**U.S.        SECURITIES AND EXCHANGE COMMISSION**

**Washington,        D.C. 20549**

**FORM        10-Q**

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

| 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.**

| **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**

**Aspen        Racing Stables, Inc.**

| Large                  accelerated filer o                                                                              |   | Accelerated                  filer o         |
|------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------|
| Non-accelerated                  filer o                  (Do not check if a smallerreporting                  company) |   | Smaller                  reporting company þ |

----

**Kun        Run Biotechnology, Inc.**

|                       |                                                                                                              |   | Page   |
|----------------------------|--------------------------------------------------------------------------------------------------------------|--------|--------|
| PART                  I -  | FINANCIAL                  INFORMATION                                                                       |   |   |
|                       |                                                                                                         |   |   |
| Item                  1.   | Financial                  Statements:                                                                       |   | 2      |
|                       | Condensed                  Consolidated Statements of Income and Comprehensive                  Income  |   | 3      |
|                       | Condensed                  Consolidated Balance Sheets                                                       |   | 4      |
|                       | Condensed                  Consolidated Statements of Cash Flows                                             |   | 6      |
|                       | Notes                  to Financial Statements                                                               |   | 8      |
|                       |                                                                                                         |   |   |
| Item                  2.   | Management's                  Discussion and Analysis of Financial Condition and Results of Operations       |   | 19     |
|                       |                                                                                                         |   |   |
| Item                  3.   | Quantitative                  and Qualitative Disclosures About Market Risk                                  |   | 30     |
|                       |                                                                                                         |   |   |
| Item                  4.   | Controls                  and Procedures                                                                     |   | 30     |
|                       |                                                                                                         |   |   |
| PART                  II - | OTHER                  INFORMATION                                                                           |   | 31     |
|                       |                                                                                                         |   |   |
| Item                  1.   | Legal                  Proceedings                                                                           |   | 31     |
|                       |                                                                                                         |   |   |
| Item                  1A.  | Risk                  Factors                                                                                |   | 31     |
|                       |                                                                                                         |   |   |
| Item                  2.   | Unregistered                  Sales of Equity Securities and Use of Proceeds                                 |   | 31     |
|                       |                                                                                                         |   |   |
| Item                  3.   | Defaults                  Upon Senior Securities                                                             |   | 31     |
|                       |                                                                                                         |   |   |
| Item                  4.   | Submission                  of Matters to a Vote of Security Holders                                         |   | 31     |
|                       |                                                                                                         |   |   |
| Item                  5.   | Other                  Information                                                                           |   | 31     |
|                       |                                                                                                         |   |   |
| Item                  6.   | Exhibits                                                                                                     |   | 31     |

----

**PART        I - FINANCIAL INFORMATION**

**Kun          Run Biotechnology, Inc.**

----

**Kun          Run Biotechnology**
**,          Inc.**

**Condensed          Consolidated Financial Statements**

**Three          and nine months ended September 30, 2008 and 2007**

|                                                                                    |   | Pages                          |
|-----------------------------------------------------------------------------------------|--------|--------------------------------|
|                                                                                    |   |                           |
| Condensed                    Consolidated Statements of Income and Comprehensive Income |   | 3                              |
|                                                                                    |   |                           |
| Condensed                    Consolidated Balance Sheets                                |   | 4 -                    5  |
|                                                                                    |   |                           |
| Condensed                    Consolidated Statements of Cash Flows                      |   | 6 -                    7  |
|                                                                                    |   |                           |
| Notes                    to Condensed Consolidated Financial Statements                 |   | 8 -                    18 |

----

**Kun          Run Biotechnology, Inc.**

**Condensed          Consolidated Statements of Income and Comprehensive Income**

**For          the three and nine months ended September 30, 2008 and          2007**

**(Unaudited)**

**(Stated          in US Dollars)**

|                                                          |   | ***Three months ended*** |       | ***Nine months ended*** |   |
|---------------------------------------------------------------|--------|------------------------------------|------------|-----------------------------------|--------|
|                                                          |   | ***September 30***            |       | ***September 30***           |   |
|                                                          |   | ***(unaudited)***                  |       | ***(unaudited)***                 |   |
|                                                          |   | ***2008***                         |       | ***2007***                        |   | ***2008*** |   | ***2007*** |   |
|                                                          |   |                               |       |                              |   |   |   |   |   |
| Sales                      revenue                            |   | $                                  | 2,449,618  |                              | $      | 2,114,406 |   | $ | 7,799,687 |   | $ | 4,974,279 |   |
| Cost                      of sales                            |   |                               | (693,242   | )                                 |   | (777,683 | ) |   | (2,247,912 | ) |   | (2,107,300 | ) |
|                                                          |   |                               |       |                              |   |   |   |   |   |   |   |   |   |
| Gross                      profit                             |   |                               | 1,756,376  |                              |   | 1,336,723 |   |   | 5,551,775 |   |   | 2,866,979 |   |
|                                                          |   |                               |       |                              |   |   |   |   |   |   |   |   |   |
| Operating                      expenses                       |   |                               |       |                              |   |   |   |   |   |   |   |   |   |
| Administrative                      expenses                  |   |                               | 257,968    |                              |   | 252,245 |   |   | 742,823 |   |   | 703,839 |   |
| Research                      and development costs           |   |                               | 107,896    |                              |   | 21,567 |   |   | 234,136 |   |   | 145,090 |   |
| Selling                      expenses                         |   |                               | 271,460    |                              |   | 268,913 |   |   | 555,540 |   |   | 668,392 |   |
|                                                          |   |                               |       |                              |   |   |   |   |   |   |   |   |   |
|                                                          |   |                               | 637,324    |                              |   | 542,725 |   |   | 1,532,499 |   |   | 1,517,321 |   |
|                                                          |   |                               |       |                              |   |   |   |   |   |   |   |   |   |
| Income                      from operations                   |   |                               | 1,119,052  |                              |   | 793,998 |   |   | 4,019,276 |   |   | 1,349,658 |   |
| Interest                      income                          |   |                               | 374        |                              |   | 389 |   |   | 1,516 |   |   | 2,241 |   |
| Other                      income                             |   |                               | 63,312     |                              |   | 19,663 |   |   | 165,908 |   |   | 38,272 |   |
| Government                      subsidy income                |   |                               | 104        |                              |   | 55 |   |   | 9,729 |   |   | 7,838 |   |
| Finance                      costs                            |   |                               | (140,690   | )                                 |   | (146,885 | ) |   | (415,311 | ) |   | (386,109 | ) |
|                                                          |   |                               |       |                              |   |   |   |   |   |   |   |   |   |
| Income                      before income taxes               |   |                               | 1,042,152  |                              |   | 667,220 |   |   | 3,781,118 |   |   | 1,011,900 |   |
| Income                      taxes - Note 6                    |   |                               | (168,803   | )                                 |   | (85,731 | ) |   | (300,383 | ) |   | (141,737 | ) |
| Minority                      interests                       |   |                               | (7,825     | )                                 |   | (5,120 | ) |   | (30,783 | ) |   | (7,660 | ) |
|                                                          |   |                               |       |                              |   |   |   |   |   |   |   |   |   |
| Net                      income                               |   | $                                  | 865,524    |                              | $      | 576,369 |   | $ | 3,449,952 |   | $ | 862,503 |   |
|                                                          |   |                               |       |                              |   |   |   |   |   |   |   |   |   |
| Other                      comprehensive income               |   |                               |       |                              |   |   |   |   |   |   |   |   |   |
| Foreign                      currency translation adjustments |   |                               | 27,413     |                              |   | 191,057 |   |   | 774,211 |   |   | 529,178 |   |
|                                                          |   |                               |       |                              |   |   |   |   |   |   |   |   |   |
| Total                      comprehensive income               |   | $                                  | 892,937    |                              | $      | 767,426 |   | $ | 4,224,163 |   | $ | 1,391,681 |   |
|                                                          |   |                               |       |                              |   |   |   |   |   |   |   |   |   |
| Earnings                      per share : Basic and diluted   |   | $                                  | 0.04       |                              | $      | 0.02 |   | $ | 0.14 |   | $ | 0.04 |   |
|                                                          |   |                               |       |                              |   |   |   |   |   |   |   |   |   |
| Weighted                      average number of shares        |   |                               |       |                              |   |   |   |   |   |   |   |   |   |
| outstanding                      :-                           |   |                               |       |                              |   |   |   |   |   |   |   |   |   |
| Basic                      and diluted                        |   |                               | 24,372,284 |                              |   | 24,250,000 |   |   | 24,291,058 |   |   | 24,250,000 |   |

----

**Kun          Run Biotechnology, Inc.**

**Condensed          Consolidated Balance Sheets**

**As          of September 30, 2008 and December 31, 2007**

**(Stated          in US Dollars)**

|                                                                                                                                                        |   | ***September 30,*** |       | ***December 31,*** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|------------|-------------------------|--------|
|                                                                                                                                                        |   | ***2008***               |       | ***2007***              |   |
|                                                                                                                                                        |   | ***(Unaudited)***        |       | ***(Audited)***         |   |
| **ASSETS**                                                                                                                                                  |   |                     |       |                    |   |   |   |
| Current                    assets                                                                                                                           |   |                     |       |                    |   |   |   |
| Cash                    and cash equivalents                                                                                                                |   | $                        | 307,693    |                    | $      | 670,919 |   |
| Trade                    receivables (net of allowance of doubtful accounts of $994,380                    in 2008 and                    $741,880 in 2007) |   |                     | 4,811,812  |                    |   | 3,529,366 |   |
| Income                    tax recoverable                                                                                                                   |   |                     | -          |                    |   | 196,065 |   |
| Advances                    to staff                                                                                                                        |   |                     | 39,488     |                    |   | 383,041 |   |
| Other                    receivables, prepayments and deposits - Note 7                                                                                     |   |                     | 935,898    |                    |   | 1,035,659 |   |
| Inventories                    - Note 8                                                                                                                     |   |                     | 652,711    |                    |   | 527,308 |   |
| Amounts                    due from related parties - Note 9                                                                                                |   |                     | 2,617,096  |                    |   | - |   |
| Deferred                    taxes                                                                                                                           |   |                     | 61,057     |                    |   | - |   |
|                                                                                                                                                        |   |                     |       |                    |   |   |   |
| Total                    current assets                                                                                                                     |   |                     | 9,425,755  |                    |   | 6,342,358 |   |
|                                                                                                                                                        |   |                     |       |                    |   |   |   |
| Intangible                    assets                                                                                                                        |   |                     | 3,539      |                    |   | 5,379 |   |
| Property,                    plant and equipment, net - Note 10                                                                                             |   |                     | 10,465,100 |                    |   | 8,851,242 |   |
| Land                    use rights - Note 11                                                                                                                |   |                     | 3,782,532  |                    |   | 3,593,265 |   |
| Deposit                    for acquisition of property, plant and equipment                                                                                 |   |                     | 414,257    |                    |   | 943,022 |   |
| Deferred                    taxes                                                                                                                           |   |                     | -          |                    |   | 34,424 |   |
|                                                                                                                                                        |   |                     |       |                    |   |   |   |
| **TOTAL                    ASSETS**                                                                                                                         |   | $                        | 24,091,183 |                    | $      | 19,769,690 |   |

----

**Kun          Run Biotechnology, Inc.**

**Condensed          Consolidated Balance Sheets (Cont’d)**

**As          of September 30, 2008 and December 31, 2007**

**(Stated          in US Dollars)**

|                                                                      |   | ***September 30,*** |       | ***December 31,*** |   |
|---------------------------------------------------------------------------|--------|--------------------------|------------|-------------------------|--------|
|                                                                      |   | ***2008***               |       | ***2007***              |   |
|                                                                      |   | ***(Unaudited)***        |       | ***(Audited)***         |   |
| **LIABILITIES                    AND STOCKHOLDERS’ EQUITY**         |   |                     |       |                    |   |   |   |
|                                                                      |   |                     |       |                    |   |   |   |
| **LIABILITIES**                                                           |   |                     |       |                    |   |   |   |
| Current                    liabilities                                    |   |                     |       |                    |   |   |   |
| Trade                    payables                                         |   | $                        | 901,526    |                    | $      | 572,893 |   |
| Other                    payables and accrued expenses                    |   |                     | 1,612,573  |                    |   | 1,257,918 |   |
| Dividend                    payable                                       |   |                     | 8,123      |                    |   | 138,659 |   |
| Income                    tax payable                                     |   |                     | 129,312    |                    |   | - |   |
| Amounts                    due to related parties - Note 9                |   |                     | 50,522     |                    |   | 149,820 |   |
| Deferred                    taxes                                         |   |                     | -          |                    |   | 7,204 |   |
| Secured                    short-term borrowings - Note 13                |   |                     | 5,852,000  |                    |   | 1,371,000 |   |
|                                                                      |   |                     |       |                    |   |   |   |
| Total                    current liabilities                              |   |                     | 8,554,056  |                    |   | 3,497,494 |   |
|                                                                      |   |                     |       |                    |   |   |   |
| Secured                    long-term bank borrowings - Note 13            |   |                     | 658,350    |                    |   | 5,792,475 |   |
|                                                                      |   |                     |       |                    |   |   |   |
| **TOTAL                    LIABILITIES**                                  |   |                     | 9,212,406  |                    |   | 9,289,969 |   |
|                                                                      |   |                     |       |                    |   |   |   |
| **COMMITMENTS                    AND CONTINGENCIES**- Note 14             |   |                     |       |                    |   |   |   |
|                                                                      |   |                     |       |                    |   |   |   |
| **MINORITY                    INTERESTS**                                 |   |                     | 134,778    |                    |   | 103,365 |   |
|                                                                      |   |                     |       |                    |   |   |   |
| **STOCKHOLDERS’                    EQUITY**                         |   |                     |       |                    |   |   |   |
| Common                    stock : par value $0.001 per share; authorized  |   |                     |       |                    |   |   |   |
| 100,000,000                    shares, issued and outstanding 25,000,000  |   |                     |       |                    |   |   |   |
| shares                    in 2008 and 24,250,000 shares in 2007 - Note 15 |   |                     | 25,000     |                    |   | 24,250 |   |
| Additional                    paid-in capital                             |   |                     | 7,683,804  |                    |   | 7,541,074 |   |
| Statutory                    and other reserves                           |   |                     | 1,725,313  |                    |   | 1,725,313 |   |
| Accumulated                    other comprehensive income                 |   |                     | 1,516,603  |                    |   | 742,392 |   |
| Retained                    earnings                                      |   |                     | 3,793,279  |                    |   | 343,327 |   |
|                                                                      |   |                     |       |                    |   |   |   |
| **TOTAL                    STOCKHOLDERS’ EQUITY**                   |   |                     | 14,743,999 |                    |   | 10,376,356 |   |
|                                                                      |   |                     |       |                    |   |   |   |
| **TOTAL                    LIABILITIES AND STOCKHOLDERS’ EQUITY**   |   | $                        | 24,091,183 |                    | $      | 19,769,690 |   |

----

**Kun          Run Biotechnology, Inc.**

**Condensed          Consolidated Statements of Cash Flows**

**For          the nine months ended September 30, 2008 and 2007**

**(Unaudited)**

**(Stated          in US Dollars)**

|                                                                     |   | ***Nine months ended******September 30*** |       |
|--------------------------------------------------------------------------|--------|----------------------------------------------------------|------------|
|                                                                     |   | ***(Unaudited)***                                        |       |
|                                                                     |   | ***2008***                                               |       | ***2007*** |   |
| **Cash                    flows from operating activities**              |   |                                                     |       |   |   |   |   |
| Net                    income                                            |   | $                                                        | 3,449,953  |   | $ | 862,503 |   |
| Adjustments                    to reconcile net income to net cash       |   |                                                     |       |   |   |   |   |
| provided                    by operating activities:                     |   |                                                     |       |   |   |   |   |
| Depreciation                                                             |   |                                                     | 498,686    |   |   | 370,473 |   |
| Amortization                    of intangible assets and land use rights |   |                                                     | 52,976     |   |   | 1,965 |   |
| Deferred                    taxes                                        |   |                                                     | (31,370    | ) |   | (45,089 | ) |
| Written                    off of property, plant and equipment          |   |                                                     | 5,564      |   |   | - |   |
| Provision                    for doubtful debts                          |   |                                                     | 198,657    |   |   | 262,283 |   |
| Minority                    interest                                     |   |                                                     | 30,783     |   |   | 7,660 |   |
| Changes                    in operating assets and liabilities :-        |   |                                                     |       |   |   |   |   |
| Trade                    receivables                                     |   |                                                     | (1,223,326 | ) |   | (1,197,265 | ) |
| Other                    receivables, prepayments and deposits           |   |                                                     | 165,869    |   |   | (53,319 | ) |
| Advances                    to staff                                     |   |                                                     | 361,861    |   |   | (49,997 | ) |
| Inventories                                                              |   |                                                     | (88,215    | ) |   | 621,104 |   |
| Trade                    payables                                        |   |                                                     | 284,377    |   |   | (57,994 | ) |
| Other                    payables and accrued expenses                   |   |                                                     | 239,722    |   |   | 10,175 |   |
| Income                    tax payable                                    |   |                                                     | -          |   |   | 105,330 |   |
| Income                    tax recoverable                                |   |                                                     | 331,753    |   |   | - |   |
|                                                                     |   |                                                     |       |   |   |   |   |
| Net                    cash flows provided by operating activities       |   |                                                     | 4,277,290  |   |   | 837,829 |   |
|                                                                     |   |                                                     |       |   |   |   |   |
| **Cash                    flows from investing activities**              |   |                                                     |       |   |   |   |   |
| Payments                    to acquire and deposit for acquisition of    |   |                                                     |       |   |   |   |   |
| property,                    plant and equipment                         |   |                                                     | (923,536   | ) |   | (941,971 | ) |
| Cash                    acquired from RTO                                |   |                                                     | 164,437    |   |   | - |   |
|                                                                     |   |                                                     |       |   |   |   |   |
| Net                    cash flows used in investing activities           |   | $                                                        | (759,099   | ) | $ | (941,971 | ) |

----

**Kun          Run Biotechnology, Inc.**

**Condensed          Consolidated Statements of Cash Flows (Cont’d)**

**For          the nine months ended September 30, 2008 and 2007**

**(Unaudited)**

**(Stated          in US Dollars)**

|                                                                                                                                                     |   | ***Nine months ended ******September 30*** |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------|------------|
|                                                                                                                                                     |   | ***(Unaudited)***                                              |       |
|                                                                                                                                                     |   | ***2008***                                                     |       | ***2007*** |   |
| **Cash                    flows from financing activities**                                                                                              |   |                                                           |       |   |   |   |   |
| Amounts                    due to related parties                                                                                                        |   | $                                                              | (2,799,227 | ) | $ | (5,285,063 | ) |
| Amount                    due to a director                                                                                                              |   |                                                           | (4,587     | ) |   | (12,504 | ) |
| New                    bank loans                                                                                                                        |   |                                                           | 322,583    |   |   | 6,532,000 |   |
| Repayment                    of bank loans                                                                                                               |   |                                                           | (1,433,700 | ) |   | (1,306,400 | ) |
|                                                                                                                                                     |   |                                                           |       |   |   |   |   |
| Net                    cash flows used in financing activities                                                                                           |   |                                                           | (3,914,931 | ) |   | (71,967 | ) |
|                                                                                                                                                     |   |                                                           |       |   |   |   |   |
| Effect                    of foreign currency translation on cash and cash                    equivalents                                                |   |                                                           | 33,514     |   |   | 13,656 |   |
|                                                                                                                                                     |   |                                                           |       |   |   |   |   |
| Net                    decrease in cash and cash equivalents                                                                                             |   |                                                           | (363,226   | ) |   | (162,453 | ) |
|                                                                                                                                                     |   |                                                           |       |   |   |   |   |
| Cash                    and cash equivalents - beginning of period                                                                                       |   |                                                           | 670,919    |   |   | 428,396 |   |
|                                                                                                                                                     |   |                                                           |       |   |   |   |   |
| Cash                    and cash equivalents - end of period                                                                                             |   | $                                                              | 307,693    |   | $ | 265,943 |   |
|                                                                                                                                                     |   |                                                           |       |   |   |   |   |
| Supplemental                    disclosures for cash flow information                                                                                    |   |                                                           |       |   |   |   |   |
| Cash                    paid for :-                                                                                                                      |   |                                                           |       |   |   |   |   |
| Interest                                                                                                                                                 |   | $                                                              | 413,282    |   | $ | 385,078 |   |
| Income                    taxes                                                                                                                          |   | $                                                              | -          |   | $ | 81,496 |   |
|                                                                                                                                                     |   |                                                           |       |   |   |   |   |
| Non-cash                    investing and financing activities                                                                                           |   |                                                           |       |   |   |   |   |
| Dividend                    payable settled by offsetting amount due from the former shareholder                    of                    Hainan Zhonghe |   | $                                                              | 852,825    |   | $ | - |   |

----

**Kun          Run Biotechnology**
**,          Inc.**

**Notes          to Condensed Consolidated Financial Statements**

**For          the nine months ended September 30, 2008 and 2007**

**(Unaudited)**

**(Stated          in US Dollars**
**)**

| **1.** | **Change                    of company name** |
|--------|-----------------------------------------------|

| **2.** | **Corporate                    information** |
|--------|----------------------------------------------|

| **3.** | **Description                    of business** |
|--------|------------------------------------------------|

| **4.** | **Basis                    of presentation** |
|--------|----------------------------------------------|

|   | (i) | The                    accompanying condensed consolidated financial statements of the                    Company                    and its subsidiaries have been prepared in accordance with generally                    accepted accounting principles in the United States of America                    for interim                    consolidated financial information and with the instructions                    to Form 10-Q                    and Regulation S-X. Accordingly, they do not include all the                    information                    and notes necessary for comprehensive consolidated financial                    statements. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Kun            Run Biotechnology**
**,            Inc.**

**Notes            to Condensed Consolidated Financial Statements**

**For            the nine months ended September 30, 2008 and 2007**

**(Unaudited)**

**(Stated            in US Dollars**
**)**

| **4.** | **Basis                    of presentation (Cont’d)** |
|--------|-------------------------------------------------------------|

|   | (ii) | The                    RTO has been accounted for as a recapitalization of the Company                    whereby                    the historical financial statements and operations of Kun Run                    become the                    historical financial statements of the Company, with no adjustment                    to the                    carrying value of the assets and liabilities. The 24,250,000                    shares as                    adjusted of the Company outstanding prior to the RTO are accounted                    for at                    $24,250 of net book value at the time of the RTO. The accompanying                    condensed consolidated financial statements reflect the recapitalization                    of the stockholders’ equity as if the transaction occurred as of the                    beginning of the period presented. |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **5.** | **Summary                    of significant accounting                    policies** |
|--------|--------------------------------------------------------------------------------------|

|   | 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. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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.                    Actual                    results could differ from those                    estimates. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Kun          Run Biotechnology**
**,          Inc.**

**Notes          to Condensed Consolidated Financial Statements**

**For          the nine months ended September 30, 2008 and 2007**

**(Unaudited)**

**(Stated          in US Dollars)**

| **5****.** | **Summary                    of significant accounting policies                    (Cont’d)** |
|------------|-----------------------------------------------------------------------------------------------------|

|   | Financial                    instruments that potentially subject the Company to significant                    concentrations of credit risk consist principally of cash and                    cash                    equivalents and trade and bills receivables. As of September                    30, 2008,                    substantially all of the Company’s cash and cash equivalents and                    restricted cash 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. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                        |   | ***Three months ended*** |    | ***Nine months ended*** |   |
|-------------------------------------------------------------|--------|------------------------------------|---------|-----------------------------------|--------|
|                                                        |   | ***September 30***            |    | ***September 30***           |   |
|                                                        |   | ***(Unaudited)***                  |    | ***(Unaudited)***                 |   |
|                                                        |   | ***2008***                         |    | ***2007***                        |   | ***2008*** |   | ***2007*** |   |
|                                                        |   |                               |    |                              |   |   |   |   |   |
| Chongqin                    Dinghai Pharmaceutical Ltd      |   | $                                  | 215,089 |                              | $      | - |   | $ | 823,389 |   | $ | - |   |
| Beijing                    Xingshangyuan Pharmaceutical Ltd |   |                               | 183,140 |                              |   | 630,817 |   |   | 726,715 |   |   | 1,644,730 |   |
|                                                        |   |                               |    |                              |   |   |   |   |   |   |   |   |   |
|                                                        |   | $                                  | 398,229 |                              | $      | 630,817 |   | $ | 1,550,104 |   | $ | 1,644,730 |   |

----

**Kun            Run Biotechnology**
**,            Inc.**

**Notes            to Condensed Consolidated Financial Statements**

**For            the nine months ended September 30, 2008 and 2007**

**(Unaudited)**

**(Stated            in US Dollars)**

| **5.** | **Summary                    of significant accounting policies                    (Cont’d)** |
|--------|-----------------------------------------------------------------------------------------------------|

----

**Kun            Run Biotechnology**
**,            Inc.**

**Notes            to Condensed Consolidated Financial Statements**

**For            the nine months ended September 30, 2008 and 2007**

**(Unaudited)**

**(Stated            in US Dollars)**

| **6.** | **Income                    taxes** |
|--------|-------------------------------------|

----

**Kun            Run Biotechnology**
**,            Inc.**

**Notes            to Condensed Consolidated Financial Statements**

**For            the nine months ended September 30, 2008 and 2007**

**(Unaudited)**

**(Stated            in US Dollars)**

| **7.** | **Other                    receivables, prepayments and                    deposits** |
|--------|---------------------------------------------------------------------------------------|

|                                 |   | ***September 30,*** |    | ***December 31,*** |   |
|--------------------------------------|--------|--------------------------|---------|-------------------------|--------|
|                                 |   | ***2008***               |    | ***2007***              |   |
|                                 |   | ***(Unaudited)***        |    | ***(Audited)***         |   |
|                                 |   |                     |    |                    |   |
| Deposits                    paid     |   | $                        | 1,111   |                    | $      | 50,298 |   |
| Prepayments                          |   |                     | 726,857 |                    |   | 742,150 |   |
| Other                    receivables |   |                     | 207,930 |                    |   | 243,211 |   |
|                                 |   |                     |    |                    |   |   |   |
|                                 |   | $                        | 935,898 |                    | $      | 1,035,659 |   |

| **8.** | **Inventories** |
|--------|-----------------|

|                              |   | ***September 30,*** |    | ***December 31,*** |   |
|-----------------------------------|--------|--------------------------|---------|-------------------------|--------|
|                              |   | ***2008***               |    | ***2007***              |   |
|                              |   | ***(Unaudited)***        |    | ***(Audited)***         |   |
|                              |   |                     |    |                    |   |
| Raw                    materials  |   | $                        | 330,098 |                    | $      | 250,337 |   |
| Work-in-progress                  |   |                     | 170,814 |                    |   | 40,585 |   |
| Finished                    goods |   |                     | 151,799 |                    |   | 236,386 |   |
|                              |   |                     |    |                    |   |   |   |
|                              |   | $                        | 652,711 |                    | $      | 527,308 |   |

| **9.** | **Amounts                    due from / to related                    parties** |
|--------|---------------------------------------------------------------------------------|

|                                                                 |   | ***September 30,*** |      | ***December 31,*** |   |
|----------------------------------------------------------------------|--------|--------------------------|-----------|-------------------------|--------|
|                                                                 |   | ***2008***               |      | ***2007***              |   |
|                                                                 |   | ***(Unaudited)***        |      | ***(Audited)***         |   |
|                                                                 |   |                     |      |                    |   |
| Amounts                    due from related parties:-                |   |                     |      |                    |   |   |   |
| Due                    from the former shareholder of Hainan Zhonghe |   | $                        | 2,612,416 |                    | $      | - |   |
| Due                    from a director                               |   |                     | 4,680     |                    |   | - |   |
|                                                                 |   |                     |      |                    |   |   |   |
|                                                                 |   | $                        | 2,617,096 |                    | $      | - |   |
|                                                                 |   |                     |      |                    |   |   |   |
| Amounts                    due to related parties:-                  |   |                     |      |                    |   |   |   |
| Due                    to a shareholder                              |   | $                        | 50,522    |                    | $      | - |   |
| Due                    to the former shareholder of Hainan Zhonghe   |   |                     | -         |                    |   | 149,820 |   |
|                                                                 |   |                     |      |                    |   |   |   |
|                                                                 |   | $                        | 50,522    |                    | $      | 149,820 |   |

----

**Kun            Run Biotechnology**
**,            Inc.**

**Notes            to Condensed Consolidated Financial Statements**

**For            the nine months ended September 30, 2008 and 2007**

**(Unaudited)**

**(Stated            in US Dollars)**

| **10.** | **Property,                    plant and equipment** |
|---------|------------------------------------------------------|

|                                                 |   | ***September 30,*** |       | ***December 31,*** |   |
|------------------------------------------------------|--------|--------------------------|------------|-------------------------|--------|
|                                                 |   | ***2008***               |       | ***2007***              |   |
|                                                 |   | ***(Unaudited)***        |       | ***(Audited)***         |   |
| Costs:                                               |   |                     |       |                    |   |   |   |
| Buildings                                            |   | $                        | 7,343,029  |                    | $      | 6,881,266 |   |
| Plant                    and machinery               |   |                     | 4,100,172  |                    |   | 3,626,451 |   |
| Furniture,                    fixtures and equipment |   |                     | 263,814    |                    |   | 275,402 |   |
| Leasehold                    improvements            |   |                     | 118,321    |                    |   | 110,881 |   |
| Motor                    vehicles                    |   |                     | 712,333    |                    |   | 667,538 |   |
|                                                 |   |                     |       |                    |   |   |   |
|                                                 |   |                     | 12,537,669 |                    |   | 11,561,538 |   |
| Accumulated                    depreciation          |   |                     | (3,350,781 | )                  |   | (2,715,232) |   |
| Construction                    in progress          |   |                     | 1,278,212  |                    |   | 4,936 |   |
|                                                 |   |                     |       |                    |   |   |   |
| Net                                                  |   | $                        | 10,465,100 |                    | $      | 8,851,242 |   |

| **11.** | **Land                    use rights** |
|---------|----------------------------------------|

----

**Kun            Run Biotechnology**
**,            Inc.**

**Notes            to Condensed Consolidated Financial Statements**

**For            the nine months ended September 30, 2008 and 2007**

**(Unaudited)**

**(Stated            in US Dollars)**

| **12.** | **Other                    payables and accrued                    expenses** |
|---------|-------------------------------------------------------------------------------|

|                                                          |   | ***September 30,*** |      | ***December 31,*** |   |
|---------------------------------------------------------------|--------|--------------------------|-----------|-------------------------|--------|
|                                                          |   | ***2008***               |      | ***2007***              |   |
|                                                          |   | ***(Unaudited)***        |      | ***(Audited)***         |   |
|                                                          |   |                     |      |                    |   |
| Accrued                    audit fee                          |   | $                        | -         |                    | $      | 74,034 |   |
| Deposits                    from sales agent                  |   |                     | 501,102   |                    |   | 479,019 |   |
| Other                    accrued expenses                     |   |                     | 273,249   |                    |   | 125,705 |   |
| Other                    tax payable                          |   |                     | 633,036   |                    |   | 186,756 |   |
| Payable                    for acquisition of property, plant |   |                     |      |                    |   |   |   |
| and                    equipment                              |   |                     | 117,090   |                    |   | 79,560 |   |
| Receipt                    in advance from customers          |   |                     | 3,950     |                    |   | 172,915 |   |
| Staff                    welfare payable - Note               |   |                     | 84,075    |                    |   | 137,195 |   |
| Salary                    payable                             |   |                     | 71        |                    |   | 2,735 |   |
|                                                          |   |                     |      |                    |   |   |   |
|                                                          |   | $                        | 1,612,573 |                    | $      | 1,257,919 |   |

| **13.** | **Secured                    borrowings** |
|---------|-------------------------------------------|

|                                                                  |   | ***September 30,*** |      | ***December 31,*** |   |
|-----------------------------------------------------------------------|--------|--------------------------|-----------|-------------------------|--------|
|                                                                  |   | ***2008***               |      | ***2007***              |   |
|                                                                  |   | ***(Unaudited)***        |      | ***(Audited)***         |   |
|                                                                  |   |                     |      |                    |   |
| Short-term                    loan                                    |   |                     |      |                    |   |   |   |
| Bank                    loan (Note a)                                 |   |                     |      |                    |   |   |   |
| Short-term                    loan, interest rate at 8.28 % per annum |   | $                        | 5,852,000 |                    | $      | 1,371,000 |   |
|                                                                  |   |                     |      |                    |   |   |   |
| Long-term                    loan                                     |   |                     |      |                    |   |   |   |
| Bank                    loan (Note a)                            |   |                     |      |                    |   |   |   |
|  -                    due 2009, interest rate at 8.28% per annum |   |                     | -         |                    |   | 5,484,000 |   |
| Other                    loan (Note b)                           |   |                     |      |                    |   |   |   |
|  -                    due 2010, interest free                    |   |                     | 658,350   |                    |   | 308,475 |   |
|                                                                  |   |                     |      |                    |   |   |   |
|                                                                  |   |                     | 658,350   |                    |   | 5,792,475 |   |
|                                                                  |   |                     |      |                    |   |   |   |
|                                                                  |   | $                        | 6,510,350 |                    | $      | 7,163,475 |   |

----

**Kun            Run Biotechnology**
**,            Inc.**

**Notes            to Condensed Consolidated Financial Statements**

**For            the nine months ended September 30, 2008 and 2007**

**(Unaudited)**

**(Stated            in US Dollars)**

| **13.** | **Secured                    borrowings (Cont’d)** |
|---------|----------------------------------------------------------|

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

|   | (b) | The                    other loan, which was granted to the Hainan Zhonghe by the PRC                    local                    government authority, is interest-free and secured by the Hainan                    Zhonghe’s                    buildings with carrying amount of $395,686 and the buildings                    owned by the                    related company and repayable on September 30, 2010. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **14.** | **Commitments                    and contingencies** |
|---------|------------------------------------------------------|

|  | (a) | Capital                    commitment |
|--|-----|---------------------------------------|

|  | (b) | Operating                    lease arrangement |
|--|-----|------------------------------------------------|

|  | (c) | Contingencies |
|--|-----|---------------|

----

**Kun            Run Biotechnology**
**,            Inc.**

**Notes            to Condensed Consolidated Financial Statements**

**For            the nine months ended September 30, 2008 and 2007**

**(Unaudited)**

**(Stated            in US Dollars)**

| **15.** | **Common                    stock and additional                    paid-in-capital** |
|---------|---------------------------------------------------------------------------------------|

|                                              |   | ***Common stock*** |       |         |   |
|---------------------------------------------------|--------|-------------------------|------------|--------------|--------|
|                                              |   | ***Number of***    |       |         |   |   |   |
|                                              |   | ***shares as***    |       |         |   |   |   |
|                                              |   | ***adjusted for*** |       |         |   | ***Additional*** |   |
|                                              |   | ***reverse***           |       |         |   | ***paid-in*** |   |
|                                              |   | ***stock split***  |       | ***Amount*** |   | ***capital*** |   |
|                                              |   |                    |       |         |   |   |   |
| Balance,                    December 31, 2007 and |   |                    |       |         |   |   |   |   |   |   |
| January                    1, 2008                |   |                    | 24,250,000 |         | $      | 24,250 |   | $ | 7,541,074 |   |
| Recapitalization                                  |   |                    | 750,000    |         |   | 750 |   |   | 142,730 |   |
|                                              |   |                    |       |         |   |   |   |   |   |   |
| Balance,                    September 30, 2008    |   |                    | 25,000,000 |         | $      | 25,000 |   | $ | 7,683,804 |   |

| **16.** | **Defined                    contribution plan** |
|---------|--------------------------------------------------|

----

**Kun          Run Biotechnology**
**,          Inc.**

**Notes          to Condensed Consolidated Financial Statements**

**For          the nine months ended September 30, 2008 and 2007**

**(Unaudited)**

**(Stated          in US Dollars)**

| **17.** | **Segment                    information** |
|---------|--------------------------------------------|

| **18.** | **Related                    party transactions** |
|---------|---------------------------------------------------|

| Related company               |   | Type of                      |   | Three months ended |   | Nine months ended |   |
|------------------------------------|--------|-----------------------------------|--------|------------------------------|--------|-----------------------------|--------|
| relationship                       |   | translation                       |   | September 30            |   | September 30           |   |
|                               |   |                              |   | (Unaudited)                  |   | (Unaudited)                 |   |
|                               |   |                              |   | 2008                         |   | 2007                        |   | 2008 |   | 2007 |   |
|                               |   |                              |   |                         |   |                        |   |   |   |   |   |
| Related                    company |   | Sales                             |   |                         |   |                        |   |   |   |   |   |   |   |   |   |
| with                    the same   |   |                              |   |                         |   |                        |   |   |   |   |   |   |   |   |   |   |
| management                         |   |                              |   |                         |   |                        |   |   |   |   |   |   |   |   |   |   |
| personnel                          |        |                                   |   |                         | $      | 5,266                       |   | $ | 241,685 |   | $ | 493,442 |   | $  | 756,991 |   |
|                               |   |                              |   |                         |   |                        |   |   |   |   |   |   |   |   |   |   |
| Related                    company |   | Rental                  income    |   |                         |   |                        |   |   |   |   |   |   |   |   |   |
| with                    the same   |   | received                    for   |   |                         |   |                        |   |   |   |   |   |   |   |   |   |
| management                         |   | buildings                         |   |                         |   |                        |   |   |   |   |   |   |   |   |   |
| personnel                          |   |                              |   |                         | $      | -                           |   | $ | 5,089 |   | $ | - |   | $ | 15,050 |   |
|                               |   |                              |   |                         |   |                        |   |   |   |   |   |   |   |   |   |   |
| Related                    company |   | Rental                  expenses  |   |                         |   |                        |   |   |   |   |   |   |   |   |   |
| with                    the same   |   | Paid                    for land  |   |                         |   |                        |   |   |   |   |   |   |   |   |   |
| management                         |   | use                    rights and |   |                         |   |                        |   |   |   |   |   |   |   |   |   |
| personnel                          |   | building                          |   | $                            | -      |                        | $      | 5,089 |   | $ | - |   | $ | 15,050 |   |

| **19.** | **Subsequent                    events** |
|---------|------------------------------------------|

----

**ITEM        2****MANAGEMENT'S        DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.**

**Overview**

**Corporate          History**

----

***Summary          of significant accounting policies***

----

|                                                          |   | ***Three months ended*** |    | ***Nine months ended*** |   |
|---------------------------------------------------------------|--------|------------------------------------|---------|-----------------------------------|--------|
|                                                          |   | ***September 30***            |    | ***September 30***           |   |
|                                                          |   | ***(Unaudited)***                  |    | ***(Unaudited)***                 |   |
|                                                          |   | ***2008***                         |    | ***2007***                        |   | ***2008*** |   | ***2007*** |   |
|                                                          |   |                               |    |                              |   |   |   |   |   |
| Chongqin                    Dinghai Pharmaceutical Ltd        |   | $                                  | 215,089 |                              | $      | - |   | $ | 823,389 |   | $ | - |   |
| Beijing                      Xingshangyuan Pharmaceutical Ltd |   |                               | 183,140 |                              |   | 630,817 |   |   | 726,715 |   |   | 1,644,730 |   |
|                                                          |   |                               |    |                              |   |   |   |   |   |   |   |   |   |
|                                                          |   | $                                  | 398,229 |                              | $      | 630,817 |   | $ | 1,550,104 |   | $ | 1,644,730 |   |

**Results          of Operations **

**Three          months ended September 30, 2008 and 2007**

|                             |   | ***Three months ended*** |      |                                |   |       |   |
|----------------------------------|--------|------------------------------------|-----------|-------------------------------------|--------|------------|--------|
|                             |   | ***30-Sep***                       |      |                                |   |       |   |
|                             |   | ***(unaudited)***                  |      |                                |   |       |   |
|                             |   | ***2008***                         |      |                                |   | ***2007*** |   |   |   |   |   |
|                             |   |                               |      | % as of totalrevenue |   |       |   | % as of totalrevenue |   | % Change |   |
| Sales                    revenue |   |                               | 2,449,618 |                                |   | 100        | %      |   | 2,114,406 |   |   | 100 | % |   | 16 | % |
| Cost                    of sales |   |                               | (693,242  | )                                   |   | -28        | %      |   | (777,683 | ) |   | -37 | % |   | -11 | % |
|                             |   |                               |      |                                |   |       |   |   |   |   |   |   |   |   |   |   |
| Gross                    profit  |   |                               | 1,756,376 |                                |   | 72         | %      |   | 1,336,723 |   |   | 63 | % |   | 31 | % |

----

|                                                             |   | **Three                      months ended****September                      30, 2008** |      | **Three                      months ended****September                      30, 2007** |   |                |   |
|------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------|-----------|----------------------------------------------------------------------------------------|--------|---------------------|--------|
| **Product**                                                      |   | **Amount****(USD)**                                                                    |      | **% as of total****sales**                                              |   | **Amount****(USD)** |   | **% as of ****total****sales** |   | **%**Changes |   |
| TP-5                      Products                               |   |                                                                                   |      |                                                                                   |   |                |   |   |   |   |   |   |   |   |   |   |
| TP-5                      for injection (1mg)                    |   |                                                                                   | 497,116   |                                                                                   |   | 20                  | %      |   | 583,054 |   |   | 28 | % |   | -15 | % |
| TP-5                      for injection (10mg)                   |   |                                                                                   | 84,354    |                                                                                   |   | 3                   | %      |   | 267,885 |   |   | 13 | % |   | -69 | % |
| TP-5                      pre-filled injection 1ml:1mg           |   |                                                                                   | 175,299   |                                                                                   |   | 7                   | %      |   | 341,955 |   |   | 16 | % |   | -49 | % |
| TP-5                      pre-filled injection 1ml:10mg          |   |                                                                                   | 445,353   |                                                                                   |   | 18                  | %      |   | 312,976 |   |   | 15 | % |   | 42 | % |
| *Sub-total                      ( TP-5 products)*                |   |                                                                                   | 1,202,122 |                                                                                   |   | 49                  | %      |   | 1,505,870 |   |   | 71 | % |   | -20 | % |
| Other                      products                              |   |                                                                                   |      |                                                                                   |   |                     |   |   |   |   |   |   |   |   |  |   |
| SS                      for injection 3mg / 0.25mg               |   |                                                                                   | 179,383   |                                                                                   |   | 7                   | %      |   | 173,744 |   |   | 8 | % |   | 3 | % |
| Thymosin                      Alpha 1 for injection 1.6mg        |   |                                                                                   | 845,013   |                                                                                   |   | 35                  | %      |   | 247,660 |   |   | 12 | % |   | 241 | % |
| DDAVP                      Injection 1ml:4ug                     |   |                                                                                   | 147,959   |                                                                                   |   | 6                   | %      |   | 116,481 |   |   | 6 | % |   | 27 | % |
| DDAVP                      Injection 1ml:15ug                    |   |                                                                                   | 48,943    |                                                                                   |   | 2                   | %      |   | 58,306 |   |   | 3 | % |   | -16 | % |
| Granisetron                      Hydrochloride Injection 3ml:3mg |   |                                                                                   | 18,167    |                                                                                   |   | 1                   | %      |   | 8,876 |   |   | 0 | % |   | 105 | % |
| Ozagrel                      Sodium for Injection 80mg           |   |                                                                                   | 8,031     |                                                                                   |   | 0                   | %      |   | 3,469 |   |   | 0 | % |   | 132 | % |
| Others                                                           |   |                                                                                   |      |                                                                                   |   |                |   |   |   |   |   |   |   |   |  |   |
| In                      Total                                    |   |                                                                                   | 2,449,618 |                                                                                   |   | 100                 | %      |   | 2,114,406 |   |   | 100 | % |   | 16 | % |

----

|                                              |   | ***Three months ended*** |      |                                |   |       |   |
|---------------------------------------------------|--------|------------------------------------|-----------|-------------------------------------|--------|------------|--------|
|                                              |   | ***September 30***            |      |                                |   |       |   |
|                                              |   | ***(unaudited)***                  |      |                                |   |       |   |
|                                              |   | ***2008***                         |      |                                |   | ***2007*** |   |   |   |   |   |
|                                              |   |                               |      | % as of totalrevenue |   |       |   | % as of totalrevenue |   |   |   |
| Operating                    expenses             |   |                               |      |                                |   |       |   |   |   |   |   |   |   |   |   |   |
| Administrative                    expenses        |   |                               | 257,968   |                                |   | 11         | %      |   | 252,245 |   |   | 12 | % |   | 2 | % |
| Research                    and development costs |   |                               | 107,896   |                                |   | 4          | %      |   | 21,567 |   |   | 1 | % |   | 400 | % |
| Selling                    expenses               |   |                               | 271,460   |                                |   | 11         | %      |   | 268,913 |   |   | 13 | % |   | 1 | % |
|                                              |   |                               |      |                                |   |       |   |   |   |   |   |   |   |   |   |   |
|                                              |   |                               | 637,324   |                                |   | 26         | %      |   | 542,725 |   |   | 26 | % |   | 17 | % |
|                                              |   |                               |      |                                |   |       |   |   |   |   |   |   |   |   |   |   |
| Income                    from operations         |   |                               | 1,119,052 |                                |   | 46         | %      |   | 793,998 |   |   | 38 | % |   | 41 | % |

----

|                                                                                       |   | ***Three months ended***    |       |                          |   |       |          |
|--------------------------------------------------------------------------------------------|--------|---------------------------------------|------------|-------------------------------|--------|------------|---------------|
|                                                                                       |   | ***September                    30*** |       |                          |   |       |          |
|                                                                                       |   | ***(unaudited)***                     |       |                          |   |       |          |
|                                                                                       |   | ***2008***                            |       |                          |   | ***2007*** |          |   |   |   |   |
|                                                                                       |   |                                  |       | % as oftotalrevenue |   |       |          | % as oftotalrevenue |   | %Changes |   |
| Interest                    income                                                         |   |                                  | 374        |                          |   | 0          | %             |   | 389 |   |   | 0 | % |   | -4 | % |
| Other                    income                                                            |   |                                  | 63,312     |                          |   | 3          | %             |   | 19,663 |   |   | 1 | % |   | 222 | % |
| Government                    subsidy income                                               |   |                                  | 104        |                          |   | 0          | %             |   | 55 |   |   | 0 | % |   | 89 | % |
| Finance                    costs                                                           |   |                                  | (140,690   | )                             |   | -6         | %   |   | (146,885 | ) |   | -7 | % |   | -4 | % |
|                                                                                       |   |                                  |            |                          |   |       |          |   |  |   |   |   |   |   |   |   |
| Income                    before income taxes                                              |   |                                  | 1,042,152  |                          |   | 43         | %             |   | 667,220 |   |   | 32 | %   |   | 56 | % |
| Income                    taxes - Note 6                                                   |   |                                  | (168,803   | )                             |   | -7         | %             |   | (85,731 | ) |   | -4 | % |   | 97 | % |
| Minority                    interests                                                      |   |                                  | (7,825     | )                             |   | 0          | %             |   | (5,120 | ) |   | 0 | % |   | 53 | % |
|                                                                                       |   |                                  |            |                          |   |       |          |   |  |   |   |   |   |   |   |   |
| Net                    income                                                              |   |                                  | 865,524    |                          |   | 35         | %             |   | 576,369 |   |   | 27 | % |   | 50 | % |
|                                                                                       |   |                                  |       |                          |   |       |          |   |   |   |   |   |   |   |   |   |
| Other                    comprehensive income                                              |   |                                  |       |                          |   |       |          |   |   |   |   |   |   |   |   |   |
| Foreign                      currency translation adjustments                              |   |                                  | 27,413     |                          |   | 1          | %             |   | 191,057 |   |   | 9 | % |   | -86 | % |
|                                                                                       |   |                                  |       |                          |   |       |          |   |   |   |   |   |   |   |   |   |
| Total                    comprehensive income                                              |   |                                  | 892,937    |                          |   | 36         | %             |   | 767,426 |   |   | 36 | % |   | 16 | % |
|                                                                                       |   |                                  |       |                          |   |       |          |   |   |   |   |   |   |   |   |   |
| Earnings                    per share : Basic and diluted                                  |   | $                                     | 0.04       |                          |   |            |          | $ | 0.02 |   |   |   |   |   |   |   |
|                                                                                       |   |                                  |       |                          |   |       |          |   |   |   |   |   |   |   |   |   |
| Weighted                      average number of shares outstanding                      :- |   |                                  |       |                          |   |       |          |   |   |   |   |   |   |   |   |   |
| Basic                    and diluted                                                       |   |                                  | 24,372,284 |                          |   |       |          |   | 24,250,000 |   |   |   |   |   |   |   |

***Nine          Months Ended September 30, 2008 Compared to Nine Months Ended September          30,          2007***

|                             |   | ***Nine                    months ended*** |       |                          |   |       |          |
|----------------------------------|--------|--------------------------------------------|------------|-------------------------------|--------|------------|---------------|
|                             |   | ***September                    30***      |       |                          |   |       |          |
|                             |   | ***(unaudited)***                          |       |                          |   |       |          |
|                             |   | ***2008***                                 |       |                          |   | ***2007*** |          |   |   |   |   |
|                             |   |                                       |       | % as oftotalrevenue |   |       |          | % as oftotalrevenue |   | %Change |   |
| Sales                    revenue |   |                                       | 7,799,687  |                          |   | 100        | %             | $ | 4,974,279 |   |   | 100 | % |   | 57 | % |
| Cost                    of sales |   |                                       | (2,247,912 | )                             |   | -29        | %   |   | (2,107,300 | ) |   | -42 | % |   | 7 | % |
|                             |   |                                       |       |                          |   |       |          |   |   |   |   |   |   |   |   |   |
| Gross                    profit  |   |                                       | 5,551,775  |                          |   | 71         | %             |   | 2,866,979 |   |   | 58 | % |   | 94 | % |

----

|                                                             |   | **Nine months ended September 30, 2008** |      | **Nine months ended September 30, 2007** |   |                |   |
|------------------------------------------------------------------|--------|-------------------------------------------------------------------|-----------|-------------------------------------------------------------------|--------|---------------------|--------|
| **Product**                                                      |   | **Amount****(USD)**                                               |      | **% ****as of total****sales**                     |   | **Amount****(USD)** |   | **% ****as of ****total****sales** |   | **%****Changes** |   |
| TP-5                      Products                               |   |                                                              |      |                                                              |   |                |   |   |   |   |   |   |   |   |   |   |
| TP-5                      for injection (1mg)                    |   |                                                              | 1,343,298 |                                                              |   | 17                  | %      |   | 1,709,394 |   |   | 34 | % |   | -21 | % |
| TP-5                      for injection (10mg)                   |   |                                                              | 478,520   |                                                              |   | 6                   | %      |   | 898,434 |   |   | 18 | % |   | -47 | % |
| TP-5                      pre-filled injection 1ml:1mg           |   |                                                              | 887,479   |                                                              |   | 11                  | %      |   | 586,165 |   |   | 12 | % |   | 51 | % |
| TP-5                      pre-filled injection 1ml:10mg          |   |                                                              | 1,320,392 |                                                              |   | 17                  | %      |   | 533,525 |   |   | 11 | % |   | 147 | % |
| ***Sub-total                      ( TP-5 products)***            |   |                                                              | 4,029,689 |                                                              |   | 52                  | %      |   | 3,727,518 |   |   | 75 | % |   | 8 | % |
| Other                      products                              |   |                                                              |      |                                                              |   |                |   |   |   |   |   |   |   |   |   |   |
| SS                      for injection 3mg / 0.25mg               |   |                                                              | 708,334   |                                                              |   | 9                   | %      |   | 412,136 |   |   | 8 | % |   | 72 | % |
| Thymosin                      Alpha 1 for injection 1.6mg        |   |                                                              | 2,206,691 |                                                              |   | 28                  | %      |   | 547,843 |   |   | 11 | % |   | 303 | % |
| DDAVP                      Injection 1ml:4ug                     |   |                                                              | 548,716   |                                                              |   | 7                   | %      |   | 173,014 |   |   | 3 | % |   | 217 | % |
| DDAVP                      Injection 1ml:15ug                    |   |                                                              | 228,634   |                                                              |   | 3                   | %      |   | 97,217 |   |   | 2 | % |   | 135 | % |
| Granisetron                      Hydrochloride Injection 3ml:3mg |   |                                                              | 55,816    |                                                              |   | 1                   | %      |   | 13,116 |   |   | 0 | % |   | 326 | % |
| Ozagrel                      Sodium for Injection 80mg           |   |                                                              | 21,807    |                                                              |   | 0                   | %      |   | 3,435 |   |   | 0 | % |   | 535 | % |
| Others                                                           |   |                                                              |      |                                                              |   |                |   |   |   |   |   |   |   |   |   |   |
| In                      Total                                    |   |                                                              | 7,799,687 |                                                              |   | 100                 | %      |   | 4,974,279 |   |   | 100 | % |   | 57 | % |

----

|                                              |   | ***Nine months ended*** |      |                          |   |   |   |
|---------------------------------------------------|--------|-----------------------------------|-----------|-------------------------------|--------|--------|--------|
|                                              |   | ***September 30***           |      |                          |   |   |   |
|                                              |   | ***(unaudited)***                 |      |                          |   |   |   |
|                                              |   | 2008                              |      |                          |   | 2007   |   |   |   |   |   |
|                                              |   |                              |      | % as oftotalrevenue |   |   |   | % as oftotalrevenue |   | %Change |   |
| Operating                    expenses             |   |                              |      |                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Administrative                    expenses        |   |                              | 742,823   |                          |   | 10     | %      |   | 703,839 |   |   | 14 | % |   | 6 | % |
| Research                    and development costs |   |                              | 234,136   |                          |   | 3      | %      |   | 145,090 |   |   | 3 | % |   | 61 | % |
| Selling                    expenses               |   |                              | 555,540   |                          |   | 7      | %      |   | 668,392 |   |   | 13 | % |   | -17 | % |
|                                              |   |                              |      |                          |   |   |   |   |   |   |   |   |   |   |   |   |
|                                              |   |                              | 1,532,499 |                          |   | 20     | %      |   | 1,517,321 |   |   | 31 | % |   | 1 | % |
|                                              |   |                              |      |                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                    from operations         |   |                              | 4,019,276 |                          |   | 52     | %      |   | 1,349,658 |   |   | 27 | % |   | 198 | % |

----

|                                                                                       |   | ***Nine                    months ended*** |       |                          |   |   |          |
|--------------------------------------------------------------------------------------------|--------|--------------------------------------------|------------|-------------------------------|--------|--------|---------------|
|                                                                                       |   | ***September                    30***      |       |                          |   |   |          |
|                                                                                       |   | ***(unaudited)***                          |       |                          |   |   |          |
|                                                                                       |   | 2008                                       |       |                          |   | 2007   |          |   |   |   |   |
|                                                                                       |   |                                       |       | % as oftotalrevenue |   |   |          | % as oftotalrevenue |   | %Change |   |
| Interest                    income                                                         |   |                                       | 1,516      |                          |   | 0      | %             |   | 2,241 |   |   | 0 | % |   | -32 | % |
| Other                    income                                                            |   |                                       | 165,908    |                          |   | 2      | %             |   | 38,272 |   |   | 1 | % |   | 333 | % |
| Government                    subsidy income                                               |   |                                       | 9,729      |                          |   | 0      | %             |   | 7,838 |   |   | 0 | % |   | 24 | % |
| Finance                    costs                                                           |   |                                       | (415,311   | )                             |   | -5     | %             |   | (386,109 | ) |   | -8 | % |   | 8 | % |
|                                                                                       |   |                                       |       |                          |   |   |          |   |   |   |   |   |   |   |   |   |
| Income                    before income taxes                                              |   |                                       | 3,781,118  |                          |   | 48     | %             |   | 1,011,900 |   |   | 20 | % |   | 274 | % |
| Income                    taxes - Note 6                                                   |   |                                       | (300,383   | )                             |   | -4     | %             |   | (141,737 | ) |   | -3 | % |   | 112 | % |
| Minority                    interests                                                      |   |                                       | (30,783    | )                             |   | 0      | %             |   | (7,660 | ) |   | 0 | % |   | 302 | % |
|                                                                                       |   |                                       |            |                          |   |   |          |   |   |   |   |   |   |   |   |   |
| Net                    income                                                              |   | $                                          | 3,449,952  |                          |   | 44     | %             | $ | 862,503 |   |   | 17 | %   |   | 300 | % |
|                                                                                       |   |                                       |       |                          |   |   |          |   |   |   |   |   |   |   |   |   |
| Other                    comprehensive income                                              |   |                                       |       |                          |   |   |          |   |   |   |   |   |   |   |   |   |
| Foreign                      currency translation adjustments                              |   |                                       | 774,211    |                          |   | 10     | %   |   | 529,178 |   |   | 11 | % |   | 46 | % |
|                                                                                       |   |                                       |       |                          |   |   |          |   |   |   |   |   |   |   |   |   |
| Total                    comprehensive income                                              |   | $                                          | 4,224,163  |                          |   | 54     | %             | $ | 1,391,681 |   |   | 28 | % |   | 204 | % |
|                                                                                       |   |                                       |       |                          |   |   |          |   |   |   |   |   |   |   |   |   |
| Earnings                    per share : Basic and diluted                                  |   | $                                          | 0.14       |                          |   |   |          | $ | 0.04 |   |   |   |   |   |   |   |
|                                                                                       |   |                                       |       |                          |   |   |          |   |   |   |   |   |   |   |   |   |
| Weighted                      average number of shares outstanding                      :- |   |                                       |       |                          |   |   |          |   |   |   |   |   |   |   |   |   |
| Basic                    and diluted                                                       |   |                                       | 24,291,058 |                          |   |   |          |   | 24,250,000 |   |   |   |   |   |   |   |

----

| Cash                    Flow                                           |   | Nine Months Ended September 30,(Unaudited) |   |
|------------------------------------------------------------------------|--------|----------------------------------------------------------------|--------|
|                                                                   |   | 2008                                                           |   | 2007 |   |
| Net                    cash provided by operating activities           |   |                                                           | 4,277  |   |   | 838 |   |
| Net                    cash used in investing activities               |   |                                                           | (759   | ) |   | (942 | ) |
| Net                    cash provided by (used in) financing activities |   |                                                           | (3,915 | ) |   | (72 | ) |
| Net                    cash flow                                       |   |                                                           | (363   | ) |   | (162 | ) |

***Off-Balance          Sheet Arrangements***

***Recently          issued accounting pronouncements***

----

----

**Item        3. Quantitative and Qualitative Disclosures About Market        Risk.**

**Item        4. Controls and Procedures.**

*Evaluation        of disclosure controls and procedures*

*Changes        in Internal Control over Financial Reporting*

----

**PART        II - OTHER INFORMATION**

**Item        1. Legal Proceedings**

**Item        1A. Risk Factor**

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

**Item        3. Defaults Upon Senior Securities**

**Item        4. Submission of Matters to a Vote of Security        Holders**

**Item        5. Other Information**.

**Item        6.  Exhibits**

| ExhibitNumber             |   | Description                                                                                                                                      |
|--------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|
|                           |   |                                                                                                                                             |
|                    31.1   |   | Certification                  of Chief Executive Officer under Section 302 of the Sarbanes-Oxley                  Act of                  2002. |
|                      |   |                                                                                                                                        |
|                    31.2   |   | Certification                  of Principal 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               |

----

**SIGNATURES**

|                                     | **Kun                  Run Biotechnology, Inc.**     |
|------------------------------------------|------------------------------------------------------|
|                                     |                                                 |   |
| Date:                  November 14, 2008 | By:                                                  | /s/                  Xiaoqun Ye |
|                                     | Xiaoqun                  Ye, Chief Executive Officer |
|                                     | (Principal                  Executive Officer)       |

| Date:                  November 14, 2008 | By:                                                                                             | /s/                  Yan Lin |
|------------------------------------------|-------------------------------------------------------------------------------------------------|------------------------------|
|                                     | Yan                  Lin, Chief Accounting Officer                                              |
|                                     | (Principal                  Financial Officer and PrincipalAccounting                  Officer) |

----