U.S.
SECURITIES AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
  FORM
10-Q
 (Mark
one)
 þ
              Quarterly
      Report Under Section 13 or 15(d) of the Securities Exchange Act of
      1934
 
 For the
Quarterly Period Ended September 30, 2009
 or
 o
              Transition
      Report Under Section 13 or 15(d) of the Securities Exchange Act of
      1934
 
 Commission
File Number 333-141384
 
 Kun Run Biotechnology,
Inc.
 (Name of
registrant in its charter)
  Nevada
                    
                    98-0517550(State
      or other jurisdiction
                      of
      incorporation or organization)
                    
                    (I.R.S.
      Employer Identification No.)
 
 Free
      Trade Zone
                      168
      Nanhai Avenue, Haikou City
                      Hainan
      Province
                      People’s
      Republic of China
                    
                    570216(Address
      of principal executive offices)
                    
                    (Zip
      Code)
 
 Issuer's
telephone number:  86-898-6680-2207
 
 (Former
name and former address, if applicable)
 
 Indicate
by check mark whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days.
 Yes
   þNo  o
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
 Yes  oNo o
 
 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” in Rule 12b-2 of the Exchange Act.
  Large
      accelerated filer  ̈
                
                Accelerated
      filer  ̈Non-accelerated
      filer  ̈
      (Do not check if a smallerreporting
      company)
                
                Smaller
      reporting company þ
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)   Yes    o      No
  þ
  As of
November 13, 2009, the Registrant had 25,000,000 shares of common stock
outstanding.
  
  Kun
Run Biotechnology, Inc.
  Table of
Contents
  PagePART
      I -
                  FINANCIAL
      INFORMATION
                  
                  1Item
      1.
                  Financial
      Statements:Condensed
      Consolidated Statements of Income and Comprehensive
      Income
                  
                  3-4Condensed
      Consolidated Balance Sheets
                  
                  5-6Condensed
      Consolidated Statements of Cash Flows
                  
                  7-8Notes
      to Financial Statements
                  
                  9-20Item
      2.
                  Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  
                  21-31Item
      3.
                  Quantitative
      and Qualitative Disclosures about Market Risk
                  
                  32Item
      4.
                  Controls
      and Procedures
                  
                  32PART
      II -
                  OTHER
      INFORMATION
                  
                  33Item
      1.
                  Legal
      Proceedings
                  
                  33Item
      1A.
                  Risk
      Factors
                  
                  33Item
      2.
                  Unregistered
      Sales of Equity Securities and Use of Proceeds
                  
                  33Item
      3.
                  Defaults
      upon Senior Securities
                  
                  33Item
      4.
                  Submission
      of Matters to a Vote of Security Holders
                  
                  33Item
      5.
                  Other
      Information
                  
                  33Item
      6.
                  Exhibits
                  
                  33
  
  PART
I - FINANCIAL INFORMATION
  ITEM
1. FINANCIAL STATEMENTS
   Kun
Run Biotechnology, Inc.
 
 Condensed
Consolidated Financial Statements
 For the
three and nine months ended
 September
30, 2009 and 2008
 (Stated
in US dollars)
  1
  Kun
Run Biotechnology, Inc.
 Condensed
Consolidated Financial Statements
 Three
and nine months ended September 30, 2009 and 2008
 
 Index to
Condensed Consolidated Financial Statements
 
 PagesCondensed
      Consolidated Statements of Income and Comprehensive Income
                    3 -
      4Condensed
      Consolidated Balance Sheets
                    5 -
      6Condensed
      Consolidated Statements of Cash Flows
                    7 -
      8Notes
      to Condensed Consolidated Financial Statements
                    9 -
      20
  2
  Kun
Run Biotechnology, Inc.
 Condensed
Consolidated Statements of Income and Comprehensive Income
 For
the three and nine months ended September 30, 2009 and 2008
 
 Three months ended
                                    
                                    
                                    Nine months endedSeptember 30,
                                    
                                    
                                    September 30,(Unaudited)
                                    
                                    
                                    (Unaudited)2009
                                    
                                    
                                    2008
                                    
                                    
                                    2009
                                    
                                    
                                    2008Sales
      revenue
                                    
                                    $
                                    4,048,877
                                    
                                    
                                    $
                                    2,449,618
                                    
                                    
                                    $
                                    10,139,543
                                    
                                    
                                    $
                                    7,799,687Cost
      of sales
                                    
                                    
                                    1,211,070
                                    
                                    
                                    
                                    693,242
                                    
                                    
                                    
                                    2,976,593
                                    
                                    
                                    
                                    2,247,912Gross
      profit
                                    
                                    
                                    2,837,807
                                    
                                    
                                    
                                    1,756,376
                                    
                                    
                                    
                                    7,162,950
                                    
                                    
                                    
                                    5,551,775Operating
      expensesAdministrative
      expenses
                                    
                                    
                                    285,889
                                    
                                    
                                    
                                    257,968
                                    
                                    
                                    
                                    678,314
                                    
                                    
                                    
                                    742,823Research
      and developments costs
                                    
                                    
                                    90,335
                                    
                                    
                                    
                                    107,896
                                    
                                    
                                    
                                    189,647
                                    
                                    
                                    
                                    234,136Selling
      expenses
                                    
                                    
                                    69,882
                                    
                                    
                                    
                                    271,460
                                    
                                    
                                    
                                    287,425
                                    
                                    
                                    
                                    555,540446,106
                                    
                                    
                                    
                                    637,324
                                    
                                    
                                    
                                    1,155,386
                                    
                                    
                                    
                                    1,532,499Income
      from operations
                                    
                                    
                                    2,391,701
                                    
                                    
                                    
                                    1,119,052
                                    
                                    
                                    
                                    6,007,564
                                    
                                    
                                    
                                    4,019,276Interest
      income
                                    
                                    
                                    49,466
                                    
                                    
                                    
                                    374
                                    
                                    
                                    
                                    116,426
                                    
                                    
                                    
                                    1,516Other
      income
                                    
                                    
                                    116,682
                                    
                                    
                                    
                                    63,312
                                    
                                    
                                    
                                    315,926
                                    
                                    
                                    
                                    165,908Government
      subsidy income
                                    
                                    
                                    32,768
                                    
                                    
                                    
                                    104
                                    
                                    
                                    
                                    40,093
                                    
                                    
                                    
                                    9,729Finance
      costs
                                    
                                    
                                    (170,622
                                    )
                                    
                                    
                                    (140,690
                                    )
                                    
                                    
                                    (428,440
                                    )
                                    
                                    
                                    (415,311
                                    )Income
      before income taxes and noncontrolling interest
                                    
                                    
                                    2,419,995
                                    
                                    
                                    
                                    1,042,152
                                    
                                    
                                    
                                    6,051,569
                                    
                                    
                                    
                                    3,781,118Income
      taxes - Note 4
                                    
                                    
                                    (353,654
                                    )
                                    
                                    
                                    (168,803
                                    )
                                    
                                    
                                    (902,662
                                    )
                                    
                                    
                                    (300,383
                                    )Net
      income before noncontrolling interest
                                    
                                    
                                    2,066,341
                                    
                                    
                                    
                                    873,349
                                    
                                    
                                    
                                    5,148,907
                                    
                                    
                                    
                                    3,480,735Net
      income attributable to noncontrolling interest
                                    
                                    
                                    (18,103
                                    )
                                    
                                    
                                    (7,825
                                    )
                                    
                                    
                                    (45,308
                                    )
                                    
                                    
                                    (30,783
                                    )Net
      income attributable to Kun RunBiotechnology,
      Inc. common stockholders
                                    
                                    $
                                    2,048,238
                                    
                                    
                                    $
                                    865,524
                                    
                                    
                                    $
                                    5,103,599
                                    
                                    
                                    $
                                    3,449,952Net
      income before noncontrolling interest
                                    
                                    $
                                    2,066,341
                                    
                                    
                                    $
                                    873,349
                                    
                                    
                                    $
                                    5,148,907
                                    
                                    
                                    $
                                    3,480,735Other
      comprehensive incomeForeign
      currency translation adjustments
                                    
                                    
                                    31,310
                                    
                                    
                                    
                                    27,386
                                    
                                    
                                    
                                    6,209
                                    
                                    
                                    
                                    774,841Comprehensive
      income
                                    
                                    
                                    2,097,651
                                    
                                    
                                    
                                    900,735
                                    
                                    
                                    
                                    5,155,116
                                    
                                    
                                    
                                    4,255,576Comprehensive
      income attributable to noncontrolling interest
                                    
                                    
                                    (18,376
                                    )
                                    
                                    
                                    (7,798
                                    )
                                    
                                    
                                    (45,344
                                    )
                                    
                                    
                                    (31,413
                                    )Comprehensive
      income attributable to Kun Run Biotechnology, Inc. common
      stockholders
                                    
                                    $
                                    2,079,275
                                    
                                    
                                    $
                                    892,937
                                    
                                    
                                    $
                                    5,109,772
                                    
                                    
                                    $
                                    4,224,163
 
 See the
accompanying notes to condensed consolidated financial statements
  3
 
 Kun
Run Biotechnology, Inc.
 Condensed
Consolidated Statements of Income and Comprehensive Income (Cont’d)
 For
the three and nine months ended September 30, 2009 and 2008
 
 Three months ended
                      
                      
                      Nine months endedSeptember 30,
                      
                      
                      September 30,(Unaudited)
                      
                      
                      (Unaudited)2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008Earnings
      per share attributable to Kun Run Biotechnology, Inc. common
      stockholders:basic
      and diluted
                      
                      $
                      0.08
                      
                      
                      $
                      0.04
                      
                      
                      $
                      0.20
                      
                      
                      $
                      0.14Weighted
      average number of shares outstanding:basic
      and diluted
                      
                      
                      25,000,000
                      
                      
                      
                      24,372,284
                      
                      
                      
                      25,000,000
                      
                      
                      
                      24,291,058
 
 See the
accompanying notes to condensed consolidated financial
statements
  4
  
 Kun
Run Biotechnology, Inc.
 Condensed
Consolidated Balance Sheets
 As
of September 30, 2009 and December 31, 2008
 
 September 30,
                      
                      
                      December 31,2009
                      
                      
                      2008(Unaudited)
                      
                      
                      (Audited)ASSETSCurrent
      assetsCash
      and cash equivalents
                      
                      $
                      230,539
                      
                      
                      $
                      433,599Trade
      receivables, net
                      
                      
                      5,031,103
                      
                      
                      
                      4,732,750Bills
      receivable
                      
                      
                      613,222
                      
                      
                      
                      117,360Other
      receivables, prepayments and deposits - Note 6
                      
                      
                      3,005,675
                      
                      
                      
                      985,683Receivables
      from disposal of properties
                      
                      
                      -
                      
                      
                      
                      2,061,793Inventories
      - Note 5
                      
                      
                      1,504,722
                      
                      
                      
                      689,415Amounts
      due from related companies - Note 7
                      
                      
                      5,356,149
                      
                      
                      
                      5,595,307Deferred
      taxes
                      
                      
                      -
                      
                      
                      
                      8,362Total
      current assets
                      
                      
                      15,741,410
                      
                      
                      
                      14,624,269Intangible
      assets
                      
                      
                      92,417
                      
                      
                      
                      111,004Property,
      plant and equipment, net - Note 8
                      
                      
                      9,248,453
                      
                      
                      
                      9,685,374Land
      use rights - Note 9
                      
                      
                      3,723,541
                      
                      
                      
                      3,775,540Deposit
      for acquisition of property, plant and equipment
                      
                      
                      518,347
                      
                      
                      
                      445,691Deposit
      paid to a related company for acquisition of an intangible asset - Note
      10
                      
                      
                      7,921,800
                      
                      
                      
                      -TOTAL
      ASSETS
                      
                      $
                      37,245,968
                      
                      
                      $
                      28,641,878
 
 See the
accompanying notes to condensed consolidated financial
statements
  5
 
 Kun
Run Biotechnology, Inc.
 Condensed
Consolidated Balance Sheets (Cont’d)
 As
of September 30, 2009 and December 31, 2008
 
 September 30,
                      
                      
                      December 31,2009
                      
                      
                      2008(Unaudited)
                      
                      
                      (Audited)LIABILITIES
      AND STOCKHOLDERS’ EQUITYLIABILITIESCurrent
      liabilitiesTrade
      payables
                      
                      $
                      473,100
                      
                      
                      $
                      966,937Other
      payables and accrued expenses
                      
                      
                      2,819,643
                      
                      
                      
                      1,672,500Dividend
      payable to Zhonghe’s former/existing noncontrolling
      stockholders
                      
                      
                      7,209
                      
                      
                      
                      7,209Income
      tax payable
                      
                      
                      645,481
                      
                      
                      
                      655,019Amount
      due to a related company - Note 7
                      
                      
                      -
                      
                      
                      
                      936Secured
      borrowings - Note 11
                      
                      
                      8,985,375
                      
                      
                      
                      -Total
      current liabilities
                      
                      
                      12,930,808
                      
                      
                      
                      3,302,601Deferred
      taxes
                      
                      
                      27,097
                      
                      
                      
                      8,255Secured
      borrowings - Note 11
                      
                      
                      330,075
                      
                      
                      
                      6,528,150TOTAL
      LIABILITIES
                      
                      
                      13,287,980
                      
                      
                      
                      9,839,006COMMITMENTS AND CONTINGENCIES- Note 12STOCKHOLDERS’
      EQUITYPreferred
      stock : par value of $0.001 per share, authorized 10,000,000 shares in
      2009 and 2008; none issued and outstanding
                      
                      
                      -
                      
                      
                      
                      -Common
      stock : par value of $0.001 per share, authorized 100,000,000 shares,
      issued and outstanding 25,000,000 shares in 2009 and 25,000,000 shares in
      2008
                      
                      
                      25,000
                      
                      
                      
                      25,000Additional
      paid-in capital
                      
                      
                      8,969,033
                      
                      
                      
                      8,969,033Statutory
      and other reserves
                      
                      
                      2,820,850
                      
                      
                      
                      2,820,850Accumulated
      other comprehensive income
                      
                      
                      1,607,518
                      
                      
                      
                      1,601,345Retained
      earnings
                      
                      
                      10,321,098
                      
                      
                      
                      5,217,499TOTAL
      KUN RUN BIOTECHNOLOGY, INC.STOCKHOLDERS’ EQUITY
                      
                      
                      23,743,499
                      
                      
                      
                      18,633,727NONCONTROLLING
      INTEREST
                      
                      
                      214,489
                      
                      
                      
                      169,145TOTAL
      EQUITY
                      
                      
                      23,957,988
                      
                      
                      
                      18,802,872TOTAL
      LIABILITIES AND EQUITY
                      
                      $
                      37,245,968
                      
                      
                      $
                      28,641,878
 
 See the
accompanying notes to condensed consolidated financial
statements
  6
 
 Kun
Run Biotechnology, Inc.
 Condensed
Consolidated Statements of Cash Flows
 For
the nine months ended September 30, 2009 and 2008
 
 Nine months ended
                            September 30,(Unaudited)2009
                          
                          
                          2008Cash
      flows from operating activitiesNet
      income attributable to Kun Run Biotechnology,Inc.
      common stockholders
                          
                          $
                          5,103,599
                          
                          
                          $
                          3,449,952Adjustments
      to reconcile net income attributable to Kun Run Biotechnology, Inc. to net
      cash provided by operating activities :-Depreciation
                          
                          
                          567,910
                          
                          
                          
                          498,686Amortization
      of intangible assets and land use rights
                          
                          
                          70,521
                          
                          
                          
                          52,976Deferred
      taxes
                          
                          
                          27,188
                          
                          
                          
                          (31,370
                          )Loss
      on disposal of property, plant and equipment
                          
                          
                          183
                          
                          
                          
                          -Write-off
      of property, plant and equipment
                          
                          
                          -
                          
                          
                          
                          5,564(Recovery
      of) increase in provision for doubtful debts
                          
                          
                          (80,012
                          )
                          
                          
                          198,657Noncontrolling
      interest
                          
                          
                          45,308
                          
                          
                          
                          30,783Changes
      in operating assets and liabilities:Trade
      receivables
                          
                          
                          (218,205
                          )
                          
                          
                          (1,223,326
                          )Bills
      receivables
                          
                          
                          (495,604
                          )
                          
                          
                          -Other
      receivables, prepayments and deposits
                          
                          
                          (2,037,558
                          )
                          
                          
                          527,730Amounts
      due from related companies
                          
                          
                          112,564
                          
                          
                          
                          -Inventories
                          
                          
                          (814,574
                          )
                          
                          
                          (88,215
                          )Trade
      payables
                          
                          
                          (493,546
                          )
                          
                          
                          284,377Other
      payables and accrued expenses
                          
                          
                          1,145,903
                          
                          
                          
                          239,722Income
      tax recoverable
                          
                          
                          -
                          
                          
                          
                          331,753Income
      tax payable
                          
                          
                          (9,667
                          )
                          
                          
                          -Net
      cash flows provided by operating activities
                          
                          
                          2,924,010
                          
                          
                          
                          4,277,289Cash
      flows from investing activitiesPayments
      to acquire and deposit for acquisition of property, plant and
      equipment
                          
                          
                          (185,179
                          )
                          
                          
                          (923,536
                          )Cash
      acquired from reverse takeover
                          
                          
                          -
                          
                          
                          
                          164,437Proceeds
      from sale of property, plant and equipment
                          
                          
                          2,059,306
                          
                          
                          
                          -Deposit
      for acquisition of intangible asset
                          
                          
                          (322,520
                          )
                          
                          
                          -Amounts
      due from related parties
                          
                          
                          (7,475,419
                          )
                          
                          
                          -Net
      cash flows used in investing activities
                          
                          $
                          (5,923,812
                          )
                          
                          $
                          (759,099
                          )
 
 See the
accompanying notes to condensed consolidated financial statements
 
 7
  Kun
Run Biotechnology, Inc.
 Condensed
Consolidated Statements of Cash Flows (Cont’d)
 For
the nine months ended September 30, 2009 and 2008
 
 Nine
      months ended
                          September
      30,(Unaudited)2009
                        
                        
                        2008Cash
      flows from financing activitiesAmounts
      due to related parties
                        
                        $
                        12,116
                        
                        
                        $
                        (2,799,227
                        )Amount
      due to a director
                        
                        
                        -
                        
                        
                        
                        (4,587
                        )Dividends
      paid to Zhonghe’s former/existing noncontrolling
    stockholders
                        
                        
                        (935
                        )
                        
                        
                        -Proceeds
      from secured borrowings
                        
                        
                        2,932,000
                        
                        
                        
                        322,583Repayment
      of secured borrowings
                        
                        
                        (146,500
                        )
                        
                        
                        (1,433,700
                        )Net
      cash flows provided by (used in) financing activities
                        
                        
                        2,796,681
                        
                        
                        
                        (3,914,931
                        )Effect
      of foreign currency translation on cash and cash
    equivalents
                        
                        
                        61
                        
                        
                        
                        33,515Net
      decrease in cash and cash equivalents
                        
                        
                        (203,060
                        )
                        
                        
                        (363,226
                        )Cash
      and cash equivalents - beginning of period
                        
                        
                        433,599
                        
                        
                        
                        670,919Cash
      and cash equivalents - end of period
                        
                        $
                        230,539
                        
                        
                        $
                        307,693Supplemental
      disclosures for cash flow information:Cash
      paid for:Interest
                        
                        $
                        434,914
                        
                        
                        $
                        413,282Income
      taxes
                        
                        $
                        885,141
                        
                        
                        $
                        -Non-cash
      investing and financing activities:Dividend
      payable to Zhonghe’s former stockholders settled by offsetting amounts due
      from related companies and other payables
                        
                        $
                        -
                        
                        
                        $
                        852,825Deposit
      for acquisition of intangible asset settled by offsetting amounts due from
      related companies$
                        7,589,000
                        
                        
                        $
                        -
 
 See the
accompanying notes to condensed consolidated financial statements
 
 8
  Kun
Run Biotechnology, Inc.
 Notes
to Condensed Consolidated Financial Statements
 (Unaudited)
 (Stated
in US Dollars)
 
 1.
                  Corporate
      information
 
 Kun Run
Biotechnology, Inc. (the “Company”) was incorporated in the State of Nevada on
March 10, 2006.  The Company’s shares are quoted for trading on the
Over-The-Counter Bulletin Board in the United States of America.
 
 The
Company is principally engaged in manufacture, marketing, sale and distribution
of polypeptide drugs which could be used to treat immunity dysfunction and
hyperfunction, as well as some high quality chemical drugs.
 
 2.
                  Basis
      of presentation
 
 The
accompanying unaudited condensed consolidated financial statements of the
Company and its subsidiaries have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission (the “SEC”) including the
instructions to Form 10-Q and Regulation S-X.  Certain information and
note disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted from these statements pursuant to such
rules and regulation and, accordingly, they do not include all the information
and notes necessary for comprehensive consolidated financial statements and
should be read in conjunction with our audited consolidated financial statements
for the year ended December 31, 2008, included in our Annual Report on Form 10-K
for the year ended December 31, 2008.
 
 In the opinion of the management of the
Company, all adjustments, which are of a normal recurring nature, necessary for
a fair statement of the results for the three-months and nine-months periods
have been made.  Results for the interim period presented are not
necessarily indicative of the results that might be expected for the entire
fiscal year.
 
 In
accordance with ASC
810, Noncontrolling
Interests in Consolidated Financial Statements, the noncontrolling
interestis
presented below stockholders’
equity. Certain 2008
amounts in the consolidated financial statements have been reclassified to
conform to the 2009 presentation. These reclassifications have no effect on net
incomeor
stockholders’ equity as previously reported.
 
 3.
                  Summary
      of significant accounting policies
 
 Principles of
consolidation
 
 The
condensed consolidated financial statements include the accounts of the Company
and its subsidiaries.  All significant inter-company accounts and
transactions have been eliminated in consolidation.
  9
  Kun
Run Biotechnology, Inc.
 Notes
to Condensed Consolidated Financial Statements
 (Unaudited)
 (Stated
in US Dollars)
 
 3.
                  Summary
      of significant accounting policies
(Cont’d)
 
 Concentrations of credit
risk
 
 Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash and cash equivalents and trade and
bills receivables.  As of September 30, 2009, substantially all of the
Company’s cash and cash equivalents were held by major financial institutions
located in the People’s Republic of China (the “PRC”), which management believes
are of high credit quality.  With respect to trade and bills
receivables, the Company extends credit based on an evaluation of the customer’s
financial condition.  The Company generally does not require
collateral for trade receivables and maintains an allowance for doubtful
accounts of trade receivables.
 
 During
the reporting periods, customers represented 10% or more of the Company’s
condensed consolidated sales are :-
 
 Three months ended
                          September 30
                          (Unaudited)
                        
                        
                        Nine months ended
                          September 30
                          (Unaudited)2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Beijing
      Ya Bao Fang Da Pharmaceutical Ltd.
                        
                        $
                        424,463
                        
                        
                        $
                        -
                        
                        
                        $
                        1,005,601
                        
                        
                        $
                        -Chongqin
      Dinghai Pharmaceutical Ltd.
                        
                        
                        -
                        
                        
                        
                        215,089
                        
                        
                        
                        -
                        
                        
                        
                        823,389Hainan
      Debang Pharmaceutical Co. Ltd.
                        
                        
                        442,306
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -$
                        866,769
                        
                        
                        $
                        215,089
                        
                        
                        $
                        1,005,601
                        
                        
                        $
                        823,389
 
 Fair value of financial
instruments
 
 The
Company adopted ASC 820 (previously Statement of Financial Accounting Standards
(“SFAS”) No. 157) on January 1, 2008. The adoption of ASC 820 did not materially
impact the Company’s financial position, results of operations or cash
flows.
 
 ASC 825
requires the disclosure of the estimated fair value of financial instruments
including those financial instruments for which fair value option was not
elected. Except for secured borrowings disclosed as below, the carrying amounts
of the financial assets and liabilities approximate to their fair values due to
short maturities or the applicable interest rates approximate the current market
rates :-
  10
  Kun
Run Biotechnology, Inc.
 Notes
to Condensed Consolidated Financial Statements
 (Unaudited)
 (Stated
in US Dollars)
 
 3.
                  Summary
      of significant accounting policies
(Cont’d)
 
 Fair value of financial
instruments (Cont’d)
 
 AsofSeptember30,2009
                          (Unaudited)
                        
                        
                        AsofDecember31,2008
                          (Audited)Carrying
                        
                        
                        
                        
                        
                        Carryingamount
                        
                        
                        Fair value
                        
                        
                        amount
                        
                        
                        Fair valueSecured
      borrowings
                        
                        $
                        9,315,450
                        
                        
                        $
                        9,247,777
                        
                        
                        $
                        6,528,150
                        
                        
                        $
                        6,407,755
 
 The fair
values of secured borrowings are estimated using discounted cash flow analysis,
based on the Company’s current incremental borrowing rates for similar types of
borrowing arrangements.
 
 Recently issued accounting
pronouncements
 
 FASB
Accounting Standards Codification (Accounting Standards Update “ASU” 2009-1). In
June 2009, the Financial Accounting Standard Board (“FASB”) approved its
Accounting Standards Codification (“Codification”) as the single source of
authoritative United States accounting and reporting standards applicable for
all non-governmental entities, with the exception of the SEC and its staff. The
Codification is effective for interim or annual financial periods ending after
September 15, 2009 and impacts our financial statements as all future references
to authoritative accounting literature will be referenced in accordance with the
Codification. There have been no changes to the content of our financial
statements or disclosures as a result of implementing the
Codification.
 
 As a
result of our implementation of the Codification during the quarter ended
September 30, 2009, previous references to new accounting standards and
literature are no longer applicable. In the current quarter financial
statements, we will provide reference to both new and old guidance to assist in
understanding the impacts of recently adopted accounting literature,
particularly for guidance adopted since the beginning of the current fiscal year
but prior to the Codification.
 
 Noncontrolling Interests (Included
in amended Topic ASC 810 “Consolidation”, previously SFAS No. 160
“Noncontrolling Interests in Consolidated Financial Statements”, an amendment of
ARB No. 51).The amended topic establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in
a subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. We adopted the
amended topic on January 1, 2009. As a result, we have reclassified financial
statement line items within our Condensed Consolidated Balance Sheets and
Statements of Income and Comprehensive Income for the prior period to conform to
this amended topic.
 
 Business Combinations (Included in
amended Topic ASC 805 “Business Combinations”, previously SFAS No. 141(R)).This ASC guidance addresses the accounting and disclosure for
identifiable assets acquired, liabilities assumed, and noncontrolling interests
in a business combination. The adoption of this amended topic has no material
impact on the Company’s financial statements.
  11
  Kun
Run Biotechnology, Inc.
 Notes
to Condensed Consolidated Financial Statements
 (Unaudited)
 (Stated
in US Dollars)
 
 3.
                  Summary
      of significant accounting policies
(Cont’d)
 
 Recently issued accounting
pronouncements (Cont’d)
 
 Intangibles-Goodwill and Other
(Included in amended Topic ASC 350”, previously FASB staff position (“FSP”) FAS
142-3, Determination of the Useful Life of Intangible Assets).The
amended topic amends the factors an entity should consider in developing renewal
or extension assumptions used in determining the useful life of recognized
intangible assets under FASB Statement No. 142, “Goodwill and Other
Intangible Assets”. This new guidance applies prospectively to intangible assets
that are acquired individually or with a group of other assets in business
combinations and asset acquisitions. The amended topic is effective for
financial statements issued for fiscal years and interim periods beginning after
December 15, 2008. Early adoption is prohibited. The adoption of this
amended topic has no material effect on the Company's financial
statements.
 
 Business Combinations (Included in
amended Topic ASC 805, previously FSP No. 141R-1 “Accounting for Assets Acquired
and Liabilities Assumed in a Business Combination That Arise from
Contingencies”).Amended topic ASC 805 amends the requirements for the
provisions in FASB Statement 141R for the initial recognition and measurement,
subsequent measurement and accounting, and disclosures for assets and
liabilities arising from contingencies in business combinations. The amended
topic eliminates the distinction between contractual and non-contractual
contingencies, including the initial recognition and measurement criteria and
instead carries forward most of the provisions for acquired contingencies. The
amended topic is effective for contingent assets and contingent liabilities
acquired in evaluating the impact. The management is in the process of
evaluating the impact of adopting this amended topic on the Company’s financial
statements.
 
 Fair Value Measurements and
Disclosures (Included in amended Topic ASC 820, previously FSP No. 157-4,
“Determining Whether a Market is Not Active and a Transaction Is Not
Distressed”.)The amended topic clarifies when markets are illiquid or
that market pricing may not actually reflect the “real” value of an asset. If a
market is determined to be inactive and market price is reflective of a
distressed price then an alternative method of pricing can be used, such as a
present value technique to estimate fair value. The amended topic identifies
factors to be considered when determining whether or not a market is inactive.
The amended topic would be effective for interim and annual periods ending after
June 15, 2009, with early adoption permitted for periods ending after March 15,
2009 and shall be applied prospectively. The adoption of this amended topic has
no material effect on the Company's financial statements.
 
 Investments - Debt and Equity
Securities - Overall - Transition and Open Effective Date Information (Included
in amended Topic ASC 320, previously FASB Staff Position No. 115-2 and Statement
of Financial Accounting Standards No. 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments”).The amended topic amends the
other-than-temporary impairment guidance in U.S. GAAP for debt securities
through increased consistency in the timing of impairment recognition and
enhanced disclosures related to the credit and noncredit components of impaired
debt securities that are not expected to be sold. In addition, increased
disclosures are required for both debt and equity securities regarding expected
cash flows, credit losses, and securities with unrealized losses. The adoption
of this amended topic has no material impact on the Company’s financial
statements.
  12
  Kun
Run Biotechnology, Inc.
 Notes
to Condensed Consolidated Financial Statements
 (Unaudited)
 (Stated
in US Dollars)
 
 3.
                  Summary
      of significant accounting policies
(Cont’d)
 
 Recently issued accounting
pronouncements (Cont’d)
 
 Interim Disclosures about Fair Value
of Financial Instruments (Included in amended Topic ASC 825 “Financial
Instruments”, previously FSP SFAS No. 107-1).This guidance requires that
the fair value disclosures required for all financial instruments be included in
interim financial statements. This guidance also requires entities to disclose
the method and significant assumptions used to estimate the fair value of
financial instruments on an interim and annual basis and to highlight any
changes from prior periods. The amended topic was effective for interim periods
ending after September 15, 2009. The adoption of this amended topic has no
material impact on the Company’s financial statements.
 
 Subsequent Events (Included in
amended Topic ASC 855 “Subsequent Events”, previously SFAS No. 165).The
amended topic establishes accounting and disclosure requirements for subsequent
events. The amended topic details the period after the balance sheet date during
which we should evaluate events or transactions that occur for potential
recognition or disclosure in the financial statements, the circumstances under
which we should recognize events or transactions occurring after the balance
sheet date in its financial statements and the required disclosures for such
events. We adopted this amended topic effective June 1, 2009.
 
 Accounting for Transfers of
Financial Assets (Included in amended Topic ASC 860 “Transfers and Servicing”,
previously SFAS No. 166, “Accounting for Transfers of Financial Assets - an
Amendment of FASB Statement No. 140.”).The amended topic addresses
information a reporting entity provides in its financial statements about the
transfer of financial assets; the effects of a transfer on its financial
position, financial performance, and cash flows; and a transferor’s continuing
involvement in transferred financial assets. Also, the amended topic removes the
concept of a qualifying special purpose entity, limits the circumstances in
which a transferor derecognizes a portion or component of a financial asset,
defines participating interest and enhances the information provided to
financial statement users to provide greater transparency. The amended topic is
effective for the first annual reporting period beginning after November 15,
2009 and will be effective for us as of January 1, 2010. The management is in
the process of evaluating the impact of adopting this amended topic on the
Company’s financial statements.
 
 Consolidation of Variable Interest
Entities – Amended (Included in amended Topic ASC 810 “Consolidation”,
previously SFAS 167 “Amendments to FASB Interpretation No. 46(R)”). The
amended topic require an enterprise to perform an analysis to determine the
primary beneficiary of a variable interest entity; to require ongoing
reassessments of whether an enterprise is the primary beneficiary of a variable
interest entity and to eliminate the quantitative approach previously required
for determining the primary beneficiary of a variable interest entity. The
amended topic also requires enhanced disclosures that will provide users of
financial statements with more transparent information about an enterprise’s
involvement in a variable interest entity. The amended topic is effective for
the first annual reporting period beginning after November 15, 2009 and will be
effective for us as of January 1, 2010. The management is in the process of
evaluating the impact of adopting this amended topic on the Company’s financial
statements
  13
  Kun
Run Biotechnology, Inc.
 Notes
to Condensed Consolidated Financial Statements
 (Unaudited)
 (Stated
in US Dollars)
 
 3.
                  Summary
      of significant accounting policies
(Cont’d)
 
 Recently issued accounting
pronouncements (Cont’d)
 
 In August
2009, the FASB issued Accounting Standards Update No. 2009-05 (“ASC Update
2009-05”), an update to ASC 820, Fair Value Measurements and Disclosures. This
update provides amendments to reduce potential ambiguity in financial reporting
when measuring the fair value of liabilities. Among other provisions, this
update provides clarification that in circumstances in which a quoted price in
an active market for the identical liability is not available, a reporting
entity is required to measure fair value using one or more of the valuation
techniques described in ASC Update 2009-05. ASC Update 2009-05 will become
effective for the Company’s annual financial statements for the year ended
December 31, 2009. The management is in the process of evaluating the impact of
adopting this ASC update on the Company’s financial statements.
 
 In
October 2009, the FASB issued Accounting Standards Update, 2009-13, Revenue
Recognition (Topic 605): Multiple Deliverable Revenue Arrangements - A Consensus
of the FASB Emerging Issues Task Force.” This update provides application
guidance on whether multiple deliverables exist, how the deliverables should be
separated and how the consideration should be allocated to one or more units of
accounting. This update establishes a selling price hierarchy for determining
the selling price of a deliverable. The selling price used for each deliverable
will be based on vendor-specific objective evidence, if available, third-party
evidence if vendor-specific objective evidence is not available, or estimated
selling price if neither vendor-specific or third-party evidence is available.
The Company will be required to apply this guidance prospectively for revenue
arrangements entered into or materially modified after January 1, 2011; however,
earlier application is permitted. The management is in the process of evaluating
the impact of adopting this ASC update on the Company’s financial
statements.
 
 4.
                  Income
      taxes
 
 In
accordance with ASC 740, the Company is required to recognize and measure
of uncertain income tax positions using a “more-likely-than-not”
approach.  The management evaluated the Company’s tax positions and
considered that no additional provision for uncertainty in income taxes is
necessary as of September 30, 2009.
 
 United
States
 
 Kun Run
Biotechnology, Inc. is subject to the United States Federal and state income tax
at a statutory rate of 35%.  No provision for the U.S. Federal income
taxes have been made as the Company had no taxable income in this jurisdiction
for the reporting period.
 
 HK
 
 Kun Run
Biotechnology Ltd. was incorporated in Hong Kong and subject to Hong Kong
profits tax at a tax rate of 16.5%. No provision for Hong Kong profits tax has
been made as the Company has no taxable income during the reporting
period.
  14
  Kun
Run Biotechnology, Inc.
 Notes
to Condensed Consolidated Financial Statements
 (Unaudited)
 (Stated
in US Dollars)
 
 4.
                  Income
      taxes (Cont’d)
 
 PRC
 
 The
Company’s subsidiary, Hainan Zhonghe Pharmaceutical Co, Ltd. (“Zhonghe”), is
registered and operates in Hainan Province, the PRC, and recognized as
“Manufacturing Enterprise Located in Special Economic Zone”.  As a
result, Zhonghe is entitled to a preferential corporate income tax (“CIT”) rate
of 15% up to December 31, 2007.
 
 The PRC’s
legislative body, the National People’s Congress, adopted the unified CIT Law on
March 16, 2007.  This new tax law replaces the existing separate
income tax laws for domestic enterprises and foreign-invested enterprises and
became effective on January 1, 2008.  Under the new tax law, a
unified income tax rates is set at 25% for both domestic enterprises and
foreign-invested enterprises.  However, there will be a transition
period for enterprises, whether foreign-invested or domestic, that are currently
receiving preferential tax treatments granted by relevant tax
authorities.  Enterprises that are subject to an enterprise income tax
rate lower than 25% may continue to enjoy the lower rate and will transit into
the new tax rate over a five year period beginning on the effective date of the
CIT Law. In accordance with the guideline, enterprise is subject to the tax rate
of 18% for 2008, 20% for 2009, 22% for 2010, 24% for 2011 and 25% for 2012
respectively during the transition period. Enterprises that are currently
entitled to exemptions for a fixed term will continue to enjoy such treatment
until the exemption term expires.
 
 As
approved by the relevant tax authority in the PRC, Zhonghe, being a Foreign
Investment Enterprise, engaged in an advanced technology industry, was approved
to enjoy a further three years' preferential tax rate at 15% for 2008, 2009 and
2010.
 
 5.
                  Inventories
 
 September 30,
                        
                        December 31,2009
                        
                        
                        2008(Unaudited)
                        
                        
                        (Audited)Raw
      materials
                        
                        $
                        350,421
                        
                        
                        $
                        284,837Work-in-progress
                        
                        
                        930,480
                        
                        
                        
                        260,504Finished
      goods
                        
                        
                        223,821
                        
                        
                        
                        144,074$
                        1,504,722
                        
                        
                        $
                        689,415
  15
  Kun
Run Biotechnology, Inc.
 Notes
to Condensed Consolidated Financial Statements
 (Unaudited)
 (Stated
in US Dollars)
 
 6.
                  Other
      receivables, prepayments and
deposits
 
 September 30,
                        
                        December 31,2009
                        
                        
                        2008(Unaudited)
                        
                        
                        (Audited)Other
      deposits paid
                        
                        $
                        144,909
                        
                        
                        $
                        65,808Other
      prepayments
                        
                        
                        664,571
                        
                        
                        
                        688,746Other
      receivables
                        
                        
                        270,032
                        
                        
                        
                        176,694Trade
      deposits paid to suppliers
                        
                        
                        1,926,163
                        
                        
                        
                        54,435$
                        3,005,675
                        
                        
                        $
                        985,683
 
 7.
                  Amounts
      due from / to related companies
 
 September 30,
                        
                        December 31,2009
                        
                        
                        2008(Unaudited)
                        
                        
                        (Audited)Amounts
      due from related parties :-Hainan
      Zhonghe Group Co., Ltd. (“Hainan Zhonghe Group”) - Note
    7(b)
                        
                        $
                        4,752,579
                        
                        
                        $
                        4,352,639Hainan
      Zhonghe Peptide Drugs Research &Development Co., Ltd. (“Zhonghe
      Peptide”)-
      Note 7(c)
                        
                        
                        -
                        
                        
                        
                        528,120Hainan
      Heyi Pharmaceutical Co., Ltd. (“Hainan Heyi”)-
      Note 7(d)
                        
                        
                        603,570
                        
                        
                        
                        714,548$
                        5,356,149
                        
                        
                        $
                        5,595,307Amount
      due to a related party :-Dividend
      payable to Zhonghe’s former stockholder Hainan Hekun Bronze Art Co., Ltd.
      (“Hainan Hekun”)-
      Note 7(d)
                        
                        $
                        -
                        
                        
                        $
                        936
 
 Notes
:-
 
 (a)
                  Mr.
      Xueyun Cui (“Mr. Cui”), the Company’s Chairman, sole director and the
      beneficial owner of approximately 90.09% of the Company’s outstanding
      common stock, is the ultimate controlling party of Hainan Zhonghe Group,
      Zhonghe Peptide, Hainan Heyi and Hainan
Hekun.
 
 (b)
                  The
      amounts are interest bearing at a benchmark rate in the PRC per annum,
      unsecured and repayable by December 31,
2009.
 
 (c)
                  The
      amounts are interest bearing at a benchmark rate in the PRC per annum,
      unsecured and settled by offsetting with deposit for acquisition of
      property, plant and equipment.
 
 (d)
                  The
      amounts are interest free, unsecured and repayable on
    demand.
  16
  Kun
Run Biotechnology, Inc.
 Notes
to Condensed Consolidated Financial Statements
 (Unaudited)
 (Stated
in US Dollars)
 
 8.
                  Property,
      plant and equipment, net
 
 September 30,
                        
                        December 31,2009
                        
                        
                        2008(Unaudited)
                        
                        
                        (Audited)Costs
      :-Buildings
                        
                        $
                        6,264,902
                        
                        
                        $
                        5,892,393Plant
      and machinery
                        
                        
                        5,131,903
                        
                        
                        
                        4,233,317Furniture,
      fixtures and equipment
                        
                        
                        283,476
                        
                        
                        
                        273,588Leasehold
      improvements
                        
                        
                        109,148
                        
                        
                        
                        118,645Motor
      vehicles
                        
                        
                        714,280
                        
                        
                        
                        714,28012,503,709
                        
                        
                        
                        11,232,223Accumulated
      depreciation
                        
                        
                        (3,447,153
                        )
                        
                        
                        (2,882,383
                        )Construction
      in progress
                        
                        
                        191,897
                        
                        
                        
                        1,335,534Net
                        
                        $
                        9,248,453
                        
                        
                        $
                        9,685,374
 
 As of
September 30, 2009, buildings with carrying value of $2,999,566 acquired from
the former shareholder of Zhonghe on December 31, 2007, have been pledged for a
bank loan granted to Zhonghe (Note 11a(i)).  Accordingly the legal
title of the buildings cannot be transferred to Zhonghe until the bank loan is
fully repaid in 2010.  Pursuant to two separate trust agreements, both
parties agreed that the former shareholder of Zhonghe will continue to hold the
legal title of the abovementioned pledged buildings for Zhonghe until the full
settlement of related bank loan has been made by Zhonghe.
 
 9.
                  Land
      use rights
 
 The
carrying amount of land use rights as of September 30, 2009 represents two
separate land use rights acquired from the former stockholder of Zhonghe on
September 29, 2007 and December 31, 2007 respectively.  The land use
right with carrying value of $2,260,838 as of September 30, 2009 was pledged to
the bank for the loans granted to Zhonghe (Note 11a(ii)).  The legal
title of the pledged land use right has not been transferred to Zhonghe after
the acquisition as such transfer can only be done after the related bank loans
granted to Zhonghe are fully settled in 2010.  Pursuant to a trust
agreement, both parties agreed that the former stockholder of Zhonghe will
continue to hold the legal title of the pledged land for Zhonghe until the full
settlement of related bank loans has been made by Zhonghe.
 
 The legal
title of the remaining land use right with carrying value of $1,462,703 as of
September 30, 2009 has not been transferred to Zhonghe after the
acquisition.  Pursuant to a trust agreement, both parties agreed that
the former stockholder of Zhonghe will continue to hold the legal title of the
land for Zhonghe until the completion of the legal title
transfer.
  17
  Kun
Run Biotechnology, Inc.
 Notes
to Condensed Consolidated Financial Statements
 (Unaudited)
 (Stated
in US Dollars)
 
 10.
                  Deposit
      paid to a related company for acquisition of an intangible
      asset
 
 On March
23, 2009, Zhonghe entered into an agreement with Zhonghe Peptide to acquire a
technology know-how in relation to the production of a new drug at a total
consideration of RMB60 million. As of September 30, 2009, RMB54 million
(equivalent to $7.92 million) was paid to Zhonghe Peptide as a deposit, which
was settled by offsetting the amount due from related companies of $7.59 million
and by cash of $0.33 million. The transaction is expected to be completed by the
end of 2009.
 
 11.
                  Secured
      borrowings
 
 September 30,
                                
                                December 31,2009
                                
                                
                                2008(Unaudited)
                                
                                
                                (Audited)Short-term
      borrowingsBank
      loanShort-term
      loan, interest bearing at 6.37 % per annum
                                
                                $
                                2,934,000
                                
                                
                                $
                                -Long-term
      loans - current portion
                                
                                
                                6,051,375
                                
                                
                                
                                -8,985,375
                                
                                
                                
                                -Long-term
      borrowingsBank
      loan (Note a)-
      due 2010, interest bearing at 8.28% per annum
                                
                                
                                5,721,300
                                
                                
                                
                                5,868,000Other
      loan (Note b)-
      due 2010, interest free
                                
                                
                                330,075
                                
                                
                                
                                330,075-
      due 2011, interest free
                                
                                
                                330,075
                                
                                
                                
                                330,0756,381,450
                                
                                
                                
                                6,528,150Less:
      current maturities
                                
                                
                                (6,051,375
                                )
                                
                                
                                -330,075
                                
                                
                                
                                6,528,150$
                                9,315,450
                                
                                
                                $
                                6,528,150
 
 (a)
                  The
      above bank loans were secured by the following
  :-
 
 (i)
                  Buildings
      with carrying value of $2,999,566 (Note 8);
and
 
 (ii)
                  Land
      use right with carrying value of $2,260,838 (Note
  9).
 
 (b)
                  The
      other loan, which was granted to Zhonghe by the PRC local government
      authority, is interest-free and secured by the buildings disposed at
      considerations of $442,233 in 2008 to a third party. The other loan has
      not been discounted to its present value as the effect of discounting is
      immaterial. The legal title of the pledged buildings has not been
      transferred to the third party as the related other loan granted to
      Zhonghe has not been settled until 2011. Pursuant to a trust agreement,
      both parties agreed that Zhonghe will continue to hold the legal title of
      the pledged buildings until the full settlement of related other loan has
      been made by Zhonghe.
 
 During
the reporting periods, there was no covenant requirement under the facilities
granted to the Company.
  18
  Kun
Run Biotechnology, Inc.
 Notes
to Condensed Consolidated Financial Statements
 (Unaudited)
 (Stated
in US Dollars)
 
 12.
                  Commitments
      and contingencies
 
 (a)
                  Capital
      commitment
 
 As of
September 30, 2009, the Company had capital commitments amounting to $1,221,500
in respect of the acquisition of property, plant and equipment and intangible
asset which were contracted for but not provided in the financial
statements.
 
 (b)
                  Operating lease
      arrangement
 
 As of
September 30, 2009, the Company had no non-cancellable operating
lease.
 
 13.
                  Defined
      contribution plan
 
 Pursuant
to the relevant PRC regulations, the Company is required to make contributions
at a rate of 29% of the average salaries for the latest fiscal year-end of
Hainan Province Haikou Shi to a defined contribution retirement scheme organized
by a state-sponsored social insurance plan in respect of the retirement benefits
for the Company's employees in the PRC.  The only obligation of the
Company with respect to retirement scheme is to make the required contributions
under the plan.  No forfeited contribution is available to reduce the
contribution payable in the future years.  The defined contribution
plan contributions were charged to the condensed consolidated statements of
income. The Company contributed $58,210 and $63,709 for the nine months ended
September 30, 2009 and 2008 respectively.
 
 14.
                  Segment
      information
 
 The
Company is solely engaged in the manufacture, marketing, sale and distribution
of drugs.  Since the nature of the products, their production
processes, the type of their customers and their distribution methods are
substantially similar, they are considered as a single reportable segment under
ASC 280 (previously SFAS 131), “Disclosures about Segments of an Enterprise and
Related Information”.
 
 All of
the Company’s long-lived assets and revenues classified based on the customers
are located in the PRC.
  19
  Kun
Run Biotechnology, Inc.
 Notes
to Condensed Consolidated Financial Statements
 (Unaudited)
 (Stated
in US Dollars)
 
 15.
                  Related
      party transactions
 
 Apart
from the transactions as disclosed in notes 7, 8, 9 and 10 to the financial
statements, the Company has entered into the following transactions with its
related parties :-
 
 Related parties
                          
                          Type of
                            transactions
                          
                          Three months ended
                            September 30,
                            (Unaudited)
                          
                          
                          Nine months ended
                            September 30,
                            (Unaudited)2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008Hainan
      Heyi
                          
                          Sales
                          
                          $
                          -
                          
                          
                          $
                          5,266
                          
                          
                          $
                          306,168
                          
                          
                          $
                          493,442Hainan
      Zhonghe Group
                          
                          Interest
      income
                          
                          $
                          49,184
                          
                          
                          $
                          -
                          
                          
                          $
                          115,695
                          
                          
                          $
                          -
 
 16.
                  Subsequentevents
 
 The
Company implemented ASC 855. This standard establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued. The adoption of ASC 855 did not
impact our financial position or results of operations. The Company evaluated
all events or transactions that occurred after September 30, 2009 up
through [November 13, 2009], the date these financial statements were issued.
During this period, the Company did not have any material recognizable
subsequent events.
  20
  ITEM
2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
  In
addition to historical information, this document contains forward-looking
statements regarding business prospects, financial trends and accounting
policies that may affect our future operating results, financial position and
cash flows. From time to time, we also may provide oral or written
forward-looking statements in other materials we release to the public.
Forward-looking statements give our current expectations or forecasts of future
events. You can identify these statements by the fact that they do not
relate strictly to historical or current facts. We use words such as “will,’’
“anticipate,’’ “estimate,’’ “expect,’’ “project,’’ “intend,’’ “plan,’’
“believe,’’ “target,’’ “forecast’’ and other words and terms of similar meaning
in connection with any discussion of future operating or financial performance.
In particular, they include statements relating to future actions, prospective
products and services, future performance or results of current and anticipated
products and services, sales efforts, capital expenditures, expenses, interest
rates, the outcome of contingencies, such as legal proceedings, and financial
results.
  There are
possible developments that could cause our actual results to differ materially
from those forecasts or implied in the forward-looking statements. You are
cautioned not to place undue reliance on these forward-looking statements, which
are current only as of the date of this filing. We disclaim any intention or
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
  Except as
otherwise indicated by the context, references in this document to “Company,”
“we,” “us,” or “our” are references to the combined business of Kun Run
Biotechnology, Inc. and its wholly-owned subsidiaries, including Kun Run
Biotechnology Ltd., a Hong Kong corporation and Hainan Zhonghe
 Pharmaceutical Co., Ltd., a corporation organized under the laws of
the People’s Republic of China. “China” and “PRC” are references to
“People’s Republic of China.” References to "RMB" are to Renminbi, the legal
currency of China, and all references to “$” are to the legal currency of the
United States.
 
 Overview
  We are
engaged, through Hainan Zhonghe Pharmaceutical Co., Ltd. (“Zhonghe”), our China
based indirect subsidiary, in the development, manufacture, marketing and sale
of prescription polypeptide drugs. Our principal products are polypeptide
derivatives as well as chemical products. Our products are sold
primarily in China and through Chinese domestic pharmaceutical distributors
licensed by the Chinese government. Our manufacturing and sales facilities
are located in the City of Haikou, Hainan Province.
  Corporate
History
  Kun Run
Biotechnology, Inc. formerly known as Aspen Racing Stables, Inc. (“Aspen”), was
incorporated in the State of Nevada on March 10, 2006. The Company’s shares
are quoted for trading on the Over-The-Counter Bulletin Board in the United
States of America.
 
 Kun Run
Biotechnology, Ltd., our non operating Hong Kong holding subsidiary (“Kun Run”),
was incorporated on May 6, 2006 under the name Max Talent Industrial Ltd which
changed to its present name on February 25, 2008. On March 24, 2008, Kun Run
completed its acquisition of 60.12% equity interest of Zhonghe, a company
organized under the laws of the People’s Republic of China (“PRC”) on April 17,
1995 and has since been engaged in the manufacture and sale of polypeptide
drugs. On May 27, 2008, Kun Run acquired an additional 39% equity interest of
Zhonghe, resulting in a 99.12% ownership of Zhonghe.
 
 Thereafter,
on August 21, 2008, Kun Run entered into a Stock Purchase Agreement (the
“Exchange Agreement”) with the shareholders of the Company. The terms of the
Exchange Agreement were consummated and the acquisition was completed on
September 16, 2008. As a result of the transaction, the Company issued a total
of 24,250,000 shares of its common voting stock to Xueyun Cui (“Mr. Cui”) and
Liqiong Yang, the shareholders of Kun Run and their designees, in exchange for
100% of the capital stock of Kun Run, resulting in Kun Run becoming our
wholly-owned subsidiary, and the shareholders of Kun Run and their designees
owning approximately 97% of the issued and outstanding shares of the common
stock of Aspen. In addition, Trixy Asyniux-Walt, the original shareholder
of Aspen, returned 1,000,000 of her shares to the Company for cancellation and
as of the closing owns 750,000 shares of the Company’s common stock which
constitutes approximately 3% of the issued and outstanding shares of the
Company’s common stock.
 
 Summary
of significant accounting policies
 
 Principle
of consolidation
 
 The
accompanying financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in the United States
of America. The condensed consolidated financial statements include
the accounts of the Company and its subsidiaries. All significant inter-company
accounts and transactions have been eliminated in
consolidation.
  21
 
 Use of
estimates
 
 In
preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the dates of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting periods. These accounts and estimates include, but are not limited to,
the valuation of accounts receivable, inventories, deferred income taxes and the
estimation on useful lives and residual values of property, plant and
equipment, intangible assets. Actual results could differ from those
estimates.
 
 Fair
value of financial instruments
 
 The
Company adopted ASC 820 (previously Statement of Financial Accounting Standards
(“SFAS”) No. 157) on January 1, 2008. The adoption of ASC 820 did not materially
impact the Company’s financial position, results of operations or cash
flows.
 
 ASC 825
requires the disclosure of the estimated fair value of financial instruments
including those financial instruments for which fair value option was not
elected. Except for secured borrowings disclosed as below, the carrying amounts
of the financial assets and liabilities approximate to their fair values due to
short maturities or the applicable interest rates approximate the current market
rates :-
 
 Concentrations
of credit risk
 
 Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash and cash equivalents and trade
receivables. As of September 30, 2009, substantially all of the Company’s cash
and cash equivalents were held by major financial institutions located in the
People’s Republic of China (the “PRC”), which management believes are of high
credit quality. With respect to trade receivables, the Company extends credit
based on an evaluation of the customer’s financial condition. The Company
generally does not require collateral for trade receivables and maintains an
allowance for doubtful accounts of trade receivables.
  Results
of Operations
  Three
months ended September 30, 2009 and 2008
  The
information set forth below has been derived from our financial statements for
the three months ended September 30, 2009 and three months ended September 30,
2008.
 
 Three months ended September 30,(unaudited)2009
                        
                        
                        2008% as of total
                          revenue
                        
                        
                        
                        
                        
                        % as of total
                          revenue
                        
                        
                        % ChangeSales
      revenue
                        
                        $
                        4,048,877
                        
                        
                        
                        100
                        %
                        
                        $
                        2,449,618
                        
                        
                        
                        100
                        %
                        
                        
                        65
                        %Cost
      of sales
                        
                        
                        1,211,070
                        
                        
                        
                        30
                        %
                        
                        
                        693,242
                        
                        
                        
                        28
                        %
                        
                        
                        75
                        %Gross
      profit
                        
                        $
                        2,837,807
                        
                        
                        
                        70
                        %
                        
                        $
                        1,756,376
                        
                        
                        
                        72
                        %
                        
                        
                        62
                        %
 
 Sales
Revenue
 
 Revenues
for the three months ended September 30, 2009 were $4.05 million, an increase of
$1.6 million, or 65% over revenues for the same period of 2008. This
increase was mainly attributable to the increase in sales of our products and
services. Revenues by product categories were as follows:
  22
 
 Three
      months ended September 30,(unaudited)2009
                                        
                                        
                                        2008Product
                                        
                                        
                                        
                                        
                                        as of total
                                        
                                        
                                        
                                        
                                        
                                        as of total
                                        
                                        
                                        %sales
      %
                                        
                                        
                                        
                                        
                                        
                                        sales
      %
                                        
                                        
                                        ChangesTP-5
      ProductsTP-5
      for injection (1mg)
                                        
                                        $
                                        415,184
                                        
                                        
                                        
                                        10
                                        %
                                        
                                        $
                                        497,116
                                        
                                        
                                        
                                        20
                                        %
                                        
                                        
                                        -16
                                        %TP-5
      for injection (10mg)
                                        
                                        
                                        247,013
                                        
                                        
                                        
                                        6
                                        %
                                        
                                        
                                        84,354
                                        
                                        
                                        
                                        4
                                        %
                                        
                                        
                                        193
                                        %TP-5
      pre-filled injection 1ml:1mg
                                        
                                        
                                        317,934
                                        
                                        
                                        
                                        8
                                        %
                                        
                                        
                                        175,299
                                        
                                        
                                        
                                        7
                                        %
                                        
                                        
                                        81
                                        %TP-5
      pre-filled injection 1ml:10mg
                                        
                                        
                                        967,247
                                        
                                        
                                        
                                        24
                                        %
                                        
                                        
                                        445,353
                                        
                                        
                                        
                                        18
                                        %
                                        
                                        
                                        117
                                        %Sub-total
      ( TP-5 products)
                                        
                                        
                                        1,947,378
                                        
                                        
                                        
                                        48
                                        %
                                        
                                        
                                        1,202,122
                                        
                                        
                                        
                                        49
                                        %
                                        
                                        
                                        62
                                        %Other
      productsSomatostatin
      for injection 3mg
                                        
                                        
                                        201,698
                                        
                                        
                                        
                                        5
                                        %
                                        
                                        
                                        179,383
                                        
                                        
                                        
                                        7
                                        %
                                        
                                        
                                        12
                                        %Thymosin
      Alpha 1 for injection 1.6mg
                                        
                                        
                                        1,326,439
                                        
                                        
                                        
                                        33
                                        %
                                        
                                        
                                        845,013
                                        
                                        
                                        
                                        35
                                        %
                                        
                                        
                                        57
                                        %DDAVP
      Injection 1ml:4ug
                                        
                                        
                                        369,282
                                        
                                        
                                        
                                        9
                                        %
                                        
                                        
                                        147,959
                                        
                                        
                                        
                                        6
                                        %
                                        
                                        
                                        150
                                        %DDAVP
      Injection 1ml:15ug
                                        
                                        
                                        138,781
                                        
                                        
                                        
                                        3
                                        %
                                        
                                        
                                        48,943
                                        
                                        
                                        
                                        2
                                        %
                                        
                                        
                                        184
                                        %Granisetron
      Hydrochloride Injection 3ml:3mg
                                        
                                        
                                        35,878
                                        
                                        
                                        
                                        1
                                        %
                                        
                                        
                                        18,167
                                        
                                        
                                        
                                        1
                                        %
                                        
                                        
                                        97
                                        %Ozagrel
      Sodium for Injection 80mg/40mg
                                        
                                        
                                        777
                                        
                                        
                                        
                                        0
                                        %
                                        
                                        
                                        8,031
                                        
                                        
                                        
                                        0
                                        %
                                        
                                        
                                        -90
                                        %Others
                                        
                                        
                                        28,644
                                        
                                        
                                        
                                        1
                                        %
                                        
                                        
                                        -
                                        
                                        
                                        
                                        0
                                        %
                                        
                                        
                                        100
                                        %In Total
                                        
                                        $
                                        4,048,877
                                        
                                        
                                        
                                        100
                                        %
                                        
                                        $
                                        2,449,618
                                        
                                        
                                        
                                        100
                                        %
                                        
                                        
                                        65
                                        %
  For the
three months ended September 30, 2009, the sales of our major products, TP-5
products, were $1.95 million, accounting for 48% of total sales, increased by
$745,256, or 62% from $1.20 million for the three months ended September
30, 2008. Among the TP-5 product category, the pre-filled products had a speedy
increase compared to the traditional TP-5 products for injection because of its
increased safety, ease of use and the flexibility to self-administer the
medication at home. The revenue from TP-5 for pre-filled injection increased
$664,529, representing a 107% increase from the same period of 2008. At the same
time, the sales of traditional TP-5 products keep a steady increase, the revenue
increased by $80,727, or 14% from the same period of 2008. We believe our TP-5
products will continue to hold a strong market share in China market in the near
future because of our more competitive pricing with superior quality and brand
recognition.
 
 Thymosin
Alpha 1 for injection gradually became our best selling product since its
superior curative effects and strong market acceptance, contributing $1,326,439
in revenue (33% of total sales) for the three months ended September 30, 2009,
representing a 57% increase from the same period of 2008.
 
 Meanwhile,
DDAVP generated $508,063, or 12% of total sales for the three months ended
September 30, 2009, an increase of 158% from $196,902 for the same period in
2008. The increase was mainly due to enhanced product recognition because
of its effective clinical performance. We believe the product will continue to
generate more revenue in the near future.
  Cost of
Sales and Gross Profit
 
 Cost of
goods sold was $1,211,070 for the three months ended September 30, 2009, as
compared to $ 693,242 for the same period in 2008. Cost of goods sold was
30% of total revenue for the three months ended September 30, 2009, as
compared to 28% of total revenue for the same period in 2008. The increase in
cost of sales as a percentage of revenue was mainly due to the increased sales
volume of lower profit margin products including Thymosin Alpha 1 for injection
1.6mg and DDAVP(1ml:4ug).
 
 Gross
profit as a percentage of net revenue decreased to 70% for the three months
ended September 30, 2009 from 72% for the same period in 2008 due to the
increase in cost of goods sold as a percentage of revenue as discussed
above.
  23
 
 Three months ended September 30,(unaudited)2009
                                  
                                  
                                  2008as of total
                                    revenue
      %
                                  
                                  
                                  
                                  
                                  as of total
                                    revenue
      %
                                  
                                  
                                  %ChangesOperating
      expenses:Administrative
      expenses
                                  
                                  $
                                  285,889
                                  
                                  
                                  
                                  7
                                  %
                                  
                                  $
                                  257,968
                                  
                                  
                                  11
                                  %
                                  
                                  
                                  11
                                  %Research
      and development costs
                                  
                                  
                                  90,335
                                  
                                  
                                  
                                  2
                                  %
                                  
                                  107,896
                                  
                                  
                                  4
                                  %
                                  
                                  
                                  -16
                                  %Selling
      expenses
                                  
                                  
                                  69,882
                                  
                                  
                                  
                                  2
                                  %
                                  
                                  271,460
                                  
                                  
                                  11
                                  %
                                  
                                  
                                  -74
                                  %446,106
                                  
                                  
                                  
                                  11
                                  %
                                  
                                  637,324
                                  
                                  
                                  26
                                  %
                                  
                                  
                                  -30
                                  %Income
      from operations
                                  
                                  $
                                  2,391,701
                                  
                                  
                                  
                                  59
                                  %
                                  
                                  $
                                  1,119,052
                                  
                                  
                                  46
                                  %
                                  
                                  
                                  114
                                  %
 
 Administrative
Expenses
 
 Administrative
expenses primarily consist of depreciation, salaries and other related costs for
personnel in executive and other administrative functions. Other significant
costs included amortization of intangible assets, urban real estate tax.
Administrative expenses for the three months ended September 30, 2009 and 2008
were $285,889 (7% of total sales) and $257,968 (11% of total sales),
respectively, representing an increase of $ 27,921. The increase in
administrative expenses was primarily attributable to the increase of $ 33,145
in Non-operating expenses.
 
 Research
and Development Costs
 
 Research
and development costs consist primarily of expenses incurred in clinical
trials, drug registration and usage of trial specimens for our new products.
Research and development expenses for the three months ended September 30,
2009 were $90,335, or 2% of total sales, a $17,561 decrease from $107,896 for
the same period of 2008. In order to achieve better R&D results, the
Company has purchased drugs including Entecavir this year from outside research
institutions. Thus, R&D expenses were reduced.
 
 Selling
Expenses
 
 Selling
expenses, including distribution expenses, were $69,882, or 2% of total sales,
for the three months ended September 30, 2009 as compared to $271,460, or 11% of
the total sales for the same period in 2008, representing a decrease of
$201,578. The decrease was mainly attributableto the reduction of $198,657 in
provisions for doubtful debts.
 
 Income
from Operations
 
 Income
from operations was $2.4 million for the three months ended September 30, 2009,
an increase of 114% from $1.12 million for the same period in 2008. The increase
was mainly due to the decrease of the above described costs and
expenses.
 
 Three months ended September 30,(unaudited)2009
                                  
                                  
                                  2008as of
      total
                                  
                                  
                                  
                                  
                                  
                                  as of
      total
                                  
                                  
                                  %revenue %
                                  
                                  
                                  
                                  
                                  
                                  revenue %
                                  
                                  
                                  ChangesIncome
      from operations
                                  
                                  $
                                  2,391,701
                                  
                                  
                                  
                                  59
                                  %
                                  
                                  $
                                  1,119,052
                                  
                                  
                                  
                                  46
                                  %
                                  
                                  
                                  114
                                  %Interest
      income
                                  
                                  
                                  49,466
                                  
                                  
                                  
                                  1
                                  %
                                  
                                  
                                  374
                                  
                                  
                                  
                                  0
                                  %
                                  
                                  
                                  13,126
                                  %Other
      income
                                  
                                  116,682
                                  
                                  
                                  
                                  3
                                  %
                                  
                                  63,312
                                  
                                  
                                  
                                  3
                                  %
                                  
                                  
                                  84
                                  %Government
      subsidy income
                                  
                                  
                                  32,768
                                  
                                  
                                  
                                  1
                                  %
                                  
                                  104
                                  
                                  
                                  
                                  0
                                  %
                                  
                                  
                                  31,408
                                  %Finance
      costs
                                  
                                  
                                  (170,622
                                  )
                                  
                                  
                                  -4
                                  %
                                  
                                  (140,690
                                  )
                                  
                                  
                                  -6
                                  %
                                  
                                  
                                  21
                                  %Income
      before income taxes and noncontrolling interest
                                  
                                  
                                  2,419,995
                                  
                                  
                                  
                                  60
                                  %
                                  
                                  1,042,152
                                  
                                  
                                  
                                  43
                                  %
                                  
                                  
                                  132
                                  %Income
      taxes
                                  
                                  
                                  (353,654
                                  )
                                  
                                  
                                  -9
                                  %
                                  
                                  (168,803
                                  )
                                  
                                  
                                  -7
                                  %
                                  
                                  
                                  110
                                  %Net
      income before noncontrolling interest
                                  
                                  
                                  2,066,341
                                  
                                  
                                  
                                  51
                                  %
                                  
                                  
                                  873,349
                                  
                                  
                                  
                                  36
                                  %
                                  
                                  
                                  137
                                  %Net
      income attributable to noncontrolling interest
                                  
                                  
                                  (18,103
                                  )
                                  
                                  
                                  0
                                  %
                                  
                                  (7,825
                                  )
                                  
                                  
                                  1
                                  %
                                  
                                  
                                  131
                                  %Net
      income attributable to Kun Run Biotechnology, Inc. common
      stockholders
                                  
                                  
                                  2,048,238
                                  
                                  
                                  
                                  51
                                  %
                                  
                                  
                                  865,524
                                  
                                  
                                  
                                  35
                                  %
                                  
                                  
                                  137
                                  %Earnings
      per share:Basic
      and diluted
                                  
                                  $
                                  0.08
                                  
                                  
                                  
                                  
                                  
                                  $
                                  0.04Weighted
      average number of shares outstanding :Basic
      and diluted
                                  
                                  
                                  25,000,000
                                  
                                  
                                  
                                  
                                  
                                  
                                  24,372,284
  24
 
 Interest
income
 
 Interest
income increased by $49,092 to $49,466 for the three months ended September 30,
2009 from $374 for the same period of 2008. The increased interest income was
mainly accrued from the amount due from Zhonghe Group, at a benchmark rate per
annum in the PRC.
 
 Other
Income
 
 For the
three months ended September 30, 2009, other income was $116,682, representing
three-month’s rental income paid by Sinopep Pharmaceutical Inc. (“Sinopep”) and
written back of bad debt. Our partial raw-material factory is leased to Sinopep
for a year since the beginning of 2009.
 
 Finance
Costs
 
 Three months ended September 30,(unaudited)2009
                        
                        
                        2008
                        
                        
                        % ChangesBank
      charges
                        
                        
                        417
                        
                        
                        
                        442
                        
                        
                        
                        -6
                        %Discounting
      charges
                        
                        
                        5,878Interest
      expenses
                        
                        
                        164,327
                        
                        
                        
                        140,022
                        
                        
                        
                        17
                        %Exchange
      (gain) loss
                        
                        
                        
                        
                        
                        
                        226$
                        170,622
                        
                        
                        $
                        140,690
                        
                        
                        
                        21
                        %
  Discounting
Charges
 
 Discounting
charges represented bank charges/penalties on withdrawal of cash on discounted
bills before the maturity date.
 
 Interest
Expense
 
 For the
three months ended September 30, 2009, we incurred interest expenses of
$164,327,  as compared to $140,022 for the same period in 2008.The increase
of interest expenses was related primarily to the secured borrowings which
balance increased approximately $2.81 million as of September 30, 2009 as
compared to that of September 30, 2008. For protection against the rising
price of raw materials, in April 2009, the Company obtained $2.93 million in
short-term loan from a local bank to purchase partial important raw
materials. The loan period was from April 15, 2009 to January 14, 2010 with
interest rate of 6.37 % per annum.
 
 Net
Income
 
 Net
income increased by 137% to $2.05 million for the three months ended September
30, 2009 from $865,524 for the same period of 2008 due
to increased revenue and reduced costs and expenses as described
above.
 
 Earnings
per share
 
 Earnings
per share for the three months ended September 30, 2009 was $0.08 per share for
both basic and diluted shares, compared with $0.04 per share for both basic
and diluted shares for the same period of 2008.
  25
 
 Nine
months ended September 30, 2009 and 2008
  The
information set forth below has been derived from our financial statements for
the nine months ended September 30, 2009 and nine months ended September
30, 2008.
 
 Nine months ended September 30,(unaudited)2009
                          
                          
                          2008% as of total
                            revenue
                          
                          
                          
                          
                          
                          % as of total
                            revenue
                          
                          
                          % ChangesSales
      revenue
                          
                          $
                          10,139,543
                          
                          
                          
                          100
                          %
                          
                          $
                          7,799,687
                          
                          
                          
                          100
                          %
                          
                          
                          30
                          %Cost
      of sales
                          
                          
                          2,976,593
                          
                          
                          
                          29
                          %
                          
                          
                          2,247,912
                          
                          
                          
                          29
                          %
                          
                          
                          32
                          %Gross
      profit
                          
                          $
                          7,162,950
                          
                          
                          
                          71
                          %
                          
                          $
                          5,551,775
                          
                          
                          
                          71
                          %
                          
                          
                          29
                          %
 
 Sales
Revenue
 
 Revenues
for the nine months ended September 30, 2009 were $10.14 million, an increase of
$2,339,856, or 30% over revenues for the same period of 2008. This increase
was mainly attributable to the increase in sales of our products and services.
Revenues by product categories were as follows:
  Nine months ended September 30,
                                  (unaudited)2009
                                
                                2008as of total
                                
                                
                                
                                as of totalProduct
                                
                                
                                
                                sales %
                                
                                
                                
                                sales %
                                
                                % ChangesTP-5
      ProductsTP-5
      for injection (1mg)
                                
                                $
                                1,188,587
                                
                                12
                                %
                                $
                                1,343,298
                                
                                17
                                %
                                -12
                                %TP-5
      for injection (10mg)
                                
                                
                                673,779
                                
                                7
                                %
                                
                                478,520
                                
                                7
                                %
                                41
                                %TP-5
      pre-filled injection 1ml:1mg
                                
                                
                                795,548
                                
                                8
                                %
                                
                                887,479
                                
                                11
                                %
                                -10
                                %TP-5
      pre-filled injection 1ml:10mg
                                
                                
                                2,037,830
                                
                                20
                                %
                                
                                1,320,392
                                
                                17
                                %
                                54
                                %Sub-total
      ( TP-5 products)
                                
                                
                                4,695,744
                                
                                47
                                %
                                
                                4,029,689
                                
                                52
                                %
                                17
                                %Other
      productsSomatostatin
      for injection 3mg
                                
                                
                                629,233
                                
                                6
                                %
                                
                                708,334
                                
                                9
                                %
                                -11
                                %Thymosin
      Alpha 1 for injection 1.6mg
                                
                                
                                3,477,716
                                
                                34
                                %
                                
                                2,206,691
                                
                                28
                                %
                                58
                                %DDAVP
      Injection 1ml:4ug
                                
                                
                                923,292
                                
                                9
                                %
                                
                                548,716
                                
                                7
                                %
                                68
                                %DDAVP
      Injection 1ml:15ug
                                
                                
                                268,944
                                
                                3
                                %
                                
                                228,634
                                
                                3
                                %
                                18
                                %Granisetron
      Hydrochloride Injection 3ml:3mg
                                
                                
                                86,869
                                
                                1
                                %
                                
                                55,816
                                
                                1
                                %
                                56
                                %Ozagrel
      Sodium for Injection 80mg/40mg
                                
                                
                                27,522
                                
                                0
                                %
                                
                                21,807
                                
                                0
                                %
                                26
                                %Others
                                
                                
                                30,223
                                
                                0
                                %
                                
                                -
                                
                                0
                                %
                                100
                                %In Total
                                
                                $
                                10,139,543
                                
                                100
                                %
                                $
                                7,799,687
                                
                                100
                                %
                                30
                                %
  For the
Nine months ended September 30, 2009, the sales of our major products, TP-5
products, were $4.70 million, accounting for 47% of total sales,
increased by $666,055, or 17% from $4.03 million for the nine months ended
September 30, 2008. The increase was due to the competitive edge within the
TP-5 pre-filled injection market, and steady increase in the sales of
traditional TP-5 products with our superior quality and brand
recognition.
 
 Thymosin
Alpha 1 for injection was still our best selling product with increased brand
recognition and market acceptance, contributing $3.48 million in
revenue (34% of total sales) for the nine months ended September 30, 2009,
representing a 58% increase from the same period of 2008.
 
 Meanwhile,
DDAVP generated $1,192,236, or 12% of total sales for the nine months ended
September 30, 2009, an increase of 53% from $777,350 for the same period in
2008. The increase was mainly due to enhanced product recognition because of its
effective clinical performance. We believe it will continue to generate more
revenue in the near future.
  Cost of
Sales and Gross Profit
 
 Cost of
goods sold was $2,976,593 for the nine months ended September 30, 2009, as
compared to $2,247,912 for the same period in 2008. Cost of goods sold was
29% of total revenue for the nine months ended September 30, 2009, approximately
the same percentage of total revenue for the same period
in 2008.
  26
  
 Gross
profit as a percentage of net revenue was 71% for the nine months ended
September 30, 2009. The gross margin remained relatively unchanged as
compared to the same period in 2008.
 
 Nine months ended September 30,(unaudited)2009
                              
                              
                              2008as of total
                                revenue %
                              
                              
                              
                              
                              
                              as of total
                                revenue %
                              
                              
                              %
      ChangeOperating
      expenses:Administrative
      expenses
                              
                              $
                              678,314
                              
                              
                              
                              7
                              %
                              
                              $
                              742,823
                              
                              
                              
                              10
                              %
                              
                              
                              -9
                              %Research
      and development costs
                              
                              189,647
                              
                              
                              
                              1
                              %
                              
                              234,136
                              
                              
                              
                              3
                              %
                              
                              
                              -19
                              %Selling
      expenses
                              
                              287,425
                              
                              
                              
                              3
                              %
                              
                              555,540
                              
                              
                              
                              7
                              %
                              
                              
                              -48
                              %1,155,386
                              
                              
                              
                              11
                              %
                              
                              1,532,499
                              
                              
                              
                              20
                              %
                              
                              
                              -25
                              %
 
 Administrative
Expenses
 
 Administrative
expenses primarily consist of depreciation, salaries and other related costs for
personnel in executive and other administrative functions. Other significant
costs included amortization of intangible assets, urban real estate tax.
Administrative expenses for the nine months ended September 30, 2009 and 2008
were $678,314 (7% of total sales) and $742,823 (10% of total sales),
respectively. The decrease in administrative expenses was primarily attributable
to decreases in traveling expenses and salaries for the nine months ended
September 30, 2009 since we implemented an expense-control plan after we became
a listed company.
 
 Research
and Development Costs
 
 Research
and development costs consist primarily of expenses incurred in clinical
trials, drug registration and usage of trial specimens for our new products.
Research and development expenses for the nine months ended September 30, 2009
were $189,647, or 1% of total sales, a $44,489 decrease from $234,136 for
the same period of 2008. In order to achieve better R&D results, the Company
has purchased drugs including Entecavir this year from an outside research
institution. Thus, R&D expenses were reduced.
 
 Selling
Expenses
 
 Selling
expenses, including distribution expenses, were $287,425, or 3% of
total sales, for the nine months ended September 30, 2009 as compared to
$555,540 for the nine months ended September 30, 2008. This represents a
decrease of $268,115, or 48%. This decrease is mainly due to the reduction of
additional sales tax and provision for doubtful debts.According to China Tax
Regulations, a foreign invested company is exempt from City Construction Tax and
Education Supplementary Tax from September 2008 onwards. The Company has been a
U.S. listed company, and accordingly, a foreign invested company and is exempt
from the relevant taxes.
 
 Income
from Operations
 
 Income
from operations was $6.01 million for the nine months ended September 30, 2009,
an increase of 49% from $4.02 million for the same period in 2008.
  Nine months ended September 30,(unaudited)2009
                                  
                                  
                                  2008as of
      total
                                  
                                  
                                  
                                  
                                  as of
      total
                                  
                                  %revenue
      %
                                  
                                  
                                  
                                  
                                  revenue
      %
                                  
                                  ChangesIncome
      from operations
                                  
                                  $
                                  6,007,564
                                  
                                  59
                                  %
                                  
                                  $
                                  4,019,276
                                  
                                  52
                                  %
                                  49
                                  %Interest
      income
                                  
                                  
                                  116,426
                                  
                                  1
                                  %
                                  
                                  
                                  1,516
                                  
                                  0
                                  %
                                  7,580
                                  %Other
      income
                                  
                                  
                                  315,926
                                  
                                  3
                                  %
                                  
                                  
                                  165,908
                                  
                                  2
                                  %
                                  90
                                  %Government
      subsidy income
                                  
                                  
                                  40,093
                                  
                                  1
                                  %
                                  
                                  
                                  9,729
                                  
                                  0
                                  %
                                  312
                                  %Finance
      costs
                                  
                                  
                                  (428,440
                                  )
                                  -4
                                  %
                                  
                                  
                                  (415,311
                                  )
                                  -5
                                  %
                                  3
                                  %Income
      before income taxes and noncontrolling interest
                                  
                                  
                                  6,051,569
                                  
                                  60
                                  %
                                  
                                  
                                  3,781,118
                                  
                                  48
                                  %
                                  60
                                  %Income
      taxes
                                  
                                  
                                  (902,662
                                  )
                                  -9
                                  %
                                  
                                  
                                  (300,383
                                  )
                                  -4
                                  %
                                  201
                                  %Net
      income before noncontrolling interest
                                  
                                  
                                  5,148,907
                                  
                                  51
                                  %
                                  
                                  
                                  3,480,735
                                  
                                  45
                                  %
                                  48
                                  %Net
      income attributable to noncontrolling interest
                                  
                                  
                                  (45,308
                                  )
                                  0
                                  %
                                  
                                  
                                  (30,783
                                  )
                                  0
                                  %
                                  47
                                  %Net
      income attributable to Kun Run Biotechnology, Inc. common
      stockholders
                                  
                                  
                                  5,103,599
                                  
                                  50
                                  %
                                  
                                  
                                  3,449,952
                                  
                                  44
                                  %
                                  48
                                  %Earnings
      per share:Basic
      and diluted
                                  
                                  $
                                  0.20
                                  
                                  
                                  
                                  
                                  $
                                  0.14Weighted
      average number of shares outstanding :Basic
      and diluted
                                  
                                  
                                  25,000,000
                                  
                                  
                                  
                                  
                                  
                                  24,291,058
  27
  Interest
income
 
 Interest
income increased by $114,910 to $116,426 for the nine months ended September 30,
2009 from $1,516 for the same period of 2008. The increased interest income was
mainly accrued from the amount due from Zhonghe Group, at a benchmark
rate per annum in the PRC.
 
 Other
Income
 
 For the
nine months ended September 30, 2009, other income was $315,926, mainly
attributable to rental income paid by Sinopep Pharmaceutical Inc and written
back of bad debt.Our partial raw-material factory is leased to Sinopep for a
year since the beginning of 2009.
 
 Finance
Costs
 
 Nine months ended September 30,(unaudited)2009
                    
                    
                    2008
                    
                    
                    Changes %Bank
      charges
                    
                    
                    1,489
                    
                    
                    
                    1,800
                    
                    
                    
                    -17
                    %Discounting
      charges
                    
                    
                    5.876Interest
      expenses
                    
                    
                    428,954
                    
                    
                    
                    413,283
                    
                    
                    
                    4
                    %Exchange
      (gain) loss
                    
                    
                    (7,879
                    )
                    
                    
                    228
                    
                    
                    
                    -3,556
                    %$
                    428,440
                    
                    
                    $
                    415,311
                    
                    
                    
                    3
                    %
 
 Discounting
charges
 
 Discounting
charges represent bank charges/penalties on early withdrawals of cash on
discounted bills.
 
 Interest
Expense
 
 For the
nine months ended September 30, 2009, we incurred interest expenses of
$428,954, as compared to $413,283 for the same period in 2008. The
interest expenses were related primarily to the secured borrowings which
balance increased approximately $2.81 million as of September 30, 2009 as
compared to that of September 30, 2008. For prevention against the rising
price of raw materials, in April 2009, we obtained a $2.93 million in short-term
loan from the local bank to purchase partial important raw materials. The loan
period was from April 15, 2009 to January 14, 2010 with interest rate
of 6.37 % per annum.
 
 Income
taxes
 
 Income
taxes increased by $ 602,279 to $902,662 for the nine months ended September 30,
2009 from $300,383 for the same period of 2008. This increase was mainly due to
our entitlement to the benefits of Tax Concession from purchasing domestic
equipment and facility in 2008,.However ,this Tax Concession has been cancelled
in 2009 by Tax Bureau.
  28
 
 Net
Income
 
 Net
income increased by approximately $1.65 million, or 48% to $5.10 million
for the nine months ended September 30, 2009 from $3.45 million for the same
period of 2008 due to increased revenue and reduced costs and expenses
described above.
 
 Earnings
per share
 
 Earnings
per share for the nine months ended September 30, 2009 was $0.20 per share for
both basic and diluted shares, as compared with $0.14 per share for both basic
and diluted shares for the same period of 2008.
 
 Liquidity
and Capital Resources
 
 Cash
 
 As of
September 30, 2009, our principal sources of liquidity consisted of cash and
cash equivalents of $230,539, representing a decrease of $77,154, or 25%, as
compared with our cash balance of $307,693 as of September 30, 2008. The
Company’s cash and cash equivalents consist of cash on hand and deposits with
commercial banks. We believe our cash and cash equivalents are highly liquid and
do not anticipate any losses with respect to such cash balances.
 
 The
following table provides detailed information about our net cash flow for the
periods presented in this report:
 
 Cash Flow
                        
                        Nine Months Ended September
      30,
                          (Unaudited)2009
                        
                        
                        2008Net
      cash provided by operating activities
                        
                        $
                        2,924,010
                        
                        
                        $
                        4,277,289Net
      cash used in investing activities
                        
                        
                        (5,923,812
                        )
                        
                        
                        (759,099
                        )Net
      cash provided by (used in) financing activities
                        
                        
                        2,796,681
                        
                        
                        
                        (3,914,931
                        )Effect
      of foreign currency translation on cash and cash
      equivalents
                        
                        
                        61
                        
                        
                        
                        33,515Net
      cash flow
                        
                        $
                        (203,060
                        )
                        
                        $
                        (363,226
                        )
  Operating
Activities
 
 Net cash
provided by operating activities was $2,924,010 for the nine months ended
September 30, 2009, a decrease of $1.35 million from the net cash provided by
operating activities of $4.28 million for the same period in 2008. The decreased
cash flow was primarily attributable to the $1.87 million increase in
prepayment and deposits. In April 2009, considering the outbreak of the
H1N1 virus globally, the management team decided to store enough raw materials
to meet the rapid product demands in the domestic market. Thus, we had a
prepayment to our suppliers to guarantee the timely supply of raw
materials.
 
 Investing
Activities
 
 Net cash
used in investing activities for the nine months ended September 30, 2009 was
$5.92 million, an increase of $5.16 million from net cash used in investing
activities of $759,099 for the same period of 2008. The increase in net cash
used in investing activities was mainly due to amounts due from related
companies and payment deposit for acquisition of one new drug, Entecavir
(Entecavir Capsules (0.5mg; 1mg), Entecavir Tablets (0.5mg; 1mg)), partially
offset by cash proceeds from sale of property, plant and
equipment.
 
 Financing
Activities
 
 Net cash
provided in financing activities for the nine months ended September 30, 2009
was $2.80 million as compared to $3.91 million used in financing activities for
the same period of 2008. The increase was mainly due to the new short-term bank
loan of $2.93 million. The loan period was from April 15, 2009 to January 14,
2010 with interest rate of 6.37 % per annum.
 
 As a
result of the total cash activities, we believe our working capital will be
sufficient to sustain our operations and current anticipated expansion
level.
 
 Off-Balance
Sheet Arrangements
  The
Company does not have any off-balance sheet arrangements.
  29
 
 Recently
issued accounting pronouncements
 
 FASB
Accounting Standards Codification (Accounting Standards Update “ASU” 2009-1). In
June 2009, the Financial Accounting Standard Board (“FASB”) approved its
Accounting Standards Codification (“Codification”) as the single source of
authoritative United States accounting and reporting standards applicable for
all non-governmental entities, with the exception of the SEC and its staff. The
Codification is effective for interim or annual financial periods ending after
September 15, 2009 and impacts our financial statements as all future
references to authoritative accounting literature will be referenced in
accordance with the Codification. There have been no changes to the content of
our financial statements or disclosures as a result of implementing the
Codification.
 
 As a
result of our implementation of the Codification during the quarter ended
September 30, 2009, previous references to new accounting standards and
literature are no longer applicable. In the current quarter financial
statements, we will provide reference to both new and old guidance to assist in
understanding the impacts of recently adopted accounting literature,
particularly for guidance adopted since the beginning of the current fiscal year
but prior to the Codification.
 
 Noncontrolling
Interests (Included in amended Topic ASC 810 “Consolidation”, previously SFAS
No. 160 “Noncontrolling Interests in Consolidated Financial Statements”, an
amendment of ARB No. 51). The amended topic establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in
a subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. We adopted the
amended topic on January 1, 2009. As a result, we have reclassified financial
statement line items within our Condensed Consolidated Balance Sheets and
Statements of Income and Comprehensive Income for the prior period to conform to
this amended topic.
 
 Business
Combinations (Included in amended Topic ASC 805 “Business Combinations”,
previously SFAS No. 141(R)). This ASC guidance addresses the accounting and
disclosure for identifiable assets acquired, liabilities assumed, and
noncontrolling interests in a business combination. The adoption of this amended
topic has no material impact on the Company’s financial statements.
 
 Intangibles-Goodwill
and Other (Included in amended Topic ASC 350”, previously FASB staff position
(“FSP”) FAS 142-3, Determination of the Useful Life of Intangible Assets). The
amended topic amends the factors an entity should consider in developing renewal
or extension assumptions used in determining the useful life of recognized
intangible assets under FASB Statement No. 142, “Goodwill and Other
Intangible Assets”. This new guidance applies prospectively to intangible assets
that are acquired individually or with a group of other assets in business
combinations and asset acquisitions. The amended topic is effective for
financial statements issued for fiscal years and interim periods beginning after
December 15, 2008. Early adoption is prohibited. The adoption of this
amended topic has no material effect on the Company's financial
statements.
 
 Business
Combinations (Included in amended Topic ASC 805, previously FSP No. 141R-1
“Accounting for Assets Acquired and Liabilities Assumed in a Business
Combination That Arise from Contingencies”). Amended topic ASC 805 amends the
requirements for the provisions in FASB Statement 141R for the initial
recognition and measurement, subsequent measurement and accounting, and
disclosures for assets and liabilities arising from contingencies in business
combinations. The amended topic eliminates the distinction between contractual
and non-contractual contingencies, including the initial recognition and
measurement criteria and instead carries forward most of the provisions for
acquired contingencies. The amended topic is effective for contingent assets and
contingent liabilities acquired in evaluating the impact. The management is in
the process of evaluating the impact of adopting this amended topic on the
Company’s financial statements.
 
 Fair
Value Measurements and Disclosures (Included in amended Topic ASC 820,
previously FSP No. 157-4, “Determining Whether a Market is Not Active and a
Transaction Is Not Distressed”.) The amended topic clarifies when markets are
illiquid or that market pricing may not actually reflect the “real” value of an
asset. If a market is determined to be inactive and market price is reflective
of a distressed price then an alternative method of pricing can be used, such as
a present value technique to estimate fair value. The amended topic identifies
factors to be considered when determining whether or not a market is inactive.
The amended topic would be effective for interim and annual periods ending after
June 15, 2009, with early adoption permitted for periods ending after March 15,
2009 and shall be applied prospectively. The adoption of this amended topic has
no material effect on the Company's financial statements.
  30
 
 Investments
- Debt and Equity Securities - Overall - Transition and Open Effective Date
Information (Included in amended Topic ASC 320, previously FASB Staff Position
No. 115-2 and Statement of Financial Accounting Standards No. 124-2,
“Recognition and Presentation of Other-Than-Temporary Impairments”). The amended
topic amends the other-than-temporary impairment guidance in U.S. GAAP for debt
securities through increased consistency in the timing of impairment recognition
and enhanced disclosures related to the credit and noncredit components of
impaired debt securities that are not expected to be sold. In addition,
increased disclosures are required for both debt and equity securities regarding
expected cash flows, credit losses, and securities with unrealized losses.
The adoption of this amended topic has no material impact on the Company’s
financial statements.
 
 Interim
Disclosures about Fair Value of Financial Instruments (Included in amended Topic
ASC 825 “Financial Instruments”, previously FSP SFAS No. 107-1). This guidance
requires that the fair value disclosures required for all financial instruments
be included in interim financial statements. This guidance also requires
entities to disclose the method and significant assumptions used to estimate the
fair value of financial instruments on an interim and annual basis and to
highlight any changes from prior periods. The amended topic was effective for
interim periods ending after September 15, 2009. The adoption of this amended
topic has no material impact on the Company’s financial statements.
 
 Subsequent
Events (Included in amended Topic ASC 855 “Subsequent Events”, previously SFAS
No. 165). The amended topic establishes accounting and disclosure requirements
for subsequent events. The amended topic details the period after the balance
sheet date during which we should evaluate events or transactions that occur for
potential recognition or disclosure in the financial statements, the
circumstances under which we should recognize events or transactions occurring
after the balance sheet date in its financial statements and the required
disclosures for such events. We adopted this amended topic effective June 1,
2009.
 
 Accounting
for Transfers of Financial Assets (Included in amended Topic ASC 860 “Transfers
and Servicing”, previously SFAS No. 166, “Accounting for Transfers of Financial
Assets - an Amendment of FASB Statement No. 140.”). The amended topic addresses
information a reporting entity provides in its financial statements about the
transfer of financial assets; the effects of a transfer on its financial
position, financial performance, and cash flows; and a transferor’s continuing
involvement in transferred financial assets. Also, the amended topic removes the
concept of a qualifying special purpose entity, limits the circumstances in
which a transferor derecognizes a portion or component of a financial asset,
defines participating interest and enhances the information provided to
financial statement users to provide greater transparency. The amended topic is
effective for the first annual reporting period beginning after November 15,
2009 and will be effective for us as of January 1, 2010. The management is in
the process of evaluating the impact of adopting this amended topic on the
Company’s financial statements.
 
 Consolidation
of Variable Interest Entities – Amended (Included in amended Topic ASC 810
“Consolidation”, previously SFAS 167 “Amendments to FASB Interpretation No.
46(R)”). The amended topic require an enterprise to perform an analysis to
determine the primary beneficiary of a variable interest entity; to require
ongoing reassessments of whether an enterprise is the primary beneficiary of a
variable interest entity and to eliminate the quantitative approach previously
required for determining the primary beneficiary of a variable interest entity.
The amended topic also requires enhanced disclosures that will provide users of
financial statements with more transparent information about an enterprise’s
involvement in a variable interest entity. The amended topic is effective for
the first annual reporting period beginning after November 15, 2009 and will be
effective for us as of January 1, 2010. The management is in the process of
evaluating the impact of adopting this amended topic on the Company’s financial
statements
 
 In August
2009, the FASB issued Accounting Standards Update No. 2009-05 (“ASC Update
2009-05”), an update to ASC 820, Fair Value Measurements and Disclosures. This
update provides amendments to reduce potential ambiguity in financial reporting
when measuring the fair value of liabilities. Among other provisions, this
update provides clarification that in circumstances in which a quoted price in
an active market for the identical liability is not available, a reporting
entity is required to measure fair value using one or more of the valuation
techniques described in ASC Update 2009-05. ASC Update 2009-05 will become
effective for the Company’s annual financial statements for the year ended
December 31, 2009. The management is in the process of evaluating the impact of
adopting this ASC update on the Company’s financial statements.
 
 In
October 2009, the FASB issued Accounting Standards Update, 2009-13, Revenue
Recognition (Topic 605): Multiple Deliverable Revenue Arrangements - A Consensus
of the FASB Emerging Issues Task Force.” This update provides application
guidance on whether multiple deliverables exist, how the deliverables should be
separated and how the consideration should be allocated to one or more units of
accounting. This update establishes a selling price hierarchy for determining
the selling price of a deliverable. The selling price used for each deliverable
will be based on vendor-specific objective evidence, if available, third-party
evidence if vendor-specific objective evidence is not available, or estimated
selling price if neither vendor-specific or third-party evidence is available.
The Company will be required to apply this guidance prospectively for revenue
arrangements entered into or materially modified after January 1, 2011; however,
earlier application is permitted. The management is in the process of evaluating
the impact of adopting this ASC update on the Company’s financial
statements.
  31
  Item
3. Quantitative and Qualitative Disclosures about Market Risk.
  Not
required.
  Item
4. Controls and Procedures.
  Evaluation of disclosure controls
and procedures.
  Our
management, including the chief executive officer and the chief accounting
officer, carried out an evaluation of the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this
report pursuant to Rule 13a-15(e) or 15d-15(e) promulgated under
the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based on
this evaluation, our chief executive officer and chief accounting officer
concluded that, as of the evaluation date, our disclosure controls and
procedures were effective to provide a reasonable level of assurance that the
information required to be disclosed in the reports filed or submitted by us
under the Exchange Act was recorded, processed, summarized and reported within
the requisite time periods.
  Changes
in Internal Control over Financial Reporting
  There
have been no changes in our internal control over financial reporting that
occurred during the quarter ended September 30, 2009, that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
  32
  PART
II - OTHER INFORMATION
  Item
1. Legal Proceedings
 
 None.
  Item
1A. Risk Factors
 
 Not
required.
  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
..
 
 None.
  Item
6.  Exhibits
  The
following exhibits are hereby filed as part of this Quarterly Report on Form
10-Q.
  Exhibit
                      Number
                    
                    Description31.1
                    
                    Certification
      of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of
      2002.31.2
                    
                    Certification
      of Chief Accounting Officer under Section 302 of the Sarbanes-Oxley Act of
      2002.32
                    
                    Certifications
      Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
      Section 1350
  33
  SIGNATURES
  Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant certifies that it has duly caused this Quarterly Report on
Form 10-Q to be signed on its behalf by the undersigned, thereunto duly
authorized.
 
 Kun
      Run Biotechnology, Inc.Date:
      November 13, 2009
                  By:
                  /s/
      Xiaoqun YeXiaoqun
      Ye, Chief Executive Officer(Principal
      Executive Officer)
 
 Date:
      November 13, 2009
                  By:
                  /s/
      Yan LinYan
      Lin, Chief Accounting Officer(Principal
      Financial Officer)
  34