UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   Form 10-KSB

           -----------------------------------------------------------
                                   (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, 2007

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

         For the transition period from ______________ to _____________

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

                        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,
             Haikou, Hainan Province, China                      570216
-----------------------------------------------       --------------------------
     (Address of principal executive offices)                  (Zip Code)


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


                                       i

<PAGE>


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

         Securities registered under Section 12(g) of the 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,  2007  was
$33,186,324.

14,187,472  shares  held by  non-affiliates  had an  aggregate  market  value of
$31,212,438.4 as of March 26, 2008. Shares of common stock held by any executive
officer or  director  of the issuer and any person who  beneficially  owns 5% 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, 2008,  there were  37,278,938  shares of Common Stock issued and
outstanding.

                       DOCUMENT INCORPORATED BY REFERENCE

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

Transitional Small Business Disclosure Format: Yes [  ]   No [X]


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<PAGE>



                           China Pharma Holdings, Inc.
                                Table of Contents

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

Item 1            Description of Business                                      1
Item 2            Description of Property                                     29
Item 3            Legal Proceedings                                           29
Item 4            Submission of Matters to a Vote of Security Holders         30

Part II

Item 5            Market for Company's Common Stock and Related
                  Stockholders Matters                                        30
Item 6            Management's Discussion and Analysis or Plan of Operation   31
Item 7            Index to Financial Statements                               43
Item 8            Changes in and Disagreements with Accountants on Accounting
                  and Financial Disclosures                                   43
Item 8A           Controls and Procedures                                     43
Item 8B           Other Information                                           46
Part III

Item 9            Directors, Executive Officers, Promoters and Control Persons;
                  Compliance with Section 16(a) of the Exchange Act           46
Item 10           Executive Compensation                                      49
Item 11           Security Ownership of Certain Beneficial Owners and
                  Management and Related Stockholder Matters                  51
Item 12           Certain Relationships and Related Transactions              52
Item 13           Exhibits                                                    52
Item 14           Principal Accountant Fees and Services Signatures           53

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



                                       1
<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  (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  (  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  (Exchange
Agreement) with Onny Investment Limited (Onny), a British Virgin Islands company
(BVI),  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 (Exchange Transaction), Onny became the wholly-owned



                                       2
<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  (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  (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  44.0%  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 (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  $4,259,900.  The  net  proceeds,  after
deduction of related offering expenses of $ 462,717,  amounted to $3,797,183. In
December  2007, the Company  received  proceeds of $119,000 upon the exercise of
warrants to purchase 50,000 shares of common stock. The remaining warrants



                                       3
<PAGE>

issued in conjunction  with the offering to buy 1,202,941 shares of common stock
have not been exercised at December 31, 2007.

On September  27, 2007,  Heung Mei Tsui and the Company  entered into four Stock
Transfer  Agreements  with  Chipiu  Wong,  Ruofeng  Xu,  Yao Huang and Jian Yang
respectively,  pursuant  to  which,  Heung  Mei Tsui  transferred  in  aggregate
4,465,734  shares of the Company's  common stock at the price of $1.52 per share
to the four individuals. After the aforementioned stock transfer, Ms. Tsui holds
10,812,651 shares or 29.0% of the total outstanding shares of our common stock.

Onny

Onny  Investment  Limited (Onny) was  incorporated on January 12, 2005 under the
laws of the British Virgin  Islands.  At the time of its  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
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  (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  (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



                                       4
<PAGE>

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
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  (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.

According  to the audited  consolidated  financial  statement of Company for the
fiscal year ending  December 31, 2006,  the net income was  $8,587,086  which is
more than the Guaranteed NI.  Therefore,  7,222,396  shares of Company's  common
stock which was  escrowed  shall be reverted  back to Heung Mei Tsui.  As of the
date of this Prospectus, Heung Mei Tsui holds 10,812,651 shares or 29.00% of the
total outstanding shares of our common stock.

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.,
which was 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



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<PAGE>

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,  holding 50% equity  interest;  Kaidi,
holding 21.43% equity interest; Chengdu Bio, holding 10.71% equity interest; and
Chongqing Chemical, holding 17.86% equity interest.

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,  holding 67.86% equity
interest; Kaidi, holding 21.43% equity interest, and Chengdu Bio, holding 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  now  has  eight  different  production  lines,  developing,
manufacturing and marketing Western and Chinese medicines. It has a portfolio of
therapeutics that primarily  targets CNS,  cardiovascular,  wound recovery,  and
infectious diseases. It has a robust portfolio,  a segmented market, a promising
pipeline  with high margin which  addresses  large  patient  populations,  and a
highly professional and experienced management team.



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<PAGE>

Principal Products and Services

Helpson's  primary  business  is  the  manufacturing,  marketing  and  sales  of
pharmaceuticals and nutritional  supplements.  Helpson  manufactures and markets
products in three major categories:  biochemical  products,  health products and
cosmetics.

At present, Helpson is manufacturing or ready to manufacture a total of 17 kinds
of medicines,  among which the following two kinds of medicines are legitimately
recognized as new medicines according to relevant new medicine certifications:

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.

Bumetnide  for  Injection:  a diuretics  drag for the treatment of various edema
diseases  (including  the heart failure  edema,  cirrhosis,  nephropathy  edema,
pulmonary  edema,  etc.),  hypertension  and for the treatment and prevention of
acute renal  failure,  hyperkalemia,  hypercalcemia  and for the rescue of acute
drug poisoning.

In addition to the above new medicines with new medicine certifications, Helpson
is manufacturing or ready to manufacture 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. The product was launched during 2007.

Granisetron   Hydrochloride  Injection:   post-operative  nausea  and  vomiting,
prevention of cancer  chemotherapy-induced  nausea and  vomiting,  prevention of
post-operative nausea and vomiting. The product was launched during 2007.



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<PAGE>

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.

Buflomedil Hydrochloride:  used for the treatment of the peripheral blood vessel
diseases including intermission  claudication,  renaud syndrome and blood vessel
convulsion.

Cefaclor Dispersible Tablets: used in otitis media, when the airway is infected,
the urethra is infected, or skin and skin tissue are infected.

Roxithromycin  Dispersible Tablet: a macrolide antibiotic drug for the treatment
of pharyngitis  and tonsillitis  caused by  streptococcus  pyogenes;  sinusitis,
tympanitis,  acute and chronic  bronchitis caused by acute bacteria;  mycoplasma
pneumonia and chlamydia pneumoniae;  urethritis and cervical infection caused by
chlamydia  trachomatis  (CT);  skin soft tissue  infection  caused by  sensitive
bacteria.

Clarthromycin  Granules and Clarthromycin  Capsules: a macrolide antibiotic drug
for the treatment of nasopharynx  infection,  lower respiratory tract infection,
skin tissue  infection,  acute  tympanitis  and mycoplasma  pneumonia  caused by
clarithromycin  susceptible organisms;  urethritis and cervical infection caused
by  chlamydia  trachomatis  (CT);  and the  treatment of  legionella  infection,
mycobacterium avium complex (MAC) infection and helicobacter pylori infection.

Anhydroandrographolide:  used for clearing away heat and detoxify, antibacterial
and  diminish  inflammation;  used in  upper  respiratory  infection,  bacillary
diarrhea.

Vitamin B6 for Injection: vitamin supplement.

Thymopolypetides  Injection:  used 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 in infections of the angina,
otitis media,  nasal sinusitis,  bronchitis,  pneumonia,  etc. and when the skin
soft tissue is infected.

In addition,  Helpson's  products include a Recombined  Human Fibroblast  Growth
Factor  (rhaFGF),  which is used as a raw  material  for  cosmetics  and has the
function of wound repairing, including damages caused by ultraviolate ray, acne,
analeptic organized by the skin, or citric acid.

There are 9 drugs undergoing  research and development  including Hugan Granule,
Tiopronin,  Omeprazole for Injection,  Ceftriaxone Sodium and Tazobactam Sodium,
Donepezil  Dispersible  Tablets,  Mycophenolate  Mofetil Granules,  rhaFGF drug,
rhCNTF drug and Compound Diclofenac Sodium Injection.

Due to the nature of the biotechnology and  pharmaceutical  industries,  Helpson
continually  strives to change its  product  portfolio  to respond to changes in



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<PAGE>

market demand.  Helpson also plans to expand its  biotechnology  product series.
Based on the  foundation  established  by some of  Helpson's  widely  recognized
medicine  labels  such as  Neurotrophicpeptide,  Helpson has  launched  and will
continue to launch a variety of  biological  medicine,  including  the  injected
hepatocyte  growth-promoting  factors,  which are  expected  to fuel  additional
growth beyond that of Neurotrophicpeptide.

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. With approximately  one-fifth
of the world's  population and a  fast-growing  gross  domestic  product,  China
presents significant potential for the pharmaceutical industry. According to the
Freedonia Group,  pharmaceutical demand in China reached RMB198.0 billion ($25.4
billion)  in 2005,  representing  a growth of 12.1%  annually  since  2000.  The
Freedonia Group expects the total pharmaceutical expenditure in China to grow at
13.6% annually between 2005 and 2010. Such growth rate is  significantly  higher
as  compared  to the  rest of the  world,  where  growth  of the  pharmaceutical
industry is  projected  to be at a compound  annual  growth rate of 5.0% to 8.0%
between 2004 and 2009 according to IMS Health. The overall production of Chinese
pharmaceutical  industry is expected to reach RMB 740 billion to RMB 760 billion
in 2008,  increasing  by 20% compared to the previous  year.  The growth rate of
Chinese pharmaceutical industry is expected to be the sixth highest in the world
in 2011.  China is also  predicted  to become the fifth  largest  pharmaceutical
market in the world in the near future. (Source: http://www.chinapharm.com.cn)

The predicted growth is based upon the development of Chinese  economy,  China's
large, aging population and the reform of the healthcare system of China.

Distribution

As of December 31, 2007, Helpson's products were sold in more than 29 provinces,
sovereignties  and  autonomous  regions.   Helpson  has  16  sales  offices  and
approximately 680 proxy agents throughout China.

The main  channels  Helpson  uses to deliver its  products  are as follows:  (1)
distribution system (Proxy Agents); (2) direct sale system to hospitals; and (3)
distribution of products to end-market through local medical companies.



                                       9
<PAGE>

Industry Background and Competition

The  pharmaceutical  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.

Competition  in the  pharmaceutical  industry is reduced by barriers to entry. A
company  wishing to enter into the industry  must comply with the  standards and
regulations  set forth by the  government.  In the PRC,  the State Food and Drug
Administration of China (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,  2007,  Helpson had 170 regular  employees.  Helpson was also
aided by the efforts of a 110 member outside sales and marketing team.

Risk Factors



                                       10
<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 three
largest suppliers,  Sichuan Chengxin  Pharmaceutical Company, Anhui Fuyang Xinte
Pharmaceutical  Company and Hainan Xinxin Bio-Technology  Company as of December
31, 2007, accounted for approximately 17%, 17% and 11% respectively of the total
purchases  of  Helpson.  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



                                       11
<PAGE>

Our Company had trade receivables,  net of allowance for doubtful  accounts,  of
approximately  $12,101,979  ($1,562,494  for doubtful  accounts) and $18,572,976
($2,440,852   for  doubtful   accounts)  as  of  December  31,  2006  and  2007,
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, 2007, we had 170 regular employees.  The continued
future  growth  will  impose  significant  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
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.



                                       12
<PAGE>

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, 2006 and 2007,  the gross profit margin for our
Company was 46.2% and 46.91% 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



                                       13
<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.  As of the end of 2006, there are
4682  enterprises   manufacturing   medicines  and  formulation  in  China.  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.

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



                                       14
<PAGE>

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 original Income Tax Law of the PRC for Enterprises  with Foreign
Investment  and Foreign  Enterprises  and its  implementation  rules,  a foreign
invested enterprise as defined under PRC laws shall pay 30% corporate income tax
and 3% local income tax; 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  enterprise  income tax in the first
and second  years and allowed a fifty  percent  reduction  in the third to fifth
years. 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%.
Pursuant to the  Regulations on Foreign  Investment in Hainan  Special  Economic
Zone  promulgated  by Hainan  Province  in March,  1991  (Regulation  on Foreign
Investment),  all foreign invested  enterprises  incorporated in Hainan Province
are exempt from the local income tax.

Helpson  has  obtained  the  approval  for  preferential  enterprise  income tax
treatment  from Hainan State  Administration  of Taxation at the end of 2006 and
has begun to enjoy the preferential tax treatment.  Therefore,  Helpson shall be
exempt from enterprise  income tax in the first and second years after it begins
to make profit, and shall pay enterprise income tax at the rate of 7.5% from the
third to the fifth year after it begins to make profit.

However,  on March 16, 2007,  China's national  congress approved the Enterprise
Income Tax Law of the PRC (New Income Tax Law),  which takes effect from 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. Under the New Income Tax Law, enterprises that were established and
already  enjoyed  preferential  tax rates or tax holidays  before March 16, 2007
will (i) in case of preferential tax rates, gradually increase to 25% rate for a
period of 5 years, (ii) in case of tax holidays continue to enjoy them until the
expiration of such term.



                                       15
<PAGE>

Therefore,  Helpson will continue to enjoy  preferential tax treatment until the
expiration of the preferential term. There can be no assurance that Helpson will
continue to be entitled to any  preferential tax treatment or tax holidays after
the  transition  period  expires.  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
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 five GMP certificates  which are effective  through July 17, 2008,
December  2,  2009,  February  2,  2010,  May  19,  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 effect on our financial condition. Furthermore, if escalating compliance



                                       16
<PAGE>

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, 2007
include  17  medicines.  There  are 9  products  in the  stage of  research  and
development  as of December  31,  2007.  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 currently  unavailable  resources;  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
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,  2007,  there  are 9  products  under  research  and  development,
including Hugan Granule, Tiopronin, Omeprazole for Injection, Ceftriaxone Sodium
and Tazobactam Sodium,  Donepezil  dispersible  tablets,  Mycophenolate  Mofetil
Granules,  rhaFGF, rhCNTF and Compand Diclofenac Sodium Injection.  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



                                       17
<PAGE>

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 protect 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
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 are currently 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



                                       18
<PAGE>

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.

The practical effect of the PRC 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.  PRC accounting laws require
that an annual  "statutory audit" be performed in accordance with PRC accounting
standards  and that  the  account  books 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.
 If a  foreign-invested  enterprise  refuses to keep account books in China, the
financial  and tax  authorities  may impose a fine on it, and the  industry  and
commerce  administration  authority  may order it to suspend  operations  or may
revoke its business license.

Second,  while the  enforcement  of  substantive  rights  may be 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



                                       19
<PAGE>

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 economic growth rates,  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 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



                                       20
<PAGE>

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
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.  Any  future  restrictions  on  currency  exchanges  may limit our
ability  to use  revenue  generated  in  Renminbi  to fund any  future  business
activities  outside China or to make dividend or other payments in U.S. dollars.
Although the Chinese government introduced  regulations in 1996 to allow greater
convertibility  of the Renminbi for current  account  transactions,  significant
restrictions   still   remain,   including   primarily  the   restriction   that
foreign-invested  enterprises  may only buy, sell or remit  foreign  currencies,



                                       21
<PAGE>

after providing valid commercial documents, at those banks authorized to conduct
foreign  exchange  business.  In  addition,  conversion  of Renminbi for capital
account items, including direct investment and loans, is subject to governmental
approval in China,  and  companies  are required to open and  maintain  separate
foreign  exchange  accounts for capital account items. We cannot be certain that
the Chinese regulatory  authorities will not impose more stringent  restrictions
on the  convertibility  of the  Renminbi,  especially  with  respect  to foreign
exchange transactions.

THE VALUE OF OUR  SECURITIES  WILL BE  AFFECTED  BY THE  FOREIGN  EXCHANGE  RATE
BETWEEN U.S. DOLLARS AND RMB

The value of our common  stock will be  affected by the  foreign  exchange  rate
between U.S.  dollars and Renminbi.  For example,  to the extent that we need to
convert U.S.  dollars into  Renminbi  for our  operational  needs and should the
Renminbi appreciate against the U.S. dollar at that time, our financial position
and the price of our common stock may be adversely affected.  Conversely,  if we
decide to convert our  Renminbi  into U.S.  dollars for the purpose of declaring
dividends on our common stock or for other business purposes and the U.S. dollar
appreciates  against the Renminbi,  the U.S.  dollar  equivalent of our earnings
from our subsidiary in China would be reduced.

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.  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:



                                       22
<PAGE>

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.

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 pubic notice
in October 2005  (Decree No. 75),  requiring  PRC  residents  and PRC  corporate
entities to register with and obtain  approvals from competent local SAFE branch
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



                                       23
<PAGE>

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.

In addition,  SAFE issued  updated  internal  implementing  rules  (Implementing
Rules) in relation to Decree No. 75. The Implementing Rules were promulgated and
became effective on May 29, 2007. Such Implementing  Rules provide more detailed
provisions and requirements  regarding the overseas  investment foreign exchange
registration  procedures.  For an offshore  special  purpose  company  which was
established  and  owned  the  onshore  assets or  equity  interests  before  the
implementation  date of the  Decree  No.  75, a  retroactive  SAFE  registration
requirement is repeated.

Due to the lack of official interpretation,  some of the terms and provisions of
the  Decree  No.  75  and  the  Implementing  Rules  remain  unclear,   and  the
implementation  of the Decree No. 75 by central SAFE and local SAFE branches has
been inconsistent  since its adoption.  Therefore,  we cannot predict how Decree
No. 75 will affect our business  operations or future  strategies.  For example,
our  present  and  prospective  PRC  subsidiaries'  ability to  conduct  foreign
exchange   activities,   such  as  the   remittance  of  dividends  and  foreign
currency-denominated  borrowings,  may be subject to compliance  with the Decree
No. 75 by our PRC resident shareholders. In addition, such PRC residents may not
always be able to complete  registration  procedures  required by the Decree No.
75. We also have little control over either our present or prospective direct or
indirect shareholders or the outcome of such registration procedures.
 A failure by our PRC resident  shareholders or future PRC resident shareholders
to comply with the Decree No. 75, if SAFE requires it, could subject us to fines
or legal sanctions, restrict our overseas or cross-border investment activities,
limit our subsidiary's  ability to make distributions or pay dividends or affect
our  ownership  structure,   which  could  adversely  affect  our  business  and
prospects.

On August 8, 2006, six PRC regulatory agencies, including the Chinese Securities
Regulatory  Commission (CSRC) promulgated the M&A Regulation  (Regulation) which
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
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.



                                       24
<PAGE>

There are, however,  substantial  uncertainties regarding the interpretation and
application of current or future PRC laws and regulations, including the New M&A
Rule. Accordingly, the Company cannot assure you that PRC government authorities
will not ultimately take a view contrary to the Company's  understanding that it
does not need the CSRC approval,  and PRC government authorities may impose some
additional approvals and requirements.  Therefore, 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.


                        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,
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



                                       25
<PAGE>

We may issue additional shares of our capital stock to raise additional cash for
working capital.  There is no anti-dilution  protection or preemptive  rights in
connection  with our common stock.  Thus, the  percentage  ownership of existing
holders of common stock 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  29.00%  and Zhilin Li holds  26.82% 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.

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



                                       26
<PAGE>

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,  we would remain  subject to Section  15(b)(6) of the Exchange  Act,
which gives the SEC the authority to restrict any person from 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



                                       27
<PAGE>

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

As directed by Section 404 of the  Sarbanes-Oxley  Act of 2002,  the SEC adopted
rules  requiring  public  companies  to  include a report of  management  on the
Company's internal controls over financial reporting in their annual reports. We
are subject to this requirement  commencing with our fiscal year ending December
31, 2007 and a report of our management is included under Item 8A of this Annual
Report on Form 10-KSB. Our management has identified significant deficiencies in
our internal  control  over  financial  reporting  as of December 31, 2007.  Our
management  concluded  that  those  internal  control  deficiencies  result in a
material  weakness.   The  identified   weakness  did  not  result  in  material
adjustments to our 2007 financial statements. However, an uncured weakness could
negatively  impact our financial  statements for subsequent  years. We cannot be
certain  that  we  will  be  able  to  successfully   complete  the  procedures,
certification and attestation  requirements of Section 404 of the Sarbanes-Oxley
Act,  or that our  auditors  will not have to  report  a  material  weakness  in
conjuction  with the  presentation  of our financial  statements.  If we fail to
comply  with the  requirements  of Section  404 or if our  auditors  report such
material  weakness,  the accuracy  and  timeliness  of our annual  report may be
materially  adversely  affected and could cause  investors to lose confidence in
our reported financial information.

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



                                       28
<PAGE>

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 subsidiary in China is also
required  to set aside a  portion  of its after  tax  profits  according  to PRC
accounting  standards and regulations to fund certain reserve funds.  Currently,
our  subsidiary in China is the only source of revenues or  investment  holdings
for the payment of dividends. If it does 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

Helpson owns a factory with a construction  area of 663.94 square meters located
at the 6th floor of Standard  Plant  Building B, Jinpan  Industrial  Development
Zone, Haikou, Hainan Province, PRC.

Helpson owns the land use rights to 22,936 square meters of land located on plot
C09-2,  Haikou Bonded Zone, Haikou.  Helpson built a factory with a construction
area of 6,593.20 square meters on this land.

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.  Starting from July 21, 2006, the rent
has been adjusted to RMB 3,780 per month.

Intellectual Property

Helpson owns the following 16 registered trademarks:  Funalin, Fukexing, Beisha,
Shiduotai, Xinuo, Pusenlitai,  Shuchang, Shenkaineng, an AFGF logo, an HPS logo,
two HELPSON logos, as well as four other logos. In addition, Helpson is applying
for  registration  of six  other  trademarks  used in  connection  with  western
medicine,   raw  material   medicine,   Chinese  herbal  medicine  and  medicine
injections.

Item 3 - Legal Proceedings

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



                                       29
<PAGE>

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

None.

                                     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, 2006 and 2007.

             Quarter Ended                    High                Low
       ------------------------          ---------------      -------------

                2007
       ------------------------          ---------------      -------------
             4th Quarter                     $4.17               $1.95
       ------------------------          ---------------      -------------
             3rd Quarter                     $1.80               $1.35
       ------------------------          --------------- ---- -------------
             2nd Quarter                     $2.17               $1.64
       ------------------------          --------------- ---- -------------
             1st Quarter                     $2.28               $1.60
       ------------------------          --------------- ---- -------------

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

As of March 26,  2008,  the closing  price of our common  stock on the OTCBB was
$2.20. As of March 26, 2008, the stockholders'  list for our common stock showed
161 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.

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



                                       30
<PAGE>

Corporation,  2591  Dallas  Parkway,  Suite  102,  Frisco,  Texas  75234 and its
telephone number is 469.633.0100.

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.

China  Pharma  Holdings,  Inc. is a specialty  bio-pharmaceutical  company  with
Scalable  GMP  certified  manufacturing  facilities.  We  currently  have  eight
different  production lines,  which develop,  manufacture and market Western and
Chinese medicines. Over the years we have developed a wide distribution network,
professional marketing team, and strong R&D capabilities. We have a portfolio of
therapeutics that target: CNS,  cardiovascular,  wound recovery,  and infectious
diseases.  Our  therapeutics  have a targeted market  segment,  both current and
future,  which  covers  a  large  patient  population.  We  also  have a  highly
professional and experienced management team.

Strong  Revenue  Growth and High Margins -We have  experienced an average annual
growth rate of over 50% in sales of our  therapeutics  since 2003.  In 2007,  we
generated $33 million from therapeutics  sales, an increase of 51.93% from sales
of $21 million in 2006. Gross margin for our  therapeutics  achieved 46% in both
2007 and 2006, which is above the industry average gross margin of 34.2%. We are



                                       31
<PAGE>

able to compete in the highly  fragmented  pharmaceutical  industry  through our
diversified  therapeutics  line,  cost  control and strong  sales  network.  Our
experienced management team, market insights and strong R&D capabilities, enable
us to develop  and  launch new and  improved  generic  products  based on market
demand.

Proven  Record of Success - We have a proven track record of success.  We have a
porfolio of over 30 specifications of drugs that focus on the treatment of: CNS,
cardiovascular,   cerebrovascular,   and   infectious   diseases.   Among  these
specifications, two are market leaders, Pusenok and Buflomedil hydrochloride. We
were  awarded the  "National  Key New  Product"  by the  Ministry of Science and
Technology  of the PRC with the State  Administration  of Taxation,  Ministry of
Commerce of the PRC, General  Administration of Quality Supervision,  Inspection
and Quarantine of the PRC, and State Environmental Protection  Administration of
China. We are a profitable  company with a low cost, high margin business model.
We are seeing a quick growth in sales with a constant  growth in income,  due to
our focus on the largest segment of China's pharmaceutical market. We have eight
different types of modern production lines with capacity to meet future demands.
In addition,  our growth  strategy is  supported by the dynamics  pharmaceutical
industry.

Clear Strategy for Growth - We are part of a rapidly growing industry,  in which
we are the leader in generic  drugs.  We have created a  competitive  advantage,
both currently and in the future, through a segmented therapeutics line designed
to target specific  patient groups.  Our R&D is guided by the market and targets
name brand  drugs and new  generic  drugs in China.  The R&D covers a variety of
diseases,  but focuses on high incidence and high  mortality  diseases in China,
which need more effective treatment. In an attempt to remain a leading player in
the market,  we target  off-patent  drugs or drugs about to be  off-patent  with
cumulative  global sales of over $1 billion.  Through  December 2007, we have 10
drugs on track to launch, including a new anti-drug-resistance  antibiotic which
has already  entered  the SFDA  technical  evaluation.  We also have three drugs
which are waiting for the SFDA's production  approval.  Bumetanide received SFDA
production  approval  in January  2008.  It is  estimated  that all  therapeutic
products currently pending approval will contribute to the revenue.

I.    Summary

Our financial performance for the twelve months ended December 31, 2007 improved
compared to the twelve months ended December 31, 2006.  Total revenue  increased
over 51.93%, from $21,183,262 to $33,186,324. This growth is attributable to the
further  development of current products and  strengthening our marketing on new
products which were launched after late 2006.  This is in line with our strategy
of  launching  new  products  while  expanding  into  the  several   competitive
pharmaceutical markets domestically.



                                       32
<PAGE>

Our financial performance for 2007 shows that we are still growing. We have seen
an increase in gross  profit of 54.17% to $15.57  million.  Net income,  without
consideration  of foreign  currency  translation  adjustment,  has  increased by
49.22% to $ 12.82  million.  This is the  result of the  development  of the new
products and additional marketing activities.

For the twelve months ended December 31, 2007, EPS increased by 40.00%, reaching
$0.35,  compared to $0.25 for the twelve months ended  December 31, 2006. We are
working  closely with various  pharmaceutical  research  institutions to develop
more functional  products to meet the customers' needs. Our focus is to create a
steady increase in revenue.  We have seen in the past that a successful strategy
is the key to  company  operation.  In the near  future,  we will  build up more
systematic  and  continuous   internal  control  procedures  for  the  long-term
development and the benefit of our shareholders.

II.   Business Overview

We are  primarily  engaged  in the  research,  development,  manufacturing,  and
marketing  of  pharmaceutical  and  nutritional  supplements.  During  2007,  we
launched two new products, Alginic Sodium Diester and Granisetron hydrochloride.

We plan to expand our  biotechnology  product  series.  Based on the  foundation
established  by  some  of  our  widely   recognized   medicine  labels  such  as
Neurotrophicpeptide,  we have  launched and will continue to launch a variety of
biological  medicines,   including  the  injected  hepatocyte   growth-promoting
factors,   which  are  expected  to  fuel  additional   growth  beyond  that  of
Neurotrophicpeptide.

One of our products, Buflomedil Hydrochloride (including raw material, injection
and troche) has received the following recognitions:

o  Designated  as the key  technology  project  in  Hainan  in  2003  by  Haikou
Municipality.

o Received the best commercialized  technology 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.

In 2003, we attained GMP  authentication  and the award of best  enterprise  for
supporting  SARS  medicine  awarded  by  Hainan  Food and  Drug  Administration,
demonstrating  our industry  leadership.  Our products have been distributed and
sold to more than 29 provinces, sovereignties, and



                                       33
<PAGE>

autonomous  regions around China. We have 16 sales offices and approximately 680
proxy  agents  throughout  the PRC.  The main  channels  we use to  deliver  our
products are as follows: (1) Distribution system (Proxy Agents); (2) Direct sale
system to hospitals;  (3)  Distribution of products to end-market  through local
medical companies.

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 &  Bio-Technology  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.

Additionally,  on February 1, 2007, we fulfilled a fund raising equity  offering
of units  priced at $1.70  each  consisting  of one share of common  stock and a
warrant to purchase  one-half of a share of common stock at an exercise price of
$2.38  per  share.  We  received  gross  proceeds  in the  aggregate  amount  of
$4,259,900.  The net proceeds,  after deducting the related offering expenses of
$462,717 amounted to $3,797,183.  In total, we issued 2,505,882 shares of common
stock and issued  three-year  warrants  to purchase an  aggregate  of  1,252,941
shares of common stock to 17 accredited investors.

III.  Trend in the Market.

Studies show that due to the expansion and aging of the world's  population,  an
increasing  number  of  people  have  age-related  diseases,   such  as  cancer,
Alzheimer's disease,  diabetes,  and rheumatoid  arthritis.  These diseases have
already become  prevalent,  particularly  in developed  areas.  In a growing and
aging population, people need to find more effective methods of treatment.

Patient  empowerment  has been a 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.

We view  this  market  trend as an  opportunity.  However,  the best way to take
advantage of this  opportunity  is to identify our  business  risks  beforehand.
Generally speaking, there are three aspects of risks:

o External Risk



                                       34
<PAGE>

In recent years, the Chinese medical system has been reformed,  resulting in the
State  Department's  establishment  of a  basic  medical  insurance  system  for
employees. Considering the social environment and the governmental policy in the
pharmaceutical industry in PRC, a large increase in sales can be expected due to
local  government  involvement in the industry.  Competition will also be strong
across the industry overall. Currently, our existing products are competitive in
the market and possess growth potential.  However, from a long-term perspective,
some major western  medicine  producers are also seeking  Chinese  market share.
This will  present us with strong  competition  in the natural  medicine  market
sector.

o Operation Risk

One of the major uncertainties in our industry is the purchase of raw materials.
Raw materials are primarily affected by the geographical,  island environment of
Hainan  Province.  Because of high  transportation  costs and the need to supply
production requirements, we have to store large amounts of inventory to maintain
consistent  production  levels.  In addition,  partial raw materials  need to be
specially ordered which further increases the need to store inventory.  Finally,
due to the increasing sales, we must store a large volume of packaging material.

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 the exchange  rate  fluctuation  would  inevitably be considered to be
material to our business operations.

All of our revenues and expenses are accounted for in Renminbi (RMB). But we use
the United States Dollar (USD) 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 become  volatile  again or that the
Renminbi  will  not  devalue   significantly  against  the  USD.  Exchange  rate
fluctuations may adversely affect the value, in USD terms, of our net assets and
income derived from its operations in the PRC.

IV.  Analysis of financial  performance for the twelve months ended December 31,
2007


                                       35
<PAGE>
<TABLE>
<CAPTION>

                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                 For the year                     For the year
                                                    ended          As a              ended          As a
                                                 December 31,    percentage       December 31,    percentage     Comparative
                                                     2007        of Revenue           2006        of Revenue     Variance %
                                                 -----------     -----------      -----------     -----------    -----------
<S>                                              <C>             <C>              <C>             <C>            <C>


Revenue                                   $      33,186,324       100.00%  $      21,843,262       100.00%          51.93%
Cost of Revenue                                  17,619,180        53.09%         11,745,815        53.77%          50.00%

Gross Profit                                     15,567,144        46.91%         10,097,447        46.23%          54.17%

Operating expenses:
Selling expenses                                  1,436,609         4.33%            260,128         1.19%          52.27%
General and administrative                        1,879,306         5.66%          1,213,828         5.56%          54.82%
Total Operating Expenses                          3,315,915         9.99%          1,473,956         6.75%         124.97%

Income from Operations                           12,251,229        36.92%          8,623,491        39.48%          42.06%

Non-operating income(expenses):
Interest income                                      31,805         0.10%                991             -        3109.38%
Interest expense                                   -237,398        -0.72%           -145,881        -0.67%          62.73%
Other Income (Expense)                              611,025         1.84%            108,485         0.50%         463.23%
Total Non-operating Income (Expense)                405,432         1.22%            -36,405        -0.17%        1221.87%

Income Before Taxes                              12,656,661        38.14%          8,587,086        39.31%          47.39%
Income Tax Benefit                                  162,872         0.49%                  -             -

Net Income                                $      12,819,533        38.63%  $       8,587,086        39.31%          49.29%
Comprehensive income-foreign currency
translation adjustments                           2,175,433         6.56%            563,945         2.58%         285.75%
Comprehensive income                      $      14,994,966        45.18%  $       9,151,031        41.89%          63.86%


</TABLE>








                                       36
<PAGE>

Revenues

Revenue for the twelve  months  ended  December  31, 2007 is  approximately  $33
million or an increase of 51.93%  compared to the twelve  months ended  December
31, 2006.  This dramatic  improvement  in sales revenue is due to an increase in
demand and a strong  Chinese  economy.  On the supply side,  our output has been
expanded to meet the increased  market demands.  We are increasing our marketing
efforts for our products and have widened our distribution  channels.  Our older
products  have been  well-accepted  by  customers:  with  revenues from Pusen OK
contributing approximately 12.45% of the total net revenues in 2007, an increase
of 36.35%,  compared to $3 million in 2006,  all of which was all sold in China.
Pusen Ok is used to temporarily relieve runny nose, tears, fever, headache, soar
throat,  pain of  arthritis,  and muscular  arches.  Sales from one of our other
older products, AFGF, has increased by 5.37%, compared to $3.77million of 2006.

Some of the other older products that have increased are:  Andrographolide  with
an increase of 59.83%, Neurotrophicpetide with an increase of 84.04%, Hepatocyte
with an increase of 44.24%,  and Gastrodin  with an increase of 38.91%.  We also
have products which are now in the maturing stage.  Revenues from these maturing
products  contributed  approzimately  $4.71  million  to the total  increase  of
revenues for this period. Ozagrel contributed approximately $3.09 million to the
total increase in revenue by maturing products.  Finally,  the new products that
have been introduced this year  contributed  approxiamtely  $3.07 million to the
total  increase in revenues  this year.  Granisetron  hydrochloride  contributed
$1.79 million, and Alginic Sodium Diester contributed $1.28 million to the total
increase in revenue from new products.

Cost of Revenue

Cost of revenue for the twelve months ended December 31, 2007 was  approximately
$17.62 million, it accounts for about 53.09% of the revenues, as compared to the
$11.75  million costs for the twelve months ended  December 31, 2006, the amount
has increased by $5.87 million or 50%, this was primarily due to the increase in
sales volume this year.

Gross Profit

Gross  profit for the twelve  months ended  December  31, 2007 has  increased by
about $5.45 million or 54.17%, when compared to the twelve months ended December
31, 2006, to $15.57 million, the gross margin is 46.91%. The improved profit was
due to the substantially increase in revenues this period.



                                       37
<PAGE>

Selling Expenses

Selling expenses for the twelve months ended December 31, 2007 have increased to
about  $1.44million  or 4.33% of the total  revenue,  compared  to 1.19% for the
twelve months ended December 31, 2006. In an attempt to broaden our market share
further,  we have invested  heavily in the  marketing of our  products.  We have
added 70 new  salespersons  causing  increases  in  traveling  expenses,  office
expenses and salaries.

General & Administrative Expenses

General and  administrative  expenses  incurred in 2007 are about  $1.88million,
which  represents  approximately  5.66% of the total  revenue.  G&A  expense has
increased  by  $665,478  as  compared  to 2006.  This was  mainly  caused by the
carrying amount of salaries,  advertising,  legal services, accounting services,
and investment  consulting services. We have also seen an increase in intangible
assets, which has increased the amortization of intangibles expense.

Income from Operations

Income  from  operations  has  increased  by   approximately   $3.6  million  to
approximately  $12.25  million,  which is an  increased of 42.06% from the prior
year.  This is a combined  result of the increase in sales,  revenue,  and gross
profit.

Interest Income

Interest  income has increased by $30,814 from last year. This was caused by the
increased cash inflows this year and the resulting increase in cash balances.

Interest Expense

Interest  expense has increased by $91,517 for the year ended December 31, 2007.
This  is due  to a sum of  loans  (RMB  12,000,000@6.4496%  per  year,  and  RMB
5,000,000@6.7721% per year) having expired and having been repaid. Shortly after
the  repayment,  we entered into a new loan, in the amount of RMB 17,000,000 and
the  interest is 7.182% per year.  As a result of the  interest  rate  increase,
interest expenses increased as well.

Income Tax Expense

For the twelve  months ended  December 31, 2007,  the company has no tax expense
because the company has been granted a tax holiday by the  government.  This has
allowed the company to be exempted from income taxes in 2007.



                                       38
<PAGE>

Net Income

Although  expenses  have  increased  this year,  the  increase  in  revenue  and
exemption  from  income  taxes  have  contributed  to this  year's net income of
$12,819,533,  which is 49.29%  higher than the net income of  $8,587,086  in the
prior year.

V. Analysis of financial  performance  for the twelve months ended  December 31,
2007

As of  December  31,  2007,  the  cash  and  cash  equivalents  balance  reached
$1.83millioin,  which is 4.19% of the total asset compared with $0.66 million as
of December 31, 2006, which was 2.30% of the total asset.

As of December 31, 2007,  net cash  provided by operating  activities  was $3.38
million,  compared to $18.07  million net cash used in operating  activities for
2006.  This  change  was the  result of an  increase  in trade  receivables  and
inventory in the prior year due to increase sales volume. Decrease in short-term
notes has also impacted our working capital position.


























                                       39
<PAGE>

                           CHINA PHARMA HOLDINGS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                For the years ended December 31,
                                                --------------------------------
                                                        2007           2006
                                                   ------------    ------------
Cash Flows from Operating Activities:
Net income                                         $ 12,819,533    $  8,587,086
Depreciation and amortization                           422,443         397,001
Gain on sale of intangibles                            (580,922)           --
Changes in assets and liabilities:
Trade accounts receivable                            (5,413,718)     (6,077,526)
Other receivables                                      (111,660)         42,642
Advances to suppliers                                (1,028,199)        (61,345)
Inventory                                            (3,325,681)     (4,214,702)
Deferred tax assets                                    (162,872)        115,564
Deferred offering costs                                  60,952            --
Trade accounts payable                                 (204,372)       (219,427)
Accrued expenses                                         73,451          86,265
Accrued taxes payable                                   126,812        (407,744)
Other payables                                           20,558         (71,759)
Advances from customers                                 105,573          87,612

Net Cash from Operating Activities                    2,801,898      (1,736,333)
                                                   ------------    ------------

Cash Flows from Investing Activities:
Purchase of property and equipment                      (51,841)       (182,346)
Proceeds from the sale of intangibles                 1,509,741            --
Purchase of intangible assets                        (2,937,431)         (9,657)
                                                   ------------    ------------
Net Cash from Investing Activities                   (1,479,531)       (192,003)
                                                   ------------    ------------

Cash Flows from Financing Activities:
Proceeds from sale of common stock and warrants       3,797,183            --
Proceeds from exercise of warrants                      119,000            --
Proceeds from short term notes payable                2,586,252       2,140,943
Payments of short term notes payable                 (6,705,456)           --
Proceeds from loan from shareholder                        --            22,650
Payment of offering costs                                  --           (58,167)
                                                   ------------    ------------
Net Cash Proceeds from Financing Activities            (203,021)      2,105,426
                                                   ------------    ------------

Effect of Exchange Rate Changes on Cash                  54,548          18,131
                                                   ------------    ------------
Net Change in Cash                                    1,173,894         195,221
                                                   ------------    ------------
Cash and Cash Equivalents at Beginning of Period        656,441         461,220
                                                   ------------    ------------
Cash and Cash Equivalents at End of Period         $  1,830,335    $    656,441
                                                   ------------    ------------


As of  December  31,  2007,  the  cash  and  cash  equivalents  balance  reached
$1,830,335,  an increase of approximately  2.78 times when compared to the prior
year.  This is a combined result of an improvement in net cash used in operating
activities and an increase in net cash proceeds from financing activities.

Net cash provided by operating  activities  increased to $2,801,898 from used in
balance of $1.74 million in the prior year. This big  improvement  came from the
increased  net  income,  and an  improvement  on  collection  of trade  accounts
receivables.



                                       40
<PAGE>

Cash outflows from investing  activities  have increased to $1.5 million for the
year ended 2007. This is due to the purchase of intangible assets which cost the
company $2.9 million.  Cash used in financing  activities  were $203,021 for the
year ended 2007. This is due to the pay off to former shareholders and pay downs
of short-term notes of $6,705,456. On February 1, 2007, we completed an offering
of units priced at $1.70 per unit  consisting of one share of common stock and a
warrant to purchase  one-half of a share of common stock at an exercise price of
$2.38  per  share.  We  received  gross  proceeds  in the  aggregate  amount  of
$4,259,900.  The net proceeds,  after deduction of related offering  expenses of
$462,717  amounted to $3,797,183.  We 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 common stock to 17 accredited investors.

The common  shares and the shares  underlying  the  warrants  have  registration
rights and,  accordingly a registration  statement was filed with the Securities
Exchange Commission on March 30, 2007 within the 60 day period prescribed by the
registration rights agreement. The registration statement was declared effective
on May 4, 2007.

In December 2007, we received proceeds of $119,000 upon the exercise of warrants
to purchase  50,000 shares of common stock.  The  remaining  warrants  issued in
conjunction  with the offering to buy 1,202,941  shares of common stock have not
been exercised at December 31, 2007.

VI.   Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements.

VII.  Recently Enacted Accounting Pronouncements

In September  2006,  the  Financial  Accounting  Standards  Board (FASB)  issued
Statement  of  Financial  Accounting  Standards  ("SFAS")  No.  157,  Fair Value
Measurements,  which  defines fair value,  establishes a framework for measuring
fair value in generally accepted  accounting  principles and expands disclosures
about  fair  value  measurements.  SFAS No. 157 is  effective  for fiscal  years
beginning  after  November 15,  2007,  and interim  periods  within those fiscal
years. In February 2008, the FASB issued FASB Staff Position (FSP FIN) No. 157-2
which  extended  the  effective  date  for  certain   nonfinancial   assets  and
nonfinancial  liabilities to fiscal years beginning after November 15, 2008. The
Company does not expect the  adoption of SFAS No. 157 to have a material  impact
on our consolidated financial statements.

In  February  2007,  the FASB issued  SFAS No.  159,  The Fair Value  Option for
Financial Assets and Financial  Liabilities.  SFAS No. 159 permits  companies to
choose to measure many  financial  instruments  and certain  other items at fair



                                       41
<PAGE>

value.  SFAS No. 159 is effective  for  financial  statements  issued for fiscal
years  beginning  after  November  15,  2007.  The  Company  does not expect the
adoption of SFAS No. 159 to have a material impact on our consolidated financial
statements.

In June 2007,  the Emerging  Issues Task Force of the FASB issued EITF Issue No.
07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services to be
Used in Future  Research and  Development  Activities",  ("EITF  07-3") which is
effective for fiscal years beginning after December 15, 2007. EITF 07-3 requires
that  nonrefundable   advance  payments  for  future  research  and  development
activities  be deferred and  capitalized.  Such amounts will be recognized as an
expense as the goods are delivered or the related  services are performed.  EITF
07-3 is not expected to have a material  impact on our results of  operations or
financial position.

In December 2007, the FASB issued SFAS No. 141(R),  Business  Combinations,  and
SFAS No. 160,  Noncontrolling  Interests in Consolidated  Financial  Statements.
SFAS No.  141(R)  requires  an  acquirer  to  measure  the  identifiable  assets
acquired,  the  liabilities  assumed  and any  non-controlling  interest  in the
acquiree at their fair values on the  acquisition  date, with goodwill being the
excess value over the net identifiable  assets acquired.  SFAS No. 160 clarifies
that a non-controlling  interest in a subsidiary should be reported as equity in
the consolidated financial statements, consolidated net income shall be adjusted
to  include  the net  income  attributed  to the  non-controlling  interest  and
consolidated comprehensive income shall be adjusted to include the comprehensive
income attributed to the non-controlling  interest.  The calculation of earnings
per share  will  continue  to be based on  income  amounts  attributable  to the
parent. SFAS No. 141(R) and SFAS No. 160 are effective for financial  statements
issued for fiscal years  beginning  after  December 15, 2008.  Early adoption is
prohibited.  The Company has not yet determined  the effect on our  consolidated
financial statements, if any, upon adoption of SFAS No. 141(R) or SFAS No. 160.

In March  2008,  the FASB  issued SFAS No.  161,  Disclosures  about  Derivative
Instruments and Hedging Activities. SFAS No. 161 amends SFAS No. 133, Accounting
for  Derivative   Instruments  and  Hedging   Activities  to  require   enhanced
disclosures  concerning the manner in which an entity uses  derivatives (and the
reasons it uses them), the manner in which  derivatives and related hedged items
are  accounted  for under  SFAS No.  133 and  interpretations  thereof,  and the
effects that derivatives and related hedged items have on an entity's  financial
position,  financial performance,  and cash flows. SFAS No. 161 is effective for
financial  statements  of  fiscal  years and  interim  periods  beginning  after
November  15,  2008.  The  Company  has not yet  determined  the  effects on its
consolidated financial statements,  if any, that may result upon the adoption of
SFAS 161.

VIII. Conclusion

The overall  performance  during the twelve  months ended  December 31, 2007 was
outstanding.  As a public company in the pharmaceutical  industry, we focused on



                                       42
<PAGE>

product innovation. In order to create products that are innovative and tailored
to the end user, we must  concentrate  on R&D. As a result,  we will continue to
actively pursue 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

As required by Rule 13a-15 under the Securities Exchange Act, our management has
carried out an evaluation,  with the  participation and under the supervision of
our chief executive officer and chief financial officer, of the effectiveness of
the design  and  operation  of our  disclosure  controls  and  procedures  as of
December 31, 2007.  Disclosure  controls  and  procedures  refer to controls and
other procedures designed to ensure that information required to be disclosed in
the reports we file or submit  under the  Securities  Exchange  Act is recorded,
processed,  summarized  and reported  within the time  periods  specified in the
rules  and  forms  of the SEC and  that  such  information  is  accumulated  and
communicated to our management,  including our chief executive officer and chief
financial officer, as appropriate,  to allow timely decisions regarding required
disclosure.  In designing and evaluating our disclosure controls and procedures,
management  recognizes  that any  controls  and  procedures,  no matter how well
designed and operated,  can provide only  reasonable  assurance of achieving the
desired control objectives,  and management is required to apply its judgment in
evaluating and implementing possible controls and procedures.

Management  conducted its evaluation of disclosure controls and procedures under
the supervision of our chief executive officer and our chief financial  officer.
Based upon, and as of the date of this evaluation,  our chief executive  officer
and  chief  financial  officer  concluded  that  our  disclosure   controls  and
procedures  were not  effective,  due to the existence of  significant  internal
control  deficiencies  discussed  below under  "Management's  Report on Internal
Control over Financial Reporting".

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal
control over  financial  reporting as defined in Rules  13a-15(f)  and 15d-15(f)
under the Securities Exchange Act.



                                       43
<PAGE>

Because of its inherent  limitations,  internal control over financial reporting
may not prevent or detect misstatements.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate  because of changes in  conditions,  or that the degree of compliance
with the policies and procedures may deteriorate.

Our  management  has assessed  the  effectiveness  of our internal  control over
financial  reporting  as  of  December  31,  2007.  In  making  its  assessment,
management  used the  criteria  described  in  Internal  Control  --  Integrated
Framework,  issued by the Committee of Sponsoring  Organizations of the Treadway
Commission, or COSO.

A significant deficiency is a deficiency,  or a combination of deficiencies,  in
internal  control over  financial  reporting that is less severe than a material
weakness,  yet  important  enough to merit  attention by those  responsible  for
oversight  of the  company's  financial  reporting.  The  following  significant
deficiencies have been identified and included in our management's assessment as
of December 31, 2007:

     1)   We did not engage an Audit Committee to oversee the  effectiveness  of
          the system of internal control in every process. An effective Board of
          Directors and Audit Committee and other corporate governance functions
          will  play an  extremely  important  oversight  role  in the  internal
          control system.  If there is no Audit Committee or the Audit Committee
          does not  function  comprehensively  and  proactively,  there might be
          reasonable   possibility   that  the  significant   internal   control
          deficiencies cannot be detected or prevented.

     2)   We did not maintain  effective controls internal audit function due to
          the lack of qualified internal auditors who are familiar with internal
          audit  and US  GAAP,  and we did not  implement  adequate  and  proper
          supervisory  review to ensure that the  significant  internal  control
          deficiencies can be detected or prevented.

     3)   We did not maintain  effective  controls over the financial  reporting
          processes due to an insufficient complement of internal personnel with
          a level  of  accounting  knowledge,  experience  and  training  in the
          application of U.S. GAAP commensurate with our financial requirements.
          For example,  we did not maintain  effective  controls over accounting
          for deferred taxes under U.S. GAAP.

Our management  believes that these internal  control  deficiencies  result in a
material  weakness.  This  material  weakness  had not been  fully  remedied  by
December 31, 2007. Never the less, based upon a number of factors, including our
plan for  remediation  (as  described  below) and other  procedures  designed to
assist  us  in  ensuring  the  reliability  of  our  financial  statements,  our
management believes that the consolidated  financial  statements included in the
Annual  Report on Form  10-KSB  fairly  state,  in all  material  respects,  our
financial  condition, results  of  operations  and cash  flows  for the  periods
presented in conformity  with generally  accepted  accounting  principles in the
United States of America.


                                       44
<PAGE>

The management's  assessment of internal  controls over financial  reporting was
not subject to auditor attestation as of December, 31 2007 pursuant to temporary
rules of the Securities and Exchange Commission. Accordingly, this Annual Report
does not include an  attestation  report by our  independent  registered  public
accounting firm regarding internal control over financial reporting.

Remediation Measures of Significant Deficiencies

To remediate the significant  internal control  deficiencies  described above in
"Management's  Report on Internal  Control over  Financial  Reporting",  we have
implemented or plan to implement the measures described below, and will continue
to evaluate and may in the future implement additional measures.

We have planned  remediation  measures of hiring and training of personnel which
are intended to generally  address these  significant  deficiencies  by ensuring
that we will have sufficient  personnel with knowledge,  experience and training
in the  application  of U.S.  GAAP  commensurate  with our  financial  reporting
requirements. These measures include the following:

     1)   We  appointed  3  independent  directors,  on  February  1,  2008,  to
          establish an effective Audit  Committee,  together with setting up the
          relevant procedures and working plans;

     2)   We will continue to hire external U.S.  accountant at the beginning of
          2008 with relevant accounting experience,  skills and knowledge in the
          preparation of financial  statements  under the  requirements  of U.S.
          GAAP and financial  reporting  disclosure under the requirement of SEC
          rules; We also plan to train up our staff internally;

     3)   We plan to hire an internal  auditor to implement  the internal  audit
          function,   and  plan  to  train  our  accounting   personnel  in  the
          application  of U.S. GAAP  commensurate  with our financial  reporting
          requirements;

     4)   We plan to improve our written  policies  and  procedures,  as well as
          amend and  supplement  the  existing  code of  conduct  to ensure  the
          compliance with Section 406 of Sarbanes-Oxley Act; and

     5)   We retained  and intend to continue to retain the  services of outside
          counselors to advise us on the SEC disclosure requirements.

We  believe  that we are  taking  the steps  necessary  for  remediation  of the
significant  deficiencies  identified above, and we will continue to monitor the
effectiveness  of these steps and to make any changes that our management  deems
appropriate.



                                       45
<PAGE>

Changes in Internal Controls over Financial Reporting

Despite the remediation  measures we have been taking,  there were no changes in
our internal  controls over  financial  reporting  during the fourth  quarter of
fiscal  2007  that  have  materially  affected,  or  are  reasonably  likely  to
materially affect our internal control over financial reporting.

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 name and position of our current  directors
and executive officers:

--------------------------------------------------------------------------------
    Name (1)               Age                Position
--------------------------------------------------------------------------------
Zhilin Li                  55    Director, President and Chief Executive Officer
--------------------------------------------------------------------------------
Xinhua Wu                  45    Director and Chief Financial Officer
--------------------------------------------------------------------------------
Gene Michael Bennett       60    Independent Director
--------------------------------------------------------------------------------
Yingwen Zhang              63    Independent Director
--------------------------------------------------------------------------------
Baowen Dong                67    Independent Director
--------------------------------------------------------------------------------
Jian Yang                  53    Secretary
--------------------------------------------------------------------------------

(1) Ms.  Heung  Mei  Tsui,  our  former  director,  resigned  from our  board of
directors  on February 1, 2008.  The board  expanded  the number of seats on the
board of directors  and  appointed  three  independent  directors,  Gene Michael
Bennett, Yingwen Zhang and Baowen Dong on the same date.

Ms. Zhilin Li: Ms. Li is the director,  President  and Chief  Executive  Officer
(CEO) 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.



                                       46
<PAGE>

Mr. Xinhua Wu: Mr. Wu is the director and Chief  Financial  Officer (CFO) of the
Company.  He has acted as CFO of Helpson since his  employment  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.

Mr. Gene  Michael  Bennett:  Mr.  Bennett has served as a member of our board of
directors as an  independent  director  since  February 1, 2008.  Mr. Bennett is
presently a partner of Beijing Nexis  Investment  Consulting  Corporation  which
provides management consulting services to Chinese companies. From 2000 to 2004,
he acted as partner  of ProCFO  Company.  Prior to that,  he served as CFO and a
Board  Member  in  Argonaut  Computers.  Mr.  Bennett  worked  as  professor  of
accounting,  taxation and auditing at several universities  including California
State  University,  Chapman  University,  University  of  Hawaii  and  Chaminade
University.  Mr. Bennett is a graduate of Michigan State University and Michigan
University.  He is also a Doctor of Business  Administration  (DBA) candidate in
Corporate Governance at City University of Hong Kong.

Mr. Yingwen Zhang: Mr. Zhang has served as a member of our board of directors as
an  independent  director  since  February 1, 2008.  Mr.  Zhang  graduated  from
Department of Chemical Engineering, Tianjin University in 1967. He worked as the
CEO of  Sinopec  Sichuan  Vinylon  Works  from  1983 to 1988 and  worked  as the
director of Sichuan Foreign Trade and Economic Cooperation Bureau (The Bureau of
Commerce of Sichuan  Province) from December 1988 to April 2000.  Since then, he
has acted as the Economic and  Commercial  Counselor's  Office of the Embassy of
the People's Republic of China in Malaysia. Mr. Zhang currently is the member of
the 9th Chinese People's Political Consultative Conference (CPPCC).

Mr. Baowen Dong: Mr. Dong has served as a member of our board of directors as an
independent  director  since  February 1, 2008.  Mr. Dong  graduated  from Xi'an
University of Science and Technology in 1966. He is the  professor,  researcher,
director of the staff room, and the department head in Sichuan  University since
1974. He is also an expert member of the Sichuan University  Teaching Evaluation
Council since August 2001.

Ms. Jian Yang:  Ms. Yang has been the 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
Engineering  Co.,  Ltd.  in  1991.  Ms.  Yang  obtained  her MBA  degree  at the
University of Wales, England.



                                       47
<PAGE>

Board Composition and Committees

Since  February 1, 2008,  the board of directors has been composed of Zhilin Li,
Xinhua Wu,  Gene  Michael  Bennett,  Yingwen  Zhang and Baowen  Dong.  All board
actions  require the approval of a majority of the  directors in attendance at a
meeting at which a quorum is present.

Gene  Michael  Bennett,  Yingwen  Zhang and Baowen Dong have served on the Audit
Committee  since  February  1, 2008.  Mr.  Bennett,  the  Chairman  of the Audit
Committee,  is  an  audit  committee  financial  expert  serving  on  the  Audit
Committee. The board of directors intends to adopt an Auditing Committee Charter
specifying the authorities and responsibilities of the audit committee.

We currently have no Nomination Committee,  Compensation Committee, 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 any of our
directors,  officers,  or employee 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



                                       48
<PAGE>

As of  December  31,  2007,  we have not  adopted a code of ethics but intend to
adopt a code of ethics in the near term.  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 directors for services as a director during
the  fiscal  year ended  December  31,  2007.  We have no  standard  arrangement
pursuant to which our internal  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
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 internal  director  received and/or accrued any compensation for his services
as a director, including committee participation and/or special assignments.

Our three independent directors are entitled to the following compensation:  Mr.
Bennett's  compensation consists of $16,000 per year, payable quarterly within 5
days of the start of the  quarter,  and 5,000  warrants of common  stock with an
exercise  price of $3.32 per share;  Mr. Zhang and Mr. Dong are each entitled to
RMB40,000 annually, payable quarterly within 5 days of the start of the quarter.

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,  2007;  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

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, 2007 and 2006 (collectively,  the "Named Executive  Officers").  No
other executive officers received  compensation in excess of $100,000 during the
fiscal years ended December 31, 2007 and 2006.



                                       49
<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         2007        0       0         0          0             0          0        0
    Director, CEO and       2006        0       0         0          0             0          0        0
        President
------------------------- -------- ---------- ----- ------------ ---------- ----------- ------- ---------

</TABLE>

(1) Zhilin Li has been our CEO and  president  since  October  20,  2005.  As of
January 20,  2006,  Zhilin Li was elected as the  director of the  Company.  Her
salary in the fiscal  year ended  December  31, 2007 has not been paid as of the
date of this Form 10-KSB.

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

Our subsidiary  Helpson has employment  agreements with the following  executive
officers:

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. 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.  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.

Ms.  Zhilin  Li was paid RMB  150,000  as the  compensation  for  acting  as the
Company's  director,  CEO and  president  during the fiscal  year ended June 30,
2005. Mr. Xinhua Wu and Ms. Jian Yang received no compensation



                                       50
<PAGE>

for acting as officers  during the fiscal year ended June 30, 2005.  Ms.  Zhilin
Li, Mr.  Xinhua Wu and Ms.  Jian Yang have not  received  any  compensation  for
acting as officers  during the fiscal years ended December 31, 2006 and December
31, 2007 as of the date of this Form 10-KSB.

Item 11 - Security  Ownership of Certain  Beneficial  Owners and  Management and
Related Stockholder Matters

The following table sets forth certain  information  known to us with respect to
the  beneficial  ownership  of our common stock as of March 26, 2008 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.
                                              SHARES
             NAME AND ADDRESS OF           BENEFICIALLY             PERCENT OF
             BENEFICIAL OWNER (1)             OWNED                 CLASS OWNED


            Named Executive Officers
                 and Directors
                   Zhilin Li               10,000,000                 26.82%

            Beneficial Owners of Five
                 Percent or More
                 Heung Mei Tsui            10,812,651                 29.00%
                   Jian Yang                2,278,815                  6.12%

            Total Shares Owned by          23,091,466                 61.94%
             Persons Named  Above

(1) The address of Ms. Li and Ms. Tsui is 2nd Floor, No.17, Jinpan Road, Kaikou,
Hainan Province,  China. The address of Ms. Yang is 1 Haoyuan ST, RM 5B, Blog 7,
Asia Luxury Garden, Haikou, 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 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 the  applicable  community
property laws.  Percentage of beneficial ownership is based on 37,278,938 shares
of our common stock outstanding as of March 26, 2008.



                                       51
<PAGE>




Item 12 - Certain Relationships and Related Transactions

None.

Item 13 - Exhibits

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

(2) EXHIBITS2


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  Bio-Technology
                    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 between Helpson and Zhilin Li dated July
                    1, 2005. (5)
--------------------------------------------------------------------------------
10.4                Employment Contract between Helpson and Xinhua Wu dated July
                    1, 2005. (5)
--------------------------------------------------------------------------------
10.5                Employment Contract between Helpson and Jian Yang dated July
                    1, 2005 (5)
--------------------------------------------------------------------------------
10.6                Subscription and  Registration  Rights Agreement among China
                    Pharma Holdings, Inc. and 17 investors (6)
--------------------------------------------------------------------------------
10.7                Form of Warrant (6)
--------------------------------------------------------------------------------
10.8*               Supply Contract entered into between Hainan Helpson Medicine
                    and   Bio-Technology   Co.   Ltd.   and   Sichuan   Chengxin
                    Pharmaceutical Company
--------------------------------------------------------------------------------
10.9*               Supply Contract entered into between Hainan Helpson Medicine
                    and   Bio-Technology   Co.  Ltd.   and  Anhui  Fuyang  Xinte
                    Pharmaceutical Company
--------------------------------------------------------------------------------
10.10*              Sales Contract  entered into between Hainan Helpson Medicine
                    and   Bio-Technology   Co.  Ltd.   and  Anhui  Fuyang  Xinte
                    Pharmaceutical Company

--------------------------------------------------------------------------------
10.11*              Sales Contract  entered into between Hainan Helpson Medicine
                    and  Bio-Technology  Co. Ltd.  and Hainan  Xinglin  Medicine
                    Company
--------------------------------------------------------------------------------
16.1                Letter  regarding  Change in the Certified  Accountant dated
                    August 15, 2005. (2)
--------------------------------------------------------------------------------
21                  Subsidiaries of China Pharma Holdings, Inc. filed on October
                    20, 2005. (4)
--------------------------------------------------------------------------------



                                       52
<PAGE>
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
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

Hansen,  Barnett &  Maxwell  ("HBM")  is the  Company's  independent  registered
accountant. The principal accountant fees of the fiscal year 2006 and the fiscal
year 2007 are as follows:


                          FISCAL 2006                FISCAL 2007
                          ------------------------------------------------------

--------------------------------------------------------------------------------
Audit Fees (1)            $ 124,064               $ 139,800
--------------------------------------------------------------------------------

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

Tax Fees(3)               $   1,457               $   2,732
--------------------------------------------------------------------------------

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

Total                     $ 127,807               $ 142,532
--------------------------------------------------------------------------------



                                       53
<PAGE>

(1) 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. During the fiscal year ended December 31,
2007, HBM billed us $74,000 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 $65,800 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, 2006 and 2007, HBM billed us $0 in
fees for assurance and related services relating to the performance of the audit
and review of the Company's financial statement.

(3) During the fiscal year ended December 31, 2006, HBM billed us $1,457 in fees
for professional  services for tax planning and  preparation.  During the fiscal
year ended  December  31,  2007,  HBM billed us $2,732 in fees for  professional
services for tax planning and preparation.

(4) During the fiscal  year ended  December  31,  2006,  HBM billed us $2,286 in
other fees.  During the fiscal year ended December 31, 2007, HBM billed us $0 in
other fees.


























                                       54
<PAGE>


                                   SIGNATURES

In  accordance  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 28, 2008                     By: /s/ Zhilin Li
      ------------------                      -------------------------------
                                              Zhilin Li,
                                              Director, Chief Executive Officer,
                                              and President



Dated: March 28, 2008                     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 28, 2008                     By: /s/ Zhilin Li
      ------------------                      -------------------------------
                                              Zhilin Li,
                                              Director, Chief Executive Officer,
                                              and President


Dated: March 28, 2008                     By: /s/ Xinhua Wu
      -------------------                     -------------------------------
                                              Xinhua Wu,
                                              Director and Chief Financial
                                              Officer







                                       55
<PAGE>


                           CHINA PHARMA HOLDINGS, INC.


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                            Page

Report of Independent Registered Public Accounting Firm                      F-2

Consolidated Balance Sheets as of December 31, 2007 and  2006                F-3

Consolidated  Statements of Operations and Comprehensive Income
for the Years Ended December 31, 2007 and 2006                               F-4

Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 2006 and 2007                                             F-5

Consolidated Statements of Cash Flows for the Years Ended
December 31, 2007 and 2006                                                   F-6

Notes to Consolidated Financial Statements                                   F-7



























                                      F-1
<PAGE>


HANSEN, BARNETT & MAXWELL, P.C.ED]
   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 Stockholders of
China Pharma Holdings, Inc.

We have audited the consolidated  balance sheets of China Pharma Holdings,  Inc.
and subsidiaries as of December 31, 2007 and 2006, and the related  consolidated
statements of operations and comprehensive  income,  stockholders'  equity,  and
cash  flows  for the  years  then  ended.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements  are free of material  misstatement.  The Company is not  required to
have,  nor were we engaged to perform,  an audit of its  internal  control  over
financial reporting.  Our audit included  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting.  Accordingly,  we express  no such  opinion.  An audit also  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   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  financial  position  of China  Pharma
Holdings,  Inc.  and  subsidiaries  as of December  31,  2007 and 2006,  and the
results  of its  operations  and its cash  flows for the years  then  ended,  in
conformity with accounting principles generally accepted in the United States of
America.


                                                 HANSEN, BARNETT & MAXWELL, P.C.
Salt Lake City, Utah
March 28, 2008






                                      F-2
<PAGE>
<TABLE>
<CAPTION>

                           CHINA PHARMA HOLDINGS, INC.
                           CONSOLIDATED BALANCE SHEETS

                                                             December 31,  December 31,
                                                                 2007          2006
                                                             -----------   -----------
<S>                                                          <C>           <C>

ASSETS
Current Assets:
Cash and cash equivalents                                    $ 1,830,335   $   656,441
Trade accounts receivable, less allowance for doubtful
accounts of $2,440,852 and $1,562,494, respectively           18,572,976    12,101,979
Other receivables, less allowance for doubtful
accounts of $43,908 and $27,517, respectively                    496,313       355,554
Deferred offering costs                                             --          59,390
Advances to suppliers                                          3,481,948     2,255,877
Inventory                                                     14,448,771    10,277,887
                                                             -----------   -----------
Total Current Assets                                          38,830,343    25,707,128
                                                             -----------   -----------
Non-current Assets:
Property and equipment, net of accumulated depreciation of
$1,003,802 and $619,645, respectively                          2,625,216     2,725,173
Intangible assets, net of accumulated amortization of
$221,715 and $135,656, respectively                            2,063,252        65,344
Deferred tax assets                                              187,509        16,736
                                                             -----------   -----------
Total Non-current Assets                                       4,875,977     2,807,253
                                                             -----------   -----------
TOTAL ASSETS                                                 $43,706,320   $28,514,381
                                                             -----------   -----------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable                                       $   297,299   $   477,291
Accrued expenses                                                 261,301       104,216
Accrued taxes payable                                            311,009       167,419
Other payables                                                    86,161       185,096
Advances from customers                                          261,583       141,871
Accounts payable - related parties                                  --          22,650
Short-term notes payable                                       2,693,428     6,533,649
                                                             -----------   -----------
Total Current Liabilities                                      3,910,781     7,632,192
                                                             -----------   -----------
Research and development commitments                              34,181        31,980
                                                             -----------   -----------
Total Liabilities                                              3,944,962     7,664,172
                                                             -----------   -----------
Stockholders' Equity:
Common stock, $0.001 par value, 60,000,000 shares
authorized, 37,278,938 and 34,723,056 shares issued and
outstanding, respectively                                         37,279        34,723
Additional paid-in capital                                    11,678,606     7,764,979
Foreign currency translation adjustment                        2,839,304       663,871
Retained earnings                                             25,206,169    12,386,636
                                                             -----------   -----------
Total Stockholders' Equity                                    39,761,358    20,850,209
                                                             -----------   -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                   $43,706,320   $28,514,381
                                                             -----------   -----------

</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.



                                      F-3
<PAGE>

                           CHINA PHARMA HOLDINGS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                            AND COMPREHENSIVE INCOME

                                                  For the years
                                                ended December 31,
                                          ----------------------------
                                              2007            2006
                                          ------------    ------------

Revenue                                   $ 33,186,324    $ 21,843,262
Cost of revenue                             17,619,180      11,745,815
                                          ------------    ------------

Gross profit                                15,567,144      10,097,447
                                          ------------    ------------

Operating expenses:
Selling expenses                             1,436,609         260,128
General and administrative                   1,879,306       1,213,828
                                          ------------    ------------
Total operating expenses                     3,315,915       1,473,956
                                          ------------    ------------

Income from operations                      12,251,229       8,623,491
                                          ------------    ------------

Non-operating income (expenses):
Interest income                                 31,805             991
Interest expense                              (237,398)       (145,881)
Other income                                   611,025         108,485
                                          ------------    ------------
Total non-operating income (expense)           405,432         (36,405)
                                          ------------    ------------

Income before taxes                         12,656,661       8,587,086
Income tax benefit                             162,872            --
                                          ------------    ------------
Net income                                $ 12,819,533    $  8,587,086
                                          ------------    ------------
Comprehensive income - foreign currency
translation adjustments                      2,175,433         563,945
                                          ------------    ------------
Comprehensive income                      $ 14,994,966    $  9,151,031
                                          ------------    ------------

Earnings Per Share:
Basic                                     $       0.35    $       0.25
Diluted                                   $       0.34    $       0.25
                                          ------------    ------------
Weighted Average Shares Outstanding:
Basic                                       37,009,655      34,723,056
Diluted                                     37,259,909      34,723,056
                                          ------------    ------------




              The accompanying notes are an integral part of these
                       consolidated financial statements.



                                      F-4
<PAGE>
<TABLE>
<CAPTION>

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


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

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
Shares and warrants issued for cash     2,505,882         2,506     3,794,677          --            --       3,797,183
Exercise of warrants for cash              50,000            50       118,950          --            --         119,000
Net income for the year                      --            --            --            --      12,819,533    12,819,533
Foreign currency translation
adjustment                                   --            --            --       2,175,433          --       2,175,433
                                      -----------   -----------   -----------   -----------   -----------   -----------

Balance, December 31, 2007             37,278,938   $    37,279   $11,678,606   $ 2,839,304   $25,206,169   $39,761,358
                                      -----------   -----------   -----------   -----------   -----------   -----------


</TABLE>



















              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      F-5
<PAGE>


                           CHINA PHARMA HOLDINGS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                For the years ended December 31,
                                                --------------------------------
                                                       2007            2006
                                                   ------------    ------------

Cash Flows from Operating Activities:
Net income                                         $ 12,819,533    $  8,587,086
Depreciation and amortization                           422,443         397,001
Gain on sale of intangibles                            (580,922)           --
Changes in assets and liabilities:
Trade accounts receivable                            (5,413,718)     (6,077,526)
Other receivables                                      (111,660)         42,642
Advances to suppliers                                (1,028,199)        (61,345)
Inventory                                            (3,325,681)     (4,214,702)
Deferred tax assets                                    (162,872)        115,564
Deferred offering costs                                  60,952            --
Trade accounts payable                                 (204,372)       (219,427)
Accrued expenses                                         73,451          86,265
Accrued taxes payable                                   126,812        (407,744)
Other payables                                           20,558         (71,759)
Advances from customers                                 105,573          87,612
                                                   ------------    ------------
Net Cash from Operating Activities                    2,801,898      (1,736,333)
                                                   ------------    ------------

Cash Flows from Investing Activities:
Purchase of property and equipment                      (51,841)       (182,346)
Proceeds from the sale of intangibles                 1,509,741            --
Purchase of intangible assets                        (2,937,431)         (9,657)
                                                   ------------    ------------
Net Cash from Investing Activities                   (1,479,531)       (192,003)
                                                   ------------    ------------

Cash Flows from Financing Activities:
Proceeds from sale of common stock and warrants       3,797,183            --
Proceeds from exercise of warrants                      119,000            --
Proceeds from short term notes payable                2,586,252       2,140,943
Payments of short term notes payable                 (6,705,456)           --
Proceeds from loan from shareholder                        --            22,650
Payment of offering costs                                  --           (58,167)
                                                   ------------    ------------
Net Cash from Financing Activities                     (203,021)      2,105,426
                                                   ------------    ------------

Effect of Exchange Rate Changes on Cash                  54,548          18,131
                                                   ------------    ------------
Net Change in Cash                                    1,173,894         195,221
                                                   ------------    ------------
Cash and Cash Equivalents at Beginning of Period        656,441         461,220
                                                   ------------    ------------
Cash and Cash Equivalents at End of Period         $  1,830,335    $    656,441
                                                   ------------    ------------







              The accompanying notes are an integral part of these
                       consolidated financial statements.




                                      F-6
<PAGE>


                           CHINA PHARMA HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006


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 &  Bio-Technology  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,  (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 the 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 the Company and its wholly owned  subsidiaries.  All  significant
inter-company balances and transactions have been eliminated in consolidation.

Fair Value 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



                                      F-7
<PAGE>

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 PRC 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 the PRC for receivables to extend beyond one
year.  Included in trade  receivables is approximately  $2,002,059 that occurred
more  than one  year  from  December  31,  2007,  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  annually or whenever  events or changes in
circumstances  indicate  that  they may not be  recoverable.  When such an event
occurs,  the Company projects the  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 were to indicate that the carrying value of the long-lived
asset will not be  recovered,  the  carrying  value of the  long-lived  asset is
reduced  by the  estimated  excess  of the  carrying  value  over the  projected
discounted cash flows. There were no such impairments at December 31, 2007.

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
generally  over 5 to 10  years.  The  Company  does  not  capitalize  internally
generated   intangible  assets.  The  Company's  intangible  assets  consist  of
techniques (formulas and manufacturing processes) 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, 2007 and 2006,  the  advances to  suppliers  were  $3,481,948  and
$2,255,877,  respectively,  and the advances  from  customers  were $261,583 and



                                      F-8
<PAGE>

$141,871, 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)  collectability  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.  Total
advertising  expense for the years ended December 31, 2007 and 2006 were $10,393
and $3,446, respectively.

Basic and Diluted  Earnings  per Common  Share - Basic and diluted  earnings per
common share are computed by dividing net income by the weighted-average  number
of common  shares  outstanding.  As of December  31, 2007  potentially  dilutive
securities includes warrants outstanding to purchase a total of 1,202,941 shares
of Company  common stock at an exercise  price of $2.38 per share.  There are no
dilutive  securities  outstanding at December 31, 2006. The following table is a
reconciliation  of the numerators and  denominators  used in the  calculation of
basic and diluted  earnings  per share and the  weighted-average  common  shares
outstanding, respectively:


                                                For the Years Ended December 31,
                                                   2007                2006
                                               -----------         -----------

Net income                                     $12,819,533         $ 8,587,086
                                               -----------         -----------
Basic weighted-average common shares
outstanding                                     37,009,655          34,723,056
Effect of dilutive securities:
Warrants                                           250,254                --
                                               -----------         -----------
Diluted weighted-average common shares
outstanding                                     37,259,909          34,723,056
                                               -----------         -----------
Basic earnings per share                       $      0.35         $      0.25
                                               -----------         -----------
Diluted earnings per share                     $      0.34         $      0.25
                                               -----------         -----------


Credit  Risk - The  carrying  amounts of  accounts  receivable  included  in the



                                      F-9
<PAGE>

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.

The Company has its cash in bank  deposits  primarily in the PRC.  Historically,
deposits  in PRC banks have been  secure due to the state  policy on  protecting
depositors' interests.  The PRC promulgated a new Bankruptcy Law in August 2006,
which  came into  effect on June 1,  2007,  which  contains  provisions  for the
implementation  of measures for the  bankruptcy of PRC banks.  In the event that
bankruptcy laws are enacted for banks in the PRC, the Company's  deposits may be
at a higher risk of loss.

Interest  Rate Risk - The Company is exposed to the risk arising  from  changing
interest rates,  which may affect the ability of repayment of existing debts and
viability of securing future debt instruments within the PRC.

Recently  Enacted  Accounting  Standards  - In  September  2006,  the  Financial
Accounting  Standards  Board (FASB)  issued  Statement  of Financial  Accounting
Standards  (SFAS) No. 157,  Fair Value  Measurements,  which defines fair value,
establishes  a  framework  for  measuring  fair  value  in  generally   accepted
accounting  principles and expands  disclosures  about fair value  measurements.
SFAS No. 157 is effective for fiscal years  beginning  after  November 15, 2007,
and interim periods within those fiscal years. In February 2008, the FASB issued
FASB Staff  Position (FSP FIN) No. 157-2 which  extended the effective  date for
certain  nonfinancial  assets  and  nonfinancial  liabilities  to  fiscal  years
beginning  after  November 15, 2008. The Company does not expect the adoption of
SFAS No. 157 to have a material impact on our consolidated financial statements.

In  February  2007,  the FASB issued  SFAS No.  159,  The Fair Value  Option for
Financial Assets and Financial  Liabilities.  SFAS No. 159 permits  companies to
choose to measure many  financial  instruments  and certain  other items at fair
value.  SFAS No. 159 is effective  for  financial  statements  issued for fiscal
years  beginning  after  November  15,  2007.  The  Company  does not expect the
adoption of SFAS No. 159 to have a material impact on our consolidated financial
statements.

In June 2007,  the Emerging  Issues Task Force of the FASB issued EITF Issue No.
07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services to be
Used in Future  Research  and  Development  Activities",  (EITF  07-3)  which is
effective for fiscal years beginning after December 15, 2007. EITF 07-3 requires
that  nonrefundable   advance  payments  for  future  research  and  development
activities  be deferred and  capitalized.  Such amounts will be recognized as an
expense as the goods are delivered or the related  services are performed.  EITF
07-3 is not expected to have a material  impact on our results of  operations or
financial position.

In December 2007, the FASB issued SFAS No. 141(R),  Business  Combinations,  and
SFAS No. 160,  Noncontrolling  Interests in Consolidated  Financial  Statements.
SFAS No.  141(R)  requires  an  acquirer  to  measure  the  identifiable  assets
acquired,  the  liabilities  assumed  and any  non-controlling  interest  in the
acquiree at their fair values on the  acquisition  date, with goodwill being the
excess value over the net identifiable  assets acquired.  SFAS No. 160 clarifies
that a non-controlling  interest in a subsidiary should be reported as equity in
the consolidated financial statements, consolidated net income shall be adjusted
to  include  the net  income  attributed  to the  non-controlling  interest  and
consolidated comprehensive income shall be adjusted to include the comprehensive



                                      F-10
<PAGE>

income attributed to the non-controlling  interest.  The calculation of earnings
per share  will  continue  to be based on  income  amounts  attributable  to the
parent. SFAS No. 141(R) and SFAS No. 160 are effective for financial  statements
issued for fiscal years  beginning  after  December 15, 2008.  Early adoption is
prohibited.  The Company has not yet determined  the effect on our  consolidated
financial statements, if any, upon adoption of SFAS No. 141(R) or SFAS No. 160.

In March  2008,  the FASB  issued SFAS No.  161,  Disclosures  about  Derivative
Instruments and Hedging Activities. SFAS No. 161 amends SFAS No. 133, Accounting
for  Derivative   Instruments  and  Hedging   Activities  to  require   enhanced
disclosures  concerning the manner in which an entity uses  derivatives (and the
reasons it uses them), the manner in which  derivatives and related hedged items
are  accounted  for under  SFAS No.  133 and  interpretations  thereof,  and the
effects that derivatives and related hedged items have on an entity's  financial
position,  financial performance,  and cash flows. SFAS No. 161 is effective for
financial  statements  of  fiscal  years and  interim  periods  beginning  after
November  15,  2008.  The  Company  has not yet  determined  the  effects on its
consolidated financial statements,  if any, that may result upon the adoption of
SFAS 161.

NOTE 2 - INVENTORY

Inventory consisted of the following:


                                   December 31,
                         -------------------------------
                             2007                2006
                         -----------         -----------
Raw materials            $12,521,536         $ 8,458,210
                         -----------         -----------

Work in progress              60,404           1,679,952
                         -----------         -----------

Finished goods             1,866,831             139,725
                         -----------         -----------

Total Inventory          $14,448,771         $10,277,887
                         -----------         -----------


NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31, 2007 and 2006:


                                               December 31,
                                     ------------------------------
                                         2007               2006
                                     -----------        -----------
Permit of land use                   $   385,102        $   360,304
Building                               1,753,547          1,640,629
Plant, machinery and equipment         1,341,996          1,253,572
Motor vehicle                             37,193             14,763
Office equipment                          88,210             75,550
Construction in progress                  22,970               --
                                     -----------        -----------
Total                                  3,629,018          3,344,818
Less: accumulated depreciation        (1,003,802)          (619,645)
                                     -----------        -----------
Property and Equipment, net          $ 2,625,216        $ 2,725,173
                                     -----------        -----------


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


                                      F-11

<PAGE>

                      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 years  ended  December  31,  2007 and  2006,  depreciation  expense  was
$327,921 and $353,831, respectively.

NOTE 4 - 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  9.5 years.  Amortization of intangible  assets was
$94,522 and $43,170 for the year ended December 31, 2007 and 2006, respectively.
The estimated aggregate amortization expense for the next five years follows:


                    Year               Amount
               ----------------  --------------
                    2008             $ 221,538
                    2009               220,553
                    2010               218,722
                    2011               214,646
                    2012               214,646
                 Thereafter            973,147
                                 --------------
                    Total          $ 2,063,252
                                 --------------

During the third quarter of 2007, the Company entered into agreements to acquire
certain  pharmaceutical  formulas  from  an  unrelated  party  for  cash  for an
aggregate purchase price of $2,091,850. This has been recorded under the caption
Intangible assets in the accompanying balance sheet as of December 31, 2007.

NOTE 5 - DEBT

Short  Term  Notes  Payable  - At  December  31,  2006,  the  Company  had loans
outstanding  totaling  $2,174,608  from a bank.  The loans bear  interest with a
range of 6.14% to 6.43%,  principal and accrued  interest was repaid in July and
August of 2007. On July 13, 2007, the Company  entered into a new line of credit
with the bank collateralized by certain land use rights, machinery and equipment
Advances made under the line of credit of  $2,324,278  are due 7 months from the
date of the loan and bear interest  payable  monthly at rates ranging from 6.90%
to 7.37%.  The line of credit  expires on April 25,  2008 with any  advances  or
renewals  made prior to this date under the line having a maturity date no later
than October 25, 2008. The Company has borrowed all amounts  available under the
line of credit.

Short Term Notes Payable to Former  Shareholders  - In January 2006, the Company
converted  its dividend  payable of  $4,402,147  into  short-term  notes bearing
interest at a rate of 2.25% per annum.  The balance of the note at December  31,
2006 was  $4,359,041.  During  the  fourth  quarter of 2007,  the  Company  paid
$3,989,891 of these notes and the final note outstanding as of December 31, 2007
of $369,150 was paid in January, 2008.

                                      F-12

<PAGE>


NOTE 6 - INCOME TAXES

The Company accounts for its income taxes in accordance with 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.

Undistributed  earnings of the Company's  foreign  subsidiary since  acquisition
amounted to approximately  $22 million at December 31, 2007. Those earnings,  as
well as the  investment in the  subsidiaries  of  approximately  $17 million are
considered to be indefinitely  reinvested and, accordingly,  no U.S. federal and
state  income  taxes have been  provided  thereon.  Upon  distribution  of those
earnings in the form of dividends or otherwise,  the Company would be subject to
both U.S.  income taxes  (subject to an adjustment  for foreign tax credits) and
withholding   taxes  payable  to  the  PRC.   Determination  of  the  amount  of
unrecognized  deferred U.S. income tax liability is not practical because of the
complexities associated with its hypothetical calculation; however, unrecognized
foreign  tax  credits  may be  available  to  reduce a portion  of the U.S.  tax
liability.

According to federal law in the 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%. However,  because the Company is located
in a special region, it has a 15% corporate income tax rate and has been granted
a "tax holiday"  during which it would pay no income taxes through  December 31,
2007. On March 16, 2007, the National  People's Congress of China passed the new
Enterprise Income Tax Law, (EIT Law), and on December 6, 2007, the State Council
of China issued the Implementation Regulations for the EIT Law which took effect
on January 1, 2008. The EIT Law and  Implementation  Regulations  Rules impose a
unified EIT of 25.0% on all  domestic-invested  enterprises and Foreign Invested
Entities, or FIEs, unless they qualify under certain limited exceptions.

As a result of the above  change  in the  income  tax  laws,  The  Company  will
continue  to have a  favorable  rate of 50% of the tax  rates in  effect  during
fiscal 2008 through 2010 as  determined by the PRC  government  and the regional
tax authorities.

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

                                                 December 31,
                                       -----------------------------
                                           2007              2006
                                       -----------       -----------

Tax at statutory rate of 33%           $ 4,176,698       $ 2,919,609
Non-deductible expenses                       --              27,559
Change in temporary differences               --             (22,654)
Effect of lower foreign tax rates       (4,339,570)       (2,924,514)
                                       -----------       -----------
Deferred income tax benefit            $  (162,872)      $      --
                                       -----------       -----------


The temporary  differences  which give rise to the deferred income tax asset are
as follows:


                                      F-13
<PAGE>

                                                     December 31,
                                               -----------------------
                                                 2007            2006
                                               --------       --------
Allowance for doubtful trade receivables        183,586         16,446
Allowance for doubtful other receivables          3,923            290
                                               --------       --------
Total deferred income tax assets                187,509         16,736
Valuation allowance                                --             --
                                               --------       --------
Net deferred income tax asset                  $187,509       $ 16,736
                                               ========       ========


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 7 - STOCKHOLDERS' EQUITY

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
$462,717  amounted to  $3,797,183.  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,  accordingly a registration  statement was filed with the Securities
Exchange Commission on March 30, 2007 within the 60 day period prescribed by the
registration rights agreement. The registration statement was declared effective
on May 4, 2007.

In December 2007, the Company received proceeds of $119,000 upon the exercise of
warrants to purchase  50,000  shares of common  stock.  The  remaining  warrants
issued in conjunction  with the offering to buy 1,202,941 shares of common stock
have not been exercised at December 31, 2007 and have a weighted average life of
2.1 years.

NOTE 8 - TRANSFERS OF TECHNOLOGY

During 2007, the Company entered into agreements to sell certain  pharmaceutical
formulas in the research and development  stage in two separate  transactions to
third  parties  for an  aggregate  sales  price of  $1,509,741  less the cost of
$853,352  and  transfer  (sales)  tax of  $75,487  for a net  gain  on  sale  of
intangibles of $580,922 which is recorded as other income.

NOTE 9 - 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 companies


                                      F-14

<PAGE>

operating in the United States of America.  These risks  include,  among others,
the political,  economic and legal  environments and fluctuations in the foreign
currency  exchange rate. The Company's  results from operations 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
of  Renminbi  (RMB),  which  must be  converted  into  other  currencies  before
remittance  out of the PRC. Both the  conversion of RMB into foreign  currencies
and the  remittance of foreign  currencies  abroad  require  approval of the PRC
government.

NOTE 10 - RELATED PARTY TRANSACTIONS

On April 25,  2005 a dividend  of  $4,154,041  (adjusted  for  foreign  currency
translations  as of  the  balance  sheet  dates)  was  declared  to  the  former
shareholders  of  Helpson  which  was not  paid at  December  31,  2005  and was
subsequently  converted to demand notes bearing  interest at 2.25%  according to
the terms of the dividend.  The Company paid these notes and the related accrued
interest as discussed in Note 5.

NOTE 11 - CONCENTRATIONS

For the year ended December 31, 2007, three customers accounted for 21%, 20% and
12% of  sales,  respectively.  For the  year  ended  December  31,  2006,  three
customers accounted for 17%, 11% and 10% of sales, respectively. At December 31,
2007,  two  customers  accounted  for  20%  and  11%  of  accounts   receivable,
respectively.  At  December  31,  2006,  two  customers  made  up 18% and 14% of
accounts receivable.  For the year ended December 31, 2007, purchases from three
suppliers made up 17%, 17% and 11% of raw material purchases,  respectively. For
the year ended December 31, 2006 purchases from two suppliers  accounted for 44%
and 34% of raw material purchases, respectively.







                                      F-15