U.S.
SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q


(Mark
one)


o
            Quarterly
      Report Under Section 13 or 15(d) of the Securities Exchange Act of
      1934





For the
Quarterly Period Ended March 31, 2010


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 smaller reporting 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 May
13, 2010, the Registrant had 25,000,000 shares of common stock
outstanding.













Kun
Run Biotechnology, Inc.




Table of
Contents




PagePART
      I -
                      FINANCIAL
      INFORMATIONItem
      1.
                      Financial
      Statements:Condensed
      Consolidated Statements of Income and Comprehensive
      Income
                      
                      1Condensed
      Consolidated Balance Sheets
                      
                      2-3Condensed
      Consolidated Statements of Cash Flows
                      
                      4-5Condensed
      Consolidated Statements of Change in Equity
                      
                      6Notes
      to Financial Statements
                      
                      7-16Item
      2.
                      Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                      
                      17Item
      3.
                      Quantitative
      and Qualitative Disclosures about Market Risk
                      
                      24Item
      4.
                      Controls
      and Procedures
                      
                      24PART
      II -
                      OTHER
      INFORMATION
                      
                      25Item
      1.
                      Legal
      Proceedings
                      
                      25Item
      1A.
                      Risk
      Factors
                      
                      25Item
      2.
                      Unregistered
      Sales of Equity Securities and Use of Proceeds
                      
                      25Item
      3.
                      Defaults
      upon Senior Securities
                      
                      25Item
      4.
                      (Removed
      and Reserved)
                      
                      25Item
      5.
                      Other
      Information
                      
                      25Item
      6.
                      Exhibits
                      
                      25












PART
I - FINANCIAL INFORMATION




ITEM
1. FINANCIAL STATEMENTS











Kun
Run Biotechnology, Inc.





Condensed
Consolidated Financial Statements


For the
three months ended


March 31,
2010 and 2009


(Stated
in US dollars)



















Kun
Run Biotechnology, Inc.


Condensed
Consolidated Financial Statements


Three
months ended March 31, 2010 and 2009





Index to
Condensed Consolidated Financial Statements





PagesCondensed
      Consolidated Statements of Income and Comprehensive Income
              
              1Condensed
      Consolidated Balance Sheets
              
              2 -
      3Condensed
      Consolidated Statements of Cash Flows
              
              4 -
      5Condensed
      Consolidated Statements of Change in Equity
              
              6Notes
      to Condensed Consolidated Financial Statements
              
              7-16











Kun
Run Biotechnology, Inc.


Condensed
Consolidated Statements of Income and Comprehensive Income


For
the three months ended March 31, 2010 and 2009


(Unaudited)


(Stated
in US Dollars)




Three
      months endedMarch
      31,(unaudited)2010
                
                
                2009Sales
      revenue
                
                $
                2,701,137
                
                
                $
                2,429,268Cost
      of sales
                
                
                894,674
                
                
                
                745,693Gross
      profit
                
                
                1,806,463
                
                
                
                1,683,575Operating
      expensesAdministrative
      expenses
                
                
                223,140
                
                
                
                192,908Research and development
      costs
                
                
                203,111
                
                
                
                59,884Selling
expenses
                
                
                206,563
                
                
                
                142,713632,814
                
                
                
                395,505Income
      from operations
                
                
                1,173,649
                
                
                
                1,288,070Interest income
                
                
                45,727
                
                
                
                225Other income
                
                
                52,812
                
                
                
                52,740Government subsidy
      income
                
                
                -
                
                
                
                7,325Finance costs
                
                
                (122,853
                )
                
                
                (122,122
                )Income
      before income taxes and noncontrolling interest
                
                
                1,149,335
                
                
                
                1,226,238Income
      taxes - Note 4
                
                
                (193,942
                )
                
                
                (194,946
                )Net
      income before noncontrolling interest
                
                
                955,393
                
                
                
                1,031,292Net
      income attributable to noncontrolling interest
                
                
                (8,423
                )
                
                
                (9,089
                )Net
      income attributable to Kun RunBiotechnology, Inc. common
      stockholders
                
                $
                946,970
                
                
                $
                1,022,203Net
      income before noncontrolling interest
                
                $
                955,393
                
                
                $
                1,031,292Other
      comprehensive incomeForeign currency translation
      adjustments
                
                
                19
                
                
                
                (23,970
                )Comprehensive
      income
                
                
                955,412
                
                
                
                1,007,322Comprehensive
      income attributable tononcontrolling
      interest
                
                
                (8,423
                )
                
                
                (8,865
                )Comprehensive
      income attributable to Kun Run Biotechnology, Inc.common
    stockholders
                
                $
                946,989
                
                
                $
                998,457Earnings
      per share attributable toKun Run Biotechnology, Inc.
      commonstockholders: basic and
      diluted
                
                $
                0.04
                
                
                $
                0.04Weighted
      average number of sharesoutstanding: basic and
      diluted
                
                
                25,000,000
                
                
                
                25,000,000





See the
accompanying notes to condensed consolidated financial statements




- 1
-




Kun
Run Biotechnology, Inc.


Condensed
Consolidated Balance Sheets


As
of March 31, 2010 and December 31, 2009


(Stated
in US Dollars)





March
      31,
                    
                    
                    December
      31,2010
                    
                    
                    2009(Unaudited)
                    
                    
                    (Audited)ASSETSCurrent assetsCash and cash
      equivalents
                    
                    $
                    539,128
                    
                    
                    $
                    810,809Trade receivables,
      net
                    
                    
                    4,562,679
                    
                    
                    
                    4,284,515Bills
receivable
                    
                    
                    -
                    
                    
                    
                    360,360Other receivables, prepayments
      and deposits - Note 5
                    
                    
                    2,569,023
                    
                    
                    
                    2,338,971Inventories - Note
      6
                    
                    
                    2,116,510
                    
                    
                    
                    2,248,420Amounts due from related
      companies - Note 7
                    
                    
                    2,878,760
                    
                    
                    
                    4,656,801Total current
      assets
                    
                    
                    12,666,100
                    
                    
                    
                    14,699,876Intangible
    assets
                    
                    
                    80,685
                    
                    
                    
                    86,551Property, plant and equipment,
      net - Note 8
                    
                    
                    10,073,295
                    
                    
                    
                    10,098,529Land use rights - Note
      9
                    
                    
                    3,687,515
                    
                    
                    
                    3,704,660Deposit for acquisition of
      property, plant and equipment
                    
                    
                    397,306
                    
                    
                    
                    418,594Deposit paid to a related
      company for acquisition ofan intangible asset - Note
      10
                    
                    
                    7,921,800
                    
                    
                    
                    7,921,800TOTAL
      ASSETS
                    
                    $
                    34,826,701
                    
                    
                    $
                    36,930,010








See the
accompanying notes to condensed consolidated financial statements




- 2
-




Kun
Run Biotechnology, Inc.


Condensed
Consolidated Balance Sheets (Cont’d)


As
of March 31, 2010 and December 31, 2009


(Stated
in US Dollars)





March
      31,
                      
                      
                      December
      31,2010
                      
                      
                      2009(Unaudited)
                      
                      
                      (Audited)LIABILITIES
      AND EQUITYLIABILITIESCurrent
    liabilitiesTrade payables
                      
                      $
                      546,998
                      
                      
                      $
                      452,139Other payables and accrued
      expenses
                      
                      
                      3,934,202
                      
                      
                      
                      3,961,125Dividend payable to Zhonghe’s
      former/existingnoncontrolling
      stockholders
                      
                      
                      7,209
                      
                      
                      
                      7,209Income tax
    payable
                      
                      
                      683,092
                      
                      
                      
                      815,435Secured borrowings - Note
      11
                      
                      
                      3,054,523
                      
                      
                      
                      6,051,375Total current
      liabilities
                      
                      
                      8,226,024
                      
                      
                      
                      11,287,283Deferred taxes
                      
                      
                      19,753
                      
                      
                      
                      17,215Secured borrowings - Note
      11
                      
                      
                      330,075
                      
                      
                      
                      330,075TOTAL
      LIABILITIES
                      
                      
                      8,575,852
                      
                      
                      
                      11,634,573COMMITMENTS AND CONTINGENCIES- Note 12STOCKHOLDERS’
      EQUITYPreferred stock : par value of
      $0.001 per share, authorized10,000,000 shares in 2010 and
      2009, none issued andoutstanding
                      
                      
                      -
                      
                      
                      
                      -Common stock : par value $0.001
      per shareAuthorized 100,000,000 shares
      in 2010 and 2009;issued and outstanding
      25,000,000 shares in 2010and 2009
                      
                      
                      25,000
                      
                      
                      
                      25,000Additional paid-in
      capital
                      
                      
                      8,903,965
                      
                      
                      
                      8,903,965Statutory and other
      reserves
                      
                      
                      3,743,028
                      
                      
                      
                      3,743,028Accumulated other comprehensive
      income
                      
                      
                      1,607,537
                      
                      
                      
                      1,607,518Retained
    earnings
                      
                      
                      11,736,050
                      
                      
                      
                      10,789,080TOTAL
      KUN RUN BIOTECHNOLOGY, INC.STOCKHOLDERS’
      EQUITY
                      
                      
                      26,015,580
                      
                      
                      
                      25,068,591NONCONTROLLING
      INTEREST
                      
                      
                      235,269
                      
                      
                      
                      226,846TOTAL
      EQUITY
                      
                      
                      26,250,849
                      
                      
                      
                      25,295,437TOTAL
      LIABILITIES AND EQUITY
                      
                      $
                      34,826,701
                      
                      
                      $
                      36,930,010





See the
accompanying notes to condensed consolidated financial statements




- 3
-




Kun
Run Biotechnology, Inc.


Condensed
Consolidated Statements of Cash Flows


For
the three months ended March 31, 2010 and 2009


(Unaudited)


(Stated
in US Dollars)





Three
      months ended
                      March
      31,(Unaudited)2010
                    
                    
                    2009Cash
      flows from operating activitiesNet income before
      noncontrolling interest
                    
                    $
                    955,393
                    
                    
                    $
                    1,031,292Adjustments to reconcile net
      income before
                      noncontrolling
      interest to net cash
                      provided
      by operating activites:Depreciation
                    
                    
                    234,759
                    
                    
                    
                    162,634Amortization of intangible
      assets and land use rights
                    
                    
                    23,011
                    
                    
                    
                    23,537Deferred taxes
                    
                    
                    2,538
                    
                    
                    
                    (2,587
                    )Loss on disposal of property,
      plant and equipment
                    
                    
                    871
                    
                    
                    
                    183Increase in provision for
      doubtful debts
                    
                    
                    89,291
                    
                    
                    
                    77,622Changes in operating assets and
      liabilities :-Trade
    receivables
                    
                    
                    (367,455
                    )
                    
                    
                    19,744Bills
    receivables
                    
                    
                    360,360
                    
                    
                    
                    117,200Other receivables, prepayments
      and deposits
                    
                    
                    (230,052
                    )
                    
                    
                    (70,531
                    )Amounts due from related
      companies
                    
                    
                    79,218
                    
                    
                    
                    (92,163
                    )Inventories
                    
                    
                    131,910
                    
                    
                    
                    (258,675
                    )Trade payables
                    
                    
                    94,860
                    
                    
                    
                    68,248Other payables and accrued
      expenses
                    
                    
                    (26,923
                    )
                    
                    
                    665,790Income tax
    payable
                    
                    
                    (132,343
                    )
                    
                    
                    197,533Net
      cash flows provided by operating activities
                    
                    
                    1,215,438
                    
                    
                    
                    1,939,827Cash
      flows from investing activitiesPayments to acquire and deposit
      for acquisition ofproperty, plant and
      equipment
                    
                    
                    (189,382
                    )
                    
                    
                    (27,156
                    )Proceeds from sale of property,
      plant and equipment
                    
                    
                    273
                    
                    
                    
                    1,584,913Amount due from a
      director
                    
                    
                    -
                    
                    
                    
                    (3,628
                    )Amounts due from related
      companies
                    
                    
                    1,698,883
                    
                    
                    
                    (3,446,055
                    )Net
      cash flows provided by (used in) investing activities
                    
                    $
                    1,509,774
                    
                    
                    $
                    (1,891,926
                    )





See the
accompanying notes to condensed consolidated financial statements




- 4
-




Kun
Run Biotechnology, Inc.


Condensed
Consolidated Statements of Cash Flows (Cont’d)


For
the three months ended March 31, 2010 and 2009


(Unaudited)


(Stated
in US Dollars)





Three
      months ended
                      31
      March,(Unaudited)2010
                    
                    
                    2009Cash
      flows from financing activitiesRepayment of secured
      borrowings
                    
                    $
                    (2,996,852
                    )
                    
                    $
                    (146,500
                    )Net
      cash flows used in financing activities
                    
                    
                    (2,996,852
                    )
                    
                    
                    (146,500
                    )Effect
      of foreign currency translation on cash and cash
    equivalents
                    
                    
                    (41
                    )
                    
                    
                    (573
                    )Net
      decrease in cash and cash equivalents
                    
                    
                    (271,681
                    )
                    
                    
                    (99,172
                    )Cash
      and cash equivalents - beginning of period
                    
                    
                    810,809
                    
                    
                    
                    433,599Cash
      and cash equivalents - end of period
                    
                    $
                    539,128
                    
                    
                    $
                    334,427Supplemental
      disclosures for cash flow informationCash paid for
:-Interest and bill discounting
      charges
                    
                    $
                    122,130
                    
                    
                    $
                    121,520Income taxes
                    
                    $
                    323,747
                    
                    
                    $
                    -Non-cash
      investing and financing activitiesDeposit for acquisition of
      intangible asset settled by offsettingamounts due from
      related companies
                    
                    $
                    -
                    
                    
                    $
                    7,032,000





See the
accompanying notes to condensed consolidated financial statements




- 5
-





Kun
Run Biotechnology, Inc.


Condensed
Consolidated Statements of Change in Equity


(Unaudited)


(Stated
in US Dollars)


Kun
      Run Biotechnology, Inc. stockholdersAccumulatedAdditional
                                                                  
                                                                  
                                                                  Statutory
                                                                  
                                                                  
                                                                  otherCommon
      stock
                                                                  
                                                                  
                                                                  paid-in
                                                                  
                                                                  
                                                                  and
      other
                                                                  
                                                                  
                                                                  comprehensive
                                                                  
                                                                  
                                                                  Retained
                                                                  
                                                                  
                                                                  NoncontrollingNo.
      of shares
                                                                  
                                                                  
                                                                  Amount
                                                                  
                                                                  
                                                                  capital
                                                                  
                                                                  
                                                                  reserves
                                                                  
                                                                  
                                                                  income
                                                                  
                                                                  
                                                                  earnings
                                                                  
                                                                  
                                                                  interest
                                                                  
                                                                  
                                                                  TotalBalance,
      December 31, 2009
                                                                  
                                                                  
                                                                  25,000,000
                                                                  
                                                                  
                                                                  $
                                                                  25,000
                                                                  
                                                                  
                                                                  $
                                                                  8,903,965
                                                                  
                                                                  
                                                                  $
                                                                  3,743,028
                                                                  
                                                                  
                                                                  $
                                                                  1,607,518
                                                                  
                                                                  
                                                                  $
                                                                  10,789,080
                                                                  
                                                                  
                                                                  $
                                                                  226,846
                                                                  
                                                                  
                                                                  $
                                                                  25,295,437Net
      income
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  946,970
                                                                  
                                                                  
                                                                  
                                                                  8,423
                                                                  
                                                                  
                                                                  
                                                                  955,393Foreign
      currency translation adjustments
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  19
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  19Balance,
      March 31, 2010
                                                                  
                                                                  
                                                                  25,000,000
                                                                  
                                                                  
                                                                  $
                                                                  25,000
                                                                  
                                                                  
                                                                  $
                                                                  8,903,965
                                                                  
                                                                  
                                                                  $
                                                                  3,743,028
                                                                  
                                                                  
                                                                  $
                                                                  1,607,537
                                                                  
                                                                  
                                                                  $
                                                                  11,736,050
                                                                  
                                                                  
                                                                  $
                                                                  235,269
                                                                  
                                                                  
                                                                  $
                                                                  26,250,849





See the
accompanying notes to condensed consolidated financial statements.




- 6
-




1.
            Corporate
      information





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 drugs and its products could be used to treat immunity dysfunction and
hyperfunction.




Currently
the Company has two subsidiaries:





Company
      name
              
              Place/date
      of
                incorporation
      or
                establishment
              
              The
      Company's
                effective
      ownership
                interest
              
              Common
      stock/
                registered
      capital
              
              Principal
      activitiesKun
      Run Biotechnology Limited
              
              Hong
      Kong / May 6, 2006
              
              100%
              
              Ordinary
      shares:
                Authorized and fully paid up: 10,000 shares of HK$1
      each
              
              Investment
      holdingHanian
      Zhonghe Pharmaceutical Co, Ltd. (“Zhonghe”)
              
              The
      PRC /  April 17, 1995
              
              99.12%
              
              Registered
      and fully paid up capital of RMB60,000,000
              
              Manufacture,
      marketing, sale and distribution of 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, 2009, included in our Annual Report on Form 10-K
for the year ended December 31, 2009.





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-month 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.





- 7
-


3.
              Summary
      of significant accounting
policies





Principle 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.





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 March 31,
      2010, 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 endedMarch
      31,(Unaudited)2010
                    
                    
                    2009Beijing
      Ya Bao Fang Da Pharmaceutical Ltd.
                    
                    $
                    214,427
                    
                    
                    $
                    271,607ChengDu
      KangYiTong Medial Co., Ltd.
                    
                    
                    298,415
                    
                    
                    
                    -JiangXi
      JinSheng Medical Co., Ltd.
                    
                    
                    323,618
                    
                    
                    
                    54,218HeNan
      WanLong Medical Co., Ltd.
                    
                    
                    369,383
                    
                    
                    
                    -$
                    1,205,843
                    
                    
                    $
                    325,825





- 8
-





3.
            Summary
      of significant accounting policies
(Cont’d)





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 820
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 :-





As
      of March 31, 2010
                    
                    
                    As
      of December 31, 2009Carrying
                    
                    
                    
                    
                    
                    Carryingamount
                    
                    
                    Fair
      value
                    
                    
                    amount
                    
                    
                    Fair
      value(Unaudited)
                    
                    
                    
                    
                    
                    (Audited)Secured
      borrowings
                    
                    $
                    3,384,598
                    
                    
                    $
                    3,366,482
                    
                    
                    $
                    6,381,450
                    
                    
                    $
                    6,362,757





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





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 ofFinancial Accounting Standard Board (“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 was effective for us as of January 1, 2010. The adoption
of this amended topic has no material impact on the Company’s financial
statements.





- 9
-





3.
            Summary
      of significant accounting policies
(Cont’d)





Recently issued accounting
pronouncements (Cont’d)





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 requires 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 adoption of this amended topic has
no material impact on the Company’s financial statements.





The FASB
issued Accounting Standards Update (ASU) No. 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 ASU update on the Company’s financial
statements.





The FASB
issued ASU 2010-06, Improving Disclosures about Fair Value Measurements. ASU
2010-06 amends ASC Topic 820 to require the following additional disclosures
regarding fair value measurements: (i) the amounts of transfers between Level 1
and Level 2 of the fair value hierarchy; (ii) reasons for any transfers in or
out of Level 3 of the fair value hierarchy and (iii) the inclusion of
information about purchases, sales, issuances and settlements in the
reconciliation of recurring Level 3 measurements. ASU 2010-06 also amends ASC
Topic 820 to clarify existing disclosure requirements, requiring fair value
disclosures by class of assets and liabilities rather than by major category and
the disclosure of valuation techniques and inputs used to determine the fair
value of Level 2 and Level 3 assets and liabilities. With the exception of
disclosures relating to purchases, sales, issuances and settlements of recurring
Level 3 measurements, ASU 2010-06 was effective for interim and annual reporting
periods beginning after December 15, 2009. The disclosure requirements related
to purchases, sales, issuances and settlements of recurring Level 3 measurements
will be effective for financial statements for annual reporting periods
beginning after December 15, 2010.  The management is in the process
of evaluating the effect of ASC 2010-06 on its financial statements and results
of operation and is currently not yet in a position to determine such
effects.





- 10
-





3.
            Summary
      of significant accounting policies
(Cont’d)





Recently issued accounting
pronouncements (Cont’d)





The FASB
issued ASU No. 2010-02, “Consolidation (Topic 810) Accounting and Reporting for
Decreases in Ownership of a Subsidiary - a Scope Clarification”. This amendment
affects entities that have previously adopted Topic 810-10 (formally SFAS 160).
It clarifies the decrease in ownership provisions of Subtopic 810-10 and removes
the potential conflict between guidance in that Subtopic and asset derecognition
and gain or loss recognition guidance that may exist in other US GAAP. An entity
will be required to follow the amended guidance beginning in the period that it
first adopts FAS 160 (now included in Subtopic 810-10). For those entities that
have already adopted FAS 160, the amendments are effective at the beginning of
the first interim or annual reporting period ending on or after December 15,
2009. The amendments should be applied retrospectively to the first period that
an entity adopted FAS 160. The adoption of this ASU update has no material
impact on the Company’s financial statements.





In
February 2010, the FASB issued ASU 2010-09, Subsequent Events: Amendments to
Certain Recognition and Disclosure Requirements, which amends FASB ASC Topic
855, Subsequent Events. The update provides that SEC filers, as defined in ASU
2010-09, are no longer required to disclose the date through which subsequent
events have been evaluated in originally issued and revised financial
statements. The update also requires SEC filers to evaluate subsequent events
through the date the financial statements are issued rather than the date the
financial statements are available to be issued. The Company adopted ASU 2010-09
upon issuance. This update had no material impact on the financial position,
results of operations or cash flows of the Company.





4.
            Income
      taxes





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.





Hong
Kong





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.





PRC





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 ("FIE"), engaged in an advanced technology industry, was
approved to enjoy a further three years' preferential tax rate at 15% for 2008,
2009 and 2010.


- 11
-





5.
            Other
      receivables, prepayments and
deposits





March
      31,
                  
                  
                  December
      31,2010
                  
                  
                  2009(Unaudited)
                  
                  
                  (Audited)Other
      deposits paid
                  
                  $
                  1,114
                  
                  
                  $
                  5,486Other
      prepayments
                  
                  
                  576,656
                  
                  
                  
                  596,198Other
      receivables
                  
                  
                  326,776
                  
                  
                  
                  302,272Trade
      deposits paid to suppliers
                  
                  
                  1,664,477
                  
                  
                  
                  1,435,015$
                  2,569,023
                  
                  
                  $
                  2,338,971





6.
            Inventories





March
      31,
                  
                  
                  December
      31,2010
                  
                  
                  2009(Unaudited)
                  
                  
                  (Audited)Raw
      materials
                  
                  $
                  391,026
                  
                  
                  $
                  471,577Work-in-progress
                  
                  
                  935,064
                  
                  
                  
                  1,302,181Finished
      goods
                  
                  
                  790,420
                  
                  
                  
                  474,662$
                  2,116,510
                  
                  
                  $
                  2,248,420





7.
            Amounts
      due from related companies








March
      31,
                          
                          December
      31,2010
                          
                          
                          2009(Unaudited)
                          
                          
                          (Audited)Amounts
      due from related parties :-Hainan Zhonghe Group Co., Ltd.
      (“Hainan ZhongheGroup”) - Note
    7(b)
                          
                          $
                          2,540,409
                          
                          
                          $
                          4,239,232Hainan Heyi Pharmaceutical Co.,
      Ltd. (“Hainan Heyi”)- Note 7(c)
                          
                          
                          338,351
                          
                          
                          
                          417,569$
                          2,878,760
                          
                          
                          $
                          4,656,801


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
      and Hainan Heyi.




(b)
            The
      amounts are interest bearing at a benchmark rate in the PRC per annum,
      unsecured and repayable on demand.





(c)
            The
      amounts are interest free, unsecured and repayable on
    demand.







-
12 -





8
            Property,
      plant and equipment





March
      31,
                      
                      
                      December
      31,2010
                      
                      
                      2009(Unaudited)
                      
                      
                      (Audited)Costs:Buildings
                      
                      $
                      6,857,965
                      
                      
                      $
                      6,825,521Plant
      and machinery
                      
                      
                      5,725,610
                      
                      
                      
                      5,439,929Furniture,
      fixtures and equipment
                      
                      
                      291,240
                      
                      
                      
                      290,140Leasehold
      improvements
                      
                      
                      118,645
                      
                      
                      
                      118,645Motor
      vehicles
                      
                      
                      695,723
                      
                      
                      
                      714,28113,689,183
                      
                      
                      
                      13,388,516Accumulated
      depreciation
                      
                      
                      (3,892,402
                      )
                      
                      
                      (3,675,288
                      )Construction
      in progress
                      
                      
                      276,514
                      
                      
                      
                      385,301Net
                      
                      $
                      10,073,295
                      
                      
                      $
                      10,098,529





As of
March 31, 2010, buildings with carrying value of $2,886,336 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.  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 loans has been made by Zhonghe.  The
related bank loan was fully settled in April, 2010 and the transfer of legal
title to Zhonghe is in progress.








9.
            Land
      use rights





The
carrying amount of land use rights as of March 31, 2010 represents two separate
land use rights acquired from Hainan Zhonghe Group on September 29, 2007 and
December 31, 2007 respectively.  The land use right with carrying
value of $2,237,978 as of March 31, 2010 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.  Pursuant to a trust agreement, both parties agreed
that Hainan Zhonghe Group 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 related bank loan was fully settled in April, 2010
and the transfer of legal title to Zhonghe is in progress.





- 13
-





10.
            Deposit
      paid to a related company for acquisition of an intangible
      asset





On March
23, 2009, Zhonghe entered into an agreement with Hainan Zhonghe Peptide Drugs
Research & Development Co., Ltd (“Zhonghe Peptide”), a related company under
the common control of Mr. Cui, 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 Zhonghe Peptide of $7.59 million and by cash of $0.33 million. The
transaction is expected to be completed in June 2010.





11.
            Secured
      borrowings





March
      31,
                                  
                                  
                                  December
      31,2010
                                  
                                  
                                  2009(Unaudited)
                                  
                                  
                                  (Audited)Short-term
      loanBank
      loan and other loanLong-term
      loans - current portion
                                  
                                  $
                                  3,054,523
                                  
                                  
                                  $
                                  6,051,375Long-term
      loansBank
      loan (Note a)-
      due 2010, interest rate at 8.28% per annum
                                  
                                  
                                  2,724,448
                                  
                                  
                                  
                                  5,721,300Other
      loans (Note b)-
      due 2010, interest free
                                  
                                  
                                  330,075
                                  
                                  
                                  
                                  330,075-
      due 2011, interest free
                                  
                                  
                                  330,075
                                  
                                  
                                  
                                  330,0753,384,598
                                  
                                  
                                  
                                  6,381,450Less:
      current maturities
                                  
                                  
                                  (3,054,523
                                  )
                                  
                                  
                                  (6,051,375
                                  )330,075
                                  
                                  
                                  
                                  330,075$
                                  3,384,598
                                  
                                  
                                  $
                                  6,381,450





(a)
            The
      above bank loans were secured by the following
  :-





(i)
            Buildings
      with carrying value of $2,886,336 (Note 8);
and





(ii)
            Land
      use rights with carrying value of $2,237,978 (Note
  9).




- 14
-




11.
            Secured
      borrowings (Cont’d)





(b)
            The
      other loans, which were granted to Zhonghe by the PRC local government
      authority, are interest-free and secured by the buildings disposed at
      considerations of $442,233 in 2008 to a third party.  The other
      loans were not discounted to their present values 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
      loans 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 loans has been made by
      Zhonghe.





During
the reporting periods, there was no covenant requirement under the facilities
granted to the Company.








12.
            Commitments
      and contingencies





(a)
            Capital
      commitment





As of
March 31, 2010, the Company had capital commitments amounting to $1,144,816 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
March 31, 2010, the Company had no non-cancellable operating lease.





(c)
            Contingencies





As of
March 31, 2010, the Company had no contingencies.





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 $24,190 and $16,863 for the three months ended
March 31, 2010 and 2009 respectively.





- 15
-





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 “Segments Reporting” (previously SFAS 131).





15.
            Related
      party transactions





Apart
from the transactions as disclosed in notes 7, 8, 9, 10 and 11 to the financial
statements, the Company has entered into the following transaction with related
parties which are subject to the common control of the Company’s management
:-





Three
      months ended
                          March
      31,
                          (Unaudited)Related parties
                        Type of transaction
                        
                        2010
                        
                        
                        2009Hainan
      Heyi
                        Sales
                        
                        $
                        -
                        
                        
                        $
                        247,585Hainan
      Zhonghe Group
                        Interest
      income
                        
                        $
                        45,262
                        
                        
                        $
                        -





16.
            Subsequent
      events





The Company has evaluated its
activities subsequent to March 31, 2010 and has concluded that, except for the
transaction described below, no subsequent events have occurred that would
require recognition or disclosure in the consolidated financial
statements.





On April
30, 2010, the Company completed a private placement of 5,228,758 Series A
Preferred Stock and warrants to purchase up to 1,568,627 shares of Series A
Preferred Stock at an exercise price of $1.53 per share for a gross proceed of
$8,000,000. The warrants may be exercised if the Company fails to achieve
certain net income thresholds for the fiscal year 2010. When exercisable, the
warrants my be exercised on a cash or cashless basis.





- 16
-





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.




- 17
-





Summary of significant accounting
policies




Principle
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.





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 March 31, 2010, 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.




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 820
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 :-





As
      of March 31, 2010
                    
                    
                    As
      of December 31, 2009Carrying
                    
                    
                    
                    
                    
                    Carryingamount
                    
                    
                    Fair
      value
                    
                    
                    amount
                    
                    
                    Fair
      value(Unaudited)
                    
                    
                    
                    
                    
                    (Audited)Secured
      borrowings
                    
                    $
                    3,384,598
                    
                    
                    $
                    3,366,482
                    
                    
                    $
                    6,381,450
                    
                    
                    $
                    6,362,757





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.




- 18
-




Results
of Operations




Three
months ended March 31, 2010 and 2009




The
information set forth below has been derived from our financial statements for
the three months ended March 31, 2010 and three months ended March 31,
2009.





Three months ended
      March 31,(unaudited)2010
                                                                            
                                                                            2009
                                                                            
                                                                            Changes
                                                                              %as of total
                                                                              revenue %
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            as of total
                                                                              revenue %Sales
      revenue
                                                                            $
                                                                            2,701,137
                                                                            
                                                                            
                                                                            
                                                                            100
                                                                            %
                                                                            
                                                                            $
                                                                            2,429,268
                                                                            
                                                                            
                                                                            
                                                                            100
                                                                            %
                                                                            
                                                                            
                                                                            11
                                                                            %Cost
      of sales
                                                                            
                                                                            894,674
                                                                            
                                                                            
                                                                            
                                                                            33
                                                                            %
                                                                            
                                                                            
                                                                            745,693
                                                                            
                                                                            
                                                                            
                                                                            31
                                                                            %
                                                                            
                                                                            
                                                                            20
                                                                            %Gross
      profit
                                                                            $
                                                                            1,806,463
                                                                            
                                                                            
                                                                            
                                                                            67
                                                                            %
                                                                            
                                                                            $
                                                                            1,683,575
                                                                            
                                                                            
                                                                            
                                                                            69
                                                                            %
                                                                            
                                                                            
                                                                            7
                                                                            %








Sales
Revenue





Revenues
for the three months ended March 31, 2010 were $2.7 million, an increase of $0.3
million or 11% over revenues for the same period of 2009. This increase was
mainly attributable to the increase in sales of our ‘Other products’. Revenues
by product categories were as follows:


Three
      months ended March 31,(unaudited)2010
                                                                                                                                                                    
                                                                                                                                                                    2009Product
                                                                                                                                                                    as of totalsales
    %
                                                                                                                                                                    
                                                                                                                                                                    as of totalsales
    %
                                                                                                                                                                    
                                                                                                                                                                    %ChangesTP-5
      ProductsTP-5
      for injection (1mg)
                                                                                                                                                                    $
                                                                                                                                                                    395,270
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    15
                                                                                                                                                                    %
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    328,764
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    14
                                                                                                                                                                    %
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    20
                                                                                                                                                                    %TP-5
      for injection (10mg)
                                                                                                                                                                    
                                                                                                                                                                    241,064
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    9
                                                                                                                                                                    %
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    115,616
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    5
                                                                                                                                                                    %
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    109
                                                                                                                                                                    %TP-5
      pre-filled injection 1ml:1mg
                                                                                                                                                                    
                                                                                                                                                                    97,298
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    4
                                                                                                                                                                    %
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    131,111
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    5
                                                                                                                                                                    %
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -26
                                                                                                                                                                    %TP-5
      pre-filled injection 1ml:10mg
                                                                                                                                                                    
                                                                                                                                                                    252,606
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    9
                                                                                                                                                                    %
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    441,616
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    18
                                                                                                                                                                    %
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -43
                                                                                                                                                                    %Sub-total
      ( TP-5 products)
                                                                                                                                                                    
                                                                                                                                                                    986,238
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    37
                                                                                                                                                                    %
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    1,017,107
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    42
                                                                                                                                                                    %
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -3
                                                                                                                                                                    %Other
      productsSomatostatin
      for injection 3mg
                                                                                                                                                                    
                                                                                                                                                                    149,642
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    6
                                                                                                                                                                    %
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    283,047
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    11
                                                                                                                                                                    %
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -47
                                                                                                                                                                    %Thymosin
      Alpha 1 for injection 1.6mg
                                                                                                                                                                    
                                                                                                                                                                    1,120,600
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    41
                                                                                                                                                                    %
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    771,125
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    32
                                                                                                                                                                    %
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    45
                                                                                                                                                                    %DDAVP
      Injection 1ml:4ug
                                                                                                                                                                    
                                                                                                                                                                    354,909
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    13
                                                                                                                                                                    %
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    246,511
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    10
                                                                                                                                                                    %
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    44
                                                                                                                                                                    %DDAVP
      Injection 1ml:15ug
                                                                                                                                                                    
                                                                                                                                                                    68,460
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    3
                                                                                                                                                                    %
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    71,427
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    3
                                                                                                                                                                    %
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -4
                                                                                                                                                                    %Granisetron
      Hydrochloride Injection 3ml:3mg
                                                                                                                                                                    
                                                                                                                                                                    14,918
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    0
                                                                                                                                                                    %
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    20,097
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    1
                                                                                                                                                                    %
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -26
                                                                                                                                                                    %Ozagrel
      Sodium for Injection 80mg/40mg
                                                                                                                                                                    
                                                                                                                                                                    6,370
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    0
                                                                                                                                                                    %
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    19,729
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    1
                                                                                                                                                                    %
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -68
                                                                                                                                                                    %Others
                                                                                                                                                                    
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    225
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    0%
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -In
      Total
                                                                                                                                                                    $
                                                                                                                                                                    2,701,137
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    100
                                                                                                                                                                    %
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    2,429,268
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    100
                                                                                                                                                                    %
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    11
                                                                                                                                                                    %





For the
three months ended March 31, 2010, the sales of our major products, TP-5, were
approximately $1.0 million, accounting for 37% of total revenues, decreased
approximately 3% from $1.02 million in the same period of 2009. This decrease
was due to increased market competition which resulted in lower total TP-5 sales
volumes and average selling price. Within the TP-5 product category, the revenue
from TP-5 for injection increased $0.2 million, representing a 43% increase from
the same period of 2009.




- 19
-




The
Company’s ‘Other products’ accounted for 63% of total revenues for the
three month period ended March 31, 2010, contributing $1.7 million of sales,
representing an increase of 21% from the same period of 2009.





Thymosin
Alpha 1 injection (1.6mg) continued as our best selling product, contributing
$1.12 million in revenue (41% of total sales) for the three months ended March
31, 2010, representing a 45% increase from the same period of 2009. The Company
continued to benefit from the fact that there were few competitors in this drug
category.





Desmopressin
acetate injection (DDAVP) generated $423,369, or 16% of total sales for the
three months ended March 31, 2010, an increase of 33% from $317,938 for the same
period in 2009. Sales of Somatostatin for injection (3mg) contributed $149,642
in revenue, accounting for 6% of total sales for the three
months  ended March 31, 2010. Greater market competition resulted in
lower sales volumes and unit sales price of Somatostatin.




Cost of Sales and Gross
Profit





Cost of
revenues for the three months ended March 31, 2010 was $894,674, compared with
$745,693 for the same period of 2009. The increase in cost of revenue was mainly
due to the increase in revenue. As a percentage of revenue, the cost of goods
sold increased from 31% for the three months ended March 31, 2009 to 33% for the
three months ended March 31, 2010.





The gross
margin for the three months ended March 31, 2010 was 67%, decreased from 69% for
the same period of 2009. As a result of increased market competition, the
average selling price for many of the Company’s products were
lower.








Three months ended
      March 31,(unaudited)2010
                                                      
                                                      2009as of total
                                                        revenue
      %
                                                      
                                                      
                                                      
                                                      
                                                      as of total
                                                        revenue
      %
                                                      
                                                      
                                                      Changes
                                                        %Operating
      expenses:Administrative
      expenses
                                                      
                                                      $
                                                      223,140
                                                      
                                                      
                                                      
                                                      8
                                                      %
                                                      
                                                      $
                                                      192,908
                                                      
                                                      
                                                      
                                                      8
                                                      %
                                                      
                                                      
                                                      16
                                                      %Research
      and development costs
                                                      
                                                      
                                                      203,111
                                                      
                                                      
                                                      
                                                      7
                                                      %
                                                      
                                                      
                                                      59,884
                                                      
                                                      
                                                      
                                                      2
                                                      %
                                                      
                                                      
                                                      239
                                                      %Selling
      expenses
                                                      
                                                      
                                                      206,563
                                                      
                                                      
                                                      
                                                      8
                                                      %
                                                      
                                                      
                                                      142,713
                                                      
                                                      
                                                      
                                                      6
                                                      %
                                                      
                                                      
                                                      45
                                                      %632,814
                                                      
                                                      
                                                      
                                                      23
                                                      %
                                                      
                                                      
                                                      395,505
                                                      
                                                      
                                                      
                                                      16
                                                      %
                                                      
                                                      
                                                      60
                                                      %Income
      from operations
                                                      
                                                      $
                                                      1,173,649
                                                      
                                                      
                                                      
                                                      43
                                                      %
                                                      
                                                      $
                                                      1,288,070
                                                      
                                                      
                                                      
                                                      53
                                                      %
                                                      
                                                      
                                                      -9
                                                      %





Administrative
Expenses





Administrative
expenses primarily consisted of depreciation, salaries and other related costs
for personnel in executive and other administrative functions. Other significant
costs included amortization of intangible assets and urban real estate tax.
Administrative expenses for the three months ended March 31, 2010 and 2009 were
$223,140 (8% of total sales) and $192,908 (8% of total sales), respectively. The
slight increase in administrative expenses was primarily attributable to an
increase in consultancy fees related to the Company’s Sarbanes-Oxley
compliance.





- 20
-




Research and Development
Costs





Research
and development costs consisted primarily of expenses incurred in clinical
trial, drug registration and usage of trial specimens for our new products.
R&D expenses for the three months ended March 31, 2010 were $203,111 (7% of
total sales), compared to $59,884 (2% of total sales) for the same period of
2009. The spike in R&D costs is directly related to launch preparation
expenses for 4 products in the Company’s pipeline that are expected to commence
production in 2010.





Selling
Expenses





Selling
expenses, including distribution expenses, were $206,563, or 8% of total sales,
for the three months ended March 31, 2010 compared to $142,713, or 6% of total
sales in the same period of 2009. An increased number of customer meetings
resulted in higher travel and other related costs.





Income from
Operations




Income
from operations was $1.17 million for the three months ended March 31, 2010, a
decrease of 9% from $1.29 million for the same period in 2009.  The
decrease was attributable to a combination of lower gross profit percentage and
increased costs and expenses as described above (increase of selling fees,
consultancy fees, and development fees).




- 21
-


2010
                                                                          
                                                                          
                                                                          2009as of total
                                                                            revenue
      %
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          as of total

                                                                            revenue
      %
                                                                          
                                                                          
                                                                          Changes
                                                                            %Interest
      income
                                                                          
                                                                          $
                                                                          45,727
                                                                          
                                                                          
                                                                          
                                                                          2
                                                                          %
                                                                          
                                                                          $
                                                                          225
                                                                          
                                                                          
                                                                          
                                                                          0
                                                                          %
                                                                          
                                                                          
                                                                          20,223
                                                                          %Other
      income
                                                                          
                                                                          
                                                                          52,812
                                                                          
                                                                          
                                                                          
                                                                          2
                                                                          %
                                                                          
                                                                          
                                                                          52,740
                                                                          
                                                                          
                                                                          
                                                                          2
                                                                          %
                                                                          
                                                                          
                                                                          0
                                                                          %Government
      subsidy income
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          7,325
                                                                          
                                                                          
                                                                          
                                                                          0
                                                                          %
                                                                          
                                                                          
                                                                          -100
                                                                          %Finance
      costs
                                                                          
                                                                          
                                                                          (122,853
                                                                          )
                                                                          
                                                                          
                                                                          -5
                                                                          %
                                                                          
                                                                          
                                                                          (122,122
                                                                          )
                                                                          
                                                                          
                                                                          -5
                                                                          %
                                                                          
                                                                          
                                                                          1
                                                                          %Income
      before income taxes
                                                                          
                                                                          
                                                                          1,149,335
                                                                          
                                                                          
                                                                          
                                                                          43
                                                                          %
                                                                          
                                                                          
                                                                          1,226,238
                                                                          
                                                                          
                                                                          
                                                                          50
                                                                          %
                                                                          
                                                                          
                                                                          -6
                                                                          %Income
      taxes
                                                                          
                                                                          
                                                                          (193,942
                                                                          )
                                                                          
                                                                          
                                                                          -7
                                                                          %
                                                                          
                                                                          
                                                                          (194,946
                                                                          )
                                                                          
                                                                          
                                                                          -8
                                                                          %
                                                                          
                                                                          
                                                                          -1
                                                                          %Net
      income before noncontrolling interest
                                                                          
                                                                          
                                                                          955,393
                                                                          
                                                                          
                                                                          
                                                                          35
                                                                          %
                                                                          
                                                                          
                                                                          1,031,292
                                                                          
                                                                          
                                                                          
                                                                          42
                                                                          %
                                                                          
                                                                          
                                                                          -7
                                                                          %Net
      income attributable to noncontrolling interest
                                                                          
                                                                          
                                                                          (8,423
                                                                          )
                                                                          
                                                                          
                                                                          0
                                                                          %
                                                                          
                                                                          
                                                                          (9,089
                                                                          )
                                                                          
                                                                          
                                                                          0
                                                                          %
                                                                          
                                                                          
                                                                          -7
                                                                          %Net
      income attributable to Kun Run Biotechnology, Inc. common
      stockholders
                                                                          
                                                                          $
                                                                          946,970
                                                                          
                                                                          
                                                                          
                                                                          35
                                                                          %
                                                                          
                                                                          $
                                                                          1,022,203
                                                                          
                                                                          
                                                                          
                                                                          42
                                                                          %
                                                                          
                                                                          
                                                                          -7
                                                                          %Net
      income before noncontrolling interest
                                                                          
                                                                          
                                                                          955,393
                                                                          
                                                                          
                                                                          
                                                                          35
                                                                          %
                                                                          
                                                                          
                                                                          1,031,292
                                                                          
                                                                          
                                                                          
                                                                          42
                                                                          %
                                                                          
                                                                          
                                                                          -7
                                                                          %Other
      comprehensive income:Foreign
      currency translation adjustments
                                                                          
                                                                          
                                                                          19
                                                                          
                                                                          
                                                                          
                                                                          0
                                                                          %
                                                                          
                                                                          
                                                                          (23,970
                                                                          )
                                                                          
                                                                          
                                                                          -1
                                                                          %
                                                                          
                                                                          
                                                                          100
                                                                          %Comprehensive
      income
                                                                          
                                                                          
                                                                          955,412
                                                                          
                                                                          
                                                                          
                                                                          35
                                                                          %
                                                                          
                                                                          
                                                                          1,007,322
                                                                          
                                                                          
                                                                          
                                                                          41
                                                                          %
                                                                          
                                                                          -5
                                                                          %Noncontrolling
      interests
                                                                          
                                                                          
                                                                          (8,423
                                                                          )
                                                                          
                                                                          
                                                                          0
                                                                          %
                                                                          
                                                                          
                                                                          (8,865
                                                                          )
                                                                          
                                                                          
                                                                          0
                                                                          %
                                                                          
                                                                          -5
                                                                          %Total
      comprehensive income
                                                                          
                                                                          $
                                                                          946,989
                                                                          
                                                                          
                                                                          
                                                                          35
                                                                          %
                                                                          
                                                                          $
                                                                          998,457
                                                                          
                                                                          
                                                                          
                                                                          41
                                                                          %
                                                                          
                                                                          
                                                                          -5
                                                                          %Earnings
      per share : Basic and diluted
                                                                          
                                                                          $
                                                                          0.04
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          $
                                                                          0.04Weighted
      average number of shares outstanding :Basic
      and diluted
                                                                          
                                                                          
                                                                          25,000,000
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          25,000,000





Other
Income





For the
three months ended March 31, 2010, other income was $52,812, representing
three-month’s rental income paid by Sinopep Pharmaceutical Inc.





Finance
Costs





Three months ended
      March 31,(unaudited)2010
                                      
                                      
                                      2009
                                      
                                      
                                      Changes
      %Bank
      charges
                                      
                                      
                                      723
                                      
                                      
                                      
                                      602
                                      
                                      
                                      
                                      20
                                      %Discounting
      charges
                                      
                                      
                                      8,117
                                      
                                      
                                      
                                      2,576
                                      
                                      
                                      
                                      215
                                      %Interest
      expenses
                                      
                                      
                                      114,013
                                      
                                      
                                      
                                      118,944
                                      
                                      
                                      
                                      -4
                                      %$
                                      122,853
                                      
                                      
                                      $
                                      122,122
                                      
                                      
                                      
                                      1
                                      %




- 22
-




Discounting
Charges





Discounting
charges represented bank charges/penalties on discounted bills transferred to
banks to require cash before the maturity date.





Interest
Expense





For the
three months ended March 31, 2010, we incurred interest expenses of $114,013, as
compared to $118,944 for the same period in 2009. The interest expenses were
related primarily to secured borrowings.





Net
Income





Net
income decreased by 7% to $946,970 for the three months ended March 31, 2010
from $1,022,203 for the same period of 2009, due to lower gross profit
percentage and increased costs and expenses as described above.





Earnings per
share





Earnings
per share for the three months ended March 31, 2010 was $0.04 per share for both
basic and diluted shares, as compared with $0.04 per share for both basic and
diluted shares for the same period of 2009.





LIQUIDITY AND CAPITAL
RESOURCES





Cash





As of
March 31, 2010, our principal sources of liquidity consisted of cash and cash
equivalents of $539,128, representing a decrease of $271,681, or 34%, as
compared with our cash balance of $810,809 as of March 31, 2009. 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:





(All
amounts in thousands of U.S. dollars)


Cash
      Flow
                  
                  Three Months Ended March
      31,
                    (Unaudited)2010
                  
                  
                  2009Net
      cash provided by operating activities
                  
                  $
                  1,215
                  
                  
                  $
                  1,940Net
      cash used in investing activities
                  
                  
                  1,510
                  
                  
                  
                  (1,892
                  )Net
      cash used in financing activities
                  
                  
                  (2,997
                  )
                  
                  
                  (147
                  )Net
      cash flow
                  
                  $
                  (272
                  )
                  
                  $
                  (99
                  )





Operating
Activities





Net cash
provided by operating activities was approximately $1.22 million for the three
months ended March 31, 2010, a decrease of $724,389 from the net cash provided
by operating activities of $1.94 million for the same period in 2009. The
decrease in cash flows was primarily attributable to a large increase to advance
payments as well as higher operating expenses for the three months ended March
31, 2010.





- 23
-





Investing
Activities





Net cash
flow from investing activities for the three months ended March 31, 2010 was
$1.51 million, compared to net cash used in investing activities of $1.89
million for the same period of 2009. The increase in net cash flow was mainly
due to a repayment of amounts due from related companies.





Financing
Activities





Net cash
used in financing activities for the three month ended March 31, 2010 was $3.0
million, reflecting repayment of bank loans during the period.





Off-Balance
Sheet Arrangements




The
Company does not have any off-balance sheet arrangements.





Recently
issued accounting pronouncements





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 ofFinancial Accounting Standard Board (“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 was effective for us as of January 1, 2010. The adoption
of this amended topic has no material impact on the Company’s financial
statements.





Recently issued accounting
pronouncements (Cont’d)





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 requires 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 adoption of this amended topic has
no material impact on the Company’s financial statements.





The FASB
issued Accounting Standards Update (ASU) No. 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 ASU update on the Company’s financial
statements.





The FASB
issued ASU 2010-06, Improving Disclosures about Fair Value Measurements. ASU
2010-06 amends ASC Topic 820 to require the following additional disclosures
regarding fair value measurements: (i) the amounts of transfers between Level 1
and Level 2 of the fair value hierarchy; (ii) reasons for any transfers in or
out of Level 3 of the fair value hierarchy and (iii) the inclusion of
information about purchases, sales, issuances and settlements in the
reconciliation of recurring Level 3 measurements. ASU 2010-06 also amends ASC
Topic 820 to clarify existing disclosure requirements, requiring fair value
disclosures by class of assets and liabilities rather than by major category and
the disclosure of valuation techniques and inputs used to determine the fair
value of Level 2 and Level 3 assets and liabilities. With the exception of
disclosures relating to purchases, sales, issuances and settlements of recurring
Level 3 measurements, ASU 2010-06 was effective for interim and annual reporting
periods beginning after December 15, 2009. The disclosure requirements related
to purchases, sales, issuances and settlements of recurring Level 3 measurements
will be effective for financial statements for annual reporting periods
beginning after December 15, 2010.  The management is in the process
of evaluating the effect of ASC 2010-06 on its financial statements and results
of operation and is currently not yet in a position to determine such
effects.





Recently issued accounting
pronouncements (Cont’d)





The FASB
issued ASU No. 2010-02, “Consolidation (Topic 810) Accounting and Reporting for
Decreases in Ownership of a Subsidiary - a Scope Clarification”. This amendment
affects entities that have previously adopted Topic 810-10 (formally SFAS 160).
It clarifies the decrease in ownership provisions of Subtopic 810-10 and removes
the potential conflict between guidance in that Subtopic and asset derecognition
and gain or loss recognition guidance that may exist in other US GAAP. An entity
will be required to follow the amended guidance beginning in the period that it
first adopts FAS 160 (now included in Subtopic 810-10). For those entities that
have already adopted FAS 160, the amendments are effective at the beginning of
the first interim or annual reporting period ending on or after December 15,
2009. The amendments should be applied retrospectively to the first period that
an entity adopted FAS 160. The adoption of this ASU update has no material
impact on the Company’s financial statements.





In
February 2010, the FASB issued ASU 2010-09, Subsequent Events: Amendments to
Certain Recognition and Disclosure Requirements, which amends FASB ASC Topic
855, Subsequent Events. The update provides that SEC filers, as defined in ASU
2010-09, are no longer required to disclose the date through which subsequent
events have been evaluated in originally issued and revised financial
statements. The update also requires SEC filers to evaluate subsequent events
through the date the financial statements are issued rather than the date the
financial statements are available to be issued. The Company adopted ASU 2010-09
upon issuance. This update had no material impact on the financial position,
results of operations or cash flows of the Company.





Item
3. Quantitative and Qualitative Disclosures about Market Risk.




Not
required.




Item
4. Controls and Procedures.




Evaluation of disclosure controls
and procedures.




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Disclosure
controls and procedures (as defined in Rules 13a – 15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the Exchange Act”)) are designed to
ensure that information required to be disclosed in our reports filed under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules and forms.
This information is accumulated and communicated to management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosures. Our management, under the
supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the design and operation of
our disclosure controls and procedures as of the end of the period covered by
this report. Based on the evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective as of the end of the period covered by this report.




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 March 31, 2010, that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.




PART
II - OTHER INFORMATION




Item
1. Legal Proceedings





None.





Item
1A. Risk Factors





Not
required.




Item
2. Unregistered Sales of Equity Securities and Use of Proceeds





Our
Current Reports on Form 8-K’s filed with the Securities and Exchange Commission
on April 22 and May 6, 2010, are hereby incorporated by reference in their
entireties.




Item
3. Defaults Upon Senior Securities





None.




Item
4. (Removed and Reserved)






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
                
                Description4.1
                
                Certificate
      of Designationdated
      April 26, 2010 incorporated by reference to the same exhibit number to
      Form 8-K filed with the SEC on May 6, 2010.10.1
                
                Securities
      Purchase Agreement dated April 17, 2010 by and among the Company and
      certain purchasers incorporated by reference to the same exhibit number to
      Form 8-K filed with the SEC on April 22, 2010.10.2
                
                Investor
      Rights Agreement dated April 28, 2010 by and among the Company, certain
      purchasers and key stockholders incorporated by reference to exhibit 10.1
      to Form 8-K filed with the SEC on May 6, 2010.10.3
                
                Voting
      Agreement dated April 28, 2010 by and among the Company, certain
      purchasers and key stockholders incorporated by reference to exhibit 10.2
      to Form 8-K filed with the SEC on May 6, 2010.31.1
                
                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.






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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:
      May 14, 2010
              By:
              /s/
      Xiaoqun YeXiaoqun
      Ye, Chief Executive Officer(Principal
      Executive Officer)





Date:
      May 14, 2010
              By:
              /s/
      Yan LinYan
      Lin, Chief Accounting Officer(Principal
      Financial Officer)




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