UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  FORM 10-Q    (Mark One)  S QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the quarterly period ended September 30, 2008  £ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT  For the transition period from ______________ to _____________   Commission file number: 000-50212   AIDA PHARMACEUTICALS, INC. (Exact name of registrant as specified in its charter)   Nevada81-0592184(State or other jurisdiction of
incorporation or organization)(I.R.S. Employer
Identification No.)   31 Dingjiang Road, Jianggan District, Hangzhou, Peoples Republic of China310016(Address of principal executive offices)(Zip Code)  86-0571-85802712 (Registrants telephone number, including area code)  __________________________________________________________________ (Former name, former address and former fiscal year, if changed since last report)  Indicate by check mark whether the registrant (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes S    No£  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of large accelerated filer, accelerated filer and smaller reporting company ion Rule 12b-2 of the Exchange Act.  Large accelerated filer £ Accelerated filer £  Non-accelerated filer £ Smaller reporting company S  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the  Exchange Act). Yes £     No S    APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:  Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.          Yes£   No £  APPLICABLE ONLY TO CORPORATE ISSUERS  Indicate the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date:  As of November 14, 2008, there were 27,000,000 shares of $0.001 par value common stock issued and outstanding.     2    FORM 10-Q AIDA PHARMACEUTICALS, INC. INDEX  PagePART I.Financial Information4Item 1. Financial Statements (Unaudited)4Condensed Consolidated Balance Sheets as of September 30, 2008 (Unaudited) and December 31, 20075Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30, 2008 and 2007 (Unaudited)6Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007 (Unaudited)7Notes to Condensed Consolidated Financial Statements as of September 30, 2008 (Unaudited)9Item 2.  Managements Discussion and Analysis of Financial Condition or Plan of Operation27Item 3.  Controls and Procedures40PART II.Other Information40Item 1. Legal Proceedings40Item 1A. Risk Factors41Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds41Item 3.  Defaults Upon Senior Securities41Item 4.  Submission of Matters to a Vote of Security Holders.41Item 5.  Other Information41Item 6.  Exhibits41Signatures42  (Inapplicable items have been omitted)  3    PART I  FINANCIAL INFORMATION  Item 1. Financial Statements (Unaudited)   4    AIDA PHARMACEUTICALS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS    ASSETSSeptember 30, 2008
(Unaudited)December 31,
2007CURRENT ASSETSCash and cash equivalents$8,278,318$8,399,306Restricted cash869,426885,743Accounts receivable, net of allowance for doubtful accounts of $1,050,529 and $817,762 as of September 30, 2008 and December 31, 2007, respectively10,357,6119,661,421Notes receivable, net of discount of $7,125 and $49,518 as of September 30, 2008 and December 31, 2007, respectively1,139,035987,489Inventories5,465,2713,837,659Other receivables, prepaid expenses, and other assets816,678182,289Deposits1,699,95310,553,431Due from employees834,546927,254Prepayments for goods241,658324,370Deferred taxes2,579,615414,854Total current assets32,282,11136,173,816LONG-TERM ASSETSPlant and equipment, net18,617,69616,752,638Land use rights, net4,203,8813,664,715Construction in progress2,171,833269,552Patents, net15,879,4655,360,443Long-term investments538,376205,350Deferred assets69,400-Deferred taxes224,958197,627Total long-term assets41,705,60926,450,325TOTAL ASSETS$73,987,720$62,624,141LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESAccounts payable$3,013,479$2,547,129Other payables and accrued liabilities5,550,2232,702,043Advances for research and development1,488,0791,029,657Short-term debt, including related party31,184,01730,352,106Current portion of long-term debt1,369,0001,369,000Due to related parties14,03422,251Taxes payable182,823129,810Customer deposits1,436,467467,889Deferred taxes129,641144,455Total current liabilities44,367,76338,764,340LONG-TERM LIABILITIESNotes payable8,169,1001,647,134Advances for research and development58,35154,760Deferred taxes3,615,602970,055Long-term debt437,630-Total long-term liabilities12,280,6832,671,949TOTAL LIABILITIES56,648,44641,436,289MINORITY INTERESTS8,182,2357,871,031COMMITMENTS AND CONTINGENCIESSHAREHOLDERS EQUITYCommon stock, $0.001 par value; 75,000,000 shares authorized; 27,000,000 shares issued and outstanding at September 30, 2008 and December 31, 2007, respectively27,00027,000Additional paid-in capital5,403,5295,204,352Retained earnings (the restricted portion is $1,846,858 and $1,846,858 at September 30, 2008 and at December 31, 2007, respectively)2,744,9387,329,904Accumulated other comprehensive income981,572755,565TOTAL SHAREHOLDERS EQUITY9,157,03913,316,821TOTAL LIABILITIES AND SHAREHOLDERS EQUITY$73,987,720$62,624,141   See accompanying notes to condensed consolidated financial statements. 5     AIDA PHARMACEUTICALS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)    FOR THE THREE
MONTHS ENDED
SEPTEMBER 30,FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,2008200720082007REVENUES, NET$11,885,458$7,373,770$29,988,617$18,687,283COST OF GOODS SOLD(4,958,239)(3,557,685)(13,379,985)(9,740,952)GROSS PROFIT6,927,2193,816,08516,608,6328,946,331Selling and distribution2,454,2751,387,8186,316,0203,515,776General and administrative1,615,263991,2164,545,6633,006,799Compensation to minority shareholder--1,033,358-Provision for uncollectibility of receivable for guarantee--7,053,432-Research and development326,34074,514948,838238,159INCOME (LOSS) FROM OPERATIONS2,531,3411,362,537(3,288,679)2,185,597OTHER INCOME (EXPENSES)Interest expense, net(580,765)(465,282)(1,902,734)(1,180,813)Government grants29,14046,131100,66895,998Gain on sale of marketable securities---120,356Other, net(40,865)(13,935)107,437(133,333)INCOME (LOSS) BEFORE INCOME TAX1,938,851929,451(4,983,308)1,087,805INCOME TAX BENEFIT (EXPENSE)936,153(153,182)1,249,497(191,349)INCOME (LOSS) BEFORE MINORITY INTERESTS2,875,004776,269(3,733,811)896,456MINORITY INTERESTS(585,323)(257,208)(851,155)(563,068)NET INCOME (LOSS)2,289,681519,061(4,584,966)333,388OTHER COMPREHENSIVE INCOMEForeign currency translation gain72,00122,152226,007362,600OTHER COMPREHENSIVE INCOME72,00122,152226,007362,600COMPREHENSIVE INCOME  (LOSS)$2,361,682$541,213$(4,358,959)$685,988WEIGHTED AVERAGE SHARES OUTSTANDING BASIC AND DILUTED27,000,00027,000,00027,000,00027,000,000NET INCOME (LOSS) PER COMMON SHARE, BASIC AND DILUTED$0.08$0.02$(0.17)$0.01   See accompanying notes to condensed consolidated financial statements.  6   AIDA PHARMACEUTICALS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)    For the Nine Months Ended September  30,20082007CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income$(4,584,966)$333,388Adjustments to reconcile net (loss) income to net cash provided by operating activities:Depreciation and amortization2,009,2941,476,339Provision for doubtful accounts272,81316,455Write down of inventories38,551-Amortization of discount on notes receivable(47,023)(64,228)(Gain) loss from disposal of fixed assets(52,227)28,146Amortization of deferred compensation13,440-Deferred taxes(1,967,777)(81,554)Gain on sale of marketable securities-(120,356)Provision for uncollectibility of receivable for guarantee7,053,432-Minority interests share of net income851,155563,068Changes in operating assets and liabilities, net of effects of acquisition:(Increase) Decrease In:Accounts receivable(807,250)5,566,175Inventories(1,661,910)(1,319,475)Advances from related parties(8,217)(45,322)Other receivables, prepaid expenses, and other assets(578,717)(64,328)Due from employees92,707(989,935)Prepayments for goods82,712(4,590)Increase (Decrease) In:Accounts payable466,350(885,626)Other payables and accrued liabilities1,635,464441,287Advance for research and development457,206(105,099)Taxes payable50,406(290,719)Customer deposits968,577727,669Net cash  provided by operating activities4,284,0205,181,295CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of plant and equipment(1,088,957)(1,924,724)Purchases of construction in progress(2,057,471)(206,699)Proceeds from sale of equipment18,833-Deposit for long-term investment-(2,578,149)Deposit for plant and equipment(629,662)(751,871)Repayments of notes receivable318,192973,320Issuances of notes receivable(422,715)(2,312,740)Proceeds from sale of marketable securities-376,481Proceeds from disposal of patent-101,188Proceeds from disposal of investment-96,035Payment under guarantee of debt(7,053,432)-Purchase of a subsidiary, net of cash acquired53,999-Net cash used in investing activities(10,861,213)(6,227,159)CASH FLOWS FROM FINANCING ACTIVITIES:Restricted cash16,318(432,996)Proceeds from short-term debt30,011,23323,290,420Repayments of short-term debt(30,388,825)(20,186,602)Proceeds from long-term debt8,169,100-Payment to minority shareholder(112,727)-Net cash provided by financing activities7,695,0992,670,822NET INCREASE IN CASH AND CASH EQUIVALENTS1,117,9061,624,958Effect of exchange rate changes on cash(1,238,894)(48,474)Cash and cash equivalents at beginning of period8,399,3066,116,816CASH AND CASH EQUIVALENTS AT END OF PERIOD$8,278,318$7,693,300SUPPLEMENTARY CASH FLOW INFORMATIONIncome taxes paid$1,060,555$610,430Interest paid$1,749,385$1,050,689  See accompanying notes to condensed consolidated financial statements. 7     AIDA PHARMACEUTICALS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)    SUPPLEMENTAL NON-CASH DISCLOSURES:  1.During the nine months ended September 30, 2008 and 2007, $0 and $46,600, respectively was transferred from deposits to patents.2.During the nine months ended September 30, 2008 and 2007, $425,309 and $97,783, respectively was transferred from deposits to plant and equipment.3.During the nine months ended September 30, 2008 and 2007, $155,190 and $33,790, respectively was transferred from construction in progress to plant and equipment.4.During the nine months ended September 30, 2008, $9,492,709 was transferred from deposit to acquire subsidiary.5.On April 23, 2008, Hangzhou Aida Pharmaceutical Co., Ltd. (HAPC) and Fangyuan acquired 43% and 55% interest of Jiangsu Institute of Microbiology Co., Ltd. (JSIM) for $9,744,545 in cash and JSIM became a 98% owned subsidiary of the Company.  The following represents the assets purchased and liabilities assumed at the acquisition date based on a valuation from a third party:   Land use right, net$592,003Patents, net11,102,550Plant and equipment, net569,072Cash and cash equivalents305,835Accounts receivable, net161,753Other receivables and prepayments69,492Other assets743,726Total assets purchased$13,544,431Other payable and accrued liabilities(834,349)Deferred taxes(2,406,416)Other liabilities(360,253)Total liabilities assumed$(3,601,018)Total net assets$9,943,413Share percentage98%Net assets acquired$9,744,545Total consideration paid (including the a deposit of $9,492,709 in prior years)$9,744,545    See accompanying notes to condensed consolidated financial statements. 8    AIDA PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (UNAUDITED)    1. ORGANIZATION AND PRINCIPAL ACTIVITIES  On August 14, 2008, Jiangyin Hi-tech Development Co., Ltd. (Jiangyin), a minority shareholder of Changzhou Fangyuan Pharmaceutical Co., Ltd. (Fangyuan), purchased newly issued registered capital of Fangyuan for cash of $130,593.  The equity interest in Fangyuan by the Company decreased from 66% to 65% due to the dilutive effect of the transaction.  The primary operations of Aida Pharmaceuticals, Inc. and subsidiaries (the Company or We) are the development, production and distribution of cardiovascular and anti cancer drugs, in the form of powder for injection, liquid for intravenous injection, capsule, tablet, ointment, etc., within the Peoples Republic of China (PRC).   2. BASIS OF PRESENTATION  The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 8 of Regulation S-X.. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the consolidated financial position and the consolidated results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full year. The condensed consolidated balance sheet information as of December 31, 2007 was derived from the audited consolidated financial statements included in the Companys Annual Report Form 10-KSB.  These interim financial statements should be read in conjunction with that report.   3. PRINCIPLES OF CONSOLIDATION  The unaudited condensed consolidated financial statements include the accounts of Aida Pharmaceuticals, Inc. (Formerly BAS Consulting, Inc.) and the following subsidiaries:  (i) Earjoy Group Limited (Earjoy) (100% subsidiary of Aida); (ii) Hangzhou Aida Pharmaceutical Co., Ltd. (HAPC) (100% Subsidiary of Earjoy); (iii) Hangzhou Boda Medical Research and Development Co., (Boda) (100% Subsidiary of HAPC); (iv) Hainan Aike Pharmaceutical Co., Ltd. (Hainan) (60.61%% subsidiary of HAPC) and Yang Pu Aike Pharmaceutical Co., Ltd. (Yangpu) (95% subsidiary of Hainan). HAPC exercise significant influence over Hainan by controlling over 50% of the voting rights; (v) Changzhou Fangyuan Pharmaceutical Co., Ltd. (Fangyuan) (65% subsidiary of HAPC) ; (vi) Shanghai Qiaer Bio-Technology Co., Ltd. (Qiaer) (77.5% subsidiary of HAPC) ; (vii) Jiangsu Institute of Microbiology Co., Ltd.(JSIM) (55% subsidiary of Fangyuan and 43% of  HAPC).  Inter-company accounts and transactions have been eliminated in consolidation.    9   AIDA PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (UNAUDITED)    4. CONCENTRATIONS  The Company has major customers who accounted for the following percentages of total sales and total accounts receivable in 2008 and 2007:  SalesAccounts ReceivableMajor CustomersFor the Nine
Months Ended
September 30, 2008For the Nine
Months Ended
September 30, 2007September 30, 2008December 31, 2007Company A-25%-30%Company B-5%-2%Company C-2%-2%Company D11%-4%-Company E12%-5%-Company F4%-8%-Company G4%-3%-  The Company has major suppliers who accounted for the following percentage of total purchases and total accounts payable in 2008 and 2007: PurchasesAccounts PayableMajor SuppliersFor the Nine
Months Ended
September 30, 2008For the Nine
Months Ended
September 30, 2007September 30, 2008December 31, 2007Company H29%11%15%12%Company I11%9%14%5%  The sole market of the Company is the PRC for the nine months ended September 30, 2008 and 2007.   5. USE OF ESTIMATES  The preparation of the condensed consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.  Management makes these estimates using the best information available at the time the estimates are made. Actual results could differ materially from those estimates.   10   AIDA PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (UNAUDITED)    6. FOREIGN CURRENCY TRANSLATION  The accompanying condensed consolidated financial statements are presented in United States dollars.  The functional currency of the Company is the Renminbi (RMB).  The condensed consolidated financial statements are translated into United States dollars from RMB at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.  September 30, 2008December 31, 2007September  30, 2007Period end RMB:         US$ exchange rate6.85517.30467.5108Average period RMB:  US$ exchange rate7.07997.55677.6598   7. FAIR VALUE OF FINANCIAL INSTRUMENTS  The Companys financial instruments include cash and cash equivalents, restricted cash, accounts receivable, notes receivable, due to/from related parties, other receivables and prepaid expenses, due to employees, prepayments for goods, accounts payable, other payable and accrued liabilities, accrued expenses, debt, taxes payable and customer deposits.  Management has estimated that the carrying amount approximates fair value due to their short-term nature. The fair value of the Companys long-term debt is estimated based on the current rates offered to the Company for debt of similar terms and maturities.  The Companys fair value of long-term debt was not significantly different from the carrying value at September 30, 2008.   8. BASIC INCOME (LOSS) PER SHARE  Basic income (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted income (loss) per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no dilutive securities outstanding for the periods presented.   9. NEW ACCOUNTING PRONOUNCEMENTS  In December 2007, the Financial Accounting Standard Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141 (R), Business Combinations. SFAS No. 141 (R) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed, and any noncontrolling 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. 141 (R) is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. We have not yet determined the effect on our consolidated financial statements, if any, upon adoption of SFAS No. 141 (R). SFAS 141 (R) will significantly affect the accounting for future business combinations and the Company will determine the accounting as new combinations occur.     11   AIDA PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (UNAUDITED)    9. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)  In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. This Statement establishes accounting and reporting standards that require the ownership interests in subsidiaries non-parent owners be clearly presented in the equity section of the balance sheet; requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income; requires that changes in a parents ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently; requires that when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value and the gain or loss on the deconsolidation of the subsidiary be measured using the fair value of any noncontrolling equity; requires that entities provide disclosures that clearly identify the interests of the parent and the interests of the noncontrolling owners. This Statement is effective as of the beginning of an entitys first fiscal year that begins after December 15, 2008.  We are aware that our accounting for minority interest will change and we are considering those effects now but believe the effects will only be a reclassification of minority interest from mezzanine equity to our stockholders equity section in the balance sheet.  In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS No. 161"), which amends SFAS No.133 and expands disclosures to include information about the fair value of derivatives, related credit risks and a company's strategies and objectives for using derivatives. SFAS No. 161 is effective for fiscal periods beginning on or after November 15, 2008. The Company is currently in the process of assessing the impact that SFAS No. 161 will have on the disclosures in its financial statements.   10. NOTES RECEIVABLE  Notes receivable consist of the following:  Notes receivable from unrelated companies:September 30, 2008
(Unaudited)December 31, 2007Due January 29, 2008$-$23,216Due January 9, 2008-27,473Due December 31, 2007-24,907Due December 31, 2007-7,589Due January 26, 2008-20,535Due April 30, 2008-13,691Due October 31, 2008 (subsequently settled)771,574724,094Due November 30, 200856,35652,888Due December 15, 200872,93868,450Due December 31, 200835,54623,796Due October 13, 2008 (subsequently settled)1,459-Due December 15, 200853,67150,368Due November 10, 2008 (subsequently settled)128,076-Due April 1, 200926,540-Subtotal1,146,1601,037,007Less: Discount7,12549,518Total notes receivable, net$1,139,035$987,489         12   AIDA PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (UNAUDITED)    10. NOTES RECEIVABLE (CONTINUED)  Notes receivable are interest-free and unsecured.  In 2007, interest-free notes were provided to companies for their assistance in developing distribution channels and new markets for the Company. The Company recorded selling and distribution expense and a discount on the notes receivable of $130,793 based on the present value of the notes receivable using a 7% discount rate.  For the nine months ended September 30, 2008 and 2007, $45,500 and $64,228, respectively of interest income was recognized in the accompanying condensed consolidated statements of operations from the amortization of the discount.   11. INVENTORIES  Inventories consist of the following:  September 30, 2008
(Unaudited)December 31, 2007Raw materials$1,692,170$1,519,854Work-in-progress890,5451,036,717Finished goods2,882,5561,281,088Total inventories$5,465,271$3,837,659   12. PLANT AND EQUIPMENT  Plant and equipment consist of the following:  September 30, 2008
(Unaudited)December 31, 2007At cost:Buildings$11,126,332$9,865,299Machinery14,188,06912,465,740Motor vehicles1,238,140912,448Office equipment1,125,980912,979Leasehold improvements524,579476,69128,203,10024,633,157Less:  Accumulated depreciationBuildings2,216,2901,758,316Machinery5,712,4644,748,325Motor vehicles622,314452,541Office equipment608,165542,518Leasehold improvements426,171378,8199,585,4047,880,519Plant and equipment, net$18,617,696$16,752,638  The net book value of buildings and machinery pledged for certain bank loans at September 30, 2008 and December 31, 2007 is $5, 275, 208 and $5,070,294, respectively.  Also see Note 16.  Depreciation expense for the nine months ended September 30, 2008 and 2007 is $1,001,685 and $1,147,349 respectively.    13   AIDA PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (UNAUDITED)   13. LAND USE RIGHTS  Land use rights consist of the following:  September 30, 2008
(Unaudited)December 31, 2007Cost$4,564,892$3,945,385Less: Accumulated amortization361,011280,670Land use rights, net$4,203,881$3,664,715  Amortization expense for the nine months ended September 30, 2008 and 2007 is $71,631 and $58,429 respectively.  Amortization expense for the next five years and thereafter is as follows:  2008 within one year$25,3652009101,4612010101,4612011101,4612012101,461Thereafter3,772,672Total$4,203,881  The net book value of the land use rights pledged bank loans at September 30, 2008 and December 31, 2007 is $4,109,325 and $2,314,771, respectively.  Also, see Note 16.   14. PATENTS  Patents consist of the following:  September  30, 2008
(Unaudited)December 31, 2007Cost$17,901,568$6,446,568Less: Accumulated amortization2,022,1031,086,125Patents, net$15,879,465$5,360,443  During the nine months ended September 30, 2008, the Company acquired in the acquisition of JSIM (see Note 23) a patent for Etimicin, for $11,102,550, which is amortized over its remaining beneficial period of approximately 10 years through April 2018 using the straight-line method.  14   AIDA PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (UNAUDITED)    14. PATENTS (CONTINUED)  Amortization expense for the nine months ended September 30, 2008 and 2007 is $935,978 and $270,561, respectively.  Amortization expense for the next five years and thereafter is as follows:  2008 within one year$446,27120091,841,87220101,795,38120111,779,89520121,576,798Thereafter8,439,248Total$15,879,465  15. DEPOSITS  Deposits consist of the following:  September 30, 2008
(Unaudited)December 31, 2007Deposits for patent$648,222$648,222Deposits for plant and equipment1,051,371412,500Deposits for acquisition-9,492,709Total$1,699,593$10,553,431  During the nine months ended September 30, 2008, the Company paid $1,051,371 as deposits to acquire certain equipment.  Deposits of $412,500 were transferred to plant and equipment.  During the nine months ended September 30, 2008, deposits of $9,492,709 were transferred to long-term investment.   16. SHORT TERM DEBT  Short-term debt consists of the following:  Short-term bank loansSeptember 30, 2008
(Unaudited)December 31, 2007Loans from Industrial and Commercial Bank of China Qingchun Branch, due August 15, 2008, monthly interest only payments at 7.524% per annum, secured by assets owned by the Company.$-$684,501Loans from Industrial and Commercial Bank of China Qingchun Branch, due July 18, 2008, monthly interest only payments at 7.524% per annum, secured by assets owned by the Company.-958,300  15   AIDA PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (UNAUDITED)   16. SHORT TERM DEBT (CONTINUED)  September 30, 2008
(Unaudited)December 31, 2007Loans from Industrial and Commercial Bank of China Qingchun Branch, due August 8, 2008, monthly interest only payments at 7.524% per annum, secured by assets owned by the Company.-855,625Loans from Industrial and Commercial Bank of China Qingchun Branch, due June 6, 2008, monthly interest only payments at 7.227% per annum, secured by assets owned by the Company.-1,369,000Loans from Industrial and Commercial Bank of China Qingchun Branch, due December 3, 2008, monthly interest only payments at 7.227% per annum, secured by assets owned by the Company. Also see Notes 12 and 13.1,458,768-Loans from Industrial and Commercial Bank of China Qingchun Branch, due June 18, 2008, monthly interest only payments at 7.227% per annum, secured by assets owned by the Company.-821,400Loans from Industrial and Commercial Bank of China Qingchun Branch, due January 22, 2009, monthly interest only payments at 7.227% per annum, secured by assets owned by the Company. Also see Notes 12 and 13.1,021,138-Loans from Industrial and Commercial Bank of China Qingchun Branch, due February 4, 2009, monthly interest only payments at 7.227% per annum, secured by assets owned by the Company. Also see Notes 12 and 13.911,730-Loans from Industrial and Commercial Bank of China Qingchun Branch, due February 27, 2009, monthly interest only payments at 7.227% per annum, secured by assets owned by the Company. Also see Notes 12 and 13.729,384-Loans from Industrial and Commercial Bank of China Qingchun Branch, due December 19, 2008, monthly interest only payments at 7.227% per annum, secured by assets owned by the Company. Also see Notes 12 and 13.875,261-Loan from Bank of Communication Qingchun Branch, due March 29, 2008 monthly interest only payments at 6.7095% per annum, guaranteed by Nanwang Information Industry Group Co., Ltd.-3,422,501Loan from Bank of Communication Qingchun Branch, due March 5, 2008 monthly interest only payments at 6.8985% per annum, guaranteed by Nanwang Information Industry Group Co., Ltd.-1,369,000Loan from Bank of Communication Qingchun Branch, due March 26, 2008 monthly interest only payments at 6.8985% per annum, guaranteed by Nanwang Information Industry Group Co., Ltd.-1,369,000  16   AIDA PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (UNAUDITED)   16. SHORT TERM DEBT (CONTINUED)  September 30, 2008
(Unaudited)December 31, 2007Loan from Hangzhou Commercial Bank Gaoxin Branch due February 1, 2008, monthly interest only payments at 6.732% per annum, guaranteed by Xinchang Guobang Chemicals Co., Ltd.-1,369,000Loan from Bank of Communication Qingchun Branch due October 16, 2008, monthly interest only payments at 7.47% per annum, guaranteed by Xinchang Changxin Investment development  Co., Ltd. (subsequently repaid on its due date)2,188,152-Loan Bank of Communication Qingchun Branch due March 25, 2009, monthly interest only payments at 7.56% per annum, guaranteed by Xinchang Changxin Investment development Co., Ltd.1,458,768-Loan Bank of Communication Qingchun Branch due April 7, 2009, monthly interest only payments at 7.47% per annum, guaranteed by Xinchang Changxin Investment development Co., Ltd.1,458,768-Loan Bank of Communication Qingchun Branch due August 5, 2009, monthly interest only payments at 7.84% per annum, guaranteed by Xinchang Changxin Investment development Co., Ltd2,188,152-Loan Bank of Communication Qingchun Branch due September 4, 2009, monthly interest only payments at 7.84% per annum, guaranteed by Xinchang Changxin Investment development Co., Ltd2,188,152-Loan Bank of Communication Qingchun Branch due September 18, 2009, monthly interest only payments at 7.56% per annum, guaranteed by Xinchang Changxin Investment development Co., Ltd1,458,768- Loan from Bank of China Kaiyuan Branch due April 27, 2008, monthly interest only payments at 7.3485% per annum, guaranteed by Xinchang Guobang Chemicals Co., Ltd.-1,369,000Loan from Bank of China Kaiyuan Branch due May 16, 2008, monthly interest only payments at 7.3485% per annum, guaranteed by Xinchang Guobang Chemicals Co., Ltd.-684,501Loan from Bank of China Kaiyuan Branch due May 9, 2008, monthly interest only payments at 7.3485% per annum, guaranteed by Xinchang Guobang Chemicals Co., Ltd.-2,053,501Loan from Evergrowing Bank Hangzhou Branch due June 4, 2009, monthly interest only payments at 7.8435% per annum, guaranteed by Zhejiang Guobang Chemicals Co., Ltd.1,458,768-Loan from Evergrowing Bank Hangzhou Branch due June 4, 2008, monthly interest only payments at 7.3485% per annum, guaranteed by Xinchang Guobang Chemicals Co., Ltd.-2,053,501  17   AIDA PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (UNAUDITED)   16. SHORT TERM DEBT (CONTINUED)  September 30, 2008
(Unaudited)December 31, 2007Loans from Changzhou Commercial Bank, due May 28, 2008, monthly interest only payments at 8.541% per annum, secured by assets owned by the Company.-1,937,136Loans from Changzhou Commercial Bank, due May 28, 2008, monthly interest only payments at 8.541% per annum, secured by assets owned by the Company.-1,211,565Loans from Changzhou Commercial Bank, due May 27, 2009, monthly interest only payments at 8.964% per annum, secured by assets owned by the Company. Also see Notes 12.1,455,850-Loans from Changzhou Commercial Bank, due May 27, 2009, monthly interest only payments at 8.964% per annum, secured by assets owned by the Company. Also see Notes 13.2,191,069-Loans from Changzhou Communication Bank of China, due November 16, 2008, monthly interest only payments at 9.478% per annum, guaranteed by Changzhou High-Tech Development District Co., Ltd.1,625,0681,525,066Loans from Changzhou Communication Bank of China, due November 23, 2008, monthly interest only payments at 9.478% per annum, guaranteed by Changzhou High-Tech Development District Co., Ltd.415,748390,165Loans from Huaxia Bank, due September 17, 2008, monthly interest only payments at 8.020% per annum, guaranteed by Changzhou Huarun Material Co., Ltd.-2,738,001Total short-term bank loans$23,083,544$26,180,763  18   AIDA PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (UNAUDITED)   16. SHORT TERM DEBT (CONTINUED)  September 30, 2008
(Unaudited)December 31, 2007Notes payable to banks:Due November 7, 2008 (subsequently repaid on its due date)$85,338$98,568Due November 6, 2008 (subsequently repaid on its due date)54,704-Due February 18, 20091,458,768-Due June 27, 2008-98,568Due March 14, 2008-102,675Due February 23, 2008-684,500Total notes payable to banks1,598,810885,743Notes payable to unrelated non bank companies:Due October 1, 2008, interest charged at 7.52% per annum (subsequently repaid on its due date)583,507547,601Due April 6, 2008, interest at 7.26% per annum-684,500Due December 31, 2007-273,800Due September 30, 2009, interest at 7.02% per annum1,877,371-Due December 31, 2008  interest at 7.02% per annum583,508273,800Due February 20, 20091,458,768-Due June 3, 2009, interest at 7.918% per annum729,383-Total notes payable to unrelated non bank companies5,232,5381,779,701Notes payable to related party:Due June 30, 2008, interest at 7.02% per annum-821,399Due June 24, 2009364,689-Due November 20, 2008175,052-Due December 30, 2007, interest at 9.00% per annum (in default)729,384684,500Total notes payable to related party1,269,1251,505,899Total short-term debt$31,184,017$30,352,106  All the notes payable to banks are subject to bank charges of 0.05% of the principal as a commission on each loan transaction. Bank charges for notes payable were $10,740 and $7,850 for the nine months ended September 30, 2008 and 2007, respectively.  The note payable in default to a related party is due to Shanghai Panasia Strategy Investment Co., Ltd.  This company is controlled by a shareholder of the Company.  Accrued interest in default of $131,930 is included in other payables and accrued liabilities at September 30, 2008.  See Note 24 (b).  Restricted cash of $869,426 is held as collateral for the following notes payable to banks at September 30, 2008:  Due November 6, 2008$54,704Due November 7, 200885,338Due February 18, 20091,458,768Total$1,598,810  19   AIDA PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (UNAUDITED)   17. LONGTERM DEBT  Long-term debt consists of the following: Bank loans:September 30, 2008
(Unaudited)December 31, 2007Loan from Bank of Communication Qingchun Branch due March 23, 2010, monthly interest only payments at 7.56% per annum, guaranteed by Chanxin Investment Development  Co., Ltd.$5,105,688$-Loan from Union Bank due March 27, 2010, monthly interest only payments at 7.56% per annum, guaranteed by Chanxin Investment Development  Co., Ltd.1,896,398-Loans from Communication Bank of China Changzhou Branch, due November 3, 2008, monthly interest only payments at 6.7272% per annum, guaranteed by Changzhou High-Tech Development District Co., Ltd. (subsequently repaid on its due date)1,369,0001,369,000Loans from National Development Bank of China Hainan Branch, due July 17, 2013, monthly interest only payments at 7.740% per annum, secured by assets owned by the Company. Also see Notes 12.1,167,014-Total long-term bank loans9,538,1001,369,000Less: current portion(1,369,000)(1,369,000)Long-term portion$8,169,100$-Notes payable to related company:Due December 31, 2009, interest at 7.02% per annum, guaranteed by Donghong Taisheng Co., Ltd$437,630$384,187Notes payable to unrelated company:Due February 20, 2009, interest at 1% per annum and unsecured-1,262,947Total notes payable437,6301,647,134Total long-term debt$8,606,730$1,647,134  18. TAXES  (a)  Corporation Income Tax (CIT)  Effective January 1, 2007, the Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"), an interpretation of FASB statement No. 109, Accounting for Income Taxes. The interpretation addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.  Under FIN 48, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of September 30, 2008, the Company does not have a liability for unrecognized tax benefits.  20   AIDA PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (UNAUDITED)   18. TAXES (CONTINUED)  The Company files income tax returns in the U.S. federal jurisdiction and various states. The Company is subject to U.S. federal or state income tax examinations by tax authorities for years after 2005. During the periods open to examination, the Company has net operating loss and tax credit carry forwards for U.S. federal and state tax purposes that have attributes from closed periods. Since these Net Operating Losses ("NOLs") and tax credit carry forwards may be utilized in future periods, they remain subject to examination. The Company also files certain tax returns in China. As of September 30, 2008 the Company was not aware of any pending income tax examinations by China tax authorities.  The Company's policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of September 30, 2008, the Company has no accrued interest or penalties related to uncertain tax positions.  On March 16, 2007, the National Peoples Congress of China approved the Corporate Income Tax Law of the Peoples Republic of China (the new CIT law), which is effective from January 1, 2008.  Prior to January 1, 2008, the Corporation Income Tax (CIT) rate applicable to subsidiaries of the Company in the PRC range from 15% to 33%.  In 2006, HAPC applied to the local tax authority for a favorable corporate income tax rate of 26.4% for companies registered in coastal economic zone of PRC, which was approved in October 2006. As a result, the corporate income tax rate applicable to HAPC was changed to 26.4% from 33%.  Hainan and Yangpu are subsidiaries registered in Hainan, PRC, and their corporate income tax rate of 15% is the tax rate for companies registered in Hainan, PRC in accordance with the relevant tax laws in PRC. Fangyuan is a subsidiary of HAPC and its applicable corporate income tax rate is 15%, since the company was recognized as a high-tech company by the PRC government.  However, in accordance with the relevant taxation laws in the PRC, from the time that a company has its first profitable tax year, a foreign investment company is exempt from corporate income tax for its first two years and is then entitled to a 50% tax reduction for the succeeding three years. For Hangzhou and Hainan, the first profitable year for income tax purposes as a foreign investment company was 2004.  Under the new CIT law, the corporate income tax rate applicable to the Company starting from January 1, 2008 is 25%. The Company believes some of the tax concession granted to eligible companies prior to the new CIT law will be grand fathered.  Income tax (benefit) expense is summarized as follows:  For the Nine Months Ended September 30,(Unaudited)20082007Current:Provision for corporation income tax$718,280$272,903718,280272,903Deferred:Provision for corporation income tax(1,967,777)(81,554)(1,967,777)(81,554)Income tax (benefit) expense$(1,249,497)$191,349  21   AIDA PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (UNAUDITED)   18. TAXES (CONTINUED)  The Companys income tax expense differs from the expected tax (benefit) expense for the nine months ended September 30, 2008 and 2007 (computed by applying the CIT rate of 25 percent to (benefit) income before income taxes) as follows:  For the Nine Months Ended September 30, (Unaudited)20082007Computed expected (benefit) expense$(1,245,827)$287,181Effect of favorable tax rates795,569(4,391)Valuation allowance33,83421,435Permanent differences(670,615)(81,554)Tax exemptions(162,458)(31,322)Income tax (benefit) expense$(1,249,497)$191,349  The tax effects of temporary differences that give rise to the Companys net deferred tax assets and liabilities are as follows:  September 30, 2008 (Unaudited)December 31, 2007Deferred tax assets:Current portion:Consulting and audit expenses$88,736$96,384Selling and distribution expenses354,874174,608Bad debt provision246,755102,963Provision of receivable for guarantee1,858,668-Other62,97758,887Less: valuation allowance(32,395)(17,988)Subtotal2,579,615414,854Non-current portion:Depreciation74,7435,875Impairment and amortization77,57660,844Bad debt provision-411Research and development costs129,403129,403Other3,87642,307Less: valuation allowance(60,640)(41,213)Subtotal224,958197,627Total deferred tax assets2,804,573612,481Deferred tax liabilities:Current portion:Sales cut-off88,348101,992Other41,29342,463Subtotal129,641144,455  22   AIDA PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (UNAUDITED)   18. TAXES (CONTINUED)  September 30, 2008 (Unaudited)December 31, 2007Non-current portion:Subsidy income192,105192,105Depreciation150,76048,132Unrealized gains from foreign currency translation219,261219,261Intangible assets acquired3,019,895481,546Other33,58129,011Subtotal3,615,602970,055Total deferred tax liabilities3,745,2431,114,510Net deferred liabilities$940,670$502,029  (b)  Tax Holiday Effect  For 2008 and 2007 the PRC corporate income tax rate was 25% and 33%, respectively. Certain subsidiaries of the Company are entitled to tax exemptions or lower tax rates (tax holidays) for the nine months ended September 30, 2008 and 2007.  (Loss) income before income tax (benefit) expense of $(4,983,308) and $1,087,804 for the nine months ended September 30, 2008 and 2007 respectively was attributed to subsidiaries with operations in China. Income tax (benefit) expense related to China income for the nine months ended September 30, 2008 and 2007 is $(1,249,497) and 191,349 respectively.  The combined effects of the income tax expense exemptions and reductions available to the Company for the nine months ended September 30, 2008 and 2007 are as follows:   For The Nine Months Ended
September 30,
(Unaudited)20082007Tax holiday effect$(633,111)$35,713Basic net income per share effect$(0.02)$0.00   (c)  Value Added Tax (VAT)  Enterprises or individual who sell commodities, engage in repair and maintenance or import or export goods in the PRC are subject to a value added tax in accordance with Chinese Laws.  The value added tax standard rate is 17% of the gross sale price. A credit is available whereby VAT paid on the purchases of semi-finished products or raw materials used in the production of the Companys finished products can be used to offset the VAT due on the sales of the finished products.  The VAT payable of $413,088 and $319,085 at and September 30, 2008 and December 31, 2007, respectively, are included in other payables and accrued expenses in the accompanying condensed consolidated balance sheets.  23   AIDA PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (UNAUDITED)   19. COMPENSATION TO MINORITY SHAREHOLDER  In 2008, a consolidated subsidiary incurred $1,033,358 of expenses, which were paid to a minority shareholder of that subsidiary. Of the total, $706,230 was compensation for assistance in developing distribution channels and new markets and $327,128 was paid for support to the subsidiarys operations in 2007 and 2006 and was based on changes in its assets related to that support.   20. PAYMENT TO MINORITY SHAREHOLDER  During the nine months ended September 30, 2008, Fangyuan, a subsidiary of the Company, distributed $243,320 of previously earned minority interests to Jiangyin Hi-tech Development Co., Ltd., a minority shareholder of Fangyuan.   21. MARKETABLE SECURITIES  The Company purchased an investment fund at a cost of $256,125 on September 6, 2006. The fair market value of the fund as of December 31, 2006 was $362,758. The difference between the market value and the cost of $106,633 was recognized as other comprehensive income at December 31, 2006, and was included as a separate component of shareholders equity for year then ended.  The securities were classified as available-for-sale.  On January 28, 2007, the Company sold the marketable securities for $375,663 resulting in a gain of $119,538 which was included in the condensed consolidated statement of income (loss) and comprehensive income for the nine months ended September 30, 2007.   22. PROVISION FOR UNCOLLECTIBILITY OF RECEIVABLE FOR GUARANTEE  On September 26 and November 9, 2007, HAPC entered into guarantee contracts to serve as guarantor of bank loans amounting to $2,848,110 and $2,136,083 respectively to a third-party, Nanwang Information Industry Group Co., Ltd. (Nanwang) from Bank of Communication Hangzhou Branch. Under the guarantee contract, HAPC shall perform all obligations of Nanwang under the loan contract if Nanwang fails to perform such obligations. On March 25, 2008, Bank of Communication Hangzhou Branch demanded Nanwang repay the loans and outstanding interest because Nanwang defaulted on its interest payments. Consequently, as guarantor, HAPC had to repay $5,105,536 for Nanwang.  Also, on June 15, 2007, HAPC entered into a guarantee contract to serve as guarantor of a bank loan amounting to $2,136,083 to Nanwang from Union Bank Hangzhou Branch. Under the guarantee contract, HAPC shall perform all obligations of Nanwang under the loan contract if Nanwang fails to perform its obligations therein. On March 28, 2008, Union Bank Hangzhou Branch demanded Nanwang repay the loan and outstanding interest because Nanwang defaulted on its interest payments. Consequently, HAPC, as guarantor, had to repay $1,939,587.  HAPC commenced legal proceedings in the middle court of Hangzhou to recover all the amounts paid on behalf of Nanwang on April 15, 2008. According to the ruling of the local court dated April 22, 2008, assets of Nanwang with an estimated value of $7,053,432 have been seized and sequestered pending resolution of the said litigation proceeding. On May 20, 2008, the middle court of Hangzhou announced Nanwang as insolvent and the liquidation process commenced immediately.  Consequently, the litigation proceeding commenced on April 15, 2008 was closed.  The Company considers the loan and the outstanding interest paid on behalf of Nanwang of $7,053,432 is unlikely to be collected given their financial position, and therefore a full allowance was made for the total balance of $7,053,432 and was reflected in the condensed consolidated statement of operations and comprehensive loss for the nine months ended September 30, 2008    24   AIDA PHARMACEUTICALS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (UNAUDITED)   23. BUSINESS COMBINATION  On April 23, 2008, HAPC, the Companys subsidiary, acquired a 98% interest of Jiangsu Institute of Microbiology Co., Ltd. (JSIM) for $9,744,545 in cash. The financial results of JSIM have been consolidated in the accompanying condensed consolidated financial statements of the Company from the date of acquisition.  The following represents the assets purchased and liabilities assumed at the acquisition date based on a valuation from a third party: Land use right, net$592,003Patents, net11,102,550Plant and equipment, net569,072Cash and cash equivalents305,835Accounts receivable, net161,753Other receivables and prepayments69,492Other assets743,726Total assets purchased$13,544,431Other payable and accrued liabilities(834,349)Deferred taxes(2,406,416)Other liabilities(360,253)Total liabilities assumed$(3,601,018)Total net assets$9,943,413Share percentage98%Net assets acquired$9,744,545Total consideration paid (including the a deposit of $9,492,709 in prior years)$9,744,545  The following is the pro forma net income (loss) and basic and diluted net income (loss) per share of the Company for the nine months ended September 30, 2008 and 2007 assuming the acquisition was completed on January 1, 2008 and 2007:  For the Nine Months Ended
September 30,
(Unaudited)20082007Net (loss) income$(4,567,399)$290,721Net (loss) income per share, basic and diluted$(0.17)$0.01  25


AIDA PHARMACEUTICALS, INC. (FORMERLY BAS CONSULTING, INC.) AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006 (UNAUDITED)    24. COMMITMENTS AND CONTINGENCIES  (a)  Lease Commitment  The Company occupies plant and office space leased from third parties. Accordingly, for the nine months ended September 30, 2008 and 2007, the Company recognized rental expense for these spaces of 514,637 and $312,696, respectively.  As of September 30, 2008, the Company has outstanding commitments with respect to non-cancelable operating leases for real estate, which fall due as follows:  Period Ending September 30,Amount2008 within one year$74,7382009232,4662010232,4662011232,4662012232,466Thereafter1,326,543Total$2,331,145  (b)  Contingencies  In January 2007, the Company was sued by Jiangying Xinqiao Construction Co., Ltd for an overdue construction payment of $243,318. The local judge held a court in April, 2007 and the case is still in progress.  The Company believes the claim is without merit and plans to vigorously contend the claim. As such, there is no contingent accrual at September 30, 2008.  On January 9, 2008, HAPC entered into a guarantee contract to serve as guarantor for all the bank loans borrowed during the period from January 9, 2008 to January 9, 2009 by ZGPC from Shanghai Pudong Development Bank with a maximum guarantee amount of $2,848,110.  Under this guarantee contract, HAPC shall perform all obligations of ZGPC under the loan contract if ZGPC fails to perform its obligations as set forth in the loan contract.  On July 6, 2007, HAPC entered into a guarantee contract to serve as guarantor for all the bank loans borrowed during the period from July 6, 2007 to December 31, 2008 by Xinchang Guobang Chemical Co., Ltd. (XGCC), a company controlled by the director of HAPC, from Bank of Communications with a maximum guarantee amount of $3,275,327.  Under this guarantee contract, HAPC shall perform all obligations of XGCC under the loan contract if XGCC fails to perform its obligations as set forth in the loan contract.  On November 8, 2008, legal proceedings were instituted against the Company by Shanghai Panasia Strategy Investment Co., Ltd. in Changning District, Shanghai for an overdue loan and outstanding interest of $861,314. Shanghai Panasia Strategy Investment Co., Ltd. is controlled by a 16.57% shareholder of the Company. The local judge will hold a court for trial on December 1, 2008.  The Company has recorded the loan and accrued the outstanding interest balance of $861,314 as of September 30, 2008. As such, there is no contingent accrual at September 30, 2008. Also see Note 16.  26     Item 2.  Managements Discussion and Analysis or Plan of Operation.  FORWARD-LOOKING STATEMENTS  We have included forward-looking statements in this report. For this purpose, any statements contained in this report that are not statements of historical fact may be deemed to be forward looking statements. Without limiting the foregoing, words such as "may", "will", "expect", "believe", "anticipate", "estimate", "plan" or "continue" or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors. Factors that might cause forward-looking statements to differ materially from actual results include, among other things, overall economic and business conditions, demand for the Company's products, competitive factors in the industries in which we compete or intend to compete, natural gas availability and cost and timing, impact and other uncertainties of our future acquisition plans.  GENERAL  Aida Pharmaceuticals Inc. (formerly known as BAS Consulting, Inc.) (the Company or We) was incorporated in the State of Nevada on December 18, 2002 (inception).  We attempted to operate as a consulting firm and were not successful.  We  then began to seek an acquisition candidate and on December 8, 2005, we completed and closed the Share Exchange Agreement (the Agreement) dated as of June 1, 2005 by and among BAS Consulting, Inc., Earjoy Group Limited, a British Virgin Islands international business company (Earjoy), and the shareholders of Earjoy (the Earjoy Shareholders).  A copy of the Agreement was previously filed as an Exhibit to our Current Report on Form 8-K dated June 1, 2005 as filed with the Securities and Exchange Commission (the SEC) on June 15, 2005.  On March 6, 2006, we amended our Articles of Incorporation to change the name of the Company to Aida Pharmaceuticals, Inc. As a result of the acquisition, we now operate the business under the name of Aida Pharmaceuticals, Inc.  On July 5, 2006, we registered 2,500,000 shares of our common stock, $0.001 par value on Form S-8 with the SEC. Pursuant to the registration statement, we issued 2,000,000 shares to our employees and consultants.  On November 13, 2007, we filed a registration statement on Form SB-2 with the SEC to register an aggregate 1,300,000 shares of our common stock that have already been issued to the selling security holder, Panasia Strategy Investment Co., Ltd, in private placement transactions that were exempt from the registration and prospectus delivery requirements of the Securities Act of 1933, as amended and an additional 1,200,000 Units, each Unit consisting of one share of common stock, one Class A Redeemable Warrant and one Class B Redeemable Warrant that are being offered by us. The registration statement on Form SB-2 became effective on January 29, 2008.  Our headquarters are located in Hangzhou, the Peoples Republic of China (PRC).    27     Subsidiaries  We have the following subsidiaries:  · Earjoy Group Limited, (Earjoy) · Hangzhou Aida Pharmaceutical Co., Ltd (Hangzhou Aida); · Hangzhou Boda Medical Research and Development Co., Ltd. (Boda); · Hainan Aike Pharmaceutical Co., Ltd. (Aike); · Changzhou Fangyuan Pharmaceutical Co., Ltd. (Fangyuan); · Shanghai Qiaer Bio-technology Co., Ltd. (Qiaer); and · Jiangsu Institute of Microbiology Co., Ltd. (JSIM)  Earjoy is an investment holding company.  Hangzhou Aida has been in operation since March 1999 and was established as a limited liability company under the laws of the PRC on March 26, 1999.  On December 23, 2004, Earjoy entered into a Share Purchase Agreement with Best Nation Investment Co., Ltd. for the acquisition by Earjoy of 100% of all interests in Hangzhou Aida.  Hangzhou Aida is a fully-integrated pharmaceutical company engaged in the development, manufacture, marketing, licensing, and distribution of pharmaceutical products primarily in mainland China.  Hangzhou Aida (including its subsidiaries) has a total of nine production lines for the manufacture of antibiotics, cardiovascular and anti-tumor drugs in various forms, including injectable powder, injectable liquid, capsules, tablets and ointments. Hangzhou Aidas primary product is Etimicin Sulfate the injectable powder form. All of them have been certified according to the Good Manufacturing Practices (GMP) guidelines issued by the State Food and Drug Administration of the Peoples Republic of China (SFDA). Hangzhou Aida sells its Category-A antibiotic (Etimicin Sulphate under the trademark Aida and PanNuo etc. All these products are prescription drugs that are sold mainly to the hospitals in mainland China.  Boda is a wholly-owned subsidiary of Hangzhou Aida and engages itself in the research and development of new drugs.  Aike was once a 50% owned subsidiary of Hangzhou Aida. In August 2006, Hangzhou Aida increased its position through an additional direct investment of $568,994 into Hainan Aike and making a $63,222 purchase of the interests held by a third-party institutional shareholder Merlin Green Canada Inc. Thereafter, Hainan Aike became a 60.61% owned subsidiary of Hangzhou Aida. Hangzhou Aida exercises significant influence over Aike by controlling over 60.61% of its voting rights. Aike owns 95% of Yangpu Aike Pharmaceutical Co., Ltd. (Yangpu). Aike specializes in the production of transfusion type of Etimicin AiYi.  Fangyuan is a 65% owned subsidiary of Hangzhou Aida. Fangyuan is sole supplier of raw material for Etimicin and is also a major producer of the liquid type of Etimicin ChuangCheng.  On August 8, 2006, Hangzhou Aida purchased 77.5% of the outstanding shares of Qiaer  collectively from Zhejiang Pharmaceutical Co., Ltd , Shanghai Handsome Biotech Co., Ltd and Zhongtuo Times Investment Co., Ltd.   Qiaer was founded in 2001 and is located in the Zhangjiang Hi-tech development zone in Shanghai, PRC.  The key product of Qiaer is rh-Apo21, a pioneering potential biopharmaceutical therapy with genetic engineering techniques used for cancers. Qiaer has applied for three patents from the PRC government authority, two of which has been granted with the other one in process. The Phase I and Phase II clinical trials of rh-Apo2l have been successfully completed.  On March 26, 2008, Hangzhou Aida signed a purchase agreement with Jinou Medicine Co., Ltd to acquire a 43% equity interest in Jiangsu Institute of Microbiology Co., Ltd.  Also on the same day, Fangyuan signed a purchase agreement with Jiangyin Hi-tech Group to acquire 55% interest in Jiangsu  Institute of Microbiology Co.,Ltd.  Jiangsu Institute of Microbiology Co., Ltd (JSIM) is located in Wuxi City of Jiangsu Province, which is about 320 km from Hangzhou, where our headquarters are located. It is a high level research institute in the field of microbiology. With over 30 years of research experience, JSIM has a team of more than 30 scientists and engineers. JSIM has completed more than 200 research projects with over 20 being national level key projects. JSIM owns more than 20 patents. Several new drugs and microbial strains are now undergoing research by JSIM. Among them is Wetimicin, a new generation Aminoglycoside antibiotic, which is now in Phase I clinical trial stage.  The transaction closed on April 24, 2008.   28     As a result, Jiangsu Institute of Microbiology Co., Ltd became a subsidiary of us. Below is a diagram of our corporate structure upon consummation of the purchase of Jiangsu Institute of Microbiology Co., Ltd:  [aida10q093008002.gif]  CRITICAL ACCOUNTING POLICIES AND ESTIMATES  We believe the following is among the most critical accounting policies that impact our consolidated financial statements. We suggest that our significant accounting policies, as described in our consolidated financial statements in the Summary of Significant Accounting Policies, be read in conjunction with this Management's Discussion and Analysis of Financial Condition and Results of Operations.  We recognize revenue in accordance with Staff Accounting Bulletin ("SAB") No. 104. All of the following criteria must exist in order for us to recognize revenue:  1. Persuasive evidence of an arrangement exists; 2. Delivery has occurred or services have been rendered; 3. The seller's price to the buyer is fixed or determinable; and 4. Collectability is reasonably assured.  For fixed-priced refundable contracts, we recognize revenue on a completion basis. Progress payments received/receivables are recognized as revenue only if the specified criteria is achieved, accepted by the customer, confirmed not refundable and continued performance of future research and development services related to the criteria are not required.   29     We have identified one policy area as critical to the understanding of our consolidated financial statements. The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of sales and expenses during the reporting periods. With respect to net realizable value of our accounts receivable, Long-lived assets and inventories, significant estimation judgments are made and actual results could differ materially from these estimates.  For the three months ended September 30, 2008, management of the Company provided a reserve on its accounts receivable to reflect managements expectation on the collectability of aged accounts receivable. Managements estimation of the reserve on accounts receivable at September 30, 2008 was based on the current facts that there are aged accounts receivable. Management has assessed the customers ability to continue to pay the outstanding invoices timely, and whether their financial position will deteriorate significantly in the future which would result in their inability to pay their debts to the Company.  For the three months ended September 30, 2008, we had made no impairments for long-lived assets. Long-lived assets of the Company are reviewed annually as to whether their carrying value has become impaired, pursuant to the guidelines established in SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". We also periodically evaluate the amortization periods of our depreciable assets to determine whether subsequent events and circumstances warrant revised estimates of the useful lives.  Management's estimation whether a provision is needed is based on managements analysis of the current facts of whether potential impairments on the current carrying value of the inventories due to potential obsolescence exist as a result of aged inventories. In making its judgment, management made its estimations of the potential impairments based on the demand for our products in the future and the trends of turnover of the inventory.  While we currently believe that there is little likelihood that the actual results of managements current estimates will differ materially from such current estimates, if the financial position of our customers deteriorates, if there is a significant reduction in the carrying value of our  Long-lived assets, or if, customer demand for our products decreases significantly in the near future, we could realize significant write downs for uncollectible accounts receivable, impairment of Long-lived assets or slow moving inventory.  In December 2007, the Financial Accounting Standard Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141 (R), Business Combinations. SFAS No. 141 (R) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed, and any noncontrolling 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. 141 (R) is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. We have not yet determined the effect on our consolidated financial statements, if any, upon adoption of SFAS No. 141 (R). SFAS 141 (R) will significantly affect the accounting for future business combinations and the Company will determine the accounting as new combinations occur.  In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. This Statement establishes accounting and reporting standards that require the ownership interests in subsidiaries non-parent owners be clearly presented in the equity section of the balance sheet; requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income; requires that changes in a parents ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently; requires that when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value and the gain or loss on the deconsolidation of the subsidiary be measured using the fair value of any noncontrolling equity; requires that entities provide disclosures that clearly identify the interests of the parent and the interests of the noncontrolling owners. This Statement is effective as of the beginning of an entitys first fiscal year that begins after December 15, 2008.  We are aware that our accounting for minority interest will change and we are considering those effects now but believe the effects will only be a reclassification of minority interest from mezzanine equity to our stockholders equity section in the balance sheet.   30     In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS No. 161"), which amends SFAS No.133 and expands disclosures to include information about the fair value of derivatives, related credit risks and a company's strategies and objectives for using derivatives. SFAS No. 161 is effective for fiscal periods beginning on or after November 15, 2008. The Company is currently in the process of assessing the impact that SFAS No. 161 will have on the disclosures in its financial statements.  RESULTS OF OPERATIONS  THREE MONTHS ENDED SEPTEMBER 30, 2008 AS COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2007  The following table sets forth selected statements of income data as a percentage of revenue for the three months indicated.  Three months Ended September 30,20082007Revenue, net100.00%100.00%Cost of goods sold(41.72)%(48.25)%Gross margin58.28%51.75%Research and development(2.75)%(1.01)%Selling and distribution(20.65)%(18.82)%General and administrative(13.59)%(13.44)%Other income (expense)(4.98)%(5.87)%Income taxes7.88%(2.08)%Minority interests(4.92)%(3.49)%Net income19.26%7.04%  Revenues, Cost of Goods Sold and Gross Profit  Revenue for the three months ended September 30, 2008 was $11,885,458 an increase of $4,511,688 or 61.19% from $7,373,770 for the three months ended September 30, 2007. The net increase in sales revenue from our group of companies engaging in the production of different types of Etimicin for the third quarter of 2008 and 2007 is set forth below:  Three months ended September 30,Company20082007Increase/
(Decrease)Hangzhou Aida Pharmaceutical Co., Ltd (Hangzhou Aida) specializes in the production of Etimicin powder$3,584,839$2,524,765$1,060,074Hainan Aike Pharmaceutical Co., Ltd (Aike) specializes in the production of Etimicin transfusion5,121,6013,069,3792,052,222Changzhou Fangyuan Pharmaceutical  Co., Ltd. (Fangyuan) specializes in the production of Etimicin injection3,143,9151,779,6261,364,289Shanghai Qiaer Bio-Technology Co., Ltd.(Qiaer)17,346-17,346Jiangsu Institute of Microbiology Co., Ltd (JSIM)17,757-17,757TOTAL$11,885,458$7,373,770$4,511,688  For the three months ended September 30, 2008, the sales of Hangzhou Aida was $3,584,839, an increase of $1,060,074 or approximately 41.99% from $2,524,765 for the same period in 2007. The increase is mainly attributable to an increase in sales of Etimicin powder product, Aida.  For the three months ended September 30, 2008, the sales of Hainan Aike increased by $2,052,222 or 66.86% as compared to the same period of 2007. The increase in sales can mainly be accounted for an increase in sales of the Etimicin transfusion product, Aiyi.  31      For the three months ended September 30, 2008, the sales of Fangyuan increased by $1,364,285 or 76.66% as compared to the same period of 2007. The increase in sales is the result of the intense marketing and promotion programs of the Etimicin injection product, Chuangcheng.  The cost of goods sold for the first quarter ended September 30, 2008 was $4,958,239 an increase of $1,400,554 or 39.37% from $3,557,685 for the year 2007. The increase in cost of goods sold can be analyzed as follows:   Three months ended September 30,Companies20082007Increase/
(Decrease)Hangzhou Aida Pharmaceutical Co., Ltd. (Hangzhou Aida) specializes in the production of Etimicin powder$1,195,530$846,239$349,291Hainan Aike Pharmaceutical Co., Ltd. (Aike) specializes in the production of Etimicin transfusion2,744,5411,941,099803,442Changzhou Fangyuan Pharmaceutical Co., Ltd. (Fangyuan) specializes in the production of Etimicin injection1,002,877770,347232,530Shanghai Qiaer Bio-Technology Co., Ltd.(Qiaer)14,192-14,192Jiangsu Institute of Microbiology Co., Ltd (JSIM)1,099-1,099TOTAL$4,958,239$3,557,685$1,400,554  The cost of goods sold of Hangzhou Aida for the three months ended September 30, 2008 increased by $349,291, or   approximately 41.28% compared to $846,239 for the same period in 2007. The increase in the cost of goods sold can mainly be accounted for by an increase in sales by 41.99%.  The cost of goods sold of Aike for the three months ended September 30, 2008 was $2,744,541, an increase of $803,442, or approximately 41.39% compared to the same period in 2007. The increase is in tandem with the increase in sales.  The cost of goods sold of Fangyuan for the three months ended September 30, 2008 was 1,002,877, an increase of $232,530 or 30.19%, compared to $770,347 for the same period in 2007. The increase is mainly due to the increase in its sales.  Compared to the three months ended September 30, 2007, the percentage gross profit margin for our Company increased from 51.75% to 58.28% for the three months ended September31, 2008.  Research and Development  Compared with research and development cost of $74,514 for the three months ended September 30, 2007, research and development cost was $326,340 for the same period in 2008 and mainly represented costs incurred for the Phase II clinical trials and preparation of Phase III clinical trials for Rh-Apo2l.   32     Selling and Distribution  Selling and distribution expenses increased from $1,387,818 for the three months ended September 30, 2007 to $2,454,275 for the same period this year. A breakdown of our expenses is set forth below:    Three months ended September 30,Breakdown of Expenses20082007Increase/
(Decrease)Traveling expenses$808,035$422,580$385,455Office expenses610,051202,815407,236Payroll150,281131,08719,194Conference fees170,32676,86993,457Rent174,88683,90690,980Entertainment236,182157,45278,730Transportation expenses124,89894,89830,000Other expenses179,616218,211(38,595)TOTAL$2,454,275$1,387,818$1,066,457   For the three months ended September 30, 2008 traveling expenses and office expenses increased by $385,455 and $407,236 respectively, compared with the same period last year. The increase was mainly in tandem with the increase in sales of 61.19%.  Compared with the rent expense of $83,906 for the three months ended September 30, 2007, the rent expenses for the three months ended September 30, 2008 was $174,886, of which $153,858 was the rent expense of Aikes offices, including Beijing, Shangdong and Henan.  General and Administrative  General and administrative expenses increased by $624,047 or approximately 62.96% from $991,216 for the three months ended September 30, 2007 to $1,615,263 for the same period this year. A breakdown of general and administrative expenses for the three months ended September 30, 2008 and 2007 is as follows:  Three months ended September 30,Breakdown of Expenses20082007Increase/
(Decrease)Traveling expenses$117,852$27,679$90,173Office expenses77,23558,94518,290Payroll147,79997,65450,145Labor union & education & staff welfare138,729132,6016,128Amortization of intangible assets454,493163,064291,429Consultancy fees48,75370,783(22,030)Entertainment137,91137,810100,101Depreciation68,071119,681(51,610)Bad debt provision139,60881,19858,410Other expenses284,812201,80183,011TOTAL$1,615,263$991,216$624,047  Amortization of intangible assets of $454,493 for the three months ended September 30, 2008 increased by $291,429 or 178.72% from $163,064 for the same period last year. The increase was due to an increase in the amortization of intangible assets of $293,336 incurred by JSIM, which was just acquired in April this year.  Bad debt provision of $139,608 for the three months ended September 30, 2008 increased by $58,410 from $81,198 for the same period last year. The increase was due to an increase in the bad debt provision of $195,414 incurred by Aike.   33     For the third quarter ended September 30, 2008, the Company incurred $137,911 in entertainment expenses as compared to $37,810 for the same period last year. The increase was due to the increase in the entertainment expenses of $46,583 and $48,368 incurred by Aike and Fangyuan, respectively.  Other Income (Expenses)  Other expenses increased from $433,086 for the three months ended September 30, 2007 to $592,490 for the same period this year. A breakdown of our other income (expenses) for the three months ended September 30, 2008 and 2007 is as follows:  Three months Ended September 30,Breakdown of other income/(expenses)20082007Increase/
(Decrease)Interest expense, net$(580,765)$(465,282)$(115,483)Government grants29,14046,131(16,991)Other (loss) income, net(40,865)(13,935)(26,930)TOTAL$(592,490)$(433,086)$(159,404)  Interest expense for the three months ended September 30, 2008 increased by $115,483 from $465,282 for the same period last year. The increase is mainly due to the increase both in the interest from the borrowing and in the bank borrowings.  Government grants for the three months ended September 30, 2008 represented subsidies from the government was amounted to $29,140, as compared to $46,131 for the same period last year.  Income Tax  Income tax benefit was $936,153 for the three months ended September 30, 2008, as compared to income tax expense of $153,182 for the same period last year.  In accordance with the relevant tax laws and regulations of PRC, the corporation income tax rate is 33%. As a Company registered in Hainan, PRC, Aike is entitled to a beneficial corporate income tax rate of 15% in accordance with the relevant tax laws in the PRC. Fangyuan enjoys a beneficial tax rate of 15% as it is registered in a national high-tech development zone. According to the relevant laws and regulations of PRC, the preferential tax rate of 15% is applied to companies established in the national high-tech development zone.  In accordance with the relevant taxation laws in the PRC, from the time that a company has its first profitable tax year, a foreign investment company is exempt from corporate income tax for its first two years and is then entitled to a 50% tax reduction for the succeeding three years. Since Hangzhou Aida Pharmaceutical Co., Ltd has been a foreign investment company since 2004, we are entitled to a 50% tax reduction in 2008.  Net Income  In the third three months of 2008, net income was $2,289,681, an increase of $1,770,620 from $519,061 for the same period in 2007.   34     NINE MONTHS ENDED SEPTEMBER 30, 2008 AS COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2007  The following table sets forth selected statements of income data as a percentage of revenue for the six months indicated.  Nine Months Ended September 30,20082007Revenues, net100.00%100.00%Cost of goods sold(44.62)%(52.13)%Gross margin55.38%47.87%Selling and distribution(21.06)%(18.81)%General and administrative(15.16)%(16.09)%Research and development(3.16)%(1.27)%Compensation to minority shareholder(3.45)%-Provision for uncollectibility of receivable for guarantee(23.52)%-Other income (expense)(5.65)%(5.87)%Income taxes4.17%(1.02)%Minority interests(2.84)%(3.01)%Net (loss) income(15.29)%1.78%  Revenues, Cost of Goods Sold and Gross Profit  Revenue for the nine months ended September 30, 2008 was $29,988,617, an increase of $11,301,334 or 60.48% from $18,687,283 for the same period last year. Compared to the nine months of 2007, the increase in sales revenue from our group of companies engaging in the production of different types of Etimicin for the nine months of 2008 and 2007 is set forth below:  Nine Months Ended September 30,Companies20082007Increase/
(Decrease)Hangzhou Aida Pharmaceutical
Co., Ltd (Hangzhou Aida) specializes
in the production of Etimicin
powder$8,578,465$5,347,266$3,231,199Hainan Aike Pharmaceutical
Co., Ltd (Aike) specializes
in the production of Etimicin
transfusion13,755,9469,087,9664,667,980Changzhou Fangyuan Pharmaceutical  Co.,
Ltd. (Fangyuan) specializes
in the production of Etimicin
injection7,573,2334,252,0513,321,182Shanghai Qiaer Bio-Technology Co., Ltd.(Qiaer)51,936-51,936Jiangsu Institute of Microbiology Co., Ltd (JSIM)29,037-29,037TOTAL$29,988,617$18,687,283$11,301,334  For the nine months ended September 30, 2008, the sales of Hangzhou Aida increased by $3,231,199 or 62.11% as compared to the same period of 2007. The increase is mainly attributable to an increase in sales of Etimicin powder product, Aida.  For the nine months ended September 30, 2008, the sales of Aike increased by $4,667,980 or 51.36% as compared to the same period of 2007. The increase in sales can mainly be accounted for an increase in sales of the Etimicin transfusion product, Aiyi.  For the nine months ended September 30, 2008 the sales of Fangyuan increased by $3,321,182 or 78.11% as compared to the same period of 2007. The increase in sales is the result of the intense marketing and promotion programs of a new Etimicin injection product, Chuangcheng.  35     The cost of goods sold for the nine months ended September 30, 2008 was $13,379,985 an increase of $3,639,033 or 37.36% from $9,740,952, for the year 2007. The increase in cost of goods sold can be analyzed as follows:  Nine Months Ended September 30,Companies20082007Increase/
(Decrease)Hangzhou Aida Pharmaceutical Co. Ltd (Hangzhou Aida) specializes in the production of Etimicin powder$2,731,486$1,677,909$1,053,577Hainan Aike PharmaceuticalCo. Ltd (Aike) specializes in the production of Etimicin
transfusion7,710,4835,591,9752,118,508Changzhou Fangyuan Pharmaceutical
Ltd. (Fangyuan) specializes in the production of Etimicininjection2,892,3382,471,068421,270Shanghai Qiaer Bio-Technology Co., Ltd.(Qiaer)42,493-42,493Jiangsu Institute of Microbiology Co., Ltd (JSIM)3,185-3,185TOTAL$13,379,985$9,740,952$3,639,033  The cost of goods sold by Hangzhou Aida for the nine months ended September 30, 2008 increased by $1,053,577, or 62.79% compared to $1,677,909 for the same period in 2007. The increase in the cost of goods sold can mainly be accounted for by an increase in sales by 62.11%.  The cost of goods sold by Aike for the nine months ended September 30, 2008 increased by $2,118,508, or 37.88% compared to for the same period in 2007. The increase can mainly be explained by a corresponding increase in sales.  The cost of goods sold by Fangyuan for the nine months ended September 30, 2008 increased by $421,270 or 17.05%, compared to $2,471,068 for the same period in 2007. The increase is mainly due to a corresponding increase in sales.  Compared to the nine months ended September 30, 2007, the percentage gross profit margin for our Company increased from 47.87% to55.38% for the same period of 2008.  Research and Development  Compared with research and development cost of $238,159 for the nine months ended September 30, 2007, research and development cost was $948,838 for the same period in 2008 and mainly represented costs incurred for the Phase II clinical trials and preparation of Phase III clinical trials for Rh-Apo2l.   36     Selling and Distribution  Selling and distribution expenses increased from $3,515,776 for the nine months ended September 30, 2008 to $6,316,020 for the same period this year, or a 79.65% increase. Compared to the same period in 2007, our increase in the expenses was because of the following:  Nine Months Ended September 30,Breakdown of Expenses20082007Increase/
(Decrease)Traveling expenses$2,152,5511,081,545$1,071,006Office expenses1,581,973632,859949,114Payroll418,674343,87974,795Conference fees410,372136,786273,586Rent431,671283,638148,033Entertainment363,452351,71111,741Transportation expenses256,742153,049103,693Other expenses700,585532,309168,276TOTAL$6,316,020$3,515,776$2,800,244  For the nine months ended September 30, 2008 traveling expenses, office expenses and transportation expenses increased by $1,071,006, $949,114 and $103,693 respectively, compared with the same period last year. The increase was mainly attributable to an increase in our sales by 60.48% for the same period year over year.  Compared with the rent expense of $283,638 for the nine months ended September 30, 2007, the rent expense for the nine months ended September 30, 2008 was $431,671, of which $400,179 was the  rent expense of Aikes offices including Beijing, Shangdong and Henan.  For the nine months ended September 30, 2008 conference expenses were $410,372, an increase of $273,586, compared with the same period last year. The increase was mainly due to our participation in several big business conferences in order to promote sales.  General and Administrative  General and administrative expenses increased from $3,006,799 for the nine months ended September 30, 2007 to $4,545,663 for the same period this year, representing a 51.18% increase. The details of general and administrative expenses for the nine months ended September 30, 2008 and 2007 are as follows:  Nine Months Ended September 30,Breakdown of Expenses20082007Increase/
(Decrease)Traveling expenses$222,370$203,104$19,266Office expenses230,163157,27372,890Payroll394,441526,580(132,139)Conference fees54,01142,25311,758Labor union , education  and staff welfare554,439590,563(36,124)Consultancy fees339,510160,150179,360Entertainment171,515173,158(1,643)Depreciation351,554328,24823,306Amortization of intangible assets935,978537,449398,529Bad debt provision167,467109,96657,501Other expenses1,124,215178,055946,160TOTAL$4,545,663$3,006,799$1,538,864  Amortization of intangible assets of $935,978 for the nine months ended September 30, 2008 increased by $398,529 or 71% from $537,449 for the same period last year. The increase was due to an increase in the amortization of intangible assets of $473,950 incurred by JSIM, which was just acquired in April this year.  37       Our consultancy fees which the Company pays consultants for their consultation service increased from $160,150 for the nine months ended September 30, 2007 to $339,510 for the same period this year. The increase was mainly attributable to the increase in consultancy fees of $192,680 incurred by Fangyuan.  Depreciation increased from $328,248 for the nine months ended September 30, 2007 to $351,554 for the same period this. This increase was mainly attributable to an increase of $15,979 incurred by JSIM, which was just acquired in April this year.  The traveling expenses of $222,370 for the nine months ended September 30, 2008 increased by $19,266 from $203,104 for the same period last year. The increase was mainly attributable to an increase of $41,856 in the traveling expenses for Aike.  Compensation to minority shareholder  In 2008, a consolidated subsidiary incurred $1,033,358 of expenses, which was paid to a minority shareholder of that subsidiary. Of the total, $706,230 was compensation for assistance in developing distribution channels and new markets and $327,128 was paid for support to the subsidiarys operations in 2007 and 2006 and was based on changes in its assets related on that support.  Provision for uncollectibility of receivable for guarantee  For the nine months ended September 30, 2008, provision for uncollectibility of receivable for guarantee was $7,053,432. Hangzhou Aida commenced legal proceedings in the middle court of Hangzhou to recover $7,053,432 paid on behalf of Nanwang on April 15, 2008. According to the ruling of the local court dated April 22, 2008, assets of Nanwang with an estimated value of $7,053,432 have been seized and sequestered pending resolution of the said litigation proceeding. At end of June of 2008, the Company received notice from the middle court of Hangzhou declaring Nanwang to be insolvent on May 20, 2008 and that the liquidation process had commenced immediately.  Consequently, the litigation proceeding commenced on April 15, 2008 was terminated.  Given the latest developments, the Company now considers the recovery of the loan and the outstanding interest paid on behalf of Nanwang as unlikely and therefore a full allowance was made for the total balance of $7,053,432.  Other Income (Expenses)  Other expenses increased from $1,097,792 by 596,837 or 54.37% for the nine months ended September 30, 2007 to $1,649,629 for the same period this year. The other income (expenses) for the nine months ended September 30, 2008 and 2007 are as follows:  Nine Months Ended September 30,Breakdown of other income/(expenses)20082007Increase/
(Decrease)Interest expense, net$(1,902,734)$(1,180,813)$(721,921)Government grants100,66895,9984,670Gain on sale of marketable securities-120,356(120,356)Other (loss) income, net107,437(133,333)240,770TOTAL$(1,694,629)$(1,097,792)$(596,837)  Net interest expense for the nine months ended September 30, 2008 was $1,694,629, an increase of $721,921 or 61.14% from $1,180,813 for the same period last year. The increase is mainly due to the increase both in the interest of borrowings and in the bank borrowings.  Government grants for the nine months ended September 30, 2008 were $100,668, an increase of $4,670 or 4.86% from $95,998 for the same period last year. The increase is due to the increase in subsidies from the government.  Gain on sale of marketable securities of $120,356 for the nine months ended September 30, 2007 represented income from Chinese securities investment and no such income was earned for the same period this year.   38     Income Taxes  Income tax benefit was $1,249,497 for the nine months ended September 30, 2008, as compared to income tax expense of $191,349 for the same period last year.  In accordance with the relevant tax laws and regulations of PRC, the corporation income tax rate is 33%. As a Company registered in Hainan, PRC, Aike is entitled a beneficial corporate income tax rate of 15% in accordance with the relevant tax laws in the PRC. Fangyuan enjoys a beneficial tax rate of 15% as it is registered in a national high-tech development zone. According to the relevant laws and regulations of PRC, the preferential tax rate of 15% is applied to companies established in the national high-tech development zone.  In accordance with the relevant taxation laws in the PRC, from the time that a company has its first profitable tax year, a foreign investment company is exempt from corporate income tax for its first two years and is then entitled to a 50% tax reduction for the succeeding three years. Since Hangzhou Aida Pharmaceutical Co., Ltd has been a foreign investment company since 2004, we are entitled to a 50% tax reduction in 2008.  Net (Loss) Income  Net Loss was $4,584,966 for the nine months ended September 30, 2008, as compared to net income of $333,388 for the same period last year.  LIQUIDITY AND CAPITAL RESOURCES  Cash  Our cash balance decreased by $120,988 to $8,278,318 as of September 30, 2008, as compared to $8,399,306 as of December 31, 2007. The decrease was mainly attributable to cash outflow due to investing activities of $10,861,213, net loss of $4,584,966, deferred taxes of $1,967,777, increase in accounts receivable of $807,250 and in inventory of $1,661,910. The decrease in cash flow was partially offset by cash inflow of financing activities of $7,695,099 and provision for uncollectibility of receivable for guarantee of $7,053,432, depreciation and amortization of $2,009,294. The net cash flow was a deficit $(120,988) for nine months ended September 30, 2008.  Our cash flow provided by operations amounted to $4,284,020 for the nine months ended September 30, 2008, compared to $5,181,295 for the same period last year.  Our cash flow used in investing activities amounted to $10,861,213 of which $7,053,432 was used to satisfy our guarantee and $1,088,957 and $2,057,471 was used for the purchases of plant and equipment and construction in progress, respectively. We invested $629,662 and $422,715 in the deposit for plant and equipment and in the issuance of notes receivable, respectively.  The net cash provided by financing activities amounted to $7,695,099, of which $30,011,233 was provided by the short-term bank debt and $8,169,100 was provided by the long-term debt.  At September 30, 2008, we had short-term debt of $31,184,017 of which $23,083,544 was short-term bank borrowings and the remaining $8,100,473 represented notes payable to unrelated parties. The interest for short-term borrowings varied from 6.7095% to 9.478% per annum whereas the notes payable to unrelated parties is interest free. We believe that the cash generated from our operations will be sufficient to pay off our liabilities as the short-term borrowings and commitments fall due.  Working Capital  Our working capital decreased by $9,495,128to $(12,085,652) as at September 30, 2008, as compared to $(2,590,524) as at December 31, 2007. The decrease in working capital on September 30, 2008 was mainly attributable to a decrease in deposits of $8,853,478 and an increase in other payables and accrued liabilities of $2,848,180 offset by an increase in inventories of $1,627,612 and deferred taxes of $2,164,761.  We currently generate our cash flow through operations and we believe that our cash flow generated from operations will be sufficient to sustain operations for the next twelve months. Also, from time to time, we may require extra funding through financing activities and investments for expansion. Also, from time to time, we may come up with new expansion opportunities for which our management may consider seeking external funding and financing.  39      Item 3.  Controls and Procedures.  (a) Evaluation of Disclosure Controls and Procedures.  Our Chief Executive Officer and Chief Financial Officer reviewed and evaluated our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in providing them with timely material information related to Genentech, as required to be disclosed in the reports that we file under the Exchange Act of 1934.  (b) Changes in Internal Controls.  There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.   PART II  OTHER INFORMATION  Item 1. Legal Proceedings.  From time to time, we may be a defendant and plaintiff in various legal proceedings arising in the normal course of our business. Other than what is mentioned below, we are currently not a party to any material pending legal proceedings or government actions, including any bankruptcy, receivership, or similar proceedings. In addition, management is not aware of any known litigation or liabilities involving the operators of our properties that could affect our operations. Should any liabilities incur in the future, they will be accrued based on managements best estimate of the potential loss. As such, there is no adverse effect on our consolidated financial position, results of operations or cash flow at this time. Furthermore, we do not believe that there are any proceedings to which any director, officer, or affiliate of the Company, any owner of record of the beneficially or more than five percent of the Common Stock of the Company, or any associate of any such director, officer, affiliate of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company.    Hangzhou Aida Pharmaceutical Co., Ltd. (Hangzhou Aida) is a wholly-owned subsidiary of Earjoy Group Limited, which is in turn a wholly-owned subsidiary of Aida Pharmaceutical, Inc.  Hangzhou Aida was a guarantor to Nanwang Information Industry Group Co., Ltd. (Nanwang) for certain bank loans and Nanwang was, in turn, a guarantor to Hangzhou Aida for some of its loans.  The total amount of the mutual guarantee between Hangzhou Aida and Nanwang was RMB50 million.  Because Nanwang over-invested in real estate, Nanwang defaulted on two of its loans and as guarantor for the loans, Hangzhou Aida had to repay the loan amounting to RMB49,123,913.65 (approximately, US$7,053,432 based on an exchange rate of 1US$ = RMB6.97) to Nanwangs lenders under the current tight monetary policy of the Peoples Bank of China.  Hangzhou Aida, in turn, commenced a litigation proceeding against Nanwang in the middle level court of Hangzhou, the Peoples Republic of China on April 15, 2008 to recover the guaranteed loan amount that Hangzhou Aida had paid.   The litigation application has been accepted by the Hangzhou middle level court.  Hangzhou Aida had also requested that the court sequester Nanwangs assets and such order was granted by the court. The sequestered assets include the Xinhuo Technology Building located in Beijing, some land use rights and 80% shareholding interest in Fengyuan Building Co.,Ltd.  At end of June of 2008, we received notice from the middle court of Hangzhou declaring Nanwang as insolvent on May 20, 2008 and that liquidation process had commenced immediately.  Consequently, the litigation proceeding commenced on April 15, 2008 by us was terminated. On July 3, 2008, Hangzhou Aida registered its creditors claim for $7,053,432 with the liquidation team of Nanwang.  Given the latest developments, the Company now considers the recovery of the loan and the outstanding interest paid on behalf of Nanwang as unlikely and therefore a full allowance was made for the total balance of $7,053,432.  On November 8, 2008, legal proceedings were instituted against the Company by Shanghai Panasia Strategy Investment Co., Ltd. in Changning District, Shanghai for an overdue loan and outstanding interest of $861,314. Shanghai Panasia Strategy Investment Co., Ltd. is controlled by a 16.57% shareholder of Company. The local judge will hold a court for trial on December 1, 2008.  The Company has recorded the loan and accrued the outstanding interest balance of $861,314 as of September 30, 2008. As such, there is no contingent accrual at September 30, 2008. Also see Note 16.  40       Item 1A.  Risk Factors.  Not applicable.  Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds  None.  Item 3.  Defaults Upon Senior Securities  None.  Item 4.  Submission of Matters to a Vote of Security Holders.  None.  Item 5.  Other Information  Not applicable.  Item 6.  Exhibits  Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.  Exhibit No.SEC Ref. No.Title of Document131.1Certification of the Principal Executive Officerpursuant to Section 302 of the Sarbanes-Oxley Act of 20022.31.2Certification of the Principal Financial Officerpursuant to Section 302 of the Sarbanes-Oxley Act of 2002332.1Certification of the Principal Executive Officerpursuant to U.S.C. Section 1350 as adopted pursuantto Section 906 of the Sarbanes-Oxley Act of 2002*432.2Certification of the Principal Financial Officerpursuant to U.S.C. Section 1350 as adopted pursuantto Section 906 of the Sarbanes-Oxley Act of 2002*  *The Exhibit attached to this Form 10-Q shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act") or otherwise subject to liability under that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.   41     SIGNATURES  In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.   AIDA PHARMACEUTICALS, INC.    Date: November 19, 2008 /s/ Biao Jin Mr. Biao Jin Chief Executive Officer     Date: November 19, 2008 /s/ Hui Lin Ms. Hui Lin Chief Financial Officer       42