distribution
------------

As of  December  31,  2006,  Helpson's  products  were  sold  in  29  provinces,
sovereignties,  and  autonomous  regions.  Helpson  has  16  sales  offices  and
approximately 550 proxy agents in China.

Helpson  uses  a  flat  distribution  channel  system  of  independent  regional
distributors. In a typical distribution contract, a distributor will be provided
with certain  sales  targets for a particular  period  according to a set retail
price. If the distributor completes the sales task within the prescribed period,
the agent  distributor  will be given  greater  economic  incentives  and future
distribution opportunities.  If the distributor fails to complete the sales task
within  the  prescribed  period,  Helpson  will  cancel  its  contract  with the
distributor  and sign with  other  competent  distributors.  Helpson  also signs
reselling  contracts with franchise drug companies for the  distribution  of its
products.  The  franchise  drug  company,  as a reseller,  resells the Company's
products to local hospitals,  drug stores,  and other channel  distributors.  In
addition,   Helpson  sells  its  products   directly  to  hospitals  and  retail
drugstores.


Industry Background and Competition

The  pharmaceutical  industry  accounts  for  approximately  3% of China's  GDP.
(Source: http://blog.fh21.com.cn/post/65/106). The industry's primary categories
include chemical medicine,  traditional Chinese medicinal material,  traditional
Chinese   medicinal  film,   prepared  Chinese  herbal  medicine,   antibiotics,
biological  products,   biological  medicine,   radioactive  medicine,   medical
appliances,  sanitation materials,  pharmaceutical machinery, medical packaging,
and trading.



                                       13
<PAGE>

The pharmaceutical industry in China is fragmented with many drug manufacturers.
According  to the  SFDA-reported  statistics,  in July of 2004,  there were 5071
manufacturing   pharmaceutical  companies  (not  including  companies  producing
traditional  Chinese  medicinal  film,  medical  oxygen,   reagent  of  in-vitro
diagnosis  or  supplementary  materials).  The total  market share of the top 10
biggest  companies  was about  42%,  compared  to 66% in the US.  (Source:  SFDA
(pound) Prospectus of Zhejiang Jingxin Pharmaceutical Co., Ltd.)

Competition  in the  pharmaceutical  industry is reduced by barriers to entry. A
company  wishing  to enter the  industry  must  comply  with the  standards  and
regulations set forth by the  government.  In the PRC, the SFDA is the authority
that monitors and supervises the administration of the  pharmaceutical  industry
including   pharmaceutical   products,   medical   appliances,   and  equipment.
Pharmaceutical   manufacturing   enterprises   must   obtain  a   Pharmaceutical
Manufacturing   Enterprise   Permit   issued  by  the  relevant   pharmaceutical
administrative  authorities  and relevant  health  departments at the provincial
level where the enterprise is located.  Furthermore, all pharmaceutical products
produced in the PRC, with the exception of Chinese  herbal  medicines in soluble
form, must bear a registered  number  approved by the  appropriate  governmental
authorities  in  the  PRC.   Lastly,   in  accordance   with  the  World  Health
Organization,   the  PRC  now  requires   compliance   with  GMP   standards  in
pharmaceutical  production  in order  to  minimize  the  risks  involved  in any
pharmaceutical  production  that  cannot be  eliminated  through  testing  final
products.  As the regulatory  approval  process becomes more stringent,  it also
increases the barriers to entering the market.

Due to the  variety  of  consumer  demands  within  the  pharmaceutical  market,
pharmaceutical  companies  have  relatively  dispersed  product  lines.  We have
identified,  however,  two  primary  strategies  we must  adopt in order to stay
competitive.  In expanding market share of common traditional  medicine, we must
take advantage of 1) our large  manufacturing  scale and reasonable cost control
mechanisms, and 2) our strong sales network.

Employees

As of December 31, 2006, The Company had 123 regular employees. Helpson was also
aided by the efforts of a 54 member outside sales and marketing team.


Risk Factors



                                       14
<PAGE>

                   RISKS RELATED TO OUR BUSINESS AND INDUSTRY

WE MAY NEED TO RAISE  ADDITIONAL  CAPITAL  WITHIN THE NEXT TWELVE MONTHS TO FUND
OUR  OPERATIONS AND FAILURE TO RAISE  ADDITIONAL  CAPITAL MAY FORCE US TO DELAY,
REDUCE, OR ELMINATE OUR PRODUCT DEVELOPMENT PROGRAMS

Due to the large amount of funds required for research and  development  and the
subsequent  marketing of products,  the pharmaceutical  industry is very capital
intensive. The industry is characterized by large and slow receivable turnovers,
which signifies that we will need more working capital as our revenues increase.
We have  traditionally  been committed to biomedical R&D, and are now developing
traditional  chemical medicines within specific market segments such as those of
anti-flu and anti-infection.  It is likely that we will need to raise additional
capital within the next twelve months.  Additional capital may be needed for the
development  of  new  products  or  product  lines,  financing  of  general  and
administrative  expenses,  licensing or acquisition of additional  technologies,
and marketing of new or existing products.  There are no assurances that we will
be able to raise  the  appropriate  amount  of  capital  needed  for our  future
operations. Failure to obtain funding when needed may force us to delay, reduce,
or eliminate our product development programs and have a material adverse effect
on our profitability.

WE RELY ON A FEW SUPPLIERS  AND ANY  DISRUPTION  WITH OUR SUPPLIERS  COULD DELAY
PRODUCT  SHIPMENTS AND MATERIALLY  ADVERSELY AFFECT OUR BUSINESS  OPERATIONS AND
PROFITABILITY

We have developed relationships with a single or limited number of suppliers for
materials  that are otherwise  generally  available.  Purchases from our largest
supplier,  Hainan  Xinxin  Biotechnology  Company,  as  of  December  31,  2006,
accounted  for  approximately  44.42% of the  total  purchases  of our  Company.
Purchases from our second-to-largest  supplier, Sichuang Chengxin Pharmaceutical
Company,  December 31, 2006,  accounted  for  approximately  33.65% of our total
purchases.  Although we believe  that  alternative  suppliers  are  available to
supply  materials,  should either of these  suppliers  terminate  their business
arrangements  with us or increase their prices of materials  supplied,  it could
delay product shipments and materially  adversely affect our business operations
and profitability.

IF ALL OR A SIGNIFICANT  PORTION OF OUR TRADE  RECIEVABLES  ARE NOT COLLECTED OR
COLLECTION IS DELAYED,  OUR NET INCOME WILL DECREASE AND OUR PROFITABILITY  WILL
BE MATERIALLY ADVERSELY AFFECTED



                                       15
<PAGE>


Our Company had trade receivables,  net of allowance for doubtful  accounts,  of
approximately  $5,709,762  ($1,412,353  for doubtful  accounts) and  $12,101,979
($1,562,494   for  doubtful   accounts)  as  of  December  31,  2005  and  2006,
respectively. During the years ending December 31, 2005 and 2006, our customers'
turnover periods were approximately 116 days and 199, respectively.

It is usual  commercial  practice  that certain  customers may repay their debts
beyond  credit  periods  granted or may repay  slowly  when  transaction  volume
increases. There is no assurance that our trade receivables will be fully repaid
on a timely basis.  The percentage of a trade receivable that is deemed doubtful
is as  follows:  100%  after 720 days;  50 % after 360 days;  and 7.5% up to 360
days.

If all or a significant  portion of our customers with trade receivables fail to
pay all or part of the  trade  receivables  or delay the  payment  due to us for
whatever  reason,  our net profit will  decrease and our  profitability  will be
materially adversely affected.

WE MAY UNDERTAKE ACQUISITIONS IN THE FUTURE, AND ANY DIFFICULTIES IN INTEGRATING
THESE ACQUISITIONS MAY DAMAGE OUR PROFITABILITY

In the future, we may acquire additional  businesses or products that complement
our existing  business and expand our business  scale.  The  integration  of new
businesses  and  products  may  prove  to be an  expensive  and  time  consuming
procedure.  We can  offer  no  assurance  that we  will be able to  successfully
integrate  the newly  acquired  businesses  and products or operate the acquired
business in a profitable  manner.  Failure to locate an appropriate  acquisition
target or failure to successfully  integrate and operate acquired businesses and
products may materially adversely impact our operations and profits.

THE FAILURE TO MANAGE  GROWTH  EFFECTIVELY  COULD HAVE AN ADVERSE  EFFECT ON OUR
BUSINESS, FINANCIAL CONDITION, AND RESULTS OF OUR OPERATIONS

The rapid market growth of our  pharmaceutical  products may require our Company
to expand our employee base for managerial,  operational,  financial,  and other
purposes.  As of December 31, 2006, we had 123 regular employees.  The continued
future growth will impose significant added responsibilities upon the members of
management  to  identify,   recruit,  maintain,   integrate,  and  motivate  new
employees.  Aside  from  increased  difficulties  in  the  management  of  human
resources,  we may also encounter  working capital issues,  as we need increased
liquidity to finance the purchases of raw  materials and supplies,  research and
development of new products, acquisition of new businesses and technologies, and
the hiring of additional employees. For effective growth management,  we will be
required to continue improving our operations, management, and financial systems



                                       16
<PAGE>

and control.  Our failure to manage growth  effectively  may lead to operational
and financial  inefficiencies  that will have a negative effect on the Company's
profitability.

WE ARE DEPENDENT ON CERTAIN KEY PERSONNEL AND LOSS OF THESE KEY PERSONNEL  COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FIANANCIAL CONDITION AND RESULTS
OF OPERATIONS

Our Company's  success is, to a certain extent,  attributable to the management,
sales and marketing,  and pharmaceutical  factory  operational  expertise of key
personnel.  Zhilin Li,  Heqi Cai,  and Yao Huang  perform key  functions  in the
operation  of our  Company.  Ms. Li entered into an  Employment  Agreement  with
Helpson,  which  provides  that  she  shall  act as its  CEO.  The  term  of her
Employment  Agreement is from July 1, 2005,  to June 30,  2010.  Mr. Cai entered
into an Employment  Agreement with Helpson to act as its Director of Development
Department  for a term from July 1, 2005,  to June 30, 2010.  Ms. Huang  entered
into an Employment  Agreement with Helpson to act as its Head of  Pharmaceutical
Plant for a term from July 1, 2005, to June 30, 2010.  There can be no assurance
that we will be able to retain these officers after the term of their employment
or after their  contracts  expire.  The loss of  officers  could have a material
adverse  effect  upon  our  business,   financial  condition,   and  results  of
operations.  We must  attract,  recruit  and  retain  a  sizeable  workforce  of
technically  competent  employees.  Our  ability to  effectively  implement  our
business  strategy  will  depend  upon,  among  other  factors,  the  successful
recruitment and retention of additional highly skilled,  experienced  management
and other key personnel. We cannot assure that we will be able to hire or retain
such employees.

IF WE FAIL TO DEVELOP NEW PRODUCTS WITH HIGH PROFIT  MARGINS AND OUR HIGH PROFIT
MARGIN  PRODUCTS ARE REPLACED BY COMPETITOR'S  PRODUCTS,  THEN OUR GROSS AND NET
PROFIT MARGINS WILL BE ADVERSELY AFFECTED

In the years ended  December 31, 2005 and 2006,  the gross profit margin for our
Company was 51.9% and 46.2% respectively. However, there is no assurance that we
will be able to sustain such profit  margins in the future.  The  pharmaceutical
market in the PRC is very competitive,  and there may be pressure to reduce sale
prices  of  products  without  a  corresponding  decrease  in the  price  of raw
materials.  To the extent that we fail to develop new products  with high profit
margins and our high profit  margin  products are  substituted  by  competitors'
products, gross profit margins will be adversely affected.

WE FACE COMPETITION IN THE PHARMACEUTICAL MARKET IN THE PRC AND SUCH COMPETITION
COULD CAUSE OUR SALES REVENUE AND PROFITS TO DECLINE



                                       17
<PAGE>


According to the State Food and Drug Administration of China (the "SFDA"), there
were approximately 5,071 pharmaceutical manufacturing companies in the PRC as of
the end of June  2004,  of  which  approximately  3,237  manufacturers  obtained
certificates   of   Good    Manufacturing    Practices    certification    ("GMP
certification").  After GMP certification became a mandatory requirement on July
1, 2004,  approximately 1,834 pharmaceutical  manufacturers were forced to cease
production. Only the 3,237 pharmaceutical  manufacturers with GMP certifications
may continue their  manufacturing  operations.  The certificates,  permits,  and
licenses required for  pharmaceutical  operation in the PRC create a potentially
significant  barrier  for new  competitors  seeking  entrance  into the  market.
Despite these obstacles, we face competitors that will attempt to create, or are
already marketing, products in the PRC that are similar to ours. There can be no
assurance that our products will be either more  effective in their  therapeutic
abilities  and/or be able to  compete  in price  with  that of our  competitors.
Failure to do either of these may result in decreased profits for our Company.

OUR SUCCESS IS HIGHLY  DEPENDENT  ON  CONTINUALLY  DEVELOPING  NEW AND  ADVANCED
PRODUCTS,  TECHNOLOGIES, AND PROCESSES AND FAILURE TO DO SO MAY CAUSE US TO LOSE
OUR COMPETITIVENESS IN THE PHARMACEUTICAL  INDUSTRY AND MAY CAUSE OUR PROFITS TO
DECLINE

To  remain  competitive  in the  pharmaceutical  industry,  it is  important  to
continually develop new and advanced products, technologies and processes. There
is no assurance that our competitors'  new products,  technologies and processes
will not render our Company's existing products obsolete or non-competitive. Our
Company's competitiveness in the pharmaceutical market therefore relies upon our
ability to enhance our current products, introduce new products, and develop and
implement  new   technologies   and   processes.   Our   Company's   failure  to
technologically  evolve and/or develop new or enhanced  products may cause us to
lose our  competitiveness  in the  pharmaceutical  industry  and may  cause  our
profits to decline.





                                       18
<PAGE>


THE  COMMERCIAL  SUCCESS  OF OUR  PRODUCTS  DEPENDS  UPON THE  DEGREE  OF MARKET
ACCEPTANCE AMONG THE MEDICAL  COMMUNITY AND FAILURE TO ATTAIN MARKET  ACCEPTANCE
AMONG THE MEDICAL  COMMUNICTY  MAY HAVE AN ADVERSE  IMPACT ON OUR OPERATIONS AND
PROFITABILITY

The  commercial  success  of our  products  depends  upon the  degree  of market
acceptance among the medical community. Even if our products are approved by the
SFDA,  there is no assurance  that  physicians  will  prescribe or recommend our
products to patients.  Furthermore,  a product's prevalence and use at hospitals
may be  contingent  upon  our  relationship  with  the  medical  community.  The
acceptance of our products  among the medical  community may depend upon several
factors  including,  but not limited to, the product's  acceptance by physicians
and patients as a safe and effective  treatment,  cost effectiveness,  potential
advantages over alternative treatments,  and the prevalence and severity of side
effects.  Failure to attain market  acceptance  among the medical  community may
have an adverse impact on our operations and profitability.

THE  DISCONTINUATION  OF ANY  PREFERENTIAL  TAX  TREATMENTS OR OTHER  INCENTIVES
CURRENTLY  AVAILABLE TO US IN THE PRC COULD  MATERIALLY AND ADVERSELY AFFECT OUR
BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.


Pursuant  to the  Income  Tax  Law of  the  PRC  for  Enterprises  with  Foreign
Investment and Foreign  Enterprises  promulgated in April, 1991 (the "Income Tax
Law"),  a foreign  invested  enterprise  as defined under PRC laws shall pay 30%
corporate  income tax and 3% local income tax.  Pursuant to the State  Council's
Regulations  on  Encouraging  Investment  in and  Development  of Hainan  Island
promulgated  in  May,   1988,  the  corporate   income  tax  for  all  companies
incorporated in Hainan Province is reduced to 15%. As a foreign invested company
incorporated  in Hainan  Province,  currently,  Helpson's  corporate  income tax
liability is 15%.  Pursuant to the  Regulations on Foreign  Investment in Hainan
Special  Economic  Zone  promulgated  by Hainan  Province  in  March,  1991 (the
"Regulation  on  Foreign   Investment"),   all  foreign   invested   enterprises
incorporated  in Hainan  Province are exempted from paying the local income tax,
which  normally is 3% of the taxable  income.  Therefore,  Helpson is completely
exempted  from  paying any local  income tax.  Thus,  the  corporate  income tax
liability of Helpson is 15%.


According  to the  stipulation  of  Income  Tax Law and  Regulation  on  Foreign
Investment,  an  enterprise  with  foreign  investment  of a  production  nature
scheduled  to operate  for a period of not less than ten years  shall,  from the
year of making  profits,  be exempt from  corporate  income tax in the first and
second years and allowed a fifty percent  reduction in the third to fifth years.



                                       19
<PAGE>

Helpson  has  obtained  the  approval  for  preferential  corporate  income  tax
treatment  from Hainan State  Administration  of Taxation at the end of 2006 and
has began to enjoy the preferential tax treatment.  Therefore,  Helpson shall be
exempted from corporate income tax in the first and second years after it begins
to make profit.  Because the corporate income tax for all companies incorporated
in Hainan province is reduced to 15% from the normal  corporate  income tax rate
of 30%,  Helpson,  from the  third to the  fifth  year  after it  begins to make
profit, shall pay corporate income tax at the rate of half of 15%, or 7.5%.

However, on March 16, 2007, China's national congress approved Income Tax Law of
the PRC for  Enterprises  ("New Income Tax Law"),  which will be  implemented on
January 1, 2008. The New Income Tax Law unifies the enterprise  income tax rate,
cost deduction and tax incentive policies for both domestic and foreign invested
enterprises.  This new unified income tax law will increase tax rates on foreign
invested  enterprises and lower Chinese  enterprises'  rates to 25%. For current
foreign invested  enterprise,  like us, the applicable tax rate will be moved up
to 25% over a five-year  grandfather period. We expect the measures to implement
this grandfather period to be enacted by the PRC government in the coming months
and we will make an  assessment  of what the impact of the New Income Tax Law is
expected  to be in the  grandfather  period.  The  discontinuation  of any  such
special or preferential  tax treatment or other incentives could have an adverse
affect our business, financial condition and results of operations.

WE MAY BE  SUBJECT  TO THE  PRC'S  PRICE  CONTROL  OF DRUGS  WHICH MAY LIMIT OUR
PROFITABILITY AND EVEN CAUSE US TO STOP MANUFACTURING CERTAIN PRODUCTS

The State  Development and Reform  Commission  ("SDRC") of the PRC and the price
administration  bureaus  of the  relevant  provinces  of the  PRC in  which  the
pharmaceutical  products are  manufactured  are responsible for the retail price
control over our pharmaceutical  products.  The SDRC sets the price ceilings for
certain pharmaceutical  products in the PRC. Although our products have not been
subject to such price  controls as of the date of this Form 10-KSB,  there is no
assurance that our products will remain unaffected by it. Where our products are
subject to a price ceiling, we will need to adjust the product price to meet the
requirement and to accommodate for the pricing of competitors in the competition
for  market  shares.   The  price  ceilings  set  by  the  SDRC  may  limit  our
profitability,  and in some instances,  such as where the price ceiling is below
production costs, may cause us to stop manufacturing  certain products which may
adversely affect our results of operations.

OUR CERTIFICATES,  PERMITS, AND LICENSES ARE SUBJECT TO GOVERNMENTAL CONTROL AND
RENEWAL,  AND THE  FAILURE  TO  OBTAIN  RENEWAL  WOULD  CAUSE ALL OR PART OF OUR



                                       20
<PAGE>

OPERATIONS TO BE SUSPENDED AND HAVE A MATERIAL  ADVERSE  EFFECT ON OUR FINANCIAL
CONDITION

Our Company is subject to various  PRC laws and  regulations  pertaining  to the
pharmaceutical industry. Our Company has attained certain certificates, permits,
and licenses  required for the operation of a pharmaceutical  enterprise and the
manufacturing  of  pharmaceutical  products in the PRC. We obtained the Medicine
Production Permit in December 2005, which is valid through December 31, 2010. We
also obtained three GMP certificates  which are effective through July 17, 2008,
December  2,  2009,  February  2,  2010 and April 17,  2011,  respectively.  The
pharmaceutical production permits and GMP certificates are each valid for a term
of five years and must be renewed  before their  expiration.  During the renewal
process, we will be re-evaluated by the appropriate governmental authorities and
must comply with the prevailing standards and regulations, which may change from
time to time.  In the  event  that we are not able to  renew  the  certificates,
permits and  licenses,  all or part of our  operations  may be  suspended by the
government,  which  would  have a  material  adverse  affect  on  our  financial
condition.   Furthermore,   if  escalating   compliance  costs  associated  with
governmental  standards  and  regulations  restrict or prohibit  any part of our
operations, it may adversely affect our results of operations and profitability.

IF OUR PRODUCTS FAIL TO RECEIVE  REGULATORY  APPROVAL OR ARE SEVERELY LIMITED IN
THE PRODUCTS SCOPE OF USE, THEN WE MAY BE UNABLE TO RECOUP CONSIDERABLE RESEARCH
AND DEVELOPMENT EXPENDITURES ALREADY INCURRED

Our  products  that are  approved to be  manufactured  as of  December  31, 2006
include  17  medicines.  There  are 20  products  in the stage of  research  and
development  as of December  31,  2006.  The  production  of our  pharmaceutical
products  is subject to the  regulatory  approval  of the SFDA.  The  regulatory
approval  procedure  for  pharmaceuticals  can be  quite  lengthy,  costly,  and
uncertain.  Depending upon the discretion of the SFDA, the approval  process may
be  significantly  delayed  by  additional  clinical  testing  and  require  the
expenditure of resources not currently  available;  in such an event,  it may be
necessary for us to abandon our application.  Even where approval of the product
is  granted,  it may  contain  significant  limitations  in the  form of  narrow
indications,  warnings,  precautions,  or  contra-indications  with  respect  to
conditions of use. If approval of our product is denied,  abandoned, or severely
limited in terms of the scope of products use, it may result in the inability to
recoup considerable research and development expenditures already incurred.

OUR RESEARCH AND  DEVELOPMENT  MAY BE COSTLY AND/OR  UNTIMELY,  AND THERE ARE NO
ASSURANCES  THAT OUR  RESEARCH  AND  DEVELOPMENT  WILL EITHER BE  SUCCESSFUL  OR



                                       21
<PAGE>

COMPLETED WITHIN THE ANTICIPATED TIMEFRAME, IF EVER AT ALL

The  research  and  development  of our  new and  existing  products  and  their
subsequent  commercialization  plays an  important  role in our  success.  As of
December  31,  2006,  there are 20  products  under  research  and  development,
including   Hugan  Keli,   Troxerutin   and   Cerebroprotein   Hydrolysate   for
Injection,Yimaikang Capsule, Bumetnide for Injection,  Tiopronin, Omeprazole for
Injection,  Ceftriaxone  Sodium and  Tazobactam  Sodium,  Donepezil  Dispersible
Tablets,   Mycophenolate  Mofetil  Granules,  Cattle  Encephalon  Glycoside  and
Ignotin, ClindamycinPhosphate for Injection, Thymopetidum for Injection, Compand
Diclofenac  Sodium  Injection,   ShengQing  Pian,  rhCNTF,  Pioglitazone  HCL  +
metformin HCL,  ACTOplus,  Xinlin  Tablets,  Xinlin Oral  Solution,  rh_aFGF and
Cefprozil  Tablets.  The research and  development of new products is costly and
time consuming, and there are no assurances that our research and development of
new products will either be successful or completed  within the anticipated time
frame,  if ever at all.  There are also no  assurances  that if the  product  is
developed, that it will lead to successful commercialization.

WE CANNOT GUARANTEE THE PROTECTION OF OUR INTELLECTUAL  PROPERTY RIGHTS,  AND IF
INFRINGEMENT OR COUNTERFEITING OF OUR INTELLECTUAL  PROPERTY RIGHTS OCCURS, THEN
OUR REPUTATION AND BUSINESS MAY BE ADVERSELY AFFECTED

To protect the brand names of our products,  we have  registered and applied for
registration  of our  trademarks  in the  PRC,  where  we have a major  business
presence.

All of our products are sold under these trademarks. As of the date of this Form
10-KSB,  we have not experienced any  infringements of such trademarks for sales
of pharmaceutical  products, and as of the date of this Form 10-KSB, we were not
aware of any infringement of our intellectual property rights. However, there is
no assurance that there will not be any  infringement of our brand name or other
registered  trademarks or counterfeiting  of our products in the future.  Should
any such infringement or  counterfeiting  occur, our reputation and business may
be adversely  affected.  We may also incur significant  expenses and substantial
amounts of time and effort to enforce our  intellectual  property  rights in the
future.  Such  diversion  of our  resources  may  adversely  affect our existing
business and future expansion plans.

OUR  REPUTATION  AND BUSINESS  MAY BE ADVERSELY  AFFECTED AS A RESULT OF PRODUCT
LIABILITY OR DEFECTIVE PRODUCTS

We may  produce  products  which  inadvertently  have an adverse  pharmaceutical
effect on the health of individuals  despite proper  testing.  Existing PRC laws



                                       22
<PAGE>

and regulations do not require us to maintain third party liability insurance to
cover product liability claims. However, if a product liability claim is brought
against us, it may, regardless of merit or eventual outcome, result in damage to
our reputation, breach of contract with our customers,  decreased demand for our
products, costly litigation, product recalls, loss of revenue, and the inability
to  commercialize  some products.  We currently are not aware of any existing or
anticipated product liability claims with respect to our products.

WE RELY ON THE COOPERATION  WITH CERTAIN RESEARCH  LABORATORIES,  PHARMACEUTICAL
INSITITUIONS,  AND UNIVERSITIES,  AND IF THESE  INSTITUTIONS  CEASE TO COOPERATE
WITH US AND WE CANNOT FIND OTHER SUITABLE  SUBSTITUTE  RESEARCH AND  DEVELOPMENT
PARTNERS,  THEN OUR ABILITY TO DEVELOP  NEW  PRODUCTS  MAY BE  HINDERED  AND OUR
BUSINESS MAY BE ADVERSELY AFFECTED

Helpson  cooperates  with several  research  institutions  including the Chinese
Academy of Medical Sciences, China University of Pharmaceuticals, the Academy of
Military Medical  Science,  the Chongqing  Medical Industry  Institute and China
Sichuan University. Helpson relies to a certain extent on these institutions for
its development of new products.  There is no assurance that these  institutions
will continue  cooperating  with Helpson to develop new  products.  In the event
that these  institutions cease to cooperate with Helpson and Helpson cannot find
other suitable  substitute  research and  development  partners,  our ability to
develop new products may be hindered and our business may be adversely affected.

                    RISKS RELATED TO DOING BUSINESS IN CHINA

Helpson  operates from  facilities that are located in China.  Accordingly,  its
operations must conform to governmental regulations and rules of the PRC.

THE PRC LEGAL  SYSTEM HAS  INHERENT  UNCERTAINTIES  THAT  COULD  LIMIT THE LEGAL
PROTECTIONS AVAILABLE TO US

The PRC legal  system is a civil law system  based on written  statutes.  Unlike
common law  systems,  it is a system in which  decided  legal  cases have little
precedential  value. In the late 1970s, the PRC government began to promulgate a
comprehensive  system of laws and regulations  governing commercial matters. The
overall effect of legislation  enacted over the past 20 years has  significantly
enhanced the  protections  afforded to  foreign-invested  enterprises  in China.
However, these laws,  regulations,  and legal requirements are relatively recent
and are evolving  rapidly,  and their  interpretation  and  enforcement  involve
uncertainties.  These uncertainties could limit the legal protections  available
to foreign investors.



                                       23
<PAGE>


The  practical  effect of the PRC's legal system on our business  operations  in
China can be viewed from two separate but intertwined considerations.  First, as
a matter of  substantive  law,  the Foreign  Invested  Enterprise  laws  provide
significant  protection from government  interference.  In addition,  these laws
guarantee  the full  benefit of  corporate  articles  and  contracts  to Foreign
Invested  Enterprise  participants.  These laws,  however,  do impose  standards
concerning  corporate  formation  and  governance,  which are not  qualitatively
different from the corporation laws found in the United States.  Similarly,  PRC
accounting  laws mandate  accounting  practices which may not be consistent with
the U.S. Generally Accepted Accounting Principles. China accounting laws require
that an annual  "statutory audit" be performed in accordance with PRC accounting
standards  and that the books of account  of a Foreign  Invested  Enterprise  be
maintained in accordance with PRC accounting laws.  Article 14 of the PRC Wholly
Foreign-Owned  Enterprise  Law  requires a Wholly  Foreign-Owned  Enterprise  to
submit certain  periodic  fiscal reports and statements to designated  financial
and tax authorities, at the risk of business license revocation.

Second,  while the enforcement of substantive  rights may appear less clear than
United States procedures,  Foreign Invested Enterprises and Wholly Foreign-Owned
Enterprises  are PRC registered  companies  which enjoy the same status as other
PRC registered companies in  business-to-business  dispute resolutions.  The PRC
legal infrastructure,  however, is significantly different in operation from its
United  States  counterpart,  and may present a  significant  impediment  to the
operation of a Foreign Invested Enterprise.

PRC  ECONOMIC  REFORM  POLICIES  OR  NATIONALIZATION  COULD  RESULT  IN A  TOTAL
INVESTMENT LOSS IN OUR COMMON STOCK

Since 1979, the PRC government has reformed its economic policies.  Because many
reforms are  unprecedented or experimental,  they are expected to be refined and
improved.  Other  political,  economic  and social  factors,  such as  political
changes, changes in the rates of economic growth,  unemployment or inflation, or
in the disparities in per capita wealth between regions within China, could lead
to further  readjustment of the reform measures.  This refining and readjustment
process may negatively affect our operations.

Although the PRC government owns the majority of productive  assets in China, in
the past several years the government has  implemented  economic reform measures
that emphasize decentralization and encourage private economic activity. Because
these economic reform measures may be inconsistent or ineffectual,  there are no
assurances that:

     -    We will be able to capitalize on economic reforms;
     -    The Chinese  government  will continue its pursuit of economic  reform
          policies;  -  The  economic  policies,   even  if  pursued,   will  be



                                       24
<PAGE>

          successful; - Economic policies will not be significantly altered from
          time to time; or
     -    Business  operations  in China will not become  subject to the risk of
          nationalization.

Over the last few years,  China's  economy has  registered  high  growth  rates.
Recently, there have been indications that rates of inflation have increased. In
response,  the  Chinese  government  recently  has taken  measures  to curb this
excessively expansive economy.  These measures have included restrictions on the
availability of domestic credit,  reducing the purchasing  capability of some of
its  customers,  and  limited  recentralization  of  the  approval  process  for
purchases of certain  foreign  products.  These austere  measures  alone may not
succeed in slowing down the economy's  excessive expansion or control inflation,
and may result in severe dislocations in the Chinese economy. The PRC government
may adopt  additional  measures  to  further  combat  inflation,  including  the
establishment  of freezes or  restraints on certain  projects or markets.  These
measures may adversely affect our operations.

There can be no  assurance  that the  reforms to China's  economic  system  will
continue  or that we will  not be  adversely  affected  by  changes  in  China's
political, economic, and social conditions and by changes in policies of the PRC
government,  such as  changes  in laws and  regulations,  measures  which may be
introduced  to control  inflation,  changes  in the rate or method of  taxation,
imposition of additional  restrictions  on currency  conversion  and  remittance
abroad, and reduction in tariff protection and other import restrictions.

YOU MAY EXPERIENCE DIFFICULTIES IN EFFECTING SERVICE OF LEGAL PROCESS, ENFORCING
FOREIGN JUDGMENTS OR BRINGING ORIGINAL ACTIONS IN THE PRC BASED ON U.S. OR OTHER
FOREIGN LAWS AGAINST THE COMPANY OR OUR MANAGEMENT

Helpson,  our operating company,  is incorporated under the laws of the PRC, and
substantially all of our assets are located in the PRC. In addition, many of our
directors,   managers,  and  executive  officers  reside  within  the  PRC,  and
substantially  all of the assets of these persons are located within the PRC. As
a result,  it may not be possible to effect service of process within the United
States or elsewhere  outside the PRC upon certain of our directors,  supervisors
or executive  officers,  including  with respect to matters  arising  under U.S.
federal securities laws or applicable state securities laws.  Moreover,  the PRC
does not have treaties providing for the reciprocal  recognition and enforcement
of judgments of courts with the United States, the United Kingdom, Japan or many
other  countries.  As a  result,  recognition  and  enforcement  in  the  PRC of
judgments  of a court in the United  States  and any of the other  jurisdictions
mentioned  above in  relation  to any matter  may be  difficult  or  impossible.
Furthermore,  an  original  action  may be brought  in the PRC  against  us, our



                                       25
<PAGE>

directors,  managers, or executive officers only if the actions are not required
to be arbitrated by PRC law and Helpson's  articles of association,  and only if
the facts alleged in the complaint give rise to a cause of action under PRC law.
In  connection  with any such  original  action,  a PRC court may  impose  civil
liability, including monetary damages.

BECAUSE WE RECEIVE SUBSTANTIALLY ALL OF OUR REVENUE IN RENMINBI, WHICH CURRENTLY
IS NOT A  FREELY  CONVERTIBLE  CURRENCY,  AND THE PRC  GOVERNMENT  CONTROLS  THE
CURRENCY  CONVERSION  AND THE  FLUCTUATION  OF THE  RENMINBI,  WE ARE SUBJECT TO
CHANGES IN THE PRCS' POLITICAL AND ECONOMIC DECISIONS

We receive substantially all of our revenues in Renminbi, which currently is not
a freely  convertible  currency.  The PRC  government  may,  at its  discretion,
restrict  access  in the  future  to  foreign  currencies  for  current  account
transactions.

The  value  of the  Renminbi  against  the  U.S.  dollar  and  other  currencies
fluctuates  and is  affected  by,  among  other  things,  changes  in the  PRC's
political and economic  conditions.  Since 1994, the conversion of Renminbi into
foreign  currencies,  including  Hong Kong and U.S.  dollars,  has been based on
rates  set by the  People's  Bank of China,  which  are set  daily  based on the
previous day's  inter-bank  foreign  exchange market rates and current  exchange
rates on the world financial markets. Since 1994, the official exchange rate for
the  conversion  of Renminbi to U.S.  Dollars  generally  has been  stable.  Any
devaluation of the Renminbi,  however,  may materially and adversely  affect the
value of, and any dividends  payable on, our shares in foreign  currency  terms,
since  we will  receive  substantially  all of our  revenues,  and  express  our
profits, in Renminbi. Our financial condition and results of operations also may
be  affected  by  changes  in the value of  certain  currencies  other  than the
Renminbi.  Our results of operation may be adversely  affected by changes in the
political and social conditions in the PRC, and 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.

The  official  exchange  rate of the  Renminbi to the U.S.  Dollar had  remained
nearly fixed until July 21, 2005. On this date, the PRC  government  changed its
policy of tying the value of the RMB to the U.S.  dollar.  Under the new policy,
the Renminbi is permitted to fluctuate  within a narrow and managed band against
a basket of certain  foreign  currencies.  For nearly one and a half years since
the implementation of this revaluation  policy,  there has been an approximately
5.79%  appreciation  of  the  Renminbi  against  the  U.S.  dollar.   While  the
international  reaction to the Renminbi revaluation generally has been positive,
there remains significant  international pressure on the PRC government to adopt
an even more flexible currency policy,  which could result in a further and more
significant  appreciation of the Renminbi against the U.S. dollar due to certain



                                       26
<PAGE>

factors  including a U.S.  current  (trade)  account  deficit  with China.  This
floating  exchange rate, and any further  appreciation  of the Renminbi that may
result from such rate,  could have various  effects on the  Company's  financial
statements.  It is not  possible  to predict if the net  effects of the  further
appreciation of the Renminbi, if it occurred,  would be positive or negative for
the Company.

THE GROWTH OF THE CHINESE ECONOMY HAS BEEN UNEVEN ACROSS GEOGRAPHIC  REGIONS AND
ECONOMIC  SECTORS,  AND A DOWNTURN IN CERTAIN REGIONS IN WHICH WE DO BUSINESS OR
IN OUR ECONOMIC SECTOR WOULD SLOW DOWN OUR GROWTH AND PROFITABILITY

The growth of the Chinese economy has been uneven across geographic  regions and
economic sectors.  For example,  during the years between 1978 and 2000, the per
capital GDP growth rate of Fujian Province in  Southeastern  China was 12% while
that of Gansu  Province  in  Northwestern  China  was 5.3%  (Source:  New  China
Statistical   Materials   Compilation   for  50  Years  and  2001  China  Annual
Statistics).  There can be no assurance that growth of the Chinese  economy will
be steady or that any downturn will not have a negative effect on our business.

Our  profitability  may decrease due to a downturn in the Chinese economy.  More
specifically, the expansion of our sales area in the less economically developed
central and western provinces of China will depend on those provinces  achieving
certain income levels.

ANY  OCCURRENCE  OF SERIOUS  INFECTIOUS  DISEASES,  SUCH AS RECURRENCE OF SEVERE
ACUTE  RESPIRATORY  SYNDROME (SARS) CAUSING  WIDESPREAD  PUBLIC HEALTH PROBLEMS,
COULD ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS

A renewed outbreak of SARS or other widespread  public health problems in China,
where all of our revenue is derived,  and in Hainan,  where our  operations  are
headquartered,  could have a negative effect on our  operations.  Our operations
may be  impacted by a number of public  health-related  factors,  including  the
following:

     o    quarantines or closures of our factories or  subsidiaries  which would
          severely disrupt its operations;
     o    the sickness or death of key officers and employees; and
     o    general slowdown in the Chinese economy.

     Any of the  foregoing  events or other  unforeseen  consequences  of public
health problems could adversely affect our business and results of operations.



                                       27
<PAGE>


WE ARE SUBJECT TO THE ENVIRONMENTAL PROTECTION LAWS OF THE PRC

Our manufacturing  process may produce  by-products such as effluent,  gases and
noise,  which are harmful to the  environment.  We are subject to multiple  laws
governing environmental protection, such as "The Law on Environmental Protection
in the PRC" and "The Law on  Prevention  of Effluent  Pollution  in the PRC," as
well as  standards  set by the  relevant  governmental  bodies  determining  the
classification  of  different  wastes  and  proper  disposal.  We have  properly
attained a waste disposal permit for our manufacturing  facility,  which details
the types and  concentration  of effluents and gases  allowed for disposal.  The
temporary  waste  disposal  permit will expire on  September  28,  2009.  We are
responsible for the renewal of the waste disposal permit.  There is no assurance
that we will  obtain the renewal of the waste  disposal  permit when the current
permit expires.

China  is  experiencing   substantial  problems  with  environmental  pollution.
Accordingly,  it is likely that the national,  provincial and local governmental
agencies will adopt stricter pollution controls.  There can be no assurance that
future  changes in  environmental  laws and  regulations  will not impose costly
compliance requirements on us or otherwise subject us to future liabilities. Our
business's  profitability  may be adversely  affected if  additional or modified
environmental control regulations are imposed upon us.

RECENT PRC  REGULATIONS  RELATING TO  ACQUISITIONS  OF PRC  COMPANIES BY FOREIGN
ENTITIES MAY LIMIT OUR ABILITY TO ACQUIRE PRC COMPANIES AND ADVERSELY AFFECT THE
IMPLEMENTATION OF OUR STRATEGY AS WELL AS OUR BUSINESS AND PROSPECTS

The PRC State  Administration  of  Foreign  Exchange,  or SAFE,  issued a public
notice in January 2005 concerning  foreign  exchange  regulations on mergers and
acquisitions in China ("January  Notice").  The January Notice states that if an
offshore company  controlled by PRC residents  intends to acquire a PRC company,
such acquisition  will be subject to strict  examination by the relevant foreign
exchange  authorities.  The public  notice also states that the  approval of the
relevant  foreign  exchange  authorities is required for any sale or transfer by
the PRC  residents  of a PRC  company's  assets or equity  interests  to foreign
entities, such as us, for equity interests or assets of the foreign entities.

In April 2005,  SAFE issued another public notice (the "April  Notice")  further
explaining  the January  Notice.  In  accordance  with the April  Notice,  if an
acquisition of a PRC company by an offshore company  controlled by PRC residents
has been confirmed by a Foreign Investment  Enterprise  Certificate prior to the
promulgation  of the  January  Notice,  the PRC  residents  must  each  submit a
registration  form to the local SAFE  branch  with  respect to their  respective



                                       28
<PAGE>

ownership interests in the offshore company,  and must also file an amendment to
such registration if the offshore company  experiences  material events, such as
changes in the share capital, share transfer, mergers and acquisitions, spin-off
transactions or use of assets in China to guarantee  offshore  obligations.  The
April  Notice  also  provides  that  failure  to  comply  with the  registration
procedures  set forth therein may result in a  restriction  on the PRC company's
ability to  distribute  profits to its  offshore  parent  company.  Pending  the
promulgation  of  detailed   implementation   rules,  the  relevant   government
authorities are reluctant to commence processing any registration or application
for approval required under the SAFE notices.

In October  2005,  SAFE  promulgated  another  notice  ("Decree  No.  75") which
repealed the above January  Notice and April Notice.  Decree No. 75 requires PRC
residents and PRC corporate  entities to register with and obtain approvals from
relevant  PRC  governmental  authorities  in  connection  with  their  direct or
indirect offshore investment activities.

Decree No. 75  requires  registration  by March 31,  2006 of direct or  indirect
investments  previously made by PRC residents in offshore companies prior to the
implementation of Decree No. 75 on November 1, 2005. If a PRC shareholder with a
direct  or  indirect  stake  in an  offshore  parent  company  fails to make the
required SAFE registration, the PRC subsidiaries of such offshore parent company
may be prohibited from making distributions of profit to the offshore parent and
from paying the offshore  parent  proceeds from any reduction in capital,  share
transfer or liquidation in respect of the PRC subsidiaries. Furthermore, failure
to comply with the various SAFE registration  requirements described above could
result in liability under PRC law for foreign exchange evasion.

As it is uncertain  how Decree No. 75 will be  interpreted  or  implemented,  we
cannot  predict how it will affect our business  operations or future  strategy.
For example,  we may be subject to more  stringent  review and approval  process
with respect to our foreign exchange activities, such as remittance of dividends
and  foreign-currency-denominated  borrowings,  which may  adversely  affect our
results of operation  and  financial  condition.  In  addition,  if we decide to
acquire a PRC company  through the  issuance  of our  capital  stock,  we cannot
assure  that the  owners of the  target  company  will be able to  complete  the
necessary  approval,  filings and  registrations  for the acquisition.  This may
restrict our ability to implement our acquisition  strategy and adversely affect
our business and prospects.

On August 8, 2006, six PRC regulatory agencies, including the Chinese Securities
Regulatory Commission,  or CSRC, promulgated a regulation (the "M&A Regulation")
that became effective on September 8, 2006. This regulation, among other things,
has some  provisions  that purport to require that an offshore  special  purpose
vehicle,  or SPV,  formed  for  listing  purposes  and  controlled  directly  or



                                       29
<PAGE>

indirectly by PRC companies or individuals shall obtain the approval of the CSRC
prior to the listing and trading of such SPV's  securities on an overseas  stock
exchange.

Because the M&A Regulation became effective very recently,  it remains uncertain
how  the  M&A  Regulation  will  be  interpreted  and  enforced  by the  Chinese
governmental  authority such as the CSRC and the Ministry of Commerce. We cannot
predict how the M&A  Regulation  will affect our business  operations  or future
strategy.  If the CSRC requires that we obtain its approval, we may be unable to
obtain a waiver of the CSRC approval  requirements,  if and when  procedures are
established to obtain such a waiver. Any uncertainties and/or negative publicity
regarding this CSRC approval requirement could have a material adverse effect on
the trading price of our common stocks.

OUR  BUSINESS MAY BE  ADVERSELY  AFFECTED AS A RESULT OF CHINA'S  ENTRY INTO THE
WORLD  TRADE  ORGANIZATION  ("WTO")  BECAUSE  THE  PREFERENTIAL  TAX  TREATMENTS
AVAILABLE TO US MAY BE DISCONTINUED AND FOREIGN PHARMACEUTICAL MANUFACTURERS MAY
COMPETE WITH US IN THE PRC PHARMACEUTIAL INDUSTRY

The PRC  became a member  of the WTO on  December  11,  2001.  The  current  tax
benefits  enjoyed by our Company may be  regarded as unfair  treatment  by other
members of the WTO. Accordingly, the preferential tax treatments available to us
may be discontinued.  In such circumstances,  our profitability may be adversely
affected.  In  addition,  we  may  face  additional   competition  from  foreign
pharmaceutical  manufacturers if they set up their production  facilities in the
PRC or form Sino-foreign  joint ventures with our competitors in the PRC. In the
event that we fail to maintain our  competitiveness  against these  competitors,
our profitability may be adversely affected.


                        RISKS RELATED TO OUR COMMON STOCK

THE MARKET  PRICE FOR OUR COMMON  STOCK MAY BE VOLATILE  WHICH COULD RESULT IN A
COMPLETE LOSS OF YOUR INVESTMENT

The  market  price for our  common  stock is likely  to be highly  volatile  and
subject to wide fluctuations in response to factors including the following:

     o    actual or anticipated fluctuations in our quarterly operating results,
     o    announcements of new products by us or our competitors,
     o    changes in financial estimates by securities analysts,



                                       30
<PAGE>


     o    conditions in the pharmaceutical market,
     o    changes in the  economic  performance  or market  valuations  of other
          companies involved in pharmaceutical production,
     o    announcements   by  our   competitors  of  significant   acquisitions,
          strategic partnerships, joint ventures or capital commitments,
     o    additions or departures of key personnel, or
     o    potential litigation,

In  addition,  the  securities  markets  have  from  time  to  time  experienced
significant price and volume  fluctuations that are not related to the operating
performance  of  particular  companies.   These  market  fluctuations  may  also
materially and adversely affect the market price of our common stock.

WE MAY ISSUE ADDITIONAL SHARES OF OUR CAPITAL STOCK TO RAISE ADDITIONAL CASH FOR
WORKING  CAPITAL;  IF WE ISSUE  ADDITIONAL  SHARES  OF OUR  CAPITAL  STOCK,  OUR
STOCKHOLDERS WILL EXPERIENCE DILUTION IN THEIR RESPECTIVE  PERCENTAGE  OWNERSHIP
IN US THE COMPANY

We may issue additional shares of our capital stock to raise additional cash for
working  capital.  Although  the  Warrants  issued  in this  Offering  will have
anti-dilution  protection,  there are no anti-dilution  protection or preemptive
rights in connection  with our common stock.  Thus, the percentage  ownership of
existing holders of common stock,  including the Shares issued in this Offering,
may be  diluted  in  their  respective  percentage  ownership  in us if we issue
additional shares of our capital stock.

A  LARGE  PORTION  OF OUR  COMMON  STOCK  IS  CONTROLLED  BY A SMALL  NUMBER  OF
STOCKHOLDERS  AND AS A RESULT,  THESE  STOCKHOLDERS  ARE ABLE TO  INFLUENCE  AND
ULTIMATELY CONTROL THE OUTCOME OF STOCKHOLDER VOTES ON VARIOUS MATTERS

A large  portion of our common stock is held by a small number of  stockholders.
For  instance,  Heung Mei Tsui holds  41.04%  and Zhilin Li holds  26.86% of the
Company's common stock,  respectively,  as of the date of this Form 10-KSB. As a
result,  these two stockholders are able to influence and ultimately control the
outcome of  stockholder  votes on various  matters,  including  the  election of
directors and other corporate transactions  including business combinations.  In
addition,  the  occurrence  of sales of a large  number of shares of our  common
stock,  or the  perception  that these sales could  occur,  may affect our stock
price and could  impair our  ability to obtain  capital  through an  offering of
equity  securities.  Furthermore,  the current ratios of ownership of our common
stock  reduce the public  float and  liquidity  of our common stock which can in
turn affect the market price of our common stock.



                                       31
<PAGE>


THERE IS CURRENTLY A LIMITED  TRADING MARKET FOR OUR COMMON STOCK WHICH MAY MAKE
IT DIFFICULT TO SELL SHARES OF OUR COMMON STOCK

Our common stock is currently traded in the over-the-counter  market through the
Over-the-Counter  Bulletin  Board (OTC  Bulletin  Board).  The  quotation of our
shares on the OTC Bulletin  Board may result in a less liquid  market  available
for our existing and potential stockholders to trade shares of our common stock,
could  depress the trading  price of our common stock and could have a long-term
adverse impact on our ability to raise capital in the future.  While there is an
active trading market for our common stock, it is small.  Further,  there can be
no assurance that an active trading market will be maintained.  We cannot assure
you that our  common  stock  will  ever be  included  for  trading  on any stock
exchange or through any other quotation system (including,  without  limitation,
the NASDAQ Stock Market).

WE  ARE  LIKELY  TO  REMAIN  SUBJECT  TO  "PENNY  STOCK"  REGULATIONS  AND  AS A
CONSEQUENCE  THERE ARE  ADDITIONAL  SALES PRACTICE  REQUIREMENTS  AND ADDITIONAL
WARNINGS ISSUED BY THE SEC

As long as the trading  price of our common stock is below $5.00 per share,  the
open-market  trading  of our common  stock will be subject to the "penny  stock"
rules of the SEC.  The "penny  stock"  rules impose  additional  sales  practice
requirements  on  broker-dealers  who sell  securities  to  persons  other  than
established  customers and accredited  investors (generally those with assets in
excess of $1,000,000 or annual income  exceeding  $200,000 or $300,000  together
with their spouse).  For transactions  covered by these rules, the broker-dealer
must make a special suitability determination for the purchase of securities and
have received the  purchaser's  written  consent to the  transaction  before the
purchase.  Additionally,  for any  transaction  involving a penny stock,  unless
exempt,  the broker-dealer  must deliver,  before the transaction,  a disclosure
schedule  prescribed  by  the  SEC  relating  to the  penny  stock  market.  The
broker-dealer   also  must  disclose  the   commissions   payable  to  both  the
broker-dealer and the registered  representative  and current quotations for the
securities.  Finally,  monthly  statements must be sent disclosing  recent price
information  on the limited  market in penny stocks.  These  additional  burdens
imposed on broker-dealers may restrict the ability of broker-dealers to sell the
common stock and may affect a stockholder's ability to resell the common stock.

There can be no assurance  that our common stock will qualify for exemption from
the "penny stock" rules.  In any event,  even if our common stock is exempt from
such rules from such rules,  we would remain subject to Section  15(b)(6) of the
Exchange  Act,  which gives the SEC the  authority  to restrict  any person from



                                       32
<PAGE>

participating  in a distribution of a "penny stock" if the SEC finds that such a
restriction would be in the public interest.

Stockholders  should be aware that,  according to SEC Release No. 34-29093,  the
market for penny stocks has suffered in recent years from  patterns of fraud and
abuse.  Such patterns  include (i) control of the market for the security by one
or a few broker-dealers  that are often related to the promoter or issuer;  (ii)
manipulation of prices through  prearranged  matching of purchases and sales and
false and  misleading  press  releases;  (iii) boiler room  practices  involving
high-pressure  sales tactics and unrealistic  price projections by inexperienced
sales persons;  (iv) excessive and undisclosed bid-ask  differential and markups
by selling broker-dealers;  and (v) the wholesale dumping of the same securities
by promoters and broker-dealers  after prices have been manipulated to a desired
level,  along with the  resulting  inevitable  collapse of those prices and with
consequent  investor  losses.  Our  management  is aware of the abuses that have
occurred historically in the penny stock market.

WE ARE RESPONSIBLE FOR THE  INDEMNIFICATION  OF OUR OFFICERS AND DIRECTORS UNDER
CERTAIN CIRCUMSTANCES WHICH COULD RESULT IN SUBSTANTIAL  EXPENDITURES,  WHICH WE
MAY BE UNABLE TO RECOUP

Our  bylaws  provide  for  the  indemnification  of  our  directors,   officers,
employees, and agents, under certain circumstances,  against attorney's fees and
other  expenses  incurred by them in any litigation to which they become a party
arising  from  their  association  with or  activities  on  behalf  of us.  This
indemnification policy could result in substantial expenditures, which we may be
unable to recoup.

COMPLIANCE  WITH THE  SARBANES-OXLEY  ACT COULD COST  HUNDREDS OF  THOUSANDS  OF
DOLLARS,  REQUIRE  ADDITIONAL  PERSONNEL  AND  REQUIRE  HUNDREDS OF MAN HOURS OF
EFFORT, AND THERE CAN BE NO ASSURANCE THAT WE WILL HAVE THE PERSONNEL, FINANCIAL
RESOURCES OR EXPERTISE TO COMPLY WITH THESE REGULATIONS

The Public Company Accounting Reform and Investor Protection Act of 2002, better
known as  Sarbanes-Oxley,  is the  most  sweeping  legislation  to  affect  U.S.
publicly traded companies in the last 70 years.  Sarbanes-Oxley created a set of
complex and burdensome  regulations upon publicly traded  companies.  Compliance
with such  regulations  requires  hundreds of thousands  of dollars,  additional
personnel and hundreds of man hours of effort. There can be no assurance that we
will have the personnel,  financial  resources or expertise to comply with these
regulations.

Section 404 of the Sarbanes-Oxley Act of 2002 requires  management to assess its
internal  controls over financial  reporting and requires  auditors to attest to



                                       33
<PAGE>

that assessment.  Current regulations of the SEC will require us to include this
assessment and  attestation in our Annual Report on Form 10-KSB  commencing with
the annual report for our fiscal year ended December 31, 2007.

We will incur  significant  increased  costs in  implementing  and responding to
these requirements.  In particular,  the rules governing the standards that must
be met for management to assess its internal  controls over financial  reporting
under  Section 404 are complex and require  significant  documentation,  testing
and, if necessary,  possible remediation. Our process of reviewing,  documenting
and  testing  our  internal  controls  over  financial  reporting  may  cause  a
significant strain on our management,  information systems and resources. We may
have to invest in additional accounting and software systems. We may be required
to hire additional personnel and to use outside legal, accounting,  and advisory
services.  In addition,  we will incur additional fees from our auditors as they
perform the additional services necessary for them to provide their attestation.
If we are unable to favorably assess the  effectiveness of our internal controls
over financial reporting when we are required to, or if our independent auditors
are unable to provide an unqualified attestation report on such assessment, then
we may be required to change our internal  controls over financial  reporting to
remediate  deficiencies.  In  addition,  investors  may lose  confidence  in the
reliability of our financial statements, causing our stock price to decline.

OUR HOLDING COMPANY STRUCTURE MAY LIMIT THE PAYMENT OF DIVIDENDS

We  have  no  direct  business  operations,  other  than  our  ownership  of our
subsidiaries.  While we have no current intention of paying dividends, should we
decide  in the  future  to do so,  as a  holding  company,  our  ability  to pay
dividends  and meet other  obligations  depends upon the receipt of dividends or
other  payments  from  our  operating   subsidiaries   and  other  holdings  and
investments. In addition, our operating subsidiaries,  from time to time, may be
subject to restrictions on their ability to make  distributions to us, including
as a result of restrictive  covenants in loan  agreements,  restrictions  on the
conversion of local currency into U.S.  dollars or other hard currency and other
regulatory restrictions as discussed below. PRC regulations currently permit the
payment of dividends only out of accumulated profits as determined in accordance
with PRC accounting  standards and  regulations.  Our  subsidiaries in China are
also required to set aside a portion of their after tax profits according to PRC
accounting  standards and regulations to fund certain reserve funds.  Currently,
our  subsidiaries  in China  are the only  sources  of  revenues  or  investment
holdings  for the payment of  dividends.  If they do not  accumulate  sufficient
profits under PRC  accounting  standards and  regulations  to first fund certain
reserve funds as required by PRC accounting standards,  we will be unable to pay
any dividends.

Item 2 - Description of Property



                                       34
<PAGE>


Helpson owns a factory with a floor area of 663.94 square meters  located at the
East Wing, 6/F, 5 Jianshe Road, Jinpan Industrial Development Zone, Haikou.

Helpson also owns the land use rights to another 31,050 square meters located at
plot C09-2,  Hainan  Bonded Zone,  Haikou.  Helpson built a factory with a floor
area of approximately 7,300 square meters on this parcel.

In  addition,  Helpson  entered  into a  lease  agreement  with  Hainan  Zhongfu
Going-abroad  Personnel Service Center  ("Zhongfu"),  under which Helpson rented
the offices  located at 2/F,  Jiahai  Building owned by Zhongfu as its principal
executive offices.  The term of the lease is 10 years, from November 21, 2000 to
November  20,  2010.  The rent from  November  21, 2000 to November  20, 2005 is
RMB3,600 per month.  The rent from November 21, 2005 to November 20, 2010 may be
adjusted within 5% of the original rent.


Intellectual Property

Helpson owns 13 registered  trademarks and logos used in connection with western
medicine,   raw  material   medicine,   Chinese  herbal  medicine  and  medicine
injections,  which are: Funalin, Fukexing, Helspon, Beisha, Shiduotai, Xinuo and
the HPS logo,  as well as five other logos as listed in the  Schedule 4.6 of the
current  report filed as of October 20, 2005;  one logo used in connection  with
bathing cosmetics,  shampoo,  hair stimulating  shampoo,  facials,  nail polish,
cosmetics,  perfume,  perfume  essence  oils,  skin care  toner,  and  cosmetics
cleansers;  one registered trademark,  Helpson; and one logo, used in connection
with medical  appliances and equipment,  surgical  implants,  surgical implanted
artificial eyes, surgical artificial crystalline lens, surgical artificial skin,
and artificial  eyes. In addition,  Helpson is applying for registration of nine
other  trade  marks used in  connection  with  western  medicine,  raw  material
medicine, Chinese herbal medicine and medicine injections.

Helpson  owns  the  intellectual  property  rights  of its  genetic  engineering
technology for rh-CNTF and rh-aFGA,  and fungi form  engineering  and production
techniques.


Item 3 - Legal Proceedings

We have no pending legal  proceedings.  From time to time, we may be involved in
various  claims,  lawsuits,  disputes  with  third  parties,  actions  involving
allegations of  discrimination  or breach of contract actions  incidental to the
normal operations of the business.


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

None.


                                       35
<PAGE>


                                     PART II

Item 5 - Market for Company's Common Stock and Related Stockholder Matters

Our  common  stock is traded  on the  OTCBB  under  the  symbol  "CPHI.OB".  The
following  table  sets  forth the price  representing  the range of high and low
closing  sale prices for our common  stock as reported  during the fiscal  years
ended December 31, 2005 and 2006.

                      Quarter Ended                  High               Low
              ------------------------         ---------------     -------------
                         2006
              ------------------------         ---------------     -------------
              4th Quarter                           $2.35              $1.30
              ------------------------         ---------------     -------------
              3rd Quarter                           $1.60              $1.07
              ------------------------         ---------------     -------------
              2nd Quarter                           $1.70              $1.15
              ------------------------         ---------------     -------------
              1st Quarter                           $2.05              $1.05

                         2005
              ------------------------
              4th Quarter                           $2.65              $1.70
              ------------------------         ---------------     -------------
              3rd Quarter                           $2.25              $1.05
              ------------------------         ---------------     -------------
              2nd Quarter                           $2.00              $0.40
              ------------------------         ---------------     -------------
              1st Quarter                           $0.55              $0.35
              ------------------------         ---------------     -------------

As of March 26,  2007,  the closing  price of our common  stock on the OTCBB was
$1.79. As of March 26, 2007, the stockholders'  list for our common stock showed
204 registered  shareholders of record,  which figure does not take into account
those  stockholders whose certificates are held in the name of broker-dealers or
other nominees and 37,228,938 shares of common stock issued and outstanding.

Dividend Policy

Since  inception,  we have not paid,  nor declared,  any dividends and we do not
intend to declare any such dividends in the foreseeable  future.  Our ability to
pay dividends is subject to limitations  imposed by Delaware law and the laws of
the PRC.

Transfer Agent

The Transfer  Agent and Registrar  for our common stock is  Securities  Transfer
Corporation,  2591  Dallas  Parkway,  Suite  102,  Frisco,  Texas  75234 and its
telephone number is 469.633.0100.



                                       36
<PAGE>


Item 6 - Management's Discussion and Analysis or Plan of Operation


FORWARD-LOOKING STATEMENTS

The  following  discussion of China Pharma  Holdings,  Inc.'s  ("China  Pharma")
financial condition and results of operations should be read in conjunction with
its  financial  statements  and  the  related  notes,  and the  other  financial
information included elsewhere in this Current Report on Form 10-KSB.

This  filing  contains  forward-looking  statements.  The  words  "anticipated,"
"believe," "expect",  "plan," "intend," "seek," "estimate,"  "project," "could,"
"may,"  and  similar  expressions  are  intended  to  identify   forward-looking
statements. These statements include, among others, information regarding future
operations,  future  capital  expenditures,  and  future  net  cash  flow.  Such
statements  reflect  China  Pharma  management's  current  views with respect to
future events and  financial  performance  and involve risks and  uncertainties,
including, without limitation, general economic and business conditions, changes
in foreign, political,  social, and economic conditions,  regulatory initiatives
and compliance  with  governmental  regulations,  the ability to achieve further
market penetration and additional customers,  and various other matters, many of
which are beyond China  Pharma's  control.  Should one or more of these risks or
uncertainties  occur, or should  underlying  assumptions  prove to be incorrect,
actual  results  may vary  materially  and  adversely  from  those  anticipated,
believed,   estimated  or  otherwise   indicated.   Consequently,   all  of  the
forward-looking statements made in this filing are qualified by these cautionary
statements and there can be no assurance of the actual results or developments.

I.   The year 2006 in brief.

2006 saw another year of sound growth and outstanding  financial  performance at
China Pharma. The Company's whole revenue increased by over 150% to a historical
record high of $21.84 million in US dollars. This fast growth has all been built
on  an  organic  basis  since  the  inception  of  Company  in  January,   2005;
particularly,  in addition to some traditionally  classical products, the growth
of sales was  primarily  attributed to the  development  of new products for the
fiscal year 2006.  China Pharma  maintained  its  orientation  of launching  new
products in an increasingly competitive market and explored potential markets in
a wide domestic base.

The financial performance in year 2006 improved  significantly compared to years
before.  Gross  profit grew  dramatically  by 125% to US $10 million and the net
income,  without consideration of foreign currency translation  adjustment,  has
been  doubled  to US $8.59  million.  Major  outlays  have  been  placed  on the



                                       37
<PAGE>

development  of new product  pipelines  and the  construction  of new  marketing
activities. Considering the newly fulfilled fund-raising activities, there was a
slight decrease in the basic and diluted  earnings per common shares to US$0.25,
however,  weighted-average  common shares  outstanding  has grown three times to
34.72 million, in an anticipation of sustainable profit generation.

China Pharma has built up intense  cooperation  among  biological,  chemical and
medical  institutions to deliver more functional products tailored to the demand
of particular populations of the end-user.  According to management's goals, our
company is dedicated to achieve stable profits  growth.  We operate the business
by relevant strategic principles, which have been proven successful.  Thoroughly
exploring the potential in the  pharmaceutical  field is the key to our success.
Further, we also are concerned with corporate governance as a modern enterprise.
In the near future, we will establish a more systematic and long lasting process
of  internal  controls  for  prospective  development  and to the benefit of our
shareholders.

II.  Business Overview

China Pharma is primarily engaged in the research, development, manufacture, and
marketing of pharmaceutical  and nutritional  supplements.  Especially,  we have
launched an anti-flu  product named PuSenOK in 2005,  which is the only anti flu
medicine in the market mixed with pseudo ephedrine  hydrochloride,  a non-drowsy
formula  with a runny  nose  suppressant.  We plan to expand  our  biotechnology
product series. Based on the foundation  established by some of Helpson's widely
recognized  medicine labels such as  Neurotrophicpeptide,  we have been and will
continue  to launch a  variety  of  biological  medicines,  including  the brain
peptide injection,  injected hepatocyte growth-promoting factors, as well as new
genetic  medicines,  rh-CNTF and  rh-AFGF,  which are  expected to fuel us a new
growth following that of Neurotrophicpeptide.

The product of Buflomedil Hydrochloride (including raw material, injection and
troche) has been:

o    Designated  as the key  technology  project  in Hainan  in 2003 by  Hai'kou
     Municipality.
o    Received the best technology  commercialization  award in Hainan in 2004 by
     Hainan Scientific and Technological Result Examination Committee.
o    Awarded the  national  key new  products  certificate  in 2003 by the State
     Science and  Technology  Department,  State  Taxation  Bureau,  Ministry of
     Commerce,  State Bureau of Quality Supervision,  Inspection and Quarantine,
     and State Environmental Protection Bureau.

Since the year 2003  Helpson  attained GMP  authentication  and the prize as the
"best  enterprise for supporting SARS medicine"  awarded by Hainan Food and Drug
Administration, we have been keeping forward to the frontier market. In the year



                                       38
<PAGE>

of  2006,  our  products  have  been  distributed  to more  than  29  provinces,
sovereignties,  and autonomous  regions  around China.  Our sales network covers
approximately  16 sales offices and  approximately  550 proxy  agents.  The main
channels we use to deliver our products include:  (1) Distribution system (Proxy
Agency);  (2) Direct  sale system to  hospitals;  (3) Direct  representation  in
clinic  hospitals  through  medical  representatives;  and (4)  Distribution  of
products to local medical companies through logistics companies.

Retrospectively, on June 16, 2005, Onny Investment Limited ("Onny") acquired all
the outstanding  shares in Hainan Helpson Medicine and  Bio-Technology  Co. Ltd.
("Helpson"),  a private  Chinese  company,  in exchange  for the  assumption  of
obligations  to make cash  payments to the Helpson's  shareholders  in a form of
common stock dividend from Helpson of  $4,154,041,  the assumption of $4,646,409
of other liabilities and the issuance of non-interest  bearing  promissory notes
totaling  $3,413,265  payable  three  months after  Helpson  obtained a business
license in the PRC as a wholly foreign owned entity.  The acquisition of Helpson
was recognized as a business combination.

Then after, on October 19, 2005, Onny issued 10,000 preferred shares in exchange
for $4,313,000 in cash, net of offering costs and estimated  registration costs,
and on that same date,  those  preferred  shares were converted into 10,000 Onny
common shares.  Also on October 19, 2005, Onny was reorganized as a wholly-owned
subsidiary of the Company.  The  reorganization was accomplished by the original
Onny common shareholder  exchanging her 29,700 Onny common shares for 20,555,329
common  shares of China Pharma and for the  commitment  by China Pharma to issue
the  original  Onny common  shareholder  4,723,056  common  shares  following an
amendment of the China Pharma articles of incorporation increasing the number of
common  shares  authorized  to  60,000,000  shares from  30,000,000  shares.  In
addition,  the prior Onny  preferred  shareholders  exchanged  their 10,000 Onny
common shares for 6,944,611 common shares of China Pharma.

Additionally,  on February 1, 2007,  China Pharma fulfilled an offering of Units
priced at $1.70 per Unit  consisting of one share of Company  common stock and a
warrant to purchase  one-half of a share of Company  common stock at an exercise
price of $2.38 per share.  China Pharma received gross proceeds in the aggregate
amount of $4,259,900; and the net proceeds, after deducting the related offering
expenses of $445,258, amounted to $3,814,741. Totally, it issued an aggregate of
2,505,882 shares of common stock and issued  three-year  warrants to purchase an
aggregate  of  1,252,941  shares  of  Company's  common  stock to 17  accredited
investors.

III. Trend in the Market.

Studies show that, with the world's  expanding  population,  not only larger but



                                       39
<PAGE>

older,  ever growing numbers of people have diseases of aging,  such as cancers,
Alzheimer's  disease,  diabetes  and  rheumatoid  arthritis,  which have already
becoming  prevalent,  especially  in  developed  areas.  In a growing  and aging
population, people need to find more effective methods of treatment.

In  addition,  patient  empowerment  has been  another  factor  in  high-quality
healthcare.  Many are better  informed about the importance of health issues and
medical  advancement.  Naturally,  people today are  demanding  greater care and
access to the latest medical procedures and medicines.

Helpson  regards this market trend as an opportunity.  However,  the best way to
develop it is to find our business risks beforehand,  with a hope of alleviating
or eliminating these potential side-effects. Generally speaking, there are three
aspects of risks.

     o    External Risk

In recent years, Chinese medical system reform has been occurring,  resulting in
the State Department  establishment of a basic medical  insurance system for the
workers  in  cities  and  towns.  Considering  the  social  environment  and the
governmental  policy in  pharmaceutical  industry in PRC, a high speed growth of
sales can be expected due to a kind of regional  protectionism  in the industry.
Competition  will also be  intensive  across the  industry  overall.  Currently,
company's  existing products are competitive in the market and possess potential
growth  power in its  existing  products and topic  selection,  however,  from a
long-term  perspective,  some major western medicine  producers are also seeking
Chinese market share.  This will make the company face intensive  competition in
this natural herb product market.

     o    Operation Risk

One of the major  uncertainties in the Company is the purchase of raw materials.
Raw material is primarily  affected by the  geographical  environment  in Hainan
Province.  As it is a long  way for  transportation,  in  order  for the need of
production,  the  Company  has to store  large  amounts of  inventory  according
inventory  budget.  In addition,  partial raw material  need to be  specifically
ordered,  with higher storage needs.  Meanwhile,  since the increasing volume in
sales,  the Company needs to store large volume of packaging  material,  to meet
the needs of production and sales.

     o    Foreign Currency Risk

Substantially  all of our  operations  are  conducted  in the PRC. Our sales and
purchases are conducted  within the PRC in Chinese  Renminbi.  As a result,  the
effect of exchange  rate  fluctuation  would  inevitably  to be considered to be
material to our business operations.


                                       40
<PAGE>


All of our revenues and expenses  are  denominated  in Renminbi.  But we use the
United States dollar for financial  reporting  purposes.  Conversion of Renminbi
into foreign  currencies  is regulated by the People's  Bank of China  through a
unified  floating  exchange rate system.  Although the PRC government has stated
its intention to support the value of the Renminbi,  there could be no assurance
that such exchange rate will not again become volatile or that the Renminbi will
not devalue  significantly  against the U.S. dollar.  Exchange rate fluctuations
may  adversely  affect the value,  in  U.S.dollar  terms,  of our net assets and
income derived from its operations in the PRC.

IV. Critical Accounting Policies and Estimates

The overall  discussion  and analysis of our financial  condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance  with  generally  accepted  accounting  principles in the
United  States.  We believe the following are the critical  accounting  policies
that impact the financial  statements,  some of which are based on  management's
best  estimates  available at the time of  preparation.  Actual  experience  may
differ from these estimates.

Use of Estimates - The  preparation of financial  statements in conformity  with
accounting  principles  generally  accepted  in the  United  States  of  America
requires  management to make estimates and assumptions  that affect the reported
amounts of assets and  liabilities  and  disclosures  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenue and expenses  during the reporting  period.  Actual results could differ
from those estimates.

Accounts  Receivable - During the normal course of business,  we keep  unsecured
credit to our customers and review our accounts receivable on a regular basis to
determine  if the bad debt  allowance  is adequate at the end of the period.  We
record  an  allowance  for  bad  debts  based  on  age of  outstanding  accounts
receivables  at the end of the  period in  accordance  with  generally  accepted
accounting  principles in the PRC. The percentage of a trade  receivable that is
deemed  doubtful is as follows:  100% after 720 days;  50 % after 360 days;  and
7.5% up to 360 days.

Intangibles-  Under the  Statement  of  Accounting  Standards  ("SFAS") No. 142,
"Goodwill  and Other  Intangible  Assets," all  goodwill and certain  intangible
assets determined to have indefinite lives are not amortized, but are tested for
impairment at least annually.  Other intangible  assets are amortized over their
useful  lives and  reviewed  for  impairment  in  accordance  with SFAS No.  144
"Accounting for Impairment or Disposal of Long-Lived Assets."

Revenue  Recognition-  We  recognize  revenue  when  all  four of the  following
criteria are met :( i)  persuasive  evidence has been  received that there is an
enforceable  agreement;  (ii) the products  have been  delivered or the services



                                       41
<PAGE>

have been performed; (iii) the selling price is fixed or determinable;  and (iv)
collectibility is reasonably assured.

Concentrations  and  Credit  Risks  - As  all of the  Company's  operations  are
conducted in the PRC, and therefore our operations may be adversely  affected by
significant  political,  economic and social  uncertainties in the PRC. Although
the Chinese  government  has pursued  economic  reform  policies in the past, we
cannot  assure you that the  Chinese  government  will  continue  to pursue such
policies or that such policies will not be significantly altered,  especially in
the  event  of a  change  in  leadership,  social  or  political  disruption  or
unforeseen   circumstances   affect  China's  political,   economic  and  social
conditions.

The Company's  revenue are  denominated in the PRC's currency of Renminbi ("CNY"
or "(Y)"),  which must be converted into other currencies  before remittance out
of the  PRC.  Both  the  conversion  of CNY  into  foreign  currencies  and  the
remittance of foreign currencies abroad require approval of the PRC government.

We could give no  assurance  that the Chinese  government's  pursuit of economic
reforms will be consistent or effective.

In addition, as a common practice in the Industry,  some customers may not repay
their debts under the credit  periods  granted or may repay slowly as the volume
of  purchase  increase.  In  this  regard,  there  is no  assurance  that  trade
receivables could be repaid completely as due on a timely basis.

Research and Development  Costs- Research and development  costs are expensed as
incurred.  The costs of  material  and  equipment  acquired or  constructed  for
research and  development and having  alternative  future uses are classified as
property and equipment and depreciated over their estimated useful lives.

Foreign Currency  Translation- Our functional  currency is the Chinese Yuan. Our
financial  statements  are  translated  into United  States  dollars,  using the
exchange rates at the end of the period as to assets and liabilities and average
exchange  rates as to revenue and expenses.  Capital  accounts are translated at
their  historical  exchange rates when the transaction  occurred.  Net gains and
losses  resulting  from  foreign  exchange  translations  are  included  in  the
statements of operations and stockholders' equity as other comprehensive income.

The  quotation of the  exchange  rates does not imply free  convertibility.  All
foreign exchange transactions continue to take place either through the People's
Bank of China or other banks  authorized  to buy and sell foreign  currencies at
the exchange rate quoted by the People's Bank of China. Approval by the People's
Bank of China or other institutions  requires us to submit a payment application
form together with invoices, shipping documents and signed contracts.



                                       42
<PAGE>
<TABLE>
<CAPTION>


V. Analysis to the financial performance

The  following  chart sets forth our  statements  of  operations  for the twelve
months ended  December 31, 2006,  and for the period from January 12, 2005 (date
of inception) through December 31, 2005. Both are dominated in U.S. dollars.

Figure 1:

------------------------------------------------------------------------------------------------------------------
                                            CHINA PHARMA HOLDING, INC
                                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                                    For the Period from January
                                                 For the year ended                 12, 2005 (Date of Inception)
                                                 December 31, 2006                  through December 31, 2005
                                               ------------------------           --------------------------------
<S>                                            <C>                                <C>
Revenue                                        $            21,843,262            $                     8,657,813
Cost of Revenue                                             11,745,815                                  4,166,965
                                               ------------------------           --------------------------------
 Gross Profit                                                10,097,447                                  4,490,848
                                               ------------------------           --------------------------------
Operating expenses:
      Selling expenses                                         260,128                                    106,129
      General and administrative                             1,213,828                                    140,903
                                               ------------------------           --------------------------------
Total Operating Expenses                                     1,473,956                                    247,032
                                               ------------------------           --------------------------------

Income from Operations                                       8,623,491                                  4,243,816
                                               ------------------------           --------------------------------
Non-operating income(expenses):
       Interest income                                             991                                        769
       Interest expense                                      (145,881)                                  (186,452)
      Other Income (Expense)                                   108,485                                    (6,482)
                                               ------------------------           --------------------------------
Total Non-operating Income (Expense)                          (36,405)                                  (192,165)
                                               ------------------------           --------------------------------

Income Before Taxes                                          8,587,086                                  4,051,651
Income tax expense                                                   -                                    252,101
                                               ------------------------           --------------------------------
Net Income                                     $             8,587,086            $                     3,799,550
                                               ------------------------           --------------------------------
  Comprehensive income-foreign currency                        563,945                                     99,926
         translation adjustments
                                               ------------------------           --------------------------------
Comprehensive income                           $             9,151,031            $                     3,899,476
                                               ------------------------           --------------------------------

Basic and  Diluted  Earnings  per  Common
Share                                          $                  0.25            $                          0.34
                                               ------------------------           --------------------------------

Weighted-average       Common      Shares
Outstanding                                                 34,723,056                                 11,289,480
</TABLE>

--------------------------------------------------------------------------------







                                       43
<PAGE>
<TABLE>
<CAPTION>


Figure 2:

------------------------------------------------------------------------------------------------------------------
                                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                 For the Period
                                                                  from January
                                                                 12, 2005 (Date
                               For the year         As a          of Inception)        As a
                              ended December   percentage of         through      percentage of     Comparative
                                 31, 2006         Revenue         December 31,       Revenue        Variance %
                              --------------   -------------      -------------   -------------     -----------
<S>                           <C>              <C>                <C>             <C>               <C>

                                                                      2005.

Revenue                           $21,843,262                     8,657,813                          152%
Cost of Revenue                    11,745,815            54%      4,166,965           48%            182%

Gross Profit                       10,097,447            46%      4,490,848           52%            125%

Operating expenses
   Selling expenses                   260,128           1.2%        106,129            1.2%          145%
General and administrative          1,213,828          5.56%        140,903            1.6%          761%
Total Operating Expenses            1,473,956             7%        247,032            3%            497%

Income from Operations              8,623,491            39%      4,243,816           49%            103%

Non-operating income(expenses):
   Interest income                        991           0.0%            769            0.0%           29%
   Interest expense                  -145,881           0.7$       -186,452            2.2%          -22%
   Other Income (Expense)             108,485           0.5%         -6,482            0.1%        1,774%
Total Non-operating Income
(Expense)                             -36,405          (0.2%)      -192,165           (2.2%)         -81%

Income Before Taxes                 8,587,086          39.3%      4,051,651           46.8%          112%
Income tax expense                       --                         252,101            2.9%         -100%

Net Income                        $ 8,587,086          39.3%      3,799,550           43.9%          126%
   Comprehensive
income-foreign currency

translation adjustments               563,945           2.6%         99,926            1.2%          464%

Comprehensive income              $ 9,151,031          41.9%      3,899,476           45.0%          135%
</TABLE>




                                       44
<PAGE>


Revenue: Revenue for the twelve months ended December 31, 2006 was $ 21,843,262,
a  dramatic  increase  of  $13,185,449,  around  152.30%,  from the  revenue  of
$8,657,813  for the period ended  December 31,  2005.  One of the major  driving
forces  was  derived  from a launch  of new  products  and  enhancement  of some
existing  products this year. For example,  the products of AFGF,  Roxithromycin
dispersible tablets and Gastrodin  Injection all had predominant  performance to
the overall sales.  Meanwhile, a distribution network has spread over a majority
of the  provinces in China,  about 29 provinces  or regions.  Further,  with the
improvement of production capacity, a significant  improvement in sales has also
been  guaranteed  by an  increased  yield  capacity,  both in new  and  existing
products.

Cost of Revenue:  Compared to the corresponding  figure last year, cost of sales
has  increased  as well,  about  181.90%  from  $4,166,965  for the period as of
December 31, 2005 to the amount of  $11,745,815  for the year as of December 31,
2006. As a percentage of revenues,  the cost of sales increased from 48% for the
period as of December  31, 2005 to that of 54% for the period as of December 31,
2006.  The  increased  cost of sales was  primarily as a result of the increased
revenue during the fiscal year 2006.

Gross  Margin:  There was an increase  in gross  margin to  $10,097,447  for the
period as of  December  31,  2006 from that of  $4,490,848  for the period as of
December 31, 2005. As a percentage of revenue, it was  correspondingly  from 52%
to 46%.  The  decreased  gross  margin was mainly due to an  increase in cost of
sales rather than the growth of overall operation revenue.

Selling Expenses: Selling expense has also increased at the same time, primarily
for the  purpose of  distribution.  Relative  to the total  operating  expenses,
selling expenses approximately accounted for 18% for the year ended December 31,
2006.  It was a  dramatic  decrease  due to  good  management  of  distribution,
compared to 43% of operating expenses for the year ended December 31, 2005.



                                       45
<PAGE>


General  &  Administrative  Expenses:  There  was an  increase  in  general  and
administrative  expense for the year ended December 31, 2006 to $1,213,828  from
corresponding amount of $140,903 for the year ended December 31 2005. There were
two major  reasons,  due to the specific  nature of  pharmaceutical  industry in
China, most of the sales will be realized through receivables.  Accordingly,  an
increased bad debt provision has been accrued. However, another important reason
was due to an increase in R&D, up 281.23%.

For the fiscal years ended  December 31, 2006 and December 31, 2005, R&D expense
has covered a variety of  pharmaceutical  products  such as  Cardiovascular  and
Cerebrovascular  drugs,  Natural Herb drugs,  Diuretics drugs,  Liver protecting
drugs,  inhibitor  drugs and others.  In the next 2-3 years,  our  company  will
continue focusing on R&D, for sustainable development of product varieties.  The
outlay for R&D is expected to be around 5-10% as a percentage  of total  revenue
for each respective year.

Thus, as a percentage of revenues,  the total operating expenses has grown to 7%
for the period as of December 31, 2006, from a 3% for that of fiscal year 2005.

Income from Operations:  With the large increase in sales,  although there was a
relative  decrease in income from operations  against revenue,  from 49% for the
period as of December 31, 2005 to 39% for the period as of December 31, 2006, it
can be seen an absolute increase from $4,243,816 to the amount of $8,623,491 for
the corresponding fiscal years.

Financial  Cost:  Interest  income and expense has stayed stable from last year,
with a net interest  expense  $144,890 ended December 31, 2006 from a net amount
of $185,683 for period as of December 31, 2005. In addition,  government  grants
including `Purchase of domestically made machinery refund' and other tax refunds
have been  credited  for  business  support  this year,  which  resulted  in the
increase in Other Income  amounting to $108,485 for the year ended  December 31,
2006.

Income Tax: During the year, the Company qualified for a preferential income tax
policy  in  China,   i.e.,   "two-year   free;   third-fifth   year   half"  for
profit-realized  foreign  invested  company  (FIE).  Therefore,   there  was  no
enterprise income tax this year as the company has been recognized as a FIE this
year.

Net Income: Net income,  without  consideration of foreign currency  translation
factor,  was $ 8,587,086 for the year ended  December 31, 2006. It was more than
126% higher than the net income for the period ended December 31, 2005 which was
$3,799,550. As a percentage of revenue, there was a decrease from 44% to 39% for
the fiscal years respectively.  Moreover, given the foreign currency translation
influence,  comprehensive  income is $9,151,031  for the year ended December 31,
2006, a 134.7% increase  compared to $3,899,476 for last year ended December 31,
2005.  The  comparative  result  of  operation  has shown an  organic  growth of
business in sales,  with a dramatic increase in sales and slight decrease in the
cost of sales and related expenses as a percentage of sales in total.



                                       46
<PAGE>
<TABLE>
<CAPTION>


VI.Analysis to the financial position: Liquidity and Capital Resource

As of December 31, 2006, cash and cash equivalents were $656,441, which has also
increased  by 42.3%  compared to the ending  balance as of December  31, 2005 at
$461,220.  Meanwhile, during the year, the Company has borrowed short-term loans
of $6,533,649 as of December 31, 2006. It was primarily for working capital.

Figure 3:
-----------------------------------------------------------------------------------------------------
                                        Summary of Cash Flow
-----------------------------------------------------------------------------------------------------
                                                                  -----------------------------------
                             $,000                                     Years Ended December,31
                                                                  -----------------------------------
                                                                        2006              2005
                                                                  ------------------ ----------------
<S>                                                               <C>                <C>

                                                                             In thousands
Net cash provided by (used in) operating activities                 (1,736.33)        (449.10)
----------------------------------------------------------------- ------------------ ----------------

Net cash provided by (used in) investing activities                   (192.00)        (341.52)
----------------------------------------------------------------- ------------------ ----------------

Net cash provided by (used in) financing activities                  2,105.43        1,248.73
----------------------------------------------------------------- ------------------ ----------------

Effect of Foreign Exchange translation                                  18.13            3.11
----------------------------------------------------------------- ------------------ ----------------

Net cash Flow                                                          195.22          461.22
----------------------------------------------------------------- ------------------ ----------------

</TABLE>


Net cash used in  operating  activities  was  $1,736,333  for the year  ended at
December 31, 2006,  nearly three times more compared to $ 449,095 for the period
ended at  December  31,  2005.  One of the  significant  reasons  for this large
increase was due to the increase in trade  account  receivables  and  inventory.
Confidence can be seen from the stable  improvement  of trade  capability in the
Company.

Net cash used in investing activities,  for purchase of property,  equipment and
that of intangible assets have been lowered to $182, 346 and $9,657 respectively
at the year end of December 31, 2006.  There was not any cash generated from the
purchased  of entity in the year 2006,  compared to that of $131,336 in the year
2005.

Net cash  proceed for  financing  activities  has grown up to $2,  105,430 as of
December 31, 2006,  68% higher  relative to the proceeds of  $1,248,727  for the
period as of December 31, 2005.  As analyzed  above,  the increase was primarily
because of the proceeds from note payables and loans from shareholders.  For the
fiscal year as of December 31 2006,  a  $2,140,943  bank loan was  borrowed  for
working capital purpose.



                                       47
<PAGE>


Capital  expenditures:  For the past three fiscal years ended December 31, 2006,
there have been capital  expenditures  of  $1,157,126,  primarily  for GMP Plant
Construction,  purchase of equipment and intangible  assets.  As of December 31,
2006, there was no material  commitments for capital expenditures other than for
those expenditures incurred in an ordinary course of business.

VII. Off-Balance Sheet Arrangements

There was no off-balance sheet arrangement in the Company.

VIII. Commitments

In January 2006, the Company  converted its dividend  payable of $4,304,371 into
short-term note bearing interest at the rate of 2.25% per annum.

IX. New Accounting Pronouncements

In May  2005,  the FASB  issued  SFAS No.  154,  "Accounting  Changes  and Error
Corrections--a replacement of APB Opinion No. 20 and FASB Statement No. 3 ("SFAS
154"). This Statement replaces APB Opinion No. 20, Accounting Changes,  and FASB
Statement No. 3, Reporting  Accounting Changes in Interim Financial  Statements,
and changes the requirements for the accounting for and reporting of a change in
accounting  principle.  SFAS 154  requires  retrospective  application  to prior
period financial statements of a voluntary change in accounting principle unless
it is  impractical  to determine  period  specific  changes.  This  statement is
effective  for fiscal  periods  beginning  after  December  15,  2005 and is not
expected to have a significant impact on the Company's financial statements.

In November 2004, the Financial Accounting Standards Board, or FASB, issued FASB
Statement No. 151 "Inventory  Costs, an Amendment of ARB No. 43 Chapter 4" ("FAS
151").  FAS 151 is applicable for Inventory  costs incurred  during fiscal years
beginning after June 15, 2005. FAS 151 requires that items such as idle facility
expense,  excessive  spoilage,  double  freight,  and remanding be recognized as
current-period  charges  rather than being  included in inventory  regardless of
whether  the costs  meet the  criterion  of  abnormal  as defined in ARB 43. The
Company  does not believe  the  adoption  of the  standard  will have a material
impact on the Company  upon  adoption  in 2006 as the  Company has  historically
expensed such costs as incurred.

X. Conclusion


                                       48
<PAGE>


The  overall  performance  in year  2006 was  outstanding.  As a public  Company
orientated at pharmaceutical  industry, we put effort to product innovation.  We
understand,  without  sustainable R&D, the medical progress and accessibility to
end-user can not fully be realized.  In this regard,  China Pharma will continue
to  actively  engage  with the  development  and  distribution  of  high-quality
products to the market.

Item 7 - Index to Financial Statements

The Financial Statements required by this Item begins at page F-1 hereof.

Item 8 -  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosures

None.

Item 8A - Controls and Procedures

Disclosure  controls and procedures are controls and other  procedures  that are
designed to ensure that information  required to be disclosed in Company reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported,  within the time  periods  specified  in the  Securities  and Exchange
Commission's  rules and  forms.  Disclosure  controls  and  procedures  include,
without limitation,  controls and procedures designed to ensure that information
required to be  disclosed  in Company  reports  filed under the  Exchange Act is
accumulated  and  communicated  to  management,  including the  Company's  Chief
Executive and Chief Financial Officer as appropriate,  to allow timely decisions
regarding required disclosure.

Currently,  we  are  in  the  process  of  revising  the  internal  control  and
procedures.

Item 8B - Other Information

None.
                                    PART III

Item  9  -  Directors,   Executive  Officers,  Promoters  and  Control  Persons;
Compliance with Section 16(a) of the Exchange Act

The  following  table sets forth the names of all of our current  directors  and
executive  officers to be  appointed.  The  directors  will serve until the next
annual  meeting of the  stockholders  or until their  successors  are elected or
appointed  and  qualified.   Executive   officers  will  serve  at  the  board's
discretion.



                                       49
<PAGE>



--------------------------------------------------------------------------------
    Name                Age   Position
--------------------------------------------------------------------------------
Heung Mei TSUI          50    Director
--------------------------------------------------------------------------------
Zhilin LI               54    Director, President and Chief Executive Officer
--------------------------------------------------------------------------------
Xinhua WU               44    Director and Chief Financial Officer
--------------------------------------------------------------------------------
Jian YANG               52    Secretary
--------------------------------------------------------------------------------

Ms. Heung Mei TSUI.  Ms. Tsui is director of the Company since October 19, 2005.
She  is a  self-employed  business  woman  engaged  in the  re-export  business,
including chemical products trade and  electromechanical  products trade. She is
also Toyota  automobile's  agent in Hainan  province.  She graduated  from Huhan
Financial & Economic College in 1982.

Ms. Zhilin LI: Ms. Li is director,  President and Chief Executive Officer of the
Company.  She is a founder of  Helpson,  and has served as  chairman  and CEO of
Helpson since 1993. Ms. Li was formerly the president of Haikou  Bio-engineering
institute,  and the vice  president  of the Sichuan  Institute  of Biology . She
graduated  from  Sichuan  University,  where she majored in  biology,  and later
became an instructor.

Mr. Xinhua WU: Mr. Wu is director and Chief Financial Officer of the Company. He
has acted as CFO of Helpson  since his hiring in 1999.  Mr. Wu served as CFO and
assistant to the CEO at Hainan Guobang  Enterprises  Inc., where he was employed
from 1992 to 1999.  Mr. Wu graduated  from the  University  of Wales with an MBA
degree  and  Jiangxi  Financial  college  with a Bachelor  of Science  degree in
Finance.

Ms. Jian YANG:  Ms. Yang is Secretary of the Company since October 19, 2005. She
is a founder and director of Helpson.  Ms. Yang was a technician  at the Sichuan
Institute  of  Biology  in  1990  and  vice  president  of  Haikou   Biomedicine
Enginerring  Co.,  Ltd.  in 1991 Ms. Yang  earned her MBA at the  University  of
Wales, England.

Board Composition and Committees

The board of directors are currently  composed of Heung Mei Tsui,  Zhilin Li and
Xinhua Wu. All board actions require the approval of a majority of the directors
in attendance at a meeting at which a quorum is present.



                                       50
<PAGE>


We currently have no committees of Audit, Compensation, or any other committees;
therefore, the board will act in the capacity of the absent committees.

Disclosure  of  Commission   Position  of  Indemnification  for  Securities  and
Liabilities

Our Amended and Restated Certificate of Incorporation,  with certain exceptions,
eliminates  any  personal  liability  of  directors  or  officers  to us or  our
stockholders for monetary damages for the breach of such person's fiduciary duty
to the extent  permitted by law. We have also adopted  by-laws which provide for
indemnification  to the full extent  permitted  under the law which includes all
liability,  damages,  costs,  or expenses  arising  from or in  connection  with
service for,  employment by, or other  affiliation with us to the maximum extent
and under all circumstances permitted by law.

There are presently no material  pending  legal  proceeding to which a director,
officer, or employee of ours is a party. There is no pending litigation or legal
proceeding involving one of our directors,  officers,  employees or other agents
as to which indemnification is being sought, and we are not aware of any pending
or threatened  litigation that may result in claims for  indemnification  by any
director, officer, employee or other agent.

To  the  extent   provisions  of  our  Amended  and  Restated   Certificate   of
Incorporation  provide for  indemnification of directors for liabilities arising
under the  Securities  Act or the Exchange  Act,  those  provisions  are, in the
opinion of the  Securities  and Exchange  Commission,  against public policy and
therefore are unenforceable.

Code of Ethics

We do not yet have a code of ethics. Due to the recent completion of the Private
Placement, the board of directors has decided to postpone the adoption of a code
of ethics  until we are able to focus our  business  plan and  develop a greater
infrastructure. Once we have adopted a Code of Ethics, a copy may be obtained by
sending a written request to our corporate Secretary.

Director Compensation

No cash  compensation was paid to our director for services as a director during
the  fiscal  year ended  December  31,  2006.  We have no  standard  arrangement
pursuant to which our board of directors are  compensated  for their services in
their  capacity  as  directors.   The  board  of  directors  may  award  special
remuneration to any director  undertaking any special  services on behalf of our
company other than services  ordinarily  required of a director.  All authorized



                                       51
<PAGE>

out-of-pocket  expenses  incurred by a director on our behalf will be subject to
reimbursement upon our receipt of required supporting document of such expenses.
No director  received  and/or  accrued any  compensation  for his  services as a
director, including committee participation and/or special assignments.

Section 16(a) Beneficial Reporting Compliance

Section 16(a) of the Securities  Exchange Act of 1934, as amended,  requires our
officers and directors,  and persons who own more than ten percent of a class of
our capital stock,  to file reports of ownership and changes in their  ownership
with the  Securities  and  Exchange  Commission.  These  persons are required to
furnish us with copies of all Section  16(a) forms they file.  Based solely on a
review of the copies of such forms  received  by us, we believe  that during the
year ended  December  31,  2006,  all persons  subject to Section  16(a)  filing
requirements  have  filed  on a timely  basis  reports  required  to be filed by
Section 16(a) of the Exchange Act.

Item 10 - Executive Compensation

No cash  compensation was paid to our director for services as a director during
the  fiscal  year ended  December  31,  2006.  We have no  standard  arrangement
pursuant to which our board of directors is  compensated  for their  services in
their  capacity  as  directors.   The  board  of  directors  may  award  special
remuneration to any director  undertaking any special  services on behalf of our
Company  other  than those  services  ordinarily  required  of a  director.  All
authorized  out-of-pocket  expenses incurred by a director on our behalf will be
subject to  reimbursement  upon our receipt of required  supporting  document of
such expenses.  No director  received  and/or accrued any  compensation  for his
services  as  a  director,  including  committee  participation  and/or  special
assignments.

The following table provides  compensation  information for the period indicated
with  respect  to the person who  served as our  president  for the years  ended
December  31,  2006,  2005 and  2004,  and all other of our  executive  officers
receiving  total  salary and bonus in excess of $100,000  during the years ended
December 31, 2006, 2005 and 2004 (collectively, the "Named Executive Officers"):



                                       52
<PAGE>
<TABLE>
<CAPTION>


                           SUMMARY COMPENSATION TABLE

---------------------------------------------------------------- ---------------------------------- ---------
                                                                      Long Term Compensation
---------------------------------------------------------------- ---------------------------------- ---------
                                       Annual Compensation                Awards            Payouts

------------------------- -------- ---------- ----- ------------ ---------- --------------- ------- ---------
         (a)                (b)       (c)       (d)       (e)        (f)         (g)         (h)      (i)
  Name and Principal        Year     Salary($) Bonus Other Annual Restricted  Securities     LTIP   All Other
      Position                                  ($)    Compensa-    Stock     Under-lying   Payouts  Compen-
                                                        tion       Awards($)  Options/ SARs   ($)   sation ($)
                                                                                  (#)
------------------------- -------- ---------- ----- ------------ ---------- --------------- ------- ---------
<S>                       <C>      <C>        <C>   <C>          <C>        <C>             <C>     <C>

      (1) Zhilin LI         2006        0       0         0          0             0          0        0
    Director, CEO and       2005     18,007     0         0          0             0          0        0
        President
------------------------- -------- ---------- ----- ------------ ---------- ----------- ------- ---------
(2) Keith P. Boyd CEO,
CFO & President             2005        0       0         0          0             0          0        0
                            2004        0       0         0          0             0          0        0
------------------------- -------- ---------- ----- ------------ ---------- ----------- ------- ---------
(2) Tim Halter President,
CEO,  CAO,  Treasurer  and  2005        0       0         0          0             0          0        0
Secretary
------------------------- -------- ---------- ----- ------------ ---------- --------------- ------- ---------
</TABLE>

(1) Zhilin LI has been our CEO and  president  since  October  20,  2005 and her
salary was paid in RMB.  As of January  20,  2006,  Zhilin LI was elected as the
director of the Company.  Her salary in the fiscal year ended  December 31, 2006
has not been paid until the date of this Form 10-KSB.

(2) Prior to October  20,  2005,  Keith P. Boyd and Tim Halter did not spend any
material time working since we had no material  business then.  Accordingly,  we
did not compensate any officer or director during this time period.

Stock Option Grants and Exercises

We currently have no option, retirement,  pension or profit sharing programs for
the  benefit of the  directors,  officers or other  employees,  but the board of
directors may recommend adoption of one or more such programs in the future.

Employment, Severance and Change of Control Agreements

Ms. Zhilin Li entered into an Employment Agreement with Helpson,  which provides
that Ms. Li is employed by Helpson to perform executive management.  The term of
her  employment  is from July 1, 2005 to June 30,  2010.  Her  annual  salary is
RMB800,000 or approximately  $100,000.  Mr. Xinhua Wu was employed by Helpson to
act as its CFO.  The term of his  employment  is from  July 1,  2005 to June 30,
2010. His annual salary is RMB500,000 or  approximately  $62,500.  Ms. Jian Yang
was employed by Helpson to act as its Deputy  General  Manager.  The term of her
employment  is from  July 1,  2005  to June  30,  2010.  Her  annual  salary  is
RMB500,000  or  approximately  $62,500.  Ms.  Zhilin  Li was  paid  RMB  150,000
(approximately  US$18,007)  as the  compensation  for  acting  as the  Company's



                                       53
<PAGE>

director,  CEO and  president  during the fiscal year ended June 30,  2005.  Mr.
Xinhua Wu and Ms.  Jian Yang  received  no  compensation  for acting as officers
during the fiscal year ended June 30, 2005. Ms. Zhilin Li ,Mr. Xinhua Wu and Ms.
Jian Yang has not received any  compensation  for acting as officers  during the
fiscal year ended December 31, 2006 until the date of this Form 10-KSB.

Item 11 - Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain  information  known to us with respect to
the  beneficial  ownership  of our common stock as of March 27, 2006 and (i) all
persons who are known to us to be  beneficial  owners of five percent or more of
the common stock,  (ii) each of our Directors,  and (iii) all current  Directors
and executive officers as a group.

      NAME AND ADDRESS OF            SHARES BENEFICIALLY
      BENEFICIAL OWNER (1)                 OWNED               % OF CLASS OWNED

        Heung Mei Tsui                    15,278,385                  41.04

          Zhilin Li                       10,000,000                  26.86

     All Directors and Executive          25,278,385                  67.9
     Officers as a Group



(1) Unless  otherwise  stated,  the  address of all  persons in the table is 2nd
Floor,No.17, Jinpan Road, Kaikou, Hainan Province, China.

Beneficial  ownership  is  determined  in  accordance  with  the  rules  of  the
Securities and Exchange  Commission and includes voting or investment power with
respect to the securities.  Unless otherwise indicated,  the address for each of
the individuals listed in the table is care of Hainan Helpson Bio-Pharmaceutical
Co. Ltd,  Unit 8, D Area,  Office  Hall,  Haikou  Bonded  Zone,  Haikou,  Hainan
Province, China.

Unless otherwise indicated by footnote, the persons named in the table have sole
voting  and sole  investment  power with  respect to all shares of common  stock
shown as beneficially  owned by them,  subject to applicable  community property
laws.  Percentage of beneficial  ownership is based on 37,228,938  shares of our
common stock outstanding as of March 23, 2007.

Item 12 - Certain Relationships and Related Transactions

None.



                                       54
<PAGE>


Item 13 - Exhibits

 (1) Our audited financial statements are included in this Annual Report on Form
10-KSB.

 (2) EXHIBITS

----------- --------------------------------------------------------------------
Exhibit No. Description
----------- --------------------------------------------------------------------
2.1            Securities  Exchange  Agreement  by  and  among  Onny  Investment
               Limited dated October 19, 2005. (3)
----------- --------------------------------------------------------------------
3.1            Memorandum and Articles of Association. (4)
----------- --------------------------------------------------------------------
3.2            Articles of Association of Helpson Medical Biotechnology Co. (3)
----------- --------------------------------------------------------------------
10.1           Stock Purchase Agreement by and among Halter Financial Group Inc.
               dated May 11, 2005 filed on May 11, 2005. (1)
----------- --------------------------------------------------------------------
10.2           Subscription  Agreement  by and  among  Onny  Investment  Limited
               stockholders. (3)
----------- --------------------------------------------------------------------
10.3           Employment  Contract  by and among  Zhilin LI dated July 1, 2005.
               (5)
----------- --------------------------------------------------------------------
10.4           Employment  Contract  by and among  Xinhua WU dated July 1, 2005.
               (5)
----------- --------------------------------------------------------------------
10.5           Employment Contract by and among Jian YANG dated July 1, 2005 (5)
----------- --------------------------------------------------------------------
10.6           Subscription and Registration Rights Agreement among China Pharma
               and 17 investors (6)
----------- --------------------------------------------------------------------
10.7           Form of Warrant(6)
----------- --------------------------------------------------------------------
10.8*          Supply  Agreement  entered  into by Hainan  Helpson  Medicine and
               Bio-Technology  Co. Ltd.  and  Sichuang  Chengxin  Pharmaceutical
               Company
----------- --------------------------------------------------------------------
10.9*          Supply  Agreement  entered  into by Hainan  Helpson  Medicine and
               Bio-Technology Co. Ltd. and Hainan Xinxin Biotechnology Company
----------- --------------------------------------------------------------------
10.10*         Sales  Contract  entered  into by  Hainan  Helpson  Medicine  and
               Bio-Technology Co. Ltd. and Hainna xinglin Medicine company
----------- --------------------------------------------------------------------
10.11*         Supply  Agreement  entered  into by Hainan  Helpson  Medicine and
               Bio-Technology  Co. Ltd. and Hainan liang bishi  huangzhuang  pin
               company
----------- --------------------------------------------------------------------
16.1           Letter regarding Change in certifying Accountant dated August 15.
               (2)
----------- --------------------------------------------------------------------
21             Subsidiaries of China Pharma Holdings,  Inc. filed on October 20,
               2005. (4)
----------- --------------------------------------------------------------------
31.1*          Certification of Chief Executive  Officer pursuant to Rule 13a-14
               and Rule 15d-14(a) of the Exchange Act.
----------- --------------------------------------------------------------------
31.2*          Certification of Chief Financial  Officer pursuant to Rule 13a-14
               and Rule 15d-14(a) of the Exchange Act.
----------- --------------------------------------------------------------------

32.1*          Certification  of the  Chief  Executive  Officer  pursuant  to 18
               U.S.C.  Section 1350,  as adopted  pursuant to Section 906 of the
               Sarbanes-Oxley Act of 2002.

----------- --------------------------------------------------------------------


                                       55
<PAGE>




---------- ---------------------------------------------------------------------
32.2*          Certification  of the  Chief  Financial  Officer  pursuant  to 18
               U.S.C.  Section 1350,  as adopted  pursuant to Section 906 of the
               Sarbanes-Oxley Act of 2002.

---------- ---------------------------------------------------------------------

*Filed herewithin

(1)  Previously  filed as an exhibit to our report on Form 8-K (Commission  File
     Number: 000-29523) filed with the Commission on May 11, 2005.
(2)  Previously  filed as an exhibit to our report on Form 8-K (Commission  File
     Number: 000-29523) filed with the Commission on August 18, 2005.
(3)  Previously  filed as an exhibit to our report on Form SB-2 (Commission File
     Number: 333-129161) filed with the Commission on October 20, 2005.
(4)  Previously  filed as an exhibit to our report on Form SB-2 (Commission File
     Number: 333-129161) filed with the Commission on December 23, 2005.
(5)  Previously  filed as an exhibit to our  report on Form  10-QSB  (Commission
     File Number: 000-29523) filed with the Commission on November 16, 2006.
(6)  Previously  filed as an exhibit to our report on Form 8-K (Commission  File
     Number: 000-29523) filed with the Commission on February 6, 2007.


Item 14. Principal Accountant Fees and Services

Our independent accountant for the year ended December 31, 2006 were Hansen,
Barnett & Maxwell ("HBM").


                                  FISCAL 2005                   FISCAL 2006
                                  -----------                   -----------

 -------------------------------------------------------------------------------
Audit Fees (1)                    $ 108,000                     $ 124,064
--------------------------------------------------------------------------------

Audit-Related Fees(2)             $ 0                           $ 0
--------------------------------------------------------------------------------

Tax Fees(3)                       $ 0                           $ 0
--------------------------------------------------------------------------------

All Other Fees(4)                 $ 0                           $ 2,286
--------------------------------------------------------------------------------

Total                             $108,000                      $ 126,350
--------------------------------------------------------------------------------

(1)  During the fiscal year ended December 31, 2005,  our principal  accountant,
     HBM, billed us $50,500 in fees for  professional  services for the audit of
     our annual financial statements, review of financial statements included in
     our Form 10-QSB  quarterly  reports.  In addition,  we also paid $57,500 to




                                       56
<PAGE>

     Baker Tilly China for their  involvements in the auditing and reviews under
     the supervision of HBM. During the fiscal year ended December 31, 2006, HBM
     billed us $66,000 in fees for  professional  services  for the audit of our
     annual financial statements, review of financial statements included in our
     Form 10-QSB  quarterly  reports.  We paid  $58,064 to Baker Tilly China for
     their  involvements  in the auditing and reviews under the  supervision  of
     HBM.
(2)  During the fiscal year ended  December 31, 2005 and 2006,  HBM billed us $0
     in fees for assurance and related  services  related to the  performance of
     the audit and review of the Company's financial statement.
(3)  During the fiscal year ended  December 31, 2005 and 2006,  HBM billed us $0
     in fees for professional services for tax planning and preparation.
(4)  During the fiscal year ended  December 31,  2005,  HBM billed us $0 in fees
     for  professional  services  for other  fees.  During the fiscal year ended
     December 31, 2006, HBM billed us $2,286 in fees for traveling.
(5)  The percentage of hours expended on the principal  accountant's  engagement
     to audit our financial statements for the most recent fiscal year that were
     attributed   to  work   performed  by  persons  other  than  the  principal
     accountant's full time, permanent employees was 65%.













                                       57
<PAGE>



                                   SIGNATURES

In accord with Section 13 or 15(d) of the  Securities  Act of 1933,  as amended,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned, thereto duly authorized.

                                              China Pharma Holdings, Inc.

Dated: March 26, 2007                         By: /s/ Zhilin Li
       ---------------                        ----------------------------------
                                              Zhilin Li,
                                              Director, Chief Executive Officer,
                                              President and Director



Dated: March 26, 2007                         By: /s/ Xinhua Wu
       ---------------                           -------------------------------
                                                 Xinhua Wu
                                                 Director and
                                                 Chief Financial Officer


In accordance with the Securities Exchange Act of 1934, as amended,  this report
has been signed below by the following  persons on behalf of  registrant  and in
the capacities and on the date as indicated.


Dated: March 26, 2007                         By: /s/ Zhilin Li
       ---------------                        ----------------------------------
                                              Zhilin Li,
                                              Director, Chief Executive Officer,
                                              President and Director


Dated: March 26, 2007                         By: /s/ Xinhua Wu
       ---------------                        ----------------------------------
                                              Xinhua Wu
                                              Director and
                                              Chief Financial Officer



                                       58
<PAGE>



                                       F-1
                           CHINA PHARMA HOLDINGS, INC.


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS














Report of Independent Registered Public Accounting Firm......................F-2

Consolidated Balance Sheets..................................................F-3

Consolidated Statements of Operations........................................F-4

Consolidated Statements of Stockholders' Equity..............................F-5

Consolidated Statements of Cash Flows........................................F-6

Notes to the Consolidated Financial Statements...............................F-7




                                       F-1
<PAGE>



HANSEN, BARNETT & MAXWELL, P.C.
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
5 Triad Center, Suite 750
Salt Lake City, UT 84180-1128
Phone: (801) 532-2200
Fax: (801) 532-7944
www.hbmcpas.com


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and the Shareholders
China Pharma Holdings, Inc.

We have audited the  accompanying  consolidated  balance  sheets of China Pharma
Holdings,  Inc. as of December 31, 2006 and 2005,  and the related  consolidated
statements  of  operations,  stockholders'  equity,  and cash flows for the year
ended  December  31,  2006 and for the period  from  January  12,  2005 (date of
inception)  through  December  31,  2005.  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  audits 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 provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated  financial position of China
Pharma  Holdings,  Inc. and the results of their operations and their cash flows
for the year ended  December  31, 2006 and for the period from  January 12, 2005
(date of inception)  through  December 31, 2005, in conformity  with  accounting
principles generally accepted in the United States of America.


                                                 HANSEN, BARNETT & MAXWELL, P.C.
Salt Lake City, Utah
March 21, 2007


                                      F-2

<PAGE>
<TABLE>
<CAPTION>


                           CHINA PHARMA HOLDINGS, INC.
                           CONSOLIDATED BALANCE SHEETS


                                                                      December 31,          December 31,
                                                                          2006                  2005
                                                                      ------------          ------------
<S>                                                                   <C>                   <C>

ASSETS
Current Assets:

Cash and cash equivalents                                               $ 656,441             $ 461,220
  Trade accounts receivable, less allowance for doubtful
    accounts of $1,562,494 and $1,412,353, respectively                12,101,979             5,709,762
  Other receivables, less allowance for doubtful
    accounts of $27,517 and $111,029, respectively                        355,554               385,957
  Deferred offering costs                                                  59,390                     -
  Advances to suppliers                                                 2,255,877             2,123,729
  Inventory                                                            10,277,887             5,785,196
                                                                      ------------          ------------
Total Current Assets                                                   25,707,128            14,465,864
                                                                      ------------          ------------
Non-current Assets:
  Property and equipment, net of accumulated depreciation of
    $619,645 and $250,184, respectively                                 2,725,173             2,808,342
  Intangible assets, net of accumulated amortization of
    $184,175 and $135,656, respectively                                    65,344                96,406
  Deferred tax assets                                                      16,736               130,458
                                                                      ------------          ------------
Total Non-current Assets                                                2,807,253             3,035,206
                                                                      ------------          ------------
TOTAL ASSETS                                                         $ 28,514,381          $ 17,501,070
                                                                      ============          ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Trade accounts payable                                                $ 477,291             $ 679,104
  Accrued expenses                                                        104,216                15,625
  Accrued taxes payable                                                   167,419               565,236
  Other payables                                                          185,096               250,317
  Advances from customers                                                 141,871                50,755
  Accounts payable -related parties                                        22,650                     -
  Short-term notes payable                                              6,533,649                     -
  Dividends payable                                                             -             4,209,889
                                                                      ------------          ------------
Total Current Liabilities                                               7,632,192             5,770,926
                                                                      ------------          ------------
  Research and development commitments                                     31,980                30,966
                                                                      ------------          ------------
Total Liabilities                                                       7,664,172             5,801,892
                                                                      ------------          ------------
Stockholders' Equity:
  Common stock, $0.001 par value, 60,000,000 shares
    authorized, 34,723,056 shares issued and outstanding                   34,723                34,723
  Additional paid-in capital                                            7,764,979             7,764,979
  Foreign currency translation adjustment                                 663,871                99,926
  Retained earnings                                                    12,386,636             3,799,550
                                                                      ------------          ------------
Total Stockholders' Equity                                             20,850,209            11,699,178
                                                                      ------------          ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                           $ 28,514,381          $ 17,501,070
                                                                      ============          ============
</TABLE>




The  accompanying  notes  are  integral  part of  these  consolidated  financial
statements

                                       F-3



<PAGE>
<TABLE>
<CAPTION>


                           CHINA PHARMA HOLDINGS, INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS



                                                                           For the period
                                                                          from January 12,
                                                                            2005 (Date of
                                                       For the year          Inception)
                                                           ended               through
                                                       December 31,         December 31,
                                                           2006                 2005
                                                      -----------------   -----------------
<S>                                                   <C>                 <C>

Revenue                                                   $ 21,843,262          $ 8,657,813
Cost of Revenue                                             11,745,815            4,166,965
                                                      -----------------   -----------------
Gross Profit                                                10,097,447            4,490,848
                                                      -----------------   -----------------
Operating expenses:
  Selling expenses                                             260,128              106,129
  General and administrative                                 1,213,828              140,903
                                                      -----------------   -----------------
Total Operating Expenses                                     1,473,956              247,032
                                                      -----------------   -----------------
Income from Operations                                       8,623,491            4,243,816
                                                      -----------------   -----------------

Non-operating income (expenses):
  Interest income                                                  991                  769
  Interest expense                                            (145,881)            (186,452)
  Other income (expense)                                       108,485               (6,482)
                                                      -----------------   -----------------
Total Non-operating Income (Expense)                           (36,405)            (192,165)
                                                      -----------------   -----------------

Income Before Taxes                                          8,587,086            4,051,651
  Income tax expense                                                 -              252,101

Net Income                                                 $ 8,587,086          $ 3,799,550
                                                      =================   ==================
  Comprehensive income -
    foreign currency translation adjustments                   563,945               99,926
                                                      -----------------   -----------------
Comprehensive Income                                       $ 9,151,031          $ 3,899,476
                                                      =================   ==================
Basic and Diluted Earnings per Common Share                     $ 0.25               $ 0.34
                                                      =================   ==================
Weighted-average Common Shares Outstanding                  34,723,056           11,289,480
                                                      =================   ==================
</TABLE>



The  accompanying  notes  are  integral  part of  these  consolidated  financial
statements

                                       F-4

<PAGE>
<TABLE>
<CAPTION>



                           CHINA PHARMA HOLDINGS, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


                                                                                    Accumulated
                                                                    Additional         Other                               Total
                                    Common Stock                     Paid-in        Comprehensive        Retained      Shareholders'
                                      Shares           Amount        Capital           Income            Earnings          Equity
                                    ------------     ------------  ------------     ------------        ------------   ------------
<S>                                 <C>              <C>           <C>              <C>                 <C>            <C>

Balance, January 12, 2005
  (Date of Inception)                        -      $      -        $       -        $      -           $        -        $        -
Shares issued for cash,
  April 12, 2005                        85,112            85              (84)              -                    -                 1
Shares issued for cash,
  August 16, 2005                   25,193,273        25,193        3,465,981               -                    -         3,491,174
Shares issued for cash, net
  October 20, 2005                   6,944,611         6,945        4,306,055               -                    -         4,313,000
Shares issued to acquire China
  Pharma Holdings, Inc.,
  recorded as a purchase             2,500,060         2,500           (6,973)              -                    -           (4,473)
Net income for the year                      -             -                -               -             3,799,550        3,799,550
Foreign currency translation
  adjustment                                 -             -                -          99,926                     -           99,926
                                    ------------     ------------  ------------     ------------        ------------   ------------
Balance, December 31, 2005          34,723,056        34,723        7,764,979          99,926             3,799,550       11,699,178
Net income for the year                      -             -                               -              8,587,086        8,587,086
Foreign currency translation
  adjustment                                 -             -                -         563,945                     -          563,945
                                    ------------     ------------  ------------     ------------        ------------   ------------

Balance, December 31, 2006          34,723,056      $ 34,723      $ 7,764,979       $ 663,871          $ 12,386,636     $ 20,850,209
                                    ============     ============  ============     ============        ============   =============

</TABLE>


The  accompanying  notes  are  integral  part of  these  consolidated  financial
statements

                                      F-5

<PAGE>

<TABLE>
<CAPTION>


                     CHINA PHARMA HOLDINGS, INC.
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                   For the period
                                                                                  from January 12,
                                                                                    2005 (Date of
                                                            For the year             Inception)
                                                               ended                   through
                                                            December 31,            December 31,
                                                                2006                    2005
                                                        ----------------          ----------------
<S>                                                     <C>                       <C>

Cash Flows from Operating Activities:
  Net income                                              $ 8,587,086             $ 3,799,550
  Depreciation and amortization                               397,001                 250,184
  Accretion of discount on notes payable                            -                  86,060
  Changes in assets and liabilities:
    Trade accounts receivable                              (6,077,526)             (1,198,199)
    Other receivables                                          42,642                  80,164
    Advances to suppliers                                     (61,345)               (916,792)
    Inventory                                              (4,214,702)             (2,395,393)
    Deferred tax assets                                       115,564                 (89,763)
    Trade accounts payable                                   (219,427)                383,188
    Accrued expenses                                           86,265                  11,330
    Accrued taxes payable                                    (407,744)                356,187
    Other payables                                            (71,759)               (588,748)
Advances from customers                                        87,612                (226,863)
                                                        ----------------          ----------------
Net Cash Used in Operating Activities                      (1,736,333)               (449,095)
                                                        ----------------          ----------------

Cash Flows from Investing Activities:
  Purchase of property and equipment                         (182,346)               (433,524)
  Purchase of intangible assets                                (9,657)                (50,611)
  Notes receivable                                                  -                  11,277
  Net cash received in purchase of Helpson                          -                 131,336
                                                        ----------------          ----------------
Net Cash (Used) by Investing Activities                      (192,003)               (341,522)
                                                        ----------------          ----------------

Cash Flows from Financing Activities:
  Payment of dividend payable                                       -                (237,599)
  Payment of note payable                                           -              (6,317,849)
  Proceeds from note payable                                2,140,943                       -
  Proceeds from loan from shareholder                          22,650                       -
  Proceeds from issuance of common stock                            -               7,804,175
  Payment of offering costs                                   (58,167)                      -
                                                        ----------------          ----------------
Net Cash Proceeds from Financing Activities                 2,105,426               1,248,727
                                                        ----------------          ----------------

Effect of Exchange Rate Changes on Cash                        18,131                   3,110
                                                        ----------------          ----------------
Net Change in Cash                                            195,221                 461,220
                                                        ----------------          ----------------
Cash and Cash Equivalents at Beginning of Period              461,220                       -
                                                        ----------------          ----------------
Cash and Cash Equivalents at End of Period                  $ 656,441               $ 461,220
                                                        ================          ================

</TABLE>



The  accompanying  notes  are  integral  part of  these  consolidated  financial
statements

                                      F-6


<PAGE>


                           CHINA PHARMA HOLDINGS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES


Organization - Onny Investment  Limited ("Onny") was incorporated in the British
Virgin  Islands on  January  12,  2005 and was a  development  stage  enterprise
through June 15, 2005. On June 16, 2005,  Onny  acquired all of the  outstanding
shares of Hainan  Helpson  Medical &  Biotechnology  Co., Ltd, a privately  held
Chinese joint venture ("Helpson") and emerged from the development stage.

On October 19, 2005, Onny was reorganized as a wholly owned  subsidiary of China
Pharma   Holdings,   Inc.,   formerly  TS  Electronics,   (the  Company").   The
reorganization  was  accomplished  by an  exchange of Onny's  common  shares for
25,278,385  shares  of the  Company's  common  stock  resulting  in a  851-for-1
exchange ratio. In addition,  the prior Onny convertible preferred  shareholders
exchanged  their  shares for  6,944,611  shares of the  Company's  common  stock
resulting in a 694-for-1  exchange ratio.  The  reorganization  of Onny into the
Company  was  recognized  as a stock  split of the common  stock of Onny and the
effective  issuance by Onny of 2,500,060 shares of the Company's common stock in
exchange and the  assumption  of $4,473 in  liabilities.  This  transaction  was
accounted for as a reverse  acquisition  of the Company and was  recognized as a
non-monetary exchange.

Nature of  Operations - Helpson  manufactures  and markets  several  Western and
Chinese medicines sold mainly to hospitals and private retailers in The People's
Republic of China  (PRC),  through its  marketing  department  located in Hainan
Province. There are also nine other offices, with sales representatives in other
provinces and cities  throughout the PRC.  Helpson's other operating  activities
include biochemical products, health products, and cosmetics.

Accounting  Estimates - The  preparation  of financial  statements in conformity
with accounting  principles  generally  accepted in the United States of America
requires  management to make estimates and assumptions  that affect the reported
amounts of assets and liabilities  and the disclosures of contingent  assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting periods.  Actual results could differ
from those estimates.

Consolidation and Basis of Presentation - The accompanying  financial statements
have been prepared in accordance with accounting  principles  generally accepted
in the United  States of  America.  The  functional  currency  of the  operating
subsidiaries  in the  PRC is the  Chinese  Yuan  Renminbi  (CNY);  however,  the
accompanying  financial  statements have been expressed in United States Dollars
("USD"). The accompanying  consolidated balance sheets have been translated into
USD  at  the  exchange  rates   prevailing  at  each  balance  sheet  date.  The
accompanying  consolidated  statements of operations have been translated  using
the average exchange rates prevailing during the periods of each statement.  See
Note 9.

The  accompanying  consolidated  financial  statements  include the accounts and
operations  of Onny from the date of its  inception  on January 12, 2005 and the
accounts and operations of Helpson from the date of its  acquisition on June 16,
2005. The accompanying consolidated financial statements have been restated on a
retroactive  basis  for the  effects  of the  stock  split  resulting  from  the
reorganization of Onny into the Company. All significant  inter-company balances

                                      F-7

<PAGE>
                           CHINA PHARMA HOLDINGS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


and transactions have been eliminated in consolidation.

Fair Values of Financial  Instruments - Based on the borrowing  rates  currently
available  to the  Company  for  bank  loans  with  similar  terms  and  average
maturities,  the carrying amounts of notes payable that were outstanding  during
the current  period  approximated  fair value because of either the immediate or
short-term  maturity of these  financial  instruments  or because the underlying
instruments are at interest rates which approximated current market rates.

Cash and cash equivalents - Cash and cash  equivalents  include interest bearing
and non-interest  bearing bank deposits,  money market accounts,  and short-term
certificates  of deposit with original  maturities of three months or less. Cash
deposits are held at financial institutions in The Peoples Republic of China and
are not insured by the FDIC.

Trade  receivables and allowance for doubtful  accounts - Trade  receivables are
carried at original  invoiced  amounts less an allowance for doubtful  accounts.
The allowances for doubtful  accounts are calculated based on detailed review of
certain  individual  customer accounts and an estimation of the overall economic
conditions  affecting  the  Company's  customer  base.  The  Company  reviews  a
customer's credit history before extending credit. If the financial condition of
its customers were to  deteriorate,  resulting in an impairment of their ability
to make payments,  additional  allowances  may be required.  A provision is made
against  accounts  receivable to the extent they are  considered  unlikely to be
collected.  It is common  practice in China for receivables to extend beyond one
year.  Included in trade  receivables is approximately  $1,265,079 that occurred
more  than one  year  from  December  31,  2006,  but is  estimated  to still be
collectable.

Inventory - Inventories are stated at the lower of cost or net realizable value,
on an average  cost basis.  The method of  determining  inventory  costs is used
consistently from year to year. Allowance for inventory obsolescence is provided
when the market value of certain inventory items are lower than the cost.

Valuation of Long-lived Assets - The carrying values of the Company's long-lived
assets are reviewed for impairment  whenever events or changes in  circumstances
indicate  that they may not be  recoverable.  Should  such an event  occur,  the
Company would project  undiscounted  cash flows to be generated  from the use of
the asset and its eventual  disposition over the remaining life of the asset. If
projections indicate that the carrying value of the long-lived asset will not be
recovered, the carrying value is reduced by the estimated excess of the carrying
value over the projected discounted cash flows.

Property and Equipment - Property and equipment are stated at cost.  Maintenance
and  repairs  are  charged to expense as  incurred  and major  improvements  are
capitalized.  Gains or  losses  on  sales or  retirements  are  included  in the
statement of operations in the period of disposition.

Intangible  Assets  -  Acquisition  costs  on  patents,  trademarks,   licenses,
techniques,  formulas and other  intangibles are capitalized and amortized using
the straight-line  method over their useful lives. For those intangible  assets,
such as patents,  with legal protection over a period,  their useful life is the
protected period. Others that do not have legal protection periods are amortized


                                      F-8

<PAGE>

                           CHINA PHARMA HOLDINGS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

generally  over 5 to 10  years.  The  Company  does  not  capitalize  internally
generated   intangible  assets.  The  Company's  intangible  assets  consist  of
techniques for medicines.

Advances to Suppliers  and  Advances  from  Customers - The  Company,  as is the
common  practice in the PRC,  will often pay advanced  payments to suppliers for
materials  and receive from  customers  advances for  finished  products.  As of
December  31, 2006 and 2005,  the  advances to  suppliers  were  $2,255,877  and
$2,123,729,  respectively,  and the advances  from  customers  were $141,871 and
$50,755, respectively.

Revenue  Recognition  - The Company  recognizes  revenue when it is realized and
earned. The Company considers revenue realized or realizable and earned when (1)
it has persuasive evidence of an arrangement, (2) delivery has occurred, (3) the
sales  price is fixed or  determinable,  and (4)  collectibility  is  reasonably
assured. Delivery does not occur until products have been shipped to the client,
risk of loss has  transferred  to the  client  and  client  acceptance  has been
obtained, client acceptance provisions have lapsed, or the Company has objective
evidence that the criteria  specified in client acceptance  provisions have been
satisfied.  The sales price is not considered to be fixed or determinable  until
all contingencies related to the sale have been resolved.

Cost of Revenues - Cost of revenues includes wages, materials, handling charges,
and other expenses associated with the manufacture and delivery of product.

Research and Development - Research and development expenditures are recorded as
expenses in the period in which they occur.

Retirement  Benefit  Plans  -  The  Company   contributes  to  various  employee
retirement  benefit plans organized by provincial  governments under which it is
required to make monthly contributions to these plans at rates prescribed by the
related provincial  governments.  The provincial governments undertake to assume
the retirement benefit  obligations of all existing and future retired employees
of the Company. Contributions to these plans are charged to expense as incurred.

Advertising Costs - Advertising costs are expensed when incurred.

Basic and Diluted Earnings per Common Share - Basic earnings per common share is
computed by dividing net income by the weighted-average  number of common shares
outstanding.  Diluted earnings per common share are calculated to give effect to
potentially  issuable dilutive common shares. There were no potentially issuable
common shares outstanding at December 31, 2005 and 2006.

Credit  risk - The  carrying  amounts of  accounts  receivable  included  in the
balance sheet represent the Company's exposure to credit risk in relation to its
financial  assets.  No other  financial  assets carry a significant  exposure to
credit risk. The Company performs ongoing credit  evaluations of each customer's
financial  condition.  It maintains  allowances  for doubtful  accounts and such
allowances in the aggregate have not exceeded management's estimations.

Interest  rate risk - The Company is exposed to the risk arising  from  changing


                                      F-9

<PAGE>

                           CHINA PHARMA HOLDINGS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

interest rates,  which may affect the ability of repayment of existing debts and
viability of securing future debt instruments within the PRC.

New Accounting Standards - In December 2004, FASB issued Statements of Financial
Accounting  Standards (SFAS) 123R,  "Share-Based  Payment" (SFAS 123R). SFAS No.
123R revises FASB Statement No. 123, "Accounting for Stock-Based  Compensation,"
and supersedes APB Opinion No. 25,  "Accounting  for Stock Issued to Employees."
SFAS 123R focuses  primarily on accounting for  transactions  in which an entity
obtains  employee  services  in  share-based  payment  transactions.  SFAS  123R
requires  companies  to recognize in the  statement  of  operations  the cost of
employee services received in exchange for awards of equity instruments based on
the grant-date fair value of such awards (with limited exceptions). SFAS 123R is
effective as of the first  reporting  period  beginning after December 15, 2005.
The Company has not yet quantified the effects of the adoption of SFAS 123R, but
it is expected  that the new  standard  will result in  significant  stock-based
compensation  expense.  The pro forma  effects on net loss and loss per share if
the Company had applied the fair value  recognition  provisions  of the original
SFAS 123R on stock compensation awards (rather than applying the intrinsic value
measurement   provisions  of  APB  25)  are  disclosed   above  in   stock-based
compensation.  Although such pro forma effects of applying the original SFAS 123
may be indicative of the effects of adopting SFAS 123R, these provisions  differ
in some important respects.

In December  2004,  the FASB  issued  SFAS  Statement  No.  153,  "Exchanges  of
Non-monetary  Assets-an amendment of APB Opinion No. 29" (SFAS 153). The Company
adopted the provisions of SFAS 153 in January 2006. The adoption of SFAS 153 did
not have a material impact on the Company's consolidated financial statements.

In May,  2005,  the FASB  issued SFAS No.  154,  "Accounting  Changes and Errors
Corrections-an  amendment  to APB  Opinion  No. 20 and  Statement  of  Financial
Accounting  Standards No. 3" (SFAS 154).  The Company  adopted the provisions of
SFAS 154 in  January  2006.  The  adoption  of SFAS 154 did not have a  material
impact on the Company's consolidated financial statements.

In February  2006,  the FASB issued SFAS No. 155,  Accounting for Certain Hybrid
Financial  Instruments -- an amendment of FASB  Statements No. 133 and 140 (SFAS
155). SFAS 155 eliminates the prohibition on a qualifying special-purpose entity
from holding a derivative  financial  instrument  that  pertains to a beneficial
interest  other  than  another  derivative  financial  instrument.  SFAS  155 is
effective  for the  Company  for all  financial  instruments  acquired or issued
beginning  January 1, 2007. The impact of SFAS No. 155 will depend on the nature
and extent of any new  derivative  instruments  entered into after the effective
date.

In March  2006,  the FASB  issued  SFAS No. 156,  Accounting  for  Servicing  of
Financial  Assets - an amendment of FASB Statement No. 140 (SFAS 156).  SFAS 156
amends SFAS 140 requires an entity to  recognize a servicing  asset or servicing
liability each time it undertakes an obligation to service a financial asset. It
also  requires  all  separately   recognized   servicing  assets  and  servicing
liabilities to be initially  measured at fair value,  if  practicable.  SFAS 156
permits  an entity  to use  either  the  amortization  method or the fair  value
measurement method for each class of separately  recognized servicing assets and


                                      F-10


<PAGE>

                           CHINA PHARMA HOLDINGS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

servicing  liabilities.  SFAS 156 is effective  for the Company as of January 1,
2007.  The impact of adoption of this  statement on the  Company's  consolidated
financial statements, if any, has not yet been determined.


In July 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty
in Income Taxes" (FIN 48), which attempts to set out a consistent  framework for
preparers to use to determine the appropriate  level of tax reserves to maintain
for uncertain tax positions.  This interpretation of FASB Statement No. 109 uses
a two-step  approach  wherein a tax  benefit  is  recognized  if a  position  is
more-likely-than-not to be sustained. The amount of the benefit is then measured
to be the highest tax benefit which is greater than fifty  percent  likely to be
realized.  FIN 48 also sets out disclosure  requirements to enhance transparency
of an  entity's  tax  reserves.  The  Company  will be  required  to adopt  this
Interpretation as of January 1, 2007. The Company is still evaluating the impact
of the adoption of FIN 48.

In September 2006, the FASB issued Statement of Financial  Accounting  Standards
No.  157,  "Fair  Value  Measurements"  (SFAS 157),  which  defines  fair value,
establishes  a  framework  for  measuring  fair  value  in  generally   accepted
accounting  principles  and  requires  additional  disclosures  about fair value
measurements. SFAS 157 aims to improve the consistency and comparability of fair
value  measurements by creating a single definition of fair value. The Statement
emphasizes that fair value is not entity-specific, but instead is a market-based
measurement  of an asset or  liability.  SFAS 157  upholds the  requirements  of
previously issued pronouncements  concerning fair value measurements and expands
the required  disclosures.  This Statement is effective for financial statements
issued for fiscal years  beginning  after  November 15,  2007,  however  earlier
application  is  permitted  provided  the  reporting  entity  has not yet issued
financial statements for that fiscal year. The Company does not believe that the
adoption of SFAS 157 will have a material effect on its  consolidated  financial
statements.

In  September  2006,  the  Securities  and  Exchange   Commission  issued  Staff
Accounting   Bulletin  No.  108  (SAB  108).  SAB  108  was  issued  to  provide
interpretive guidance on how the effects of the carryover reversal of prior year
misstatements  should be considered in quantifying a current year  misstatement.
The  provisions  of SAB 108 are  effective  for the Company for its December 31,
2006  year-end.  The  adoption  of SAB  108  had  no  impact  on  the  Company's
consolidated financial statements.

In February  2007,  the 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.  This  pronouncement  permits  entities to choose to
measure many  financial  instruments  and certain other items at fair value that
are not currently  required to be measured at fair value.  SFAS 159 is effective
as of the beginning of an entity's  first fiscal year that begins after November
15,  2007.  The  impact  of  adopting  SFAS  159 on the  Company's  consolidated
financial statements, if any, has not yet been determined.

NOTE 2 - ACQUISITION

On May 25, 2005, the Company entered into an agreement with the  shareholders of
Helpson, in which the Company agreed to acquire, and the shareholders of Helpson
agreed to sell,  all of the  outstanding  shares of Helpson in exchange  for the
assumption of obligations to make cash payments to the Helpson  shareholders  in

                                      F-11

<PAGE>

                           CHINA PHARMA HOLDINGS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

the form of common stock dividends from Helpson of $4,154,041, the assumption of
$4,646,409  of  other  liabilities  and the  issuance  of  non-interest  bearing
promissory notes totaling $3,413,265 payable three months after Helpson obtained
a business license in the PRC as a wholly foreign owned entity. Helpson obtained
such license on June 16, 2005 and the shares of Helpson were  transferred to the
Company on that  date.  Since June 16,  2005 was  recognized  as the date of the
acquisition, the promissory notes became due September 16, 2005.

Since  Helpson is an operating  company and control of Helpson  changed upon the
closing of the acquisition agreement, the Company is the accounting acquirer and
has  recognized  the  acquisition  of  Helpson  as  a  business  combination  in
accordance with Statements of Financial  Accounting  Standards No. 141, Business
Combinations.  On April 25,  2005,  Helpson  declared a dividend  to the selling
shareholders of $4,154,041 which equaled  Helpson's  retained  earnings at March
31, 2005 less deferred income tax assets of $86,985 that are not considered part
of  distributable  profits  under PRC law.  The fair  value of the net assets of
Helpson was  determined by appraisal and exceeded the purchase  price of the net
assets  acquired.  That  excess was  allocated  as a pro rata  reduction  of the
amounts  that  otherwise  would have been  assigned  to the  non-current  assets
acquired.





At June 16, 2005,  the purchase  price was allocated to the assets  acquired and
liabilities assumed as follows:


Current assets                                            $ 9,570,918
Property and equipment                                      2,555,565
Intangible                                                     71,210
                                                    ------------------
Total Assets Acquired                                      12,197,693
                                                    ------------------

Current liabilities                                         7,864,066
Long-term liabilities                                       1,005,694
                                                    ------------------
Total Liabilities Assumed                                   8,869,760
                                                    ------------------
Net Assets Acquired                                       $ 3,327,933
                                                    ==================


Intangible  assets  consist  of  registered   patents,   trademarks,   licenses,
techniques  and  formulas  related to several  Western  and  Chinese  medicines,
biochemical products,  health products,  and cosmetics.  These intangible assets
have a weighted-average useful life of approximately 5 years.

The following pro forma  information  is presented to reflect the  operations of
the Company for the year ended  December 31, 2005, as though the  acquisition of
Helpson  had been  completed  on January 12,  2005,  and the  operations  of the
Company and Helpson are combined for the entire year. The pro forma  information
is only  illustrative of the effects of the acquisition and does not necessarily
reflect the results of operations  that would have resulted had the  acquisition
actually occurred on that date.

                                      F-12


<PAGE>


                           CHINA PHARMA HOLDINGS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




                                                    For the Year Ended
                                                    December 31, 2005
                                                        (proforma)
                                                  --------------------
                                                       (unaudited)

Revenue                                                  $ 14,075,521
Net Income                                                  5,778,901
                                                    ------------------
Basic and diluted earnings perr common share                   $ 0.17
                                                    ------------------


Pro forma net income for the twelve  months  ended  December  31, 2005  includes
nonrecurring  interest expense of $85,332 resulting from the amortization of the
discount  on the  $3,413,265  promissory  notes  payable to the  former  Helpson
shareholders, which discount was computed based upon an imputed interest rate of
10% per annum.

The  reorganization  was recognized as a stock split of the common stock of Onny
and the effective  issuance by Onny of the  2,500,060  shares of common stock of
the Company that remained  outstanding  in exchange for the assumption of $4,473
of liabilities.  The acquisition of the Company was recognized as a non-monetary
exchange.

NOTE 3 - INVENTORY

Inventory consisted of the following at December 31, 2006 and 2005:



                                                December 31,
                                                ------------
                                         2006                 2005
                                         ----                 ----
   Raw materials                    $ 8,458,210          $ 4,673,352
   Work in progress                   1,679,952              819,146
   Finished goods                       139,725              292,698
                                    -----------          -----------
     Total Inventory                $10,277,887          $ 5,785,196
                                    ===========          ===========


NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31, 2006 and 2005:

                                      F-13

<PAGE>


                           CHINA PHARMA HOLDINGS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



                                                       December 31,
                                                       ------------
                                                2006                 2005
                                                ----                 ----
Permit of land use                           $ 360,304            $ 348,884
Building                                     1,640,629            1,123,144
Plant, machinery and equipment               1,253,572            1,120,289
Motor vehicle                                   14,763               14,295
Office equipment                                75,550               62,211
Construction in progress                             -              389,703
                                             ---------            ---------
  Total                                      3,344,818            3,058,526
Less: accumulated depreciation                (619,645)            (250,184)
                                             ---------            ---------
Property and Equipment, net                $ 2,725,173          $ 2,808,342
                                           ===========          ===========


Depreciation  is computed on a  straight-line  basis over the  estimated  useful
lives of the assets as follows:



         Asset                      Life - years
-------------------------       ------------------

Permit of land use                     40 - 70
Building                               20 - 35
Plant, machinery and equipment           10
Motor vehicle                          5 - 10
Office equipment                          5


For the year ended December 31, 2006, depreciation expense was $353,831. For the
period from  January  12, 2005 (Date of  Inception)  through  December  31, 2005
depreciation expense was $213,696.

NOTE 5 - INTANGIBLE ASSETS

Intangible  assets  represent  the  costs  on  patents,  trademarks,   licenses,
techniques and formulas.  Intangible  assets have a  weighted-average  remaining
useful life of approximately three years.  Amortization of intangible assets was
$43,170 for the year ended  December 31,  2006,  and $36,488 for the period from
January 12, 2005 through December 31, 2005.

The estimated aggregate amortization expense for the next three years follows:


   Year              Amount
------------   ------------------
   2007                 $ 27,869
   2008                   19,200
   2009                   18,275
               ------------------
   Total                $ 65,344
               ------------------


NOTE 6 - DEBT

During  2006,   the  Company   borrowed   approximately   $2,174,608   from  the
Communication  Bank of China in three  installments.  The first two installments

                                      F-14

<PAGE>

                           CHINA PHARMA HOLDINGS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

totaled  approximately  $1,535,018  and were borrowed in July 2006 at a interest
rate of 6.1425%.  The final installment was for  approximately  $639,591 and was
borrowed in August  2006 at a rate of 6.4260%.  The loan is due in one year from
borrowing  and  is  collateralized   with  equipment  and  machinery  valued  at
$4,657,400.  At December 31, 2006 the company also had a note payable due to the
former  shareholders of Helpson,  see Note 10. The value of the note at year end
was $4,359,041.

NOTE 7 - INCOME TAXES

The Company  accounts  for its income  taxes in  accordance  with  Statement  of
Financial  Accounting  Standards ("SFAS") No. 109, which requires recognition of
deferred tax assets and liabilities  and their  respective tax bases and any tax
credit  carry  forwards  available.  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.  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.

According  to federal law in the Peoples  Republic of China  (PRC),  enterprises
with foreign  investment and foreign  enterprises  doing business in the PRC are
generally subject to federal  enterprise income tax at a rate of 30%.  Effective
at the beginning of 2006 and extending  through 2007,  Peoples Republic of China
granted  the company a "tax  holiday"  that allows the Company to be exempt from
income taxes for the first two  profitable  years.  This "tax  holiday"  further
allows  the  Company  to be exempt  from 50% of income  taxes  during  the third
through the fifth  years.  The reduced  tax rate for 2008  through  2010 is 15%.
Additionally, Hainan province is considered a `developing economic region' which
has a reduced  statutory tax rate of 15%, which results in a tax holiday rate of
7.5% during the third through the fifth years of profitability.

Following is a  reconciliation  of income taxes calculated at the United States'
federal statutory rates to actual income tax expense:



                                                      December 31,
                                                      ------------
                                               2006                 2005
                                               ----                 ----

Tax at US Federal statutory rates (34%)    $ 2,919,609          $ 1,377,561
Non-deductible expenses                         27,559              137,458
Change in temporary differences                (22,654)            (114,254)
Effect of lower foreign tax rates           (2,924,514)          (1,148,664)
                                           ------------         ------------
Income tax provision                       $         -          $   252,101
                                           ------------         ------------

The company has a deferred tax asset based upon the temporary  differences  from
the  allowance  for bad debt that  equaled  $540,604  at  December  31, 2006 and
$130,458 at December  31,  2005.  The Company has also  incurred  various  other
taxes,   comprised  primarily  of  business  taxes,   value-added  taxes,  urban
construction  taxes,  education  surcharges  and others.  Any unpaid amounts are
reflected on the balance sheets as accrued taxes payable.

NOTE 8 - STOCKHOLDERS' EQUITY

On April 12, 2005,  Onny was  incorporated  and issued  85,112 shares for $1. On


                                      F-15


<PAGE>

                           CHINA PHARMA HOLDINGS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

August 16, 2005, the  shareholder of Onny made capital  investments of cash into
Onny of $3,491,174  in exchange for the issuance of 25,193,273  shares of common
stock. On October 19, 2005 Onny issued shares of convertible preferred stock for
$4,313,000  (net of  offering  costs  of  $687,000).  In  conjunction  with  the
reorganization  of Onny into the  Company,  which also  occurred  on October 19,
2005,  these  preferred  shares were converted  into 6,944,611  shares of common
stock.  The  reorganization  of Onny into the  Company on October 19,  2005,  is
reflected  in  these  consolidated  financial  statements  by  the  issuance  of
2,500,060  shares of common stock and the  assumption of $4,473 of  liabilities.
See Note 2. In 2006, the stockholders  approved  increasing the shares of common
stock  authorized  by  30,000,000  shares  for  a  total  of  60,000,000  shares
authorized.

NOTE 9 - COMMITMENTS AND CONTINGENCIES

Economic  environment  -  Significantly  all of  the  Company's  operations  are
conducted  in  the  PRC,  and  therefore  the  Company  is  subject  to  special
considerations  and  significant  risks not typically  associated  with entities
operating in the United States of America.  These risks  include,  among others,
the political,  economic and legal  environments and foreign currency  exchange.
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.

In addition,  all of the Company's revenue is denominated in the PRC's currency,
CNY, which must be converted into other currencies  before remittance out of the
PRC. Both the  conversion of CNY into foreign  currencies  and the remittance of
foreign currencies abroad require approval of the PRC government.

NOTE 10 - RELATED PARTY TRANSACTIONS

Dividends  payable - The terms of a  $4,154,041  dividend  declared on April 25,
2005  require that if such  dividend had not been paid by December 31, 2005,  it
should be transferred and reflected as a loan payable accruing interest at 2.25%
per year to the former shareholders of Helpson. Inasmuch as the dividend was not
paid by December 31, 2005 and has still not been paid,  this amount is reflected
on the accompanying  consolidated  financial  statements as a current  liability
(adjusted for foreign  currency  translations as of the balance sheet dates) and
is due upon demand.

NOTE 11 - CONCENTRATIONS

For the year ended December 31, 2006, three customers accounted for 17%, 11% and
10% of sales, respectively.  In 2005, four customers accounted for 20%, 16%, 14%
and 14% of sales,  respectively.  In addition, two customers made up 18% and 14%
of accounts receivable in 2006 and two customers made up 19% and 14% of accounts
receivable in 2005. Finally,  purchases from two suppliers accounted for 44% and
34% of raw material  purchases  in the year ended  December 31, 2006 and 46% and
42% of raw material purchases in the year ended December 31, 2005.

NOTE 12 - SUBSEQUENT EVENT
                                      F-16

<PAGE>


                           CHINA PHARMA HOLDINGS, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

On February 1, 2007, the Company  completed an offering of Units priced at $1.70
per Unit  consisting  of one share of  Company  common  stock  and a warrant  to
purchase  one-half of a share of Company  common  stock at an exercise  price of
$2.38 per share.  The Company received gross proceeds in the aggregate amount of
$4,259,900.  The net proceeds,  after deduction of related offering  expenses of
$445,258,  amounted to $3,814,642.  The Company issued an aggregate of 2,505,882
shares of common stock and issued  three-year  warrants to purchase an aggregate
of 1,252,941  shares of Company's common stock to 17 accredited  investors.  The
proceeds  were  allocated  to the  warrants  based  upon  their  fair  value  or
$2,010,219,  and the  balance of the  proceeds  was  allocated  to the shares of
common stock. The fair value of the warrants, determined using the Black-Scholes
Option Pricing Model, was calculated using the following assumptions:  risk free
interest rate of 4.80%,  expected  dividend yield of 0%, expected  volatility of
124.39% and an expected life of 3 years.

The common  shares and the shares  underlying  the  warrants  have  registration
rights, and the Company is required to file a registration  statement  including
said shares with the Securities and Exchange  Commission.  In the event that the
Company does not file a registration  statement within 60 days of the completion
of the offering,  the Company will be required to pay a penalty to each investor
equal to one  percent  (1%) of the  purchase  price of the common  stock and the
warrants and an additional  one percent (1%) for each  additional  30-day period
during which such  registration  statement is not filed.  The Company  estimates
that the probability of not filing the registration statement within the allowed
time period is remote;  therefore  no accrual has been made for these  potential
penalties.



                                      F-17