Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in the financial statements of Chengdu Tianyin for the three months ended September 30, 2008 and 2007 and should be read in conjunction with such financial statements and related notes included in this report.

Overview

We are engaged primarily in the development, manufacturing, marketing and sale of modernized traditional Chinese medicines and other pharmaceuticals in China. We currently manufacture and market a comprehensive portfolio of 38 products, 22 of which are listed in the highly selective National Medicine Catalog of the National Medical Insurance program. We have an extensive product pipeline of 47 products which are pending regulatory approvals with the China State Food and Drug Administration.

Established in 1994, Chengdu Tianyin is a manufacturer and supplier of modernized traditional Chinese medicines. The current management of Chengdu Tianyin acquired 100% of the equity interest of Chengdu Tianyin in 2003. On October 30, 2007, Grandway completed the acquisition of the 100% of the equity interest and now owns 100% of the equity interest of Chengdu Tianyin, a company located in Chengdu, Sichuan Province of the PRC that operates our business.

Development and strategy

In the first three months of 2009 fiscal year, we continued the product channel expansion and increasing market penetration of our products that resulted in revenue growth in 2008. Management plans to continue the emphasis on expanded and enhanced marketing and sales in our 2009 fiscal year and beyond. Part of this strategy involves increasing and improving our marketing and sales activities to enhance the market leadership of our key leading products and to increase the sales of other products by expanding our sales force, solidifying our distribution network and expanding our market segment coverage, and increasing our marketing and promotional activities.

As part of our continuing growth strategy, we will continue our partnership-based research and development efforts to further commercialize and broaden our product pipeline. We have 47 drug candidates currently under SFDA review and are planning a series of market launches in the next few years from our product pipeline. In the first three months of 2009 fiscal year, we have received approval from the Chinese State Food and Drug Administration (SFDA) to produce Laonian Kechuan Tablets (SFDA approval number H2008S02059) and Fuke Zhidai Tablets.

Laonian Kechuan Tablets is a drug which is used to treat chronic bronchitis. Also, can improve male sexual function and female natural function and enhance immunity, promotion of recovery. This drug approved by SFDA with its highly effective, and fewer side effects when compared to other similar drugs.

Fuke Zhidai Tablets is a drug which is used to treat abnormal leucorrhea which caused by chronic cervicitis, endometritis and endocolpitis. This tablet can also alleviate fever to restraining abnormal leucorrhea. This drug approved by SFDA, and the clinical outcome is remarkable, and there's no related side effect identified.

As part of the use of proceeds from our recent private placement financings, we are building production facilities on the vacant land of our current premises to accommodate our growth. The new production plant project will enhance the overall production capacity by 3 times with an estimated expenditure of $5 million. The capital need for the expansion was utilized from the recent $15.2 million financing completed in January 2008. The planned GFA is about ten thousand square meters with state- of-the-art equipment which will be installed. Construction started in July 2008 and operations are planned to begin in January 2009. The new capacity is expected to meet increasing market demand of current products and support new product launches from the pipeline which will be the key element to maintaining and enhancing the current growth of the Company.

Management also plans to pursue strategic acquisitions and licensing opportunities as part of our growth strategy in 2009 and beyond. We plan to selectively pursue strategic acquisition and licensing opportunities to further consolidate our resources and expand our market coverage. We believe that strategic acquisitions and licensing provide effective means to broaden our product lines, increase our market coverage and complement our research and development capabilities.

Management believes that our emphasis on further commercializing and broadening our product line coupled with expansion of our production facility and capacity, enhanced sales and marketing efforts will continue to yield significant increases in revenue in 2009 and beyond. Additionally, we believe that our growth and overall market coverage could be approved by certain strategic acquisitions or licensing opportunities.

Manufacturing, Sales and marketing

We supports commercialized products with manufacturing, sales and marketing efforts. We are also moving forward with additional investments to enhance our infrastructure and business, including capital expenditures for the new production plant, information technology systems, and post-marketing studies and monitoring.

Management continually reviews the business, including manufacturing operations, to identify actions that will enhance long-term competitiveness. By continuously streamlining the management of the production processes and improving the recipes for drugs, we lowered the costs and eliminated some overhead during manufacturing.

We expanded our market by increasing the sales force and aggressive advertising. We also performed extensive marketing research and adjusted our sales structure timely in order to increase the profit margin.

Competitive environment

The market for pharmaceutical products is competitive. The Group's operations may be affected by technological advances of competitors, industry consolidation, patents granted to competitors, competitive combination products, new products of competitors, new information of marketed products or post-marketing surveillance.

Discussion on Operating Result

The following table shows the results of our business. All references to the
results of operations and financial condition are those of Chengdu Tianyin.

Comparison of results for the three months ended September 30, 2008, the three
months ended September 30, 2007

the three months ended Sep 30              2008               2007
Revenues                                   US$ 9,561,940      US$7,169,493
Cost of                                    US$ 4,682,624      US$4,293,829
revenues
Gross profit                               US$4,879,316       US$2,875,664
Selling, general and administrative        US$2,715,999       US$1,063,931
and research and development expenses
Other                                      US$13,475          US$34,703
expense
Income                                     US$358,849         US$265,074
taxes
Net profit                                 US$1,790,993       US$1,511,956
(Loss)
Foreign currency adjustment                US$ 89,434         US$183,851
Comprehensive income (Loss)                US$1,880,427       US$1,695,807

Revenues. Total revenues were approximately $9.56 million for the three months ended September 30, 2008 as compared to approximately $7.2 million for the three months ended September 30, 2007, an increase of approximately $2.39 million or 33%. The increases in revenues were primarily the result of our expanded marketing efforts for our pipeline of new and current products. There are 28 products of which the sales increased by various percentages. The major increase are as follows: the sales of Apu Shuangxin increased by $2.55 million, the sales of Ginkgo Mihuan Oral Liquid increased by $1.37 million, and the sales of Hugan Tablets increased by $0.33 million. Management believes that our emphasis of broadening our product pipeline coupled with our enhanced sales marketing efforts and the planned expansion of our production facility will continue to yield significant increases in revenue in the remainder of this fiscal year and beyond.

Cost of Revenues. Cost of revenues for the three months ended September 30, 2008 was approximately $4.68 million or 49% of revenues as compared to $4.29 million or 59% of revenues for the three months ended September 30, 2007. Our cost of revenues is primarily composed of the costs of direct raw materials, labor, depreciation and amortization of manufacturing equipment and facilities, and other overhead. The increase of the gross profit margin was mainly due to the saving of material consumption and manufacturing overhead, production method innovation and more importantly the improvement on the product mix to produce more products with higher gross profit margin.

Gross profit margin. Gross profit margin for the three months ended September 30, 2008 was approximately 51% as compared to 40% for the three months ended September 30, 2007. Considering the change of market environment and the adjustment of the Group strategy, the management gradually developed the products mix to expand the market of the products with higher gross profit margin since the fiscal year 2008. For the three months ended September 30, 2008, the sales of Apu Shuanxin and Ginkgo Mihuan Oral Liquid increased by 340% and 31% respectively comparing to that for the same period in 2007, while these two products had comparatively higher gross profit margin, 58% and 77% respectively. On the other hand, the sales of other products with lower gross profit margin, such as Qingrejiedu Oral Liquid and Fukangbao Oral Liquid, decreased for the three months ended September 30, 2008.

Operating Expenses. Operating expenses were approximately $2.7 million for the three months ended September 30, 2008 as compared to approximately $1.06 million for the three months ended September 30, 2007, an increase of approximately US$1.6 million. The increase was mainly due to the management's effects to strengthen the marketing and sales activities in order to increase sales, including hiring more sales people, having more advertisement and promotion activities. Selling department increased by 206 employees for the three months ended September 30, 2008 compared to one year ago.

Net income. Net income was approximately US$1.79 million for the three months ended September 30, 2008 as compared to net income of approximately US$1.51 million for three months ended September 30, 2007, an increase of US$0.28 million. The increase in our net income was mainly the result of our increased sales with higher gross margin.

Foreign Currency Translation Adjustment. Our reporting currency is the US dollar. Our local currency, Renminbi (RMB), is our functional currency. Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate as quoted by the People's Bank of China at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of shareholders' equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Currency translation adjustments resulting from this process are included in accumulated other comprehensive income in the consolidated statement of shareholders' equity and amounted to US$ 88,924 as of September 30, 2008. The balance sheet amounts with the exception of equity at September 30, 2008 were translated at 6.83527RMB to 1.00 US dollar as compared to 7.49625 RMB at September 30, 2007. The equity accounts were stated at their historical rate. The average translation rates applied to income statement accounts for the three months ended September 30, 2008, and June 30, 2007 were the average rate of exchange during the three months.

Comprehensive Income. As a result of the above, the comprehensive income, which adds the currency adjustment to Net Income, were US$1.88 million for the three months ended September 30, 2008, as compared to the comprehensive income of US$1.70 million for the three months ended September 30, 2007, an increase of US$0.88 million.