Kun Run Biotech (PINK:KURU)

• Revenues for the three months ended September 30, 2010 were $2.50 million, representing a decrease of $1.55 million, or 38% over revenues for the same period of 2009.

• Net income decreased by 75% to $508,152 for the three months ended September 30, 2010 from $2.05 million for the same period of 2009 due to reduced revenue and increased costs and expenses as described above.

• Earnings per share for the three months ended September 30, 2010 was $0.02 per share for both basic and diluted shares, compared with $0.08 per share for both basic and diluted shares for the same period of 2009.

In July 2010, the company received a notice from the Hainan Food and Drug Administration that the agency would investigate certain products of the Company due to production procedure concerns and at the same time the GMP license of the Company would be suspended until the investigation is concluded. As result of the notice, the Company ceased its production of all products. Most of the products’ sales were from stockpile.

In July 2010, Kun Run Biotechnology, Inc. received a notice from the Hainan Food and Drug Administration that the agency would investigate certain products of the Company due to production procedure concerns and at the same time the GMP license of the Company would be suspended until the investigation is concluded. As result of the notice, the Company ceased its production of all products. The Company at the time believed that the investigation would end shortly and would not have an adverse impact on the results of its operations due to the then existing inventories. However, as of the date of this report, the agency has not concluded its investigation. The Company believes that due to the prolonged investigation, it is unlikely that its production will resume any time soon and its results of operations will be adversely impacted.

On September 3, 2010, Kun Run Biotechnology, Inc. (the “Company”) entered into a Redemption Agreement by and between the Company and Caduceus Asia Partners, L.P. (“Caduceus”), under the terms of which the Company agreed to redeem all of the 5,228,758 units of the Company (each a “Unit” and together, the “Units”) from Caduceus for a cash consideration of an amount of US$9 million , with each Unit consisting of (A) one share of the Series A Preferred Stock of the Company, par value $0.001 per share (the “Series A Preferred”) and (B) one warrant (each, a “Warrant,” and collectively, the “Warrants”) to purchase 0.30 of a share of Series A Preferred.

On April 17, 2010 Kun Run Biotechnology, Inc. entered into a Securities Purchase Agreement by and among the Company, Caduceus Asia Partners, L.P., an investment fund managed by OrbiMed and Mr. Xueyun Cui, the Chairman of the Company’s Board of Directors and the majority stockholder of the Company. 

Terms

• Company agreed to issue of up to $8,000,000 of units of the Company with each Unit consisting of (A) one share of the Series A Preferred Stock of the Company and (B) one warrant (each, a “Net Income Warrant,” and collectively, the “Net Income Warrants”) to purchase 0.30 of a share of Series A Preferred. The Net Income Warrants are exercisable only if the Company fails to achieve thresholds of net income before certain expenses in its audited income statement for the 2010 fiscal year. If the Net Income Warrants become exercisable, they have a cashless exercise feature.
  
• The Company will designate 6,800,000 shares of Series A Preferred Stock.
  
• Holders of the Series A Preferred shall have the right to convert the Series A Preferred at any time into Common Stock at an initial conversion ratio of one-to-one, subject to adjustments, including anti-dilution adjustments and proportional adjustments for stock splits, stock dividends and recapitalizations.

The Company intends to use the proceeds from the Units for the following purposes:

(i) potential acquisitions of drug products and pipeline assets,

(ii) working capital,

(iii) payment of fees of consultants of the Company,

(iv) reimbursement of fees of the Purchaser in the contemplated transaction, and

(v) repayment of certain outstanding obligations of the Company or its subsidiaries.

It appears that even if KURU meet its net income targets, EPS growth would be flat assuming full conversion of the preferred stock. (EPS of $0.26 in 2009)

2010 Performance targets:

• $9,000,000, in the event the Company obtains PRC State Food and Drug Authority (“PRC SFDA”) approval for Entecavir on or prior to September 30, 2010; or
  
• $7,150,000, in the event the Company does not obtain PRC SFDA approval for Entecavir on or prior to September 30, 2010.

KURU reported 2009 net income of $6,493,759.

Due to the company's financial performance for 2008, the GeoTeam® is taking a closer look at KURU. Please visit the KURU 2008 GeoManaged Financial Table for a sales and EPS breakdown.  Using the tax adjusted non-GAAP trailing EPS of $0.23 the stock is selling at a meager P/E of 5.65 .  The stock recently completed a reverse merger and is relatively unknown.  All the reverse merger shares have yet to be registered, which makes the stock very illiquid with a wide Bid/Ask spread.  The GeoTeam® has not been able to locate a United States Investor Relations firm, but is attempting to make contact with the company to set up an interview.   More information will be provided if warranted.

GeoManaged® Financial Table

		2008	2007	Percent Change
Fourth Quarter Ended December
	GAAP Sales	$3.82 million	$2.50 million	53%
	GAAP EPS	$0.10	$0.01	900%
	Non-GAAP EPS	* $0.16	$0.01	1500%
	Tax Rate	14%	benefit	N.A.
Year Ended December
	GAAP Sales	$11.62 million	$7.47 million	56%
	GAAP EPS	$0.24	$0.05	380%
	Non-GAAP EPS	* $0.30	$0.05	500%
	Tax Rate	13%	benefit	N.A

GeoManaged® Financial Table Adjusted For a U.S.A Standard Tax Rate

		2008	2007	Percent Change
Fourth Quarter Ended December
	GAAP Sales	$3.8 million	$2.50 million	53%
	GAAP EPS	$0.08	$0.00	N.A.
	Non-GAAP EPS	* $0.12	$0.00	N.A.
	Tax Rate	36%	36%	N.A.
Year Ended December
	GAAP Sales	$11.62 million	$7.47 million	56%
	GAAP EPS	$0.18	$0.03	500%
	Non-GAAP EPS	* $0.23	$0.03	667%
	Tax Rate	36%	36%	N.A

* Excludes non-operating gains and losses. Non-GAAP information should not be viewed in isolation or as a substitute for reported, or GAAP information. For a more complete explanation of the company's definition of non-GAAP please refer to their Fourth Quarter financial press release.