ITEM 2. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Special Note Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q, including the following "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations,"” contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include, among others, those concerning our expected financial performance and strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause actual results of the Company to differ materially from those anticipated, expressed or implied in the forward-looking statements. The words "believe," "expect," "anticipate," "project," "targets," "optimistic," "intend," "aim," "will"“believe”, “expect”, “anticipate”, “project”, “targets”, “optimistic”, “intend”, “aim”, “will” or similar expressions are intended to identify forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Risks and uncertainties that could cause actual results to differ materially from those anticipated include risks related to new and existing products; any projections of sales, earnings, revenue,revenues, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China; any statements of belief or intention; any of the factors and risks mentioned in the "Risk Factors"“Risk Factors” sections of our SEC filings. The Company assumes no obligation and does not intend to update any forward-looking statements, except as required by law.

Use of Terms

Except as otherwise indicated by the context, references in this report to:

• "We," "us," or "our," and the "Company" are references to the combined business of Rub a Dub Soap, Inc.,

  ·

  “We,” “us,” or “our,” and the “Company” are references to the combined business of Sentaida Tire Company Limited, a Nevada corporation, and its wholly-owned subsidiary, Zhongsen International, along with Zhongsen International’s wholly-owned subsidiaries, F.T.Z. Sentaida, Zhongsen Holdings, and Qingdao Sentaida;

  ·

  “Zhongsen International” refers to Zhongsen International Company Group Limited, a corporation formed under the laws of Hong Kong;

  ·

  “F.T.Z. Sentaida” refers to Qingdao (F.T.Z. ) Sentaida International Trade Co. Ltd., a corporation incorporated in the People’s Republic of China;

  ·

  “Qingdao Sentaida” refers to Qingdao Sentaida Tires Co., Ltd, a corporation incorporated in the People’s Republic of China;

  ·

  “Zhongsen Holdings” refers to Zhongsen Holdings Co., Ltd., a British Virgin Islands company;

  ·

  “China” and “PRC” are references to the People’s Republic of China and references to “Hong Kong” are to the Hong Kong Special Administrative Region of China;

  ·

  “BVI” refers to the British Virgin Islands;

  ·

  “RMB” refers to Renminbi, the legal currency of China;

  ·

  “U.S. dollar,” “$” and “US$” are references to the legal currency of the United States; and

  ·

  “Securities Act” and “Exchange Act” are references to the Securities Act of 1933, as amended and to the Securities Exchange Act of 1934, as amended, respectively.

  Overview of Our Business

  We are one of the Special Administrative Region of Hong Kong, or Zhongsen International, along with Zhongsen International's wholly-owned subsidiaries: Qingdao (FTZ) Sentaida International Trading Co. Ltd., or FTZ Sentaida; Zhongsen Holdings Ltd., or Zhongsen Holdings;largest integrated tire and Qingdao Sentaida Tires Co., Ltd,, or Sentaida Tire;

• "China"rubber marketers and "PRC" are references to the People's Republic of China and references to "Hong Kong" are to the Hong Kong Special Administrative Region of China;

• "RMB" are to Renminbi, the legal currency of China;

• "U.S. dollar," "$" and "US$" are to the legal currency of the United States; and

• "Securities Act" are references to the Securities Act of 1933, as amended and references to "Exchange Act" are references to the Securities Exchange Act of 1934, as amended.

Overview

Wedistributors in China. Through our Chinese subsidiaries, we primarily engagesengage in the global marketing and distribution of tires and rubber without any tire manufacturing operations.  We are one of the largest integrated tire and rubber marketers and distributors in China. Our business scope can be generally divided into three (3) main business divisions: rubber import and distribution,anddistribution, tire export, and tire domestic wholesale and retail, which generated approximately 60%55%, 20%24% and 20%21% of its consolidated net sales respectively in the quarter ended March 31,September 30, 2008.  We position ourselves as an intermediary between international rubber producers and Chinese tire manufacturers and as an active marketer of tires for the tire manufacturers in the very fragmented replacement tire market. We aim at becomingto become a major player in the world tire and rubber market through steady organic growth, expansion into new markets, entry into the retail service market and an aggressive acquisition strategy.

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Our History

We are a Nevada corporation that was originally incorporatedexperiencing an increasingly more difficult economic condition characterized by significantly higher raw material prices, fluctuation of purchase prices, inflationary pressure on September 28, 2001consumer behavior, lower auto sales and tire demand in Coloradooverseas markets, reduced demand for rubber in domestic markets. We are currently focusing on mitigating the impact from these pressures on our operations through maintaining relationship established with the Company’s suppliers and customers, controlling our operation expenses, developing and expanding new suppliers and customer base and emphasizing on measures on hedging the risks resulted from fluctuation of raw material’s prices and foreign currency exchange rate.

Recent Developments

On July 3, 2008, we are headquartered in Shandong Province, China. Fromchanged our inception in 2001 until February 21, 2006, we were an online retailer of handmade, natural, vegetable-based soaps and gift baskets inname from “Rub A Dub Soap, Inc.” to “Sentaida Tire Company Limited” to better reflect our business. The new CUSIP number for our common stock is 81726L 106.  Our common stock is quoted on the development stage, and we had generated only minimal revenuesOver The Counter Bulletin Board under the new symbol SDTC.OB. See the Company’s current Report on Form 8-K filed on July 10, 2008 for additional information on the amendment and a substantial net loss from sales of soaps and gift baskets.

On February 21, 2006, Lisa Powell, the controlling shareholdercopy of the Company, sold 2,800,000Certificate of her restricted sharesAmendment to Halter Capital CorporationArticles of Frisco, Texas, representing 74.6% of all of the outstanding shares of the Company. With the change in control, the Company ceased its soap business and began efforts to locate a new business (operating company), and offer itself as a merger vehicle for a company that may desire to go public through a merger rather than through its own public stock offering.Incorporation.

On March 6, 2006, the stockholders approved the re-incorporation of the Company in Nevada and in connection therewith a one-for-ten reverse split of the common stock, both of which became effective on April 17, 2006. All share numbers contained herein are expressed in post-reverse-split amounts.

From the time when we began efforts to locate a new business in the first quarter of 2006 until February 5, 2008 when we completed the acquisition transaction with Zhongsen International, we had limited operations and did not engage in active business operations other than our search for, and evaluation of, potential business opportunities for acquisition or participation.

Acquisition of Zhongsen

On October 26, 2007, we entered into a Stock Purchase Agreement with Zhongsen International Company Group Limited, a corporation formed under the laws of Hong Kong ("Zhongsen International"), and each of Zhongsen International's shareholders (the "Purchase Agreement"). Pursuant to the Agreement, at the closing on February 5, 2008, we acquired all of the issued and outstanding capital stock of Zhongsen International from the Zhongsen International shareholders in exchange for 25,090,000 shares of our common stock.

Zhongsen International's business began in January 2000 under the name of Qingdao Free-Trading Zone Sentaida International Trade Co., Ltd., or FTZ Sentaida, which involved in the rubber import and domestic distribution as well as tires export businesses. In December 2004, Qingdao Sentaida Tires Co., Ltd., or Sentaida Tires, was established and expanded the company's business to tires distribution in China's domestic market. In January 2005, Zhongsen Trading Co., Ltd. was created and incorporated in the British Virgin Islands to handle some of the Company's tire export business. Zhongsen Trading changed its name into Zhongsen Holdings Co., Ltd., or Zhongsen Holdings, in August 2007. In July 2007, Zhongsen International reached an agreement with the shareholders of both FTZ Sentaida and Sentaida Tires to acquire 100% of the equity interest through a cash purchase. In August 2007, such acquisitions were approved by the appropriate Chinese authorities. Consequently, both of the companies changed their status from China domestic companies to wholly-owned foreign invested enterprises. In October 2007, Zhongsen International Co. Group Ltd. acquired 100% of the equity interest of Zhongsen Holdings Co. Ltd. For accounting purposes, FTZ Sentaida, Sentaida Tires, and Zhongsen Holdings Co. are under common control because they all have the same key management members, including our CEO, Qin Long, and our director and prior CFO, Junbao Liang.

Zhongsen International was incorporated under the laws of Hong Kong on July 19, 2007 and is headquartered in Qingdao, China in Shandong Province. Zhongsen International primarily engages in the global marketing and distribution of tires and rubber without any tire manufacturing operations.

First ThirdFiscalQuarterFinancialPerformance Highlights

The Company

We experienced a decreasedecline in the consolidated revenues and an increase in net incomeincurred a loss in the firstthird quarter of 2008. The following are some financial highlights for the firstthird fiscal quarter of 2008:

Revenue: The Company's total revenue decreased by $3.5

Provision for Income Taxes

United States: We are subject to United States, or 5%,US, federal income tax at a tax rate of 34%. No provision for income taxes in the US has been made, as we had no taxable US income in the third quarter of 2008. 

British Virgin Islands: Our wholly-owned subsidiary Zhongsen Holdings, was incorporated in the British Virgin Islands, and under the current laws of the BVI, it is not subject to $67.2 millionincome taxes.

PRC : On March 16, 2007, the National People’s Congress of China passed the new Corporate Income Tax Law, or the CIT Law, and on November 28, 2007, the State Council of China passed the Implementing Rules for the three monthsCIT Law, or the Implementing Rules, which took effect on January 1, 2008. The CIT Law and Implementing Rules impose a unified CIT of 25.0% on all domestic-invested enterprises and FIEs, unless they qualify under certain limited exceptions. The new CIT Law is much more preferential to the Company because F.T.Z. Sentaida and Qingdao Sentaida enjoy a 25% income tax rate under the new CIT Law, which was 33% under the old CIT Law.

In addition to the changes to the current tax structure, under the CIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a resident enterprise and will normally be subject to CIT of 25.0% on its global income. The Implementing Rules define the term “de facto management bodies” as “an establishment that exercises, in substance, overall management and control over the production, business, personnel, accounting, etc., of a Chinese enterprise.” If the PRC tax authorities subsequently determine that the Company should be classified as a resident enterprise, then the organization’s global income will be subject to PRC income tax of 25.0%.

Results of Operations

Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007

The following table summarizes the results of our operations during the three-month periods ended March 31,September 30, 2008 and 2007, and provides information regarding the dollar and percentage increase or (decrease) from $70.7 million for the samethree-month period last year.ended September 30, 2007 to the three-month period ended September 30, 2008.

Gross Margin: Gross margin was 6.4% for the three months ended March 31, 2008, as compared to 4% for the same period last year.

Net Income: Net income increased $0.3 million, or 39.4%, to approximate $1 million for three months ended March 31, 2008, from $0.7 million for the same period of last year.

Earnings Per Common Share: Basic and diluted earnings per common share was $0.04 for three months ended March 31, 2008, as compared to $0.03 for the same period last year.

Revenue

Revenues:

Our revenue wasrevenues were mainly generated from rubber import and distribution, tire export,exports, and tire domestic wholesale and retail.retail sales. Revenues decreased by $18.2 million, or 18%, to $80.8 million for the three months ended September 30, 2008 from $99 million for the same period in 2007.

Our operations consist

The decrease in consolidated revenues was primarily the result of three business divisions:a decline in revenue in our rubber import and distribution division and tire export division. Net sales in the rubber division declined by $12.6 million, or 22%, to $45.1 million in the quarter ended September 30, 2008, from approximately $57.7 million in the same quarter of 2007. The decline was due mainly to the decrease in the sales volume as a result of low market demand, as many rubber consuming manufacturers (i.e. tire manufacturers) drastically cut their production volume in order to save costs and to reduce the risk accompanying high prices of rubber since the end of 2007.

In addition, net sales in the tire domestic wholesaleexport division were approximately $19.3 million in the quarter ended September 30, 2008, a decline of approximately $6.5 million, or 25%, from approximately $25.8 million in the same period of 2007. The decline was primarily due to the contract termination of agent sales business for one of the Company’s main suppliers in August. We also experienced an overall decline in export volume, which was a result of the combined effects of: 1) a shortage in tire supplies due to low production capacity of manufacturers as above mentioned; and retail. 2) reduced competitive power due to increased prices charged by vendors.

The rubber importtire distribution and distribution business is conducted throughretail division experienced steady growth in the quarter ended September 30, 2008. Net sales were approximately $17.1 million, an increase of approximately $1.7 million, or 11%, compared with sales of approximately $15.4 million in the same period in 2007. Auto demand and sales in China have continued to grow, which lead to the increase in tire demand. Our continued efforts to develop and expand our subsidiary, Qingdao (FTZ) Sentaida International Trading Co. Ltd. ("FTZ Sentaida"). Incustomer base also contributed to the increased division revenues. 

The following table shows the different components comprising our total revenues during the three monthsmonth periods ended March 31,September 30, 2008 and 2007,2007.

As the table above indicates, the rubber import and distribution division generated revenueaccounted for an aggregate of $40 million55% and $43.3 million, which represented 60% and 61%58% of our total revenue,revenues for the three months ended September 30, 2008 and 2007, respectively. The tire export business is conducted bydivision accounted for 24% and 26% of our subsidiaries FTZ Sentaida and Zhongsen Holdings Ltd. Inrevenues for the three months ended March 31,September 30, 2008 and 2007, the tire export division generated revenue of $13.3 million and $16.2 million, which represented 20% and 23% of our total revenue, respectively. The tire domestic wholesale and retail business is conducted bydivision accounted for 21% and 16% of our subsidiary Qingdao Sentaida Tires Co., Ltd ("Qingdao Sentaida"). Inrevenues for the three months ended March 31,September 30, 2008 and 2007, the tire domestic wholesale and retail division generated revenue of $13.8 million and $10.6 million, which represented 20% and 16% of our total revenue, respectively.

We anticipate that the price

Costof tires globally will continue to increase as a result of the increases in raw materials prices since the end of 2007. As a result, our revenues may increase in coming periods, however, our raw materialsSalesand Operating Expenses: 

Our total costs and operating expenses were approximately $80 million for the three months ended September 30, 2008, a $16.7 million reduction, from costs and operating expenses of approximately $96 million for the same period in 2007. Costs and operating expenses declined due to reductions in cost of sales will likely increase as well. We can provide no assurances that we will continue to be able to pass our increased raw materials costs on to our customers in the form of increase tire prices. If we are unable to pass along such costs, our financial condition may be adversely affected.good sold and freight charges.

Cost of sales:

Cost of sales includes the cost of rubber and tires that the Company purchase from our suppliers. Cost of sales declined by approximately $14.9 million, or 16%, to $78 million for the three months ended September 30, 2008 from about $92.9 million during the same period in 2007. This decrease was mainly due to purchase and sales reductions in the tire export division and rubber division. The cost of sales as a percentage of revenues increased to 96.6% in the quarter ended September 30, 2008 from 93.9% in the same period of 2007.

Operating expenses consist primarily of freight charges, selling expenses, general and administrative expenses. Overall operating expenses were approximately $1.7 million in the three months ended September 30, 2008, a decline of approximately $1.1 million, or 39%, from operating expenses of approximately $2.9 million for the same period in 2007. The decline was primarily related to a decline in freight charges, which was partially offset by increases in selling expenses. As a percentage of total revenues, total operating expenses accounted for about 2.1% of the total revenues for the three months ended September 30, 2008, improved slightly from 2.9% for the same period in 2007. 

Shipping Expense: Freight charges declined by $1.6 million, or 75%, to $0.5 million in the quarter ended September 30, 2008 from approximately $2 million in the same period of 2007. The substantial reduction in freight charges was the result of declines in sales in our tire export division.

Selling Expense: Selling expense was approximately $1 million for the quarter ended September 30, 2008, increased by $0.4 million, or 67.6%, from approximately $0.6 million for the same period in 2007. Due to the difficult market environment in the last nine months, our sales representatives have incurred additional travel expenses in order to visit our suppliers and clients more frequently than before. We have also taken additional action to stimulate sales, such as increased promotion and advertisement effort, which have contributed to the increase in selling expense.

Administrative Expenses: Administrative expenses include the costs associated with staff and support personnel who manage our business activities and professional fees paid to third party service providers. Our administrative expenses were $0.2 million (0.3% of total revenues) and $0.18 million (0.2% of total revenues) for the three months ended September 30, 2008 and 2007, respectively. The increase in these expenses related primarily to public listing expenditures such as legal fees, accounting professional fees and other consulting fees. We expect our administrative expense will increase in connection with our reporting obligations as a public company.

Gross Profit and Gross MarginProfit:

Gross profit is equal to the difference between our sales and the cost of sales. Gross margin is equal to gross profit divided by sales. In the three months ended March 31,September 30, 2008, and 2007, ourthe average gross marginmargins percentage for rubber import and distribution division, tire export division, and tire domestic wholesale and retail division were 0.5%, 9% and 8%. For the same period 2007, the average gross margin percentage was 6.31%3%, 11% and 4%8%, respectively.

Operating Expenses

Our operating expenses mainly consist

NetIncome (Loss):

We incurred a net loss of $130,876 for the three months ended September 30, 2008, a reduction in net profit of approximately $2.0 million, or 107%, from the net income of approximately $1.9 million for the same period of 2007. Reduced revenues, increased selling expense and generaladministrative expense and administrative expenses, freight charges, commission and insurance expenses.

General and Administrative Expenses

General and Administrative expenses consist primarily of compensation and benefits to our general management and , finance and administrative staff, professional advisor fees, and other expensesincreased foreign currency exchange loss incurred in connection with general operation. We expect our general and administrative expenses will increase as our business grows and we incur increased costs for being a public company.

Selling Expenses

Selling expenses consist primarily of compensation and benefits to our sales and marketing staff, sales commission, business travels, after-sale support, transportation cost, depreciation expense for the infrastructure used in operating activities and other sales related costs.

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Provision for Income Taxes

United States

Rub A Dub Soap, Inc. is subject to the United States federal income tax at a tax rate of 34%. No provision for income taxestogether resulted in the United States has been made as Rub A Dub Soap, Inc. had no taxable income in fiscal year 2007. net loss.

BVI

Our wholly owned subsidiary Zhongsen Holdings Ltd. was incorporated in the British Virgin Island and, under the current laws of the BVI, is not subject to income taxes.

PRC

Foreign Invested Entities ("FIE") established in the PRC are generally subject to an enterprise income tax ("EIT") rate of 33.0%, which includes a 30.0% state income tax and a 3.0% local income tax. Therefore, FTZ sentaida and Sentaida Tire are pay income tax at rate of 33%

On March 16, 2007, the National People's Congress of China passed the new Enterprise Income Tax Law, or EIT Law, and on November 28, 2007, the State Council of China passed the Implementing Rules for the EIT Law, or Implementing Rules, which take effect on January 1, 2008. The EIT Law and Implementing Rules impose a unified EIT of 25.0% on all domestic-invested enterprises and FIEs, unless they qualify under certain limited exceptions. Therefore, nearly all FIEs are subject to the new tax rate alongside other domestic businesses rather than benefiting from the FEIT, and its associated preferential tax treatments, beginning January 1, 2008.

Despite these pending changes, the EIT Law gives existing FIEs a five-year grandfather period during which they can continue to enjoy their existing preferential tax treatments. We are expecting that the measures to implement the grandfather period will be enacted by the Chinese government in the coming months and will assess what the impact of the new regulations are at that time. The discontinuation of any such special or preferential tax treatment or other incentives would have an adverse affect on any organization's business, fiscal condition and current operations in China.

In addition to the changes to the current tax structure, under the EIT Law, an enterprise established outside of China with "de facto management bodies" within China is considered a resident enterprise and will normally be subject to an EIT of 25.0% on its global income. The Implementing Rules define the term "de facto management bodies" as "an establishment that exercises, in substance, overall management and control over the production, business, personnel, accounting, etc., of a Chinese enterprise". If the PRC tax authorities subsequently determine that Rub A Dub Soap, Inc. should be classified as a resident enterprise, then the organization's global income will be subject to PRC income tax of 25.0%.

Results of Operations

ThreeNine Months Ended March 31,September 30, 2008 Compared to ThreeNine Months Ended March 31,September 30, 2007

Quarter ended March 31, 2008 compared to quarter ended March 31, 2007.

The following table sets forthsummarizes the results of our operations during the nine-month periods ended September 30, 2008 and 2007, and provides information regarding the dollar and percentage increase or (decrease) from the nine-month period change for each category ofended September 30, 2007 to the statement of operations, as well as each category as a percentage of total revenues.nine-month period ended September 30, 2008.

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	Unaudited	%	Unaudited	%	%
	2008.3.31	of	2007.3.31	of	of
	US$	Revenues	US$	Revenues	Change
REVENUES
Sales	67,241,880	99.8%	70,723,172	99.8%	(4.9%)
Commissions and other	137,626	0.2%	138,045	0.2%	(0.3%)
	67,379,506	100.0%	70,861,217	100.0%	(4.9%)
COST AND EXPENSES
Cost of sales	62,959,455	93.4%	67,901,096	95.8%	(7.3%)
Freight charges	777,370	1.2%	884,381	1.2%	(12.1%)
Commissions and rebates	-	-	37,363	0.1%	(100.0%)
Insurance	51,907	0.1%	51,295	0.1%	1.2%
Selling expenses	748,033	1.1%	599,305	0.8%	24.8%
General and administrative expenses	204,991	0.3%	161,041	0.2%	27.3%
	64,741,756	96.1%	69,634,481	98.3%	(7.0%)
INCOME FROM OPERATIONS	2,637,750	3.9%	1,226,736	1.7%	115.0%
OTHER INCOME (EXPENSE)
Miscellaneous income	-	-	54,755	0.1%	(100%)
Interest expense	(1,534,308)	(2.3%)	(502,224)	(0.7%)	205.5%
Other net	(1,534,308)	(2.3%)	(447,469)	(0.6%)	242.9%
INCOME BEFORE INCOME TAXES	1,103,442	1.6%	779,267	1.1%	41.6%
Provision for income taxes (current)	137,569	0.2%	86,562	0.1%	58.9%
NET INCOME	965,873	1.4%	692,705	1.0%	39.4%
OTHER COMPREHENSIVE INCOME
Foreign currency translation loss	(36,814)	0.1%	(6,442)	0.0%	471.5%
COMPREHENSIVE INCOME	929,059	1.4%	686,263	1.0%	35.4%

Revenues.

The Company's consolidated salesRevenues:

Revenues decreased by $30.2 million, or 11.5% to approximately $232.6 million for the first quarternine months ended March 31, 2008 were approximately $67 million, a decline of $3.5 million, or 5%, compared with the corresponding sales of $70.7 million in the first quarter of 2007.

There was a strong growth in the domestic tire distribution and retail division. Sales in this division increased by about $2.8 million, up 25%, to $13.8 million in the first quarter ofSeptember 30, 2008 from approximately $11$262.8 million for the same period in 2007. 

Both our tire export division and our rubber import and distribution division experienced substantial revenue declines during the nine months ended September 30, 2008. Net sales in the tire export division were approximately $47.5 million, a reduction of about $27.3 million, or 36%, from the approximately $74.8 million for the corresponding period of 2007. Revenue from the rubber division was approximately $135.6 million, dropped by $12.1million, or 8%, from about $147.7 million for the corresponding period of 2007. The Company's attention on maintainingdecrease in the revenue of these two divisions was mainly due to the same factors mentioned in the above analysis related to operations for the three months ended September 30, 2008. 

The domestic tire distribution and developingretail division experienced steady growth in the nine months ended September 30, 2008. Net sales were approximately $49.5 million, an increase of approximately $9.1 million, or 23%, compared with sales of approximately $40.4 million in the same period of 2007. Auto demand and sales in China have continued to grow year to year, so does the increase in tire demand, which contributed to the steady growth in revenue of domestic tire distribution networkdivision.

The following table shows the different components comprising our total revenues during the nine-month periods ended September 30, 2008 and customers base contributed2007.

As the increasedtable above indicates, the rubber import and distribution division revenues.accounted for an aggregate of 58% and 56% of our revenues for the nine months ended September 30, 2008 and 2007, respectively; the tire export division accounted for 21% and 28% of the consolidated revenues in the nine months ended September 30, 2008 and 2007, respectively. The tire domestic distribution and retail division accounted for 21% and 15% of our consolidated revenues in the nine months ended September 30, 2008 and 2007, respectively.

NetIn the nine months ended September 30, 2008, our related party sales were approximately $27 million, which accounted for 12% of our net sales.

Costof Salesand Operating Expenses:

Overall cost of sales and operating expenses declined approximately $29.3 million, or 11%, to $226.5 million in the nine months ended September 30, 2008, from approximately $255.8million for the same period in 2007. This decline resulted from the reduction in sales in our tire export division and rubber division.

Total operating expenses were approximately $13.3$5.6 million infor the first quarter ofnine months ended September 30, 2008, a decline of approximately $2.9$1.6 million, or 18%23%, from approximately $16.2 million in the first quarter in 2007. The decline was primarily due to an agent sales contract with one of the Company's main suppliers that was terminated and was under negotiation for renewal in the first quarter of 2008. The contract termination resulted in an approximate $4.8 million decrease in division revenue.

Our rubber import/distribution division generated approximately $40 million revenues in the first quarter of 2008. This was a decline of approximately $3.4 million, or 7.8%, from the corresponding period sales of $43.5 million in 2007. The rubber market fluctuated significantly in the first quarter of 2008. The Company adjusted its operating strategy and discontinued some rubber business with gross margin lower than 1.5%. The overall impact of the Company's revised strategy was an approximate $5.1 million reduction in division revenue. Changes in the business of styrene-butadiene rubber (SBR rubber) also contributed to the decrease in division revenue. In previous years, the Company's SBR rubber business was conducted using both purchase contracts and sales contracts. The Company had the right to determine the sales price of SBR rubber offered to customers and bore all the risk relating to inventory, therefore, sales of SBR rubber were recognized as revenue. According to the new sales agent agreements with SBR rubber suppliers, the Company now serves as their sales agent and receives a commission. This change started gradually from last quarter of 2006, and until the end of second quarter of 2007 approximately 90% of the SBR rubber sales was changed to a commission based business. These contract changes had certain influences on the division revenue when making the comparison between division revenue for the first quarter of 2008 and 2007. The commissions are included in revenues in the statements of operations.

Costs and operating expenses.

Our total costs and operating expenses were approximately $64.7 million in the three months ended March 31, 2008, a 7.0% reduction from costs and operating expenses of approximately $69.6 million during the same period in 2007. Total costs and expenses declined as a result of reductions in costs of sales and freight charges, which were offset by increases in selling expenses and general and administrative expenses.

Due to favorable purchase prices negotiated with our suppliers, we were able to reduce the overall cost of goods sold as a percentage of total revenues by 2.4% compared to the same quarter in the prior year. Costs of good sold were approximately $63 million in the three months ended March 31, 2008, a 7.3% reduction from costs of good sold of approximately $68 million during the same period in 2007. Overall operating expenses accounted for approximately 2.6% of total revenues in the first quarter in 2008, increased slightly from the level for the first quarter in 2007 in terms of percentage of total revenues. But in terms of absolute amount of overall operating expenses, there was no obvious increase, with approximately $1.7 million in both first quarters of 2008 and 2007.

Freight charges decreased by $0.1 million in the first quarter in 2008 to approximately $0.8 million, 12% lower than the corresponding amount for the same period in 2007. Most of the freight charges were from the tire export division. Due to the decrease in sales of the tire export division in the first quarter of 2008, the decrease in freight charges was expected when considering the mix of the sales terms offered to different customers and reduction in division revenue for the first quarter in 2008.

Selling expenses increased by approximately $0.14 million from $0.6 million in the first quarter in 2007 to approximately $0.7 million for the same period in 2008, an increase of 24.8%. The increase in selling expenses resulted primarily from higher employee cost related expenses such as salaries and social welfare costs. In addition, travel cost and business entertainment cost were bit higher than the level for the first quarter of 2007.

General and administrative expenses also increased by approximately $0.04 million to approximately $0.2 million in the first quarter in 2008 from approximately $0.16$7.2 million for the same period in 2007. Operating expenses were 2.4% of total revenues during the nine months ended September 30, 2008, a decline of 0.3% from the level for the same period in 2007. The Company started listing processreduction in overall operating expenses was primarily related to the decline in freight charges, which were related to fewer sales in our tire export division.

Shipping Expense: Freight charges declined by $1.9 million, or 44%, to $2.4 million in the second quarter of 2007 and incurred some extra costs that did not incurnine months ended September 30, 2008 from approximately $4.3 million in the first quartersame period of 2007. In addition, increasesThe substantial reduction in staff salaries contributed tofreight charges was the increasesresult of declines in general and administrativesales in our tire export division.

Selling Expense:  Selling expense as well.

Operating Income.

Income from operations was approximately $2.6$2.4 million for the first quarter ofnine months ended September 30, 2008, which was more than double that of the first quarter of 2007. The increase was primarily the result of the decrease in cost of sales.

Interest Expense.:

The Company experienced an increase of approximately $1$0.1 million, in interest expense and miscellaneous financial charges to approximately $1.5 million in the first quarter of 2008or 4.2%, from approximately $0.5$2.3 million for the same period in 2007. Due to the difficult  market environment in the last nine months, our sales representatives have incurred additional travel expenses in order to visit our suppliers and clients more frequently than before. We have also taken additional action to stimulate sales, such as increased promotion and advertisement efforts, which have contributed to the increase in selling expense.

Administrative Expenses: Administrative expenses include the costs associated with staff and support personnel who manage our business activities and professional fees paid to third party service providers. Our administrative expenses were about $0.8 million (0.3% of total revenues) and $0.6 million (0.2% of total revenues) for the nine months ended September 30, 2008 and 2007, respectively. The increased expenses were primarily due to public listing related fees.

Interest Expense:  Interest expense forconsists of discounting notes, short termshort-term debt for working capital turnover, trading finance such as import bill advance and export bill purchases, and miscellaneous financial charges, such as feefees for issuing letters of credit and bank charges etc, are all included incharges. Our interest expense.expenses were about $6.4 million (2.7% of total revenues) and $3 million (1.1% of total revenues), for the nine months ended September 30, 2008 and 2007, respectively. The increase in interest expense was primarilymainly due to both an increase in our bank interest rate from 6.3% to 8% and our increased use of bank facilities during the rise2008 period.

Gross Profit:

In the nine months ended September 30, 2008, the average gross margins percentage for rubber import and distribution division, tire export division, and tire domestic wholesale and retail division were 1%, 13% and 8%. For the same period 2007, the average gross margin percentage was 2%, 11% and 8%, respectively.

NetIncome(Loss): 

Due to the significant decrease in revenues in the bank interest rate. The average annual interest ratetire export division, reduced profit margins, and increased foreign currency exchange loss, the Company’s net income decreased by approximately $2.7 million, or 59%, to about $1.8 million in the first quarter of 2007 wasnine months ended September 30, 2008 from approximately 6%, while it was approximately 7%$4.5 million for the same period in 2008. In addition, the total amount of trade finance2007.

Liquidity and Capital Resources

As of September 30, 2008, we had cash and cash equivalents (excluding restricted cash) of approximately $13 million. The following table provides detailed information about our net cash flow:

Operating Activities

Net cash provided by operating activities was approximately $61$1.4 million infor the first quarter innine-month period ended September 30, 2008, which was an increase of approximately $21$2.4 million, higher than the amountfrom approximately $1 million of cash used in operating activities for the same period inof 2007. The increase of the cash provided by operating activities was primarily due to decreases in the amountaccounts receivable of related party and accounts receivable. The working capital deficiency was approximately $24 million as of September 30, 2008, compared to approximately $15.5 million working capital deficiency as of December 31, 2007. The decrease in working capital was attributable to significant increases in outstanding trade finance, contributed toincluding import bill advances, export bill purchases, and letters of credit, which are used in our normal business operation, as well as the increase in interest expense.accounts payable and loan payable-related party.

Investing Activities

Net Income.

The Company achieved approximately $1cash used in investing activities for the nine-month period ended September 30, 2008 was $17 million, of net income in the first quarter in 2008. Thiswhich is an increase of approximately $0.27$13.2 million or 39.4%, compared withfrom net cash used in investing activities of approximately $0.7$3.7 million for the same period in 2007. the increase was primarily related to the decrease in cost of sales.

Liquidity and Capital Resources:

The following table summarizes the cash flows for the periods ended as of March 31, 2008 and 2007.

Operating activities.

Total cash used in operating activities was about $5.4 million in the first quarter in 2008, an increase of approximately $10 million from approximately $4.8 million of cash provided by operating activities in the first quarter of 2007. The increase in cash used in operatinginvesting activities was primarily due to the increase in the net change in loan receivable-related party compared with the same period of 2007. These loan related party receivables consist of loans made to related parties, which will be paid by these related parties in ordinary course of business. We and certain of our related parties make inter-company loans from time to time in the ordinary course of business. We periodically borrow money from certain of related parties on terms more favorable than those we could obtain from commercial banks and we periodically lend money to certain of our related parties on similar terms.

Financing Activities

Net cash provided by financing activities for the nine-month period ended September 30, 2008 was approximately $26.9 million, which was an increase of approximately $25.5 million from approximately $1.3 million net cash provided by financing activities during the same period of 2007. The increase of the cash provided by financing activities was mainly due to the increases of related party receivable, other receivables and inventory. The working capital deficiency at March 31, 2008 was approximately $21 million compared to approximately $15.5 million as of December 31, 2007, a significant increase of approximately $5.5 million. The decrease in working capital was mainly attributable to related party receivables, which were reclassified to non- current.

Investing activities.

Net cash used in investing activities increased by approximately $1.4 million to approximately $2.1 million in the first quarter in 2008 from about $0.7 million for the same period of 2007. This was primarily due to an increase in restricted cash of approximately $2 million usedshort-term borrowing. Trade finance such as collateral with a bank for issuing letters of credit and acceptances.

Financing activities.

In the first quarter of 2008, the increase in short term borrowings of approximately $19 million was approximately $22 million higher than the approximately $3 million of decrease for short term borrowings in the same period in 2007. The increase in short term borrowing was due to an increase in trade financing. Export purchases, import advances, export purchases, documents against payment, and documents against acceptance constitutedconstitute most of the Company's short termCompany’s short-term borrowings. Due to the significant increase in cash used in operating activities, the Company hadIn addition, as discussed above, we periodically borrow money from certain of our related parties on more favorable terms. Such loans provide more flexibility for us because they are typically free, or less, interest bearing and it is less time consuming to obtain additionalsuch loan than to seek commercial bank financing. Nevertheless, we believe that we can obtain adequate commercial bank financing if necessary in lieu of such inter-company loans. During the nine months ended September 30, 2008, we borrowed more funds for our working capital turnover compared with the same period of 2007. 

RevolvingCreditFacility

Revolving credit facility.

The Company'sCompany’s total amount of credit line as of March 31,September 30, 2008 was approximately $116.9$138.8 million. At March 31,September 30, 2008, the outstanding liabilities under these facilities were $74.4 million and at December 31, 2007 were $55.5 million.$71million. Corresponding financial charges are based on the interest rate defined in each individual contract between FTZ Sentaidathe Company and the banks. In general, the interest rate for import bill advances and export bill purchases is based on the average of three months LIBOR plus 0.8%3%. The finance charge for opening a letter of credit is approximately 0.1%; finance charges for documents against payment and documents against acceptance are at a rate fluctuating around 0.1%. The letters of credit negotiation charge is at 0.125%.

The obligations of the credit are guaranteed by Qingdao Sentaida, Sentaida Group Ltd, Sentaida Rubber Co. Ltd, and Kaiyang Import and Export Company Limited whowhich is one of the Company'sCompany’s strategic business partners. The someSome of the obligations also bear the personal guaranteeguaranty of one of stockholders of Sentaida Group,the Company, Long Qin Long (president(Chairman of the Company)board and Xiuqin Li (Mr. Qin long's wife)CEO of the Company). The contractual agreements with banks contain covenants whichthat restrict the Company'sCompany’s ability to incur additional debt, enter into guarantees, make loans and investments, and modify certain material agreements, and other customary covenants. The Company has not violated any of the covenants.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally acceptedcovenants in the United States requires us to make assumptions, estimatesreporting periods

Depending on our future needs, changes and judgments that affect the amounts reportedtrends in the financial statements, includingcapital markets affecting our shares and the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policiesCompany, we may determine to be those that require more significant judgments and estimatesseek additional equity or debt financing in the preparation of financial statements, including the following:private or public markets.

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Allowance for doubtful accounts.

The Company would provide an allowance for doubtful accounts to ensure that accounts receivable and other receivables are not overstated due to any uncollectible accounts. Based on management's evaluation of the customers' ability to make payment, the probability of inability to pay is low; therefore, the Company did not make any allowance for doubtful accounts.

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Inventories.

For Sentaida Tires, inventories are valued at the lower of cost (computed in accordance with the weighted average method) or market. The Company performs periodic assessments to determine the existence of obsolete, slow-moving and non-saleable merchandise. Based on management's experience and assessments, the level of obsolete and slow-moving merchandise was very low and we believe there is no need to have an allowance for obsolescence. Terms with a majority of the Company's tires vendors allow return of tires products, within limitations, specified in their supply agreements.

For Zhongsen Holdings and F.T.Z Sentaida, the inventories for rubber and tires are stated at the lower of cost (computed in accordance with the first-in-first-out method) or market. There was no inventory kept in Zhongsen Holdings, while F.T.Z. Sentaida maintains inventory at minimum level. Management adjusts the inventory level based on the fluctuation of the demand for rubber. The Company's management believes that there is no need to make an allowance for FTZ Sentaida's inventory.

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Property, plant and equipment.

Our property, plant and equipment are stated at cost less accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use.

Depreciation is provided on a straight-line basis over the estimated useful life of an asset. The principal depreciation rates are as follows:

Maintenance or repairs are charged to expense as incurred. Upon sale or disposition, the applicable amounts of asset cost and accumulated depreciation are removed from the accounts and the net amount excluding proceeds from disposal is charged or credited to income.

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Revenue recognition.

SAB 104 outlines four criteria that all publicly held companies have to follow to recognize revenue: 1. Persuasive evidence of an arrangement exists. 2. Delivery has occurred or services have been rendered. 3. The seller's price to the buyer is fixed or determinable. 4. Collectibility is reasonably assured. The Company recognizes revenue when title and risk of loss pass to the customer and the above criteria have been met. Besides the above criteria, for F.T.Z Sentaida and Zhongsen Holdings, they also recognize the revenue upon shipment of products, provided the above mentioned criteria have been met.

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Warranty.

The tires that FTZ Sentaida and Sentaida Tires sell are guaranteed directly by the manufacturers, FTZ Sentaida and Sentaida Tires are not accountable to customers. In respect of rubber imported, the FTZ Sentaida has insurance coverage for the quality. Therefore, the Company does not make provisions for warranty.

For Sentaida Tires, although it has no responsibility for defects in quality or workmanship of the tires, it serves as agent for making damage claims on behalf of its customers from manufacturers. Sentaida Tires may compensate customers first, either by replacing the tires or by a cash refund, and then get reimbursement from manufacturers or suppliers in the form of tires or cash.

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