wwbp10q0908.htm

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)

Revenue recognition

The Company follows the guidance of the United States Securities and Exchange Commission's Staff Accounting Bulletin (“SAB”) No. 101 “Revenue Recognition” (“SAB No. 101”), as amended by SAB No. 104 (“SAB No. 104”) for revenue recognition. The Company revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred and the title and risk of loss transfer to the buyer, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. Persuasive evidence of an arrangement is demonstrated via invoice to the customer; product delivery is evidenced by the warehouse shipping log as well as a signed bill of lading from the trucking company and no product return is allowed except for defective or damaged products; the sales price to the customer is fixed upon acceptance of the purchase order; and there are no separate sales rebates, discounts, or volume incentives. The Company manufactures and distributes traditional Chinese medicine, including drink tablets, synthetic medicine, antibiotics, biotech medicine and biotech reagents; wholesale Class II medical devices, Class III medical devices, including but not limited to, medical sewing materials and bond, medical high molecular materials and products, and disposable sterile medical devices. The majority of the Company's revenue derives from sales contracts with distributors. The Company sells certain products to certain customers on a consignment basis. The Company records revenue for consignment transactions when the consignee sells the product to the end users.

Stock based compensation

Effective January 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (revised 2004) “Share-Based Payment” (“SFAS No. 123R”) using the modified prospective method. On January 12, 2007, the Company issued 1,400,000 shares of its common stock to three employees pursuant to the 2005 Non-Qualified Stock Compensation Plan (see Note 15(i)). The Company valued the shares at $0.15 per share, the closing price of the Company's common stock on the date of issuance and charged $210,000 to stock based compensation. The Company did not issue any stock options or warrants to any employees, directors, officers or third parties since January 1, 2006.

Research and development

Research and development costs are charged to expense as incurred. Research and development costs consist primarily of remuneration for research and development staff, depreciation and maintenance expenses of research and development equipment and material costs for research and development.

Shipping and handling costs

The Company accounts for shipping and handling fees in accordance with the Financial Accounting Standards Board Emerging Issues Task Force Issue No. 00-10 “Accounting for Shipping and Handling Fees and Costs” (“EITF Issue No. 00-10”). While amounts charged to customers for shipping product are included in revenues, the related costs are classified in cost of goods sold as incurred.

Income taxes

The Company follows Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes” (“SFAS No. 109”), which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Consolidated Statements of Operations and Comprehensive Income in the period that includes the enactment date.

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WORLDWIDE BIOTECH & PHARMACEUTICAL COMPANY AND SUBSIDIARIES

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)

Foreign currency translation

Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Transactions and balances in other currencies are converted into U.S. dollars in accordance with Statement of Financial Accounting Standards No. 52 “Foreign Currency Translation” (“SFAS No. 52”) and are included in determining net income or loss.

The financial records of the Company are maintained in their local currency, the Renminbi (“RMB”), which is the functional currency. Assets and liabilities are translated from the local currency into the reporting currency, U.S. dollars, at the exchange rate prevailing at the balance sheet date. Revenues and expenses are translated at weighted average exchange rates for the period to approximate translation at the exchange rates prevailing at the dates those elements are recognized in the combined and consolidated financial statements. Foreign currency translation gain (loss) resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining accumulated other comprehensive income in the consolidated statement of stockholders' equity.

RMB is not a fully convertible currency. All foreign exchange transactions involving RMB must take place either through the People's Bank of China (the “PBOC”) or other institutions authorized to buy and sell foreign exchange. The exchange rate adopted for the foreign exchange transactions are the rates of exchange quoted by the PBOC, which are determined largely by supply and demand. Translation of amounts from RMB into United States dollars (“US$”) has been made at the following exchange rates for the respective years:

Balance sheet RMB 6.7899 to US$1.00

Statement of operations and comprehensive income RMB 6.9842 to US$1.00

December 31, 2007

Balance sheet RMB 7.2946 to US$1.00

Statement of operations and comprehensive income RMB 7.6072 to US$1.00

September 30, 2007

Balance sheet RMB 7.4928 to US$1.00

Statement of operations and comprehensive income RMB 7.7134 to US$1.00

Commencing July 21, 2005, China adopted a managed floating exchange rate regime based on market demand and supply with reference to a basket of currencies. The exchange rate of the US dollar against the RMB was adjusted from approximately RMB 8.2765 per US dollar to approximately RMB 8.11 per US dollar on July 21, 2005. Since then, the PBOC administers and regulates the exchange rate of the US dollar against the RMB taking into account demand and supply of RMB, as well as domestic and foreign economic and financial conditions.

Net gains and losses resulting from foreign exchange transactions, if any, are included in the Consolidated Statements of Operations and Comprehensive loss. The foreign currency translation gain(loss) at September 30, 2008 and 2007 were $60,691 and $(12,038) and effect of exchange rate changes on cash flows for the nine months period then ended were $78,689 and $(4,603), respectively.

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WORLDWIDE BIOTECH & PHARMACEUTICAL COMPANY AND SUBSIDIARIES

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)

Comprehensive income (loss)

The Company has adopted Statement of Financial Accounting Standards No. 130 “Reporting Comprehensive Income” (“SFAS No. 130”). This statement establishes rules for the reporting of comprehensive income (loss) and its components. Comprehensive income (loss), for the Company, consists of net loss and foreign currency translation adjustments and is presented in the Consolidated Statements of Operations and Comprehensive Income (loss) and Stockholders' Equity.

Net loss per common share

Net loss per common share is computed pursuant to Statement of Financial Accounting Standards No. 128 “Earnings Per Share” (“SFAS No. 128”). Basic net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period. There were no potentially dilutive shares outstanding as of September 30, 2008 or 2007.

Commitments and contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

Recently adopted accounting principles

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." SFAS No. 157 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position 157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13" ("FSP 157-1") and FASB Staff Position 157-2, "Effective Date of FASB Statement No. 157" ("FSP 157-2"). FSP 157-1 amends SFAS No. 157 to remove certain leasing transactions from its scope. FSP 157-2 delays the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company adopted SFAS No. 157 effective January 1, 2008 for all financial assets and liabilities as required. The adoption of SFAS No. 157 was not material to the Company's financial statements or results of operations.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115,” which is effective for fiscal years beginning after November 15, 2007. SFAS No. 159 is an elective standard which permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. The Company has not elected the fair value option for any assets or liabilities under SFAS No. 159.

Recently issued accounting pronouncements

On December 4, 2007, the FASB issued SFAS No. 160, “Noncontrolling interest in Consolidated Financial Statements.” SFAS No. 160 requires all entities to report noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial statements. The statement establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation and expands disclosures in the consolidated financial statements. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. We have not yet determined the impact of the adoption of SFAS No. 160 on our consolidated financial statements and footnote disclosures.

On December 4, 2007, the FASB issued SFAS No.141R, “Business Combinations.” SFAS No. 141R requires the acquiring entity in a business combination to recognize all the assets acquired and liabilities assumed, establishes the acquisition date fair value as the measurement objective for all assets acquired and liabilities assumed, and requires the acquirer to expand disclosures about the nature and financial effect of the business combination. SFAS No. 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We have not yet determined the impact of the adoption of SFAS No. 141R on our consolidated financial statements and footnote disclosures.

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WORLDWIDE BIOTECH & PHARMACEUTICAL COMPANY AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

September 30, 2008

(Unaudited)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)

Recently issued accounting pronouncements (cont.)

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company is currently evaluating the impact of adopting SFAS No. 161 on its consolidated financial statements.

In April 2008, the FASB issued Staff Position FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP FAS 142-3”) which amends the factors an entity should consider in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FAS No. 142, Goodwill and Other Intangible Assets (“FAS No. 142”). FSP FAS 142-3 applies to intangible assets that are acquired individually or with a group of assets and intangible assets acquired in both business combinations and asset acquisitions. It removes a provision under FAS No. 142, requiring an entity to consider whether a contractual renewal or extension clause can be accomplished without substantial cost or material modifications of the existing terms and conditions associated with the asset. Instead, FSP FAS 142-3 requires that an entity consider its own experience in renewing similar arrangements. An entity would consider market participant assumptions regarding renewal if no such relevant experience exists. FSP FAS 142-3 is effective for year ends beginning after December 15, 2008 with early adoption prohibited. We have not yet determined the effect, if any, of the adoption of this statement on our financial condition or results of operations.

In June 2008, the Financial Accounting Standards Board (“FASB”) issued FSP No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP EITF 03-6-1”). FSP EITF 03-6-1 concludes that unvested share-based payment awards that contain rights to receive non-forfeitable dividends or dividend equivalents are participating securities, and thus, should be included in the two-class method of computing earnings per share (“EPS”). FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. Early application of EITF 03-6-1 is prohibited. It also requires that all prior-period EPS data be adjusted retrospectively. We have not yet determined the effect, if any, of the adoption of this statement on our financial condition or results of operations.

NOTE 3 - GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As reflected in the accompanying consolidated financial statements, the Company has an accumulated deficit of $12,462,402 and a working capital deficiency of $5,543,007 at September 30, 2008, a net loss of $653,273 and net cash used in operations of $549,628 for the nine months ended September 30, 2008, respectively.

While the Company is attempting to produce sufficient revenues, the Company's cash position may not be enough to support the Company's daily operations. Management intends to raise additional funds by way of a public or private offering. Management believes that the actions presently being taken to further implement its business plan and generate sufficient revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to increase revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company's ability to further implement its business plan and generate sufficient revenues. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 4 - ACCOUNTS RECEIVABLE

Accounts receivable at September 30, 2008 and December 31, 2007 consisted of the following:

	September 30,			December 31,
	2008			2007

Accounts Receivable	$	416,814		$	424,924
Less: Allowance for doubtful accounts		(314,875	)		(353,195	)

	$	101,939		$	71,729

For the nine month period ended September 30, 2008 and 2007, the Company did not record any bad debt expense.

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WORLDWIDE BIOTECH & PHARMACEUTICAL COMPANY AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

September 30, 2008

(Unaudited)

NOTE 5 - INVENTORIES

Inventories at September 30, 2008 and December 31, 2007 consisted of the following:

	September 30,			December 31,
	2008			2007

Raw Material	$	119,894		$	82,770.00
Work in process		131,099			-
Finished goods		603,510			494,987
		854,503			577,757
Less: Inventory obsolescence		(452,116	)		(398,904	)

	$	402,387		$	178,853

NOTE 6 - RELATED PARTY TRANSACTIONS

Due to and notes payable - related parties at September 30, 2008 and December 31, 2007 consisted of the following:

		September 30,		December 31,
		2008		2007
Due to related parties (a)
Guo, Wenxia	CEO; Stockholder; Stockholder of Daiying	$	231,821	$	246,081
Xian Jin Hao Tech	Stockholder; Stockholder of Daiying		569,083		510,031
Daiying Institute	The company controlled by Guo,Wenxia		1,286,079		1,199,008
Li, Zhuobin	Stockholder; Stockholder of Hua Yang		2,788		2,595
Chen, Aibin	Stockholder; Stockholder of Hua Yang		124,741		116,111

		$	2,214,512	$	2,073,826
Note payable- stockholder (b)
Chen Aibin	Stockholder; Stockholder of Hua Yang	$	199,001	$	185,233

(a) The chief executive officer and a stockholder advanced funds to the Company for its working capital. These advances are unsecured, due on demand and non-interest bearing.

(b) Note payable to a stockholder is unsecured, payable to a stockholder with interest at 6.3% per annum and due December 4, 2007. The note is currently past due.

NOTE 7 – LOAN PAYABLE

Loan payable is collateralized by all of Hua Yang’s equipment, building and land use right, payable to a financial institution, with interest at 6.696% per annum payable monthly, with principal due May 27, 2007. The loan is currently past due. The Company paid interest through May 20, 2007 and interest accrued through September 30, 2008 was included in accrued interest

NOTE 8 – CURRENT MATURITIES OF NORE PAYABLE- BANK

Note payable - bank is collateralized by all of Hua Yang’s equipment, building and land use right, and is payable to a financial institution, with interest at 6.696% per annum payable monthly, with RMB5 million (equivalent $667,307) due April 29, 2007 and RMB5 million ($667,308) due April 27, 2008. The note is currently past due for the first principal payment due on April 29, 2007. The Company paid interest through May 20, 2007 and interest accrued through September 30, 2008 was included in accrued interest.

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WORLDWIDE BIOTECH & PHARMACEUTICAL COMPANY AND SUBSIDIARIES

NOTE 9 - CONCENTRATIONS AND CREDIT RISK

Credit risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents. As of September 30, 2008, substantially all of the Company's cash and cash equivalents were held by major financial institutions located in the PRC, none of which are insured. However, the Company has not experienced losses on these accounts and management believes that the Company is not exposed to significant risks on such accounts.

NOTE 10 - FOREIGN OPERATIONS

(i) Operations

Substantially all of the Company's operations are carried out and all of its assets are located in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC. The Company's business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency fluctuation and remittances and methods of taxation, among other things.

(ii) Dividends and reserves

Under the Corporation Law of the PRC, net income after taxation can only be distributed as dividends after appropriation has been made for the following: (i) cumulative prior years' losses, if any; (ii) allocations to the “Statutory Surplus Reserve” of at least 10% of net income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company's registered capital; (iii) allocations of 5-10% of income after tax, as determined under PRC accounting rules and regulations, to the Company's “Statutory Common Welfare Fund,” which is established for the purpose of providing employee facilities and other collective benefits to employees in PRC; and (iv) allocations to any discretionary surplus reserve, if approved by stockholders.

As of September 30, 2008, the Company had no Statutory Surplus Reserve and the Statutory Common Welfare Fund established and segregated in retained earnings.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

A.	PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The following analysis of the Company's results of operations and financial condition should be read in conjunction with the financial statements of Worldwide Biotech & Pharmaceutical Company for the year ended December 31, 2007 and notes thereto contained in Report on Form 10-KSB of Worldwide Biotech & Pharmaceutical Company as filed with the Securities and Exchange Commission.

This document contains certain forward-looking statements including, among others, anticipated trends in our financial condition and results of operations and our business strategy. These forward-looking statements are based largely on our current expectations and are subject to a number of risks and uncertainties. Actual results could differ materially from these forward-looking statements. Important factors to consider in evaluating such forward-looking statements include (i) changes in external factors or in our internal budgeting process which might impact trends in our results of operations; (ii) unanticipated working capital or other cash requirements; (iii) changes in our business strategy or an inability to execute our strategy due to unanticipated changes in the industries in which we operate; and (iv) various competitive market factors that may prevent us from competing successfully in the marketplace.

B.	OVERVIEW OF BUSINESS

The Company was incorporated in Delaware in 1961. On Dec. 16, 2004, through a Reorganization Agreement, the Company reorganized with Yangling Daiying Biotech & Pharmaceutical Group Co., Ltd. (“Daiying”), located at Yangling High-tech Agricultural Demonstration Zone, P.R. China. The Company operates its business mainly through its wholly-owned subsidiary, Daiying and its subsidiaries in P.R. China. The Company focuses on research and development, manufacture and distribution of in vitro diagnostics, human vaccine, biomedicines, traditional Chinese medicines, synthetic medicines and medical devices with frontier technologies and great potentials.

Summary of research and development

As a biotech-focused company, we have made significant progress on our HCV research pipelines. We were able to successfully set up the in vitro intact HCV virus culturing system which could continuously replicate the HCV virus in vitro and we are the first entity in the world to break this bottleneck in the HCV research field. Secondly, we have developed a new generation of HCV diagnostic reagents which has been fully approved for production and free sales by SFDA in China in 2006. We have also fully established a high-throughput anti-HCV medicine screening system and started screening anti - HCV medicines. We expect to get one or two new anti-HCV leads in the next two years if we can raise enough capital funding for our research. We are actively developing HCV human vaccine and by the end of year 2006, we have successfully created two replication-deficient HCV strains which could induce high immune responses in rabbit test subjects. We are now optimizing large-quantity purification methods for replication-deficient HCV virus and setting up ideal animal models for efficacy and safety studies of HCV human vaccine. Meanwhile, we will actively seek new collaboration opportunities and promising research projects. The progress on our research projects depend on our ability to raise enough funding in the following year.

Corporate Events and Accomplishments

Our growth and development as a business enterprise has been marked by a number of significant corporate events. Daiying acquired Hunan Hua Yang Pharmaceutical Co., Ltd. (Hua Yang) and Hunan Ze An Pharmaceutical Co., Ltd. (Ze An) on January 19, 2006. On December 18, 2006, Daiying, Mr. Aibin Chen and Mr. Zuobin Li, minority shareholders of Ze An and Hua Yang, entered into a Consolidation and Reorganization Agreement (“Consolidation”). Pursuant to the Consolidation Ze An merged into Hua Yang with Hua Yang as a surviving entity. In addition, as part of the Consolidation, Daiying acquired a 15% equity interest in Ze An for a note payable to Mr. Zhongyu Lu, a former shareholder of Ze An, of RMB1,351,200 (equivalent to $172,954 at December 31, 2006). The note included the principal of RMB1.2 million (equivalent to $153,600 at December 31, 2006) and accrued interest of RMB151,200 (equivalent to $19,354 at December 31, 2006) based on an interest rate of 6.3% per annum with both principal and interest due December 4, 2007. The purpose of the Consolidation was to optimize capital resources and to minimize operating expenses.

With the completion of these reorganization transactions, the Company now owns two manufacturing facilities: the research and development and manufacturing headquarters of the Company, Daiying, is located at Yangling Hi-tech Demonstration Zone, Shaanxi Province, PRC. Daiying purchased the right to use 35,940 square meters of land and constructed a 5,359 square meter fully equipped manufacturing facility. Daiying owns six (6) traditional Chinese medicines and HCV in vitro diagnostics which have National Drug Production Licenses from the China State Food and Drug Administration (“SFDA”). Hua Yang purchased the right to use 51,640 square meters of land with a GMP-compliant manufacturing facility of 13,093 square meters. Hua Yang owns 29 medicines with National Drug Production Licenses and six (6) functional foods with National Food Production Licenses from the SFDA.

In addition, the Company entered into a sole distribution agreement with TARAMEDIC.CORPORATION.BHD (TARAMEDIC), a Malaysian company, to distribute its Tara KLamp® Disposable Circumcision Device (“Tara KLamp”). TARAMEDIC owns patents for Tara KLamp in both Malaysia and China. Tara KLamp has been registered with the SFDA and sales began in 2006.

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On March 28, 2007, Daiying, and Shaanxi Yangling Daiying Biotech Research Institute, a research institute (“Institute”), entered into an Entrusting Agreement (the “Entrusting Agreement”) with respect to the commercialization of an Emergency Haemostatic Patch developed and patented in PRC by the Institute. Pursuant to the Entrusting Agreement, Daiying agreed to register the Emergency Haemostatic Patch (“Patch”) with the State Food and Drug Administration. All expenses associated with the registration process incurred by Daiying would be paid by the Institute. In addition, Daiying has been granted the right to purchase no less than 20% of the equity of a new company that will be set up to market and distribute the Patch on or before September 30, 2007, or purchase the equity interest of the new company proportionally thereafter.

To continue its research and development on HCV product development and facilitate the transition from focusing on research and development to engaging in both research and commercialization of new medical products the Company may have to rely on its ability to raise additional capital during the next twelve months. In the case that the Company does not meet its fundraising goal in the year 2007, the above research projects will be delayed and production might not meet the market demand for the Company's new product.

RESULTS OF OPERATIONS

The following analysis shows the selected unaudited consolidated statements of operations data of the Company for the three month period ended September 30, 2008 and September 30, 2007.

Three Months Ended September 30, 2008 Compared To The Three Months Ended September 30, 2007

Revenues

For the three months ended September 30, 2008, our revenues were $29,280 as compared to $ 39,936 for the three months ended September 30, 2007, a decrease of $10,656. We attribute this decrease in net revenues to the lower revenues generated from Hua Yang, a majority owned subsidiary.

Cost of Sales and Gross Profit

For the three months ended September 30, 2008, cost of sales amounted to $21,808 as compared to cost of sales of $32,392 for the three months ended September 30, 2007. We attribute this decrease in cost of sales to having reduced the varieties of product. Gross profit for the three months ended September 30, 2008 was $7,472, as compared to $ 7,544 for the three months ended September 30, 2007.

Operating Expenses

For the three months ended September 30, 2008, total operating expenses were $148,157 as compared to $142,205 for the three months ended September 30, 2007, an increase of $5,952, or approximately 4%. Included in this increase for the three months ended September 30, 2008 as compared to the same period in 2007 were:

·	Selling expenses of $12,530 as compared to $3,359, respectively. We increased the selling expenses in the third quarter of 2008 to promote sales activities and build our sales network.

·	Stock-based compensation expense was $0 for the three-month periods ended September 30, 2008 and 2007.

·	General and administrative expenses were $129,558 as compared to $117,604, respectively, an increase of $11,954, approximately 10.0%.

For the three months ended September 30, 2008, interest expense was $181,451 as compared to $51,269 for the three months ended September 30, 2007. For the three months ended September 30, 2008, other expenses were $21,122 as compared to $17,611 for the same period in 2007.

As a result of these factors, the Company reported a net loss of $225,612 or $0.00 loss per share for the three months ended September 30, 2008, as compared to a net income of $147,099 or $0.00 income per share for the same period in 2007.

Nine Months Ended September 30, 2008 Compared To Nine Months Ended September 30, 2007

Revenues

For the nine months ended September 30, 2008, our revenues were $113,525 as compared to $ 183,477 for the nine months ended September 30, 2007, a decrease of $69,952. We attribute this decrease in net revenues to the lower revenues generated from HuaYang, a majority owned subsidiary.

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Cost of Sales and Gross Profit

For the nine months ended September 30, 2008, cost of sales amounted to $ 89,815 as compared to cost of sales of $155,538 for the nine months ended September 30, 2007. Gross profit for the nine months ended September 30, 2008 was $23,710 as compared to $ 27,939 for the nine months ended September 30, 2007.

Operating Expenses

For the nine months ended September 30, 2008, total operating expenses were $499,569 as compared to $1,112,536 for the nine months ended September 30,2007, a decrease of $612,967 or approximately 55.0%. Included in this decrease for the nine-months ended September 30, 2008 as compared to the same period in 2007 were:

·	Research and development costs of $15,459 compared to $58,942, respectively.

·	Stock-based compensation expense was $0 for the nine months ended September 30, 2008 as compared to $585,000 for same period in 2007.

·	For the nine months ended September 30, 2008, general and administrative expenses were $ 373,790 as compared to $435,702 for the nine months ended September 30, 2007, a decrease of $61,912, approximately 14%.

As a result of these factors, the Company reported a net loss of $653,273 or $0.01 loss per share for the nine months ended September 30, 2008, as compared to a net loss of $817,411 or $0.02 loss per share for the same period in 2007.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2008, we had cash and cash equivalents of $178,492.

Net cash used in operating activities for the nine months ended September 30, 2008 was $549,628 as compared to net cash used by operating activities of $771,258 for the nine months ended September 30, 2007. For the nine months ended September 30, 2008, we used cash to fund our loss of $653,273, our inventories increased $223,534, accounts payable increased $80,986, and accounts receivable increased $30,210, prepayments and other current assets increased $207,240, accrued expenses and other current liabilities increased $189,024, offset by $42,212 minority interest and non-cash items such as depreciation and amortization of $336,831. For the nine months ended September 30, 2007, we used cash to fund our loss of $817,411, had reductions of accounts receivable of $27,281, funding of inventories of $49,882, prepayments and other current assets decreased $50,764, accounts payable increased $7,163, accrued expenses and other current liabilities decreased $646,657, offset by $118,925 minority interest and non-cash items such as depreciation and amortization of $214,466, and stock-based compensation of $585,000.

Net cash used in investing activities for the nine months ended September 30, 2008 was $153,367 as compared to net cash provided in investing activities for the nine months ended September 30, 2007 of $86,602 For the nine months ended September 30, 2008, we used cash of $153,367 for the purchase of plant and equipment. For the nine months ended September 30, 2007, we used cash for the purchase of plant and equipment of $75,143 and received net proceeds of $161,745 from sale of marketable securities.

Net cash used by financing activities for the nine months ended September 30, 2008 was $12,873 as compared to net cash provided in financing activities for the nine months ended September 30, 2007 of $731,284. For the nine months ended September 30, 2008, the Company repaid $32,108 to stockholders/officers. For the nine months ended September 30, 2007, the Company received net proceeds of $743,650 from stockholders/officers, which were offset by the repayment of mortgages payable of $68,687.

The Company has not generated sufficient cash flows from operations. If the Company does not generate enough revenues from the sales of its products to meet the cash needs, the Company will need other financing to continue to operate. As the Company tries to increases sales from its products and services, the Company expects to increase cash flows from operations.

We are not aware of any known trends, events or uncertainties that have, or are reasonably likely to have, material impact on the Company’s short-term or long-term liquidity. We have no source of liquidity from operations at the present time. However, we might pursue increasing liquidity through the registration of various shares of stock in a registration statement to be filed with the Securities & Exchange Commission. We are in need of additional funds to meet various anticipated capital expenditures which include research and development for a drug-screening system for anti-HCV drugs and HCV vaccines, production of products for release into the market, mergers of companies that would align the Company’s business plans, and various funds to market our technology and products to create interest in the market place.

There are a number of trends, ventures, and uncertainties that are reasonably expected to have a material impact on the net revenues or income from operations. We will be unable to pursue continued research, development, production, and marketing of our product line in the event the Company is unable to raise sufficient funds to meet these expenses. There is no assurance that we will be able to raise sufficient funds to meet these goals.

Currently, the Peoples Republic of China (“PRC”) is in a period of growth and is constantly promoting business development in order to bring more business into China. Additionally, a Chinese corporation can be owned by a United States corporation, however, the laws and regulations of China are subject to change and in the event said change occurs, it may affect the ability of Company to operate in the Peoples Republic of China.

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The Company’s future success depends on the continued services of its executive management currently in place. The loss of any of their services could be detrimental to the Company and could have an adverse affect on business development. Future success is also dependent upon the ability to identify, hire, train, or retain other qualified employees. Competition for these individuals is intense and increasing.

Efforts to improve the Company’s financial results

The Company has incurred losses since inception. Management has taken great efforts to improve the Company’s results of operations and cash flows. The actions included:

(a)	Improve the capital conditions

We will take several steps to improve the capital conditions including increase bank loan and attracting new investment.

(b)	Increase in marketing activities and sales

We begin to manufacture some drugs which we didn’t make before which will increase our sale in marketing. And we also take some policy to stimulate the salesmen to increase the sale.

Off Balance Sheet Arrangements

The Company has no off balance sheet arrangements at September 30, 2008.

Recently Adopted Accounting Principles

Recently Issued Accounting Pronouncements

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

As our major products are medicines and clinical tests kits. So we are currently subject to market risk primarily through the two points. The first one is the quality of the medicine. The quality of medicine we make decide the income, reputation and profit of our company. The second one is the policy risk, especially the SFDA policy on drug manufacture and selling. We do not believe that the effect of other changes, such as foreign exchange rates and equity prices currently pose significant market risk for us.

We have not engaged in any hedging activities since our inception. We do not currently expect to engage in any hedging activities.

Item 4(A). Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer (collectively, the "Certifying Officers") are responsible for establishing and maintaining disclosure controls and procedures for the Company. Based upon such officers' evaluation of these controls and procedures as of a date as of the end of the period covered by this Quarterly Report, and subject to the limitations noted hereinafter, the Certifying Officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in this Quarterly Report is accumulated and communicated to management, including our principal executive officers as appropriate, to allow timely decisions regarding required disclosure. The Certifying Officers have also indicated that there were no significant changes in our internal controls or other factors that could significantly affect such controls subsequent to the date of their evaluation, and there were no corrective actions required with regard to significant deficiencies and material weaknesses. Our management, including each of the Certifying Officers, does not expect that our disclosure controls or our internal controls will prevent all potential errors and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any systems of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Item 4(A)T. Internal Control Over Financial Reporting

There were no changes in the Company's internal controls over financial reporting, known to the chief executive officer or the chief financial officer that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 3. Defaults upon Senior Securities

Not Applicable.

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

Item 5. Other Information